The Environmental Impact of US green box subsidies
Jane Earley
Introduction
This is an effort to focus not on the trade-related features of US Green Box payments, but on their environmental effects. It is easy to assume that they are benign, since many environmental programs are notified as Green Box measures. But a closer investigation reveals that this may not always be the case. Even though they are assumed to have no production-enhancing features, some do – and increased production can be harmful to the environment since US agriculture at scale almost always involves cropping systems that deplete soil and water resources and release carbon. Other US Green Box measures can be equally disruptive to the environment. “Emergency” natural disaster payments can keep producers on marginal lands in business if the payments are as annual as some of the crops they grow. And environmental programs with the best intentions can reward producers for doing what they would do in any case, even though it is not better than what is normal for the region or the crop.
There are many safeguards in place to ensure that programs are effective and achieve their objectives. But what happens to programs based on market mechanisms when the marketrewards poor environmental performance? Finally, what alternatives might be suggested to more closely align Green Box programs with their intended use? These and other relevant issues are discussed below.
I. Background
1. The Green Box is Not Green.The “Green Box”is of course not “green” in the environmental sense. Programs do not qualify for the Green Box because of their environmental effects, but because they fall within the terms of government payments defined by the WTO Agreement on Agriculture(AoA) as having no, or at most minimal, trade distorting effects. The Agreement sets forth thirteen categories of programs eligible for Green Box treatment.
The environmental impacts of government programs intended to benefit the agricultural sector are not always readily apparent. These programs are not generally assessed in terms of their environmental successes or failures unless they are also intended to benefit the environment. US law[1] requires assessment of the environmental effects of federal programs if they are determined to have a significant effect on the human environment. However, many, if not most, of the programs notified to the Green Box have not received environmental impact assessments.
Green Box programs are often measured for effectiveness in other ways. Programs can also have direct and indirect effects on the environment. Effects on agricultural production or productivity are one index often used to assess the success of agricultural programs. Likewise, the social effects of a program may also be important in terms of the environment. The program’s success in attaining its objectives may also be relevant.
Some programs may also benefit the USagricultural sector although they are not administered bythe US Department of Agriculture (USDA). These may or may not be notified to the WTO under the Agreement on Agriculture. Among such programs are those that provide indirect benefits to the sector by, for instance, providing support for irrigation or transport infrastructure, supporting research on pesticides, and regulating groundwater pollution. Future programs may include government payments for carbon sequestration.
2. The 2007 US Green Box Notification. This effort to assess the environmental effects of Green Box programs in the US coincided with the first US notification of its agricultural subsidies to the WTO since 2002.[2] Much of the analysis is therefore structured to cover those programs included in the US notification. The year 2005 has been used as illustrative of US program spending on green box activities but significant program reductions or outlays for other years are also noted. For 2005 the US notified a total of over $71 billion in Green Box spending (see paper by Anton in this volume).
However authoritative the US notification, the programs notified are almost exclusively USDA programs, which are not the only programs conceptually eligible for US Green Box notification. Activities of federal agencies other than USDA obviously provide many benefits to the US agricultural sector. Some of those agencies, like the US Environmental Protection Agency and the Department of the Interior, are listed below. The federal programs of others, such as the Food and Drug Administration, are less obvious but of enormous significance to the agriculture sector.[3]
3. Relevant Environmental Effects. Agriculture, particularly at the scale with which it is practiced in the United States today, is associated with many kinds of environmental effects. These include effects on soil quality (including erosion), air quality, water quality and use, and of course also emission of greenhouse gasses and carbon. Rather than summarising the large body of literature on the environmental effects of agriculture, this paper makes reference to relevant sources in the bibliography.
Little analysis to date has examined specific agricultural programs and their direct and indirect environmental effects. However, the economic literature can provide some clues to the effects of specific programs even where environmental impact assessments are lacking. There is general agreement that programs that are production-enhancing can intensify the effects of certain kinds of agriculture and therefore cause more stress on the environmentbecause marginal lands may be brought into production with more exposure to pesticides and fertilizers, more habitat destruction and more landdegradation (Mayrand et al, 2003). There is also evidence that environmental payments in agriculture can enhance production, but at relatively low rates.[4]
Programs that drive crop selection necessarily intensify the environmental effects of particular crops.[5]Each crop has specific environmental demands and risks associated with it. These can differ greatly in terms of their effects on soil, water use and inputs - amount of nitrogen fertilizer, pesticide and fungicides, etc.[6]
Programs that advantage certain classes of producers would also necessarily advantage some kinds of production methods and crop selections, and therefore the environmental consequences of those production methods and crops. For instance, economies of scale are leading to concentration in the US dairy sector so that large producers can take advantage of lower production costs. This leads to larger farms, and more difficult manure disposal and other environmental problems.[7]Finally, programs that advantage domestic producers can act to the detriment of foreign ones, and vice versa. This can affect not just what kinds of crops are planted relative to alternative crop selections, but also where, how, and with what kinds of environmental and social safeguards they are planted. This paper focuses primarily on the production-enhancing effects of Green Box programs and assumes they add to increased adverse environmental effects, particularly when production is expanded on marginal lands.
4. USAgriculture’s Environmental Effects – A Very Short and Selective History
Much of the history of the United States is the history of agriculture, and expansion of agriculture on the continent has perhaps been the most profound change to land use in North America.Agriculture has also caused great environmental damage.
Drought and devastating agricultural practicesin the Great Plains caused the dust bowl and a mass migration off the land, lengthening the Great Depression of the 1930s. Thesesocial and environmental effects were largely responsible for the New Deal, which established the social framework for the country for the rest of the 20thcentury and elevated the Department of Agriculture to a central role.The Agricultural Adjustment Act of 1933 initiated crop and marketing controls, and in 1936, the Soil Conservation and Domestic Allotment Act linked farm programs with conservation.Post World War II programs intensified production by encouraging greatly increased yields with nitrogen fertilizer, specialized crop breeding programs and more specialized, capital-intensive farms.
In the 1960’s and 70’s some of the effects of intensive agriculture began to become apparent and actionable. The 1962 publication of Rachel Carson's Silent Springhighlighted the effects of pesticides on bird populations and human health, launching the US environmental movement, andencouraging a new focus on some of the unintended costs associated with intensive agricultural techniques. In 1972, the newly-created Environmental Protection Agency banned the use of DDT, and major environmental legislation was passed to limit air and water pollution and to regulate toxics.
In the 1970s and 1980, crop nutrients and pesticides began to show up in groundwater as well as surface water. Growing levels of soil loss and soil degradation were verified, and increasing amounts of pesticide residues in food were documented. In addition, irrigation was identified as responsible for depleting groundwater sources faster than their ability to recharge them. Energy shortages in the 1970s focused on the fossil-fuel dependency of the fertilizers, pesticides, and farm equipment used in much of US agriculture.
By 1985, when the Food Security Act lowered government farm supports, promotedexports, and re-initiated the Conservation Reserve Program to retire productive acreage for conservation (and supply management) purposes, the link between export-oriented production agriculture and environmental conservation was relatively well-established.
Congress passed the Food Security Act in 1985, which funded sustainable agriculture research. This was accompanied in 1988 by research on “alternative farming systems,” and later by the Sustainable Agriculture Research and Education program. The Conservation Security Program was established in the 2002 Farm Bill to pay farmers for certain conservation practices, and organic farming regulations became effective in 2002 after a public notice and comment process that garnered the most comment from the public of any US government regulation in history.
Forthe most part, late 20th century US agriculture has been characterized by strong government support to an increasingly concentrated and export-oriented grain and oilseed row crop industry relatively well-shielded from world market price volatility. Major government price and income support also extends to the US dairy, cotton and sugar industries. Until the adoption of biofuels mandates that,together with rising energy prices,havecontributed to raising corn and other food and feed prices to extraordinary highlevels and bringing more cropland into production, US government support to grains and oilseeds was also characterized by record government payments.
A number of programs are now supported by USDA, and by other federal and state agencies to enhance the sustainability of modern agricultural practices, and to make locally-grown food available to urban populations. US environmental and conservation policy has tended to focus on removing land from production rather than enhancing production methods, but “working lands” programs such as the Conservation Security Program are increasingly becoming available. The advent of carbon accounting and payment for environmental services may increase opportunities for conservation, but current high price levels may also make it more expensive.
The increasing concentration in the food and agriculture sector, combined with a corn ethanol and biodiesel investment surge, has perpetuated and intensified the environmental problems resulting from post-WWII intensified agricultural production. Although critics of these policies have long supported an in-depth review of US agricultural programs, the 2008 Farm Bill has basically extended the 2002 legislation with a few minor revisions.
5. US Law Requires Environmental Impact Assessment of Green Box Programs but few such assessments exist.
All US federal-level programs are subject to the National Environmental Policy Act (NEPA). That act, simply put, requires federal programs to undergo an environmental assessment if they will have a significant effect on the environment. This requires federal agencies “to incorporate environmental considerations in their planning and decision-making through a systematic interdisciplinary approach”, “to prepare detailed statements assessing the environmental impact of and alternatives to major federal actions significantly affecting the environment” (environmental impact statements) and “to lend appropriate support to initiatives and programs designed to anticipate and prevent a decline in the quality of mankind's world environment.”[8]
Most federal agencies have promulgated regulations that govern their compliance with the requirements of this legislation, which also allows for categorical exclusions of programs deemed unlikely to significantly affect the environment. Under this provision, USDA has exempted the programs of many of its agencies unless the agency head determines that a program is likely to have a significant environmental effect.[9]
All US agencies are also responsible for compliance with Executive Order 12114, “Environmental Effects Abroad of Major Federal Actions.” The provisions of this Executive Order generally parallel those of NEPA, and it also allows categorical exceptions. The categorical exceptions listed in the Executive order include some relevant to agriculture: export licenses or permits or export approvals, anddisaster and emergency relief action.[10]
USDA states that it is actively complying with NEPA, but a search of environmental impact statements for US-notified Green Box programs returned very few environmental impact assessments, none for the 2002 Farm Bill as such, although one was reported to have been prepared, and none under Executive Order 12114 for environmental effects abroad.
If such assessments had been prepared they most likely would have found no available alternative options, since all of the programs were legislatively mandated, and environmental effects from most policies not aimed squarely at environment were not likely considered germane. For example, a programmatic environmental impact study was prepared for the 2002 Farm Bill’s provisions to implement the sugar program and sugar storage facility loan program but that assessment found no environmental significance to the program, largely on the basis that increases in acreage were not projected.[11]Environmental assessments were completed for conservation programs such as the Conservation Reserve Program, although they examined no options not contemplated by the legislation. NEPA review is required for individual Farm Credit Agency guaranteed loans.
6.USsubsidies and their geographical distribution.
Information on crop subsidy payments is easier to come by, thanks to the activities of the Environmental Working Group (EWG). The EWG reports that crop subsidies in the United States in crop years 2003-2005 (including direct payments and conservation payments) totalled over $34.8 billion. During that period, the top ten percent of beneficiaries accounted for 66 percent of payments.
Subsidies are reported as provided to individual operators, whose location can usually be determined directly or from other data. EWG has broken this down geographically (by State and Congressional District) but not to the degree necessary to overlap a map of subsidies with the more granular USDA data produced by CEAP. However, a rough comparison reveals the obvious, as does USDA’s own research. As reported by ERS, “overall, 86 percent of all cropland and about 83 percent of highly erodible cropland is located on farms that receive farm program payments.”[12]
As illustrated below, farms receiving conservation payments, primarily under the Conservation Reserve Program (and two-thirds of conservation payments went toproducers participating in the CRP in 2005) are concentrated in the Plains and westernCorn Belt where cropland is prone to drought and wind erosion.[13]About25 percent of cash grain and soybean farms and nearly40 percent of other field crops farms receivedconservation program payments in 2004 (compared to 10percent or less of farms specializing in livestockproduction).
II. Likely Environmental Effects of US Green Box Programs
This section summarizes the US Green Box notification for 2005[14] in those categories of the AoA for which the US reported program outlays, and discusses the likely environmental effects of the programs notified.
1. General Services: The US notified funding of $11,345 million in 2005 in this category. This excludes administrative costs and other expenses not related directly to internal support of production agriculture.The US notification of subsidies in this category includes all funding allocated to a number of agencies within the US Department of Agriculture.[15]These programs can be loosely grouped under four headings:
- Research, including economic analysis and statistical data gathering
- Extension and training, including technical assistance and trade adjustment assistance
- Inspection and grading
- Marketing and promotion
Research.US agricultural research is primarily conducted by the USDA’s Agricultural Research Service (ARS), but many other USDA agencies are also relevant.ARS research focuses primarily on food safety, quality (including environmental) and nutrition.Biomass research and development is captured under this heading, and much recent US agricultural research has also focused on agricultural biotechnology.
Much research of agricultural significance is conducted outside USDA. FDA’s Center for Food Research and Applied Nutrition conducts research relevant to agriculture, as does EPA, which operates a NationalCenter for Environmental Research and partners with USDA in research on pesticide use and sustainable agricultural production, the impacts of agriculture on water quality, and many other topics. The Department of Energy likewise has contributed generously to knowledge of agricultural development of bioenergy crops and other agricultural linkages. It operates the Oak Ridge National Laboratories, a national centre for energy research and development. None of these programs were notified under this heading.
There is no doubt that public research elevates the competitiveness of an industry relative to others in the market, and reduces costs that might otherwise be incurred by the private sector. Advances in technology can allow an industry to outpace others, particularly in fields that are technology-intensive, such as biotechnology and bioenergy development. Whether this is environmentally beneficial is another question.