AGP - Policies that save and grow
 

Policies that save and grow

 

 

A successful strategy for sustainable intensification of crop production requires a fundamental change in the management of traditional and modern knowledge, institutions, rural investment and capacity development. Policies in all of those domains will need to provide incentives to various stakeholders and actors, especially the rural population, to participate in SCPI development.

 

Input and output pricing

To be profitable, SCPI requires a dynamic and efficient market for inputs and services as well as for the final produce. The prices farmers pay for inputs and are paid for agricultural outputs are perhaps the main determinant of the level, type and sustainability of crop intensification they adopt. Input prices are of particular importance for SCPI strategies, and creative policies will be needed to promote efficiency and influence technology choices. One example is the reintroduction of “market smart” subsidies, aimed at supporting the development of demand and participation in input markets using vouchers and grants. The approach seeks to avoid past problems with subsidies, such as inefficiency, negative effects on the environment, and the waste of financial resources that are needed for investments in other key public goods, such as research and rural infrastructure5.

In contrast, environmentally harmful (or “perverse”) subsidies, which encourage the use of natural resources in ways that destroy biodiversity15, need to be carefully evaluated and, when appropriate, reformulated or removed. Perverse subsidies worldwide have been valued at from US$500 billion to US$1.5 trillion a year, and represent a powerful force for environmental damage and economic inefficiency16.

Of course, most incentives are not designed to be “perverse” but rather to benefit a particular social or economic sector. When planning their removal, it is important, therefore, to consider the multiple objectives of incentives and to take into account the complexity of interactions among the different sectors affected positively and negatively by them17. Some countries have done so successfully: New Zealand abolished agricultural subsidies, starting in the 1980s18; Brazil has reduced livestock farming in the Amazon basin; and the Philippines has abolished fertilizer subsidies17, 19.

Stabilization of agricultural output prices is an increasingly important condition for sustainable intensification of crop production, given the volatility experienced in commodity markets in the past few years. For farmers dependent on agricultural income, price volatility means large income fluctuations and greater risk. It reduces their capacity to invest in sustainable systems and increases the incentives to liquidate natural capital as a source of insurance.

Short-term, micro-level policies to address price volatility have frequently failed. Greater coherence at the macro policy level – for example, transparency over export availabilities and import demands – is likely to provide much more effective solutions. Reform of existing instruments, such as the Compensatory Financing Facility and the Exogenous Shock Facility of the International Monetary Fund is also needed. Through the provision of import financing or guarantees with limited conditionality, they could serve as global safety nets20.

 

Seed sector regulation

Achievement of SCPI will also depend on the effective regulation of the seed sector in order to ensure farmers’ access to quality seeds of varieties that meet their production, consumption and marketing conditions. Access implies affordability, availability of a range of appropriate varietal material, and having information about the adaptation of the variety21.

Most small farmers in developing countries obtain seed from the informal seed sector, which provides traditional farmer-bred varieties and saved seeds of improved varieties. One of the main reasons farmers rely on the informal seed sector is the availability of germplasm adapted to their production conditions. Some local varieties may outperform improved varieties in marginal agricultural environments22. Supporting the informal sector is, therefore, one way of improving farmer access to planting material suitable for SCPI.

However, the informal seed sector lacks a viable means of informing farmers about the adaptation and production characteristics of the variety embodied in seeds, as well as their genetic purity and physical quality23. In some cases, the necessary information is supplied simply by observing the performance of crops in a neighbour’s field. But that is not a viable option in exchanges involving strangers and non-local seed sources. Seed in formal systems is genetically uniform, is produced using scientific plant-breeding techniques, and must meet certification standards. Seed from this sector tends to be sold through specialized agro-dealers, agri-businesses or government outlets, which are subject to regulation. Any comprehensive strategy for improving farmers’ access to new varieties and quality seed needs to support and expand the formal seed sector, and improve its links with the informal sector.

 

Payments for environmental services

The lack of market prices for ecosystem services and biodiversity means that the benefits derived from those goods are neglected or undervalued in decision-making24. In the agriculture sector, food prices do not incorporate all the associated costs to the environment of food production. No agencies exist to collect charges for reduced water quality or soil erosion. If farmgate prices reflected the full cost of production – with farmers effectively paying for any environmental damage they caused – food prices would probably rise. In addition to charging for agricultural disservices, policies could reward those farmers who farm sustainably through, for example, payments for environmental services (PES) schemes.

Support is growing for the use of payments for environmental services as part of the enabling policy environment for sustainable agricultural and rural development. The World Bank recommends that PES programmes be pursued by local and national governments as well as the international community5. PES are being integrated increasingly as a source of sustainable financing in wider rural development and conservation projects in Global Environment Facility and World Bank portfolios25. FAO says that demand for environmental services from agricultural landscapes will increase and PES could be an important means of stimulating their supply. However, effective deployment will depend on enabling policies and institutions at local and international levels which, in most cases, are not in place26.

Currently, the role of PES programmes in support of sustainable agriculture is rather limited. PES initiatives have focused mainly on land diversion programmes, and there is relatively little experience with their application to agricultural production systems. To realize their benefits, PES programmes will need to cover large numbers of producers and areas, which would achieve economies of scale in transaction costs and risk management. Better integration of PES with agricultural development programmes is an important way of reducing transaction costs.

Given the limits on public finance, creative forms of alternative or additional funding from private sources will need to be developed, especially where private beneficiaries of PES can be identified. For example, a recent FAO feasibility assessment of PES in Bhutan found that the government’s support for forest protection and reforestation amounted to about a third of the Ministry of Agriculture’s budget27. Half of the funding for watershed management was assigned to plantations28. Were more of this investment responsibility shifted to the companies that benefit from forest protection, additional public funding could be released for under-funded activities – such as crop diversification, livestock improvement and sustainable land management – which would improve farm productivity and increase resilience to climate change29, 30.

 

Agricultural investment

To engage in SCPI, the private sector – including farmers, processors and retailers – needs adequate public infrastructure and services. These are essential not only to ensure that local farming and marketing can compete with imports, but also to ensure that consumers have access to affordable, locally produced food. It is particularly important that governments ensure low transaction costs for input acquisition, produce marketing, and access to natural resources, information, training, education and social services. That will require adequate funding for both maintenance and net investment.

The agricultural sector in developing countries will need substantial and sustained investment in human, natural, financial and social capital in order to achieve SCPI. According to FAO estimates, total average annual gross investment of US$209 billion, at constant 2009 prices, is needed in primary agriculture (such as soil fertility, farm machinery and livestock) and in downstream sectors (storage, marketing and processing) in order to achieve the production increases needed by 2050. Public investment would also be needed in agricultural research and development, rural infrastructure and social safety nets21.

Current investment in the agriculture of developing countries is clearly insufficient. Inadequate levels of domestic funding have been exacerbated by the reduction in Official Development Assistance to agriculture since the late 1980s. Together, these shortfalls have led over the last two decades to a drastic decline in capital for agricultural development. If SCPI is to succeed, agricultural investment must be significantly increased.

Funding for climate change adaptation and mitigation is highly relevant to SCPI. For example, one key means of adapting to climate change – increasing resilience in agricultural production systems through the use of new varieties generated by expanded plant breeding and seed systems – is an essential component of sustainable intensification. SCPI could thus benefit from funding allocated to climate change adaptation. Sustainable intensification could also play an important role in climate change mitigation, through increased carbon sequestration in sustainably managed soils and reduction of emissions owing to more efficient use of fertilizer and irrigation.

At present, there is no international agreement or framework for channelling mitigation funding on a significant scale to agriculture in developing countries. However, it is one area of discussion in the UNFCCC negotiations within the context of developing countries’ Nationally Appropriate Mitigation Actions12, 21.

 

©FAO/Caroline Thomas