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Organisation for Economic Cooperation & Development www. oecd. org/agriculture/water www. oecd. org/water Sustainable Management of Water Resources and Quality in Agriculture: Policy Issues and Challenges Kevin Parris Trade and Agriculture Directorate, OECD, Paris, France Email: kevin. parris@oecd. org Presentation to the Agricultural Economics and Social Sciences Seminar Series 2012, Global Challenges to Food Security, Lecture Hall 11, Wednesday 6 June 2012, 12: 00 – 13: 30, Universitat Hohenheim, Stuttgart‐Hohenheim, Germany

OECD AND ITS GLOBAL PARTNERS Membership has expanded over OECD’s 50 year history to embrace 34 countries and the European Union: §Australia §Austria §Belgium §Canada §Chile §Czech Republic §Denmark §Estonia §Finland §France §Germany §Greece §Hungary §Iceland §Ireland §Israel §Italy §Japan §Korea §Luxembourg §Mexico §Netherlands §New Zealand §Norway §Poland §Slovenia §Portugal §Slovak Republic OECD is currently in accession talks with: Russia and enhanced engagement with G 20 countries, including: Brazil, China, India, Indonesia, South Africa §Spain §Sweden §Switzerland §Turkey §United Kingdom §United States

OECD VALUE-ADDED Ø Comparative and consistent data and projections Ø Objective policy analysis and advice using economic tools Ø Cross-cutting research, cross several OECD departments, including water, agriculture, and climate change Ø Bridge between academic research and policy communities Ø Interactive dialogue and sharing experiences among Member countries and with civil society stakeholders Ø Engagement of non-OECD countries in OECD activities, increasingly with G 20 Ø Public dissemination and communication of results

Agriculture and water linkages Ø Resource use: major share of water withdrawals Ø Quality: major share of nutrient, pesticide, soil sediment pollution Ø Energy: irrigation pumping and link to bioenergy feedstock Ø Droughts and floods: damage to agriculture but also ecosystem service Ø Ecosystems: can have positive and negative impacts Ø Climate change: vulnerability to change and variability

Linkages between policies, agriculture and water systems Policies, Markets, Environment Policies Ø Agricultural Commodity support, irrigation support Ø Agri-environmental Payments for manure storage Ø Environmental Water pricing policies Markets Commodity markets, economy, technology Environment Soils, weather, climate change Agriculture Driving Forces Farm systems ‘Conventional’, Integrated, Irrigated, Organic Farm practices Nutrients and pesticide application, tillage and irrigation practices State of Water Systems Streams Human health Rivers Social uses Swimming, visual, Lakes Wells Aquifers Estuaries Coastal waters Farm input use Nutrients, water pesticides, energy Farm outputs Crops, livestock, land use and cover Agricultural impacts on water systems, with implications for: Agriculture, fisheries, industry Environment Freshwater and marine ecosystems Deep seas 5

Higher average world commodity prices % change in average real prices 2001 -10 to 2011 -2020 Source: OECD Agricultural Outlook 2011

Rising agricultural and fish production Source: OECD Agricultural Outlook 2011

Did Donald Rumsfeld (former US Secretary of Defence ) have something important to say about climate change? “There are known's. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don't know. But there also unknowns. There are things we don't know. ”

Climate change (CC), agriculture and water Ø Many OECD countries reporting growing incidence, severity and costs of floods and drought for agriculture, with implications for both water resources and quality Ø In response countries beginning to develop mitigation and adaptation strategies, for example: § improve water use efficiency and water storage; § alter farm practices and systems to adapt to climate change; § change management practices to slow water flows across farmland to protect urban areas Ø Increased incidence and severity of flooding could mobilise sediments, associated contaminants, and exacerbate agricultural water pollution Ø More severe droughts likely to increase water stress in areas of scarcity and may reduce pollutant dilution and lead to increasing toxicity problems Ø Overall task of achieving water policy objectives in agriculture likely to be more difficult under CC, but further research needed

Global challenges for agriculture & water resources Key drivers impacting water resource use by agriculture: Ø World population from current 7 billion to 9 billion by 2050 Ø Global food demand from 2000 baseline by +100% 2050 Ø Dietary habits towards more meat and dairy products Ø Bioenergy production from agricultural feedstocks Ø Demand to meet environmental and social needs Ø Land water constraints impacted by climate change World water withdrawal projections +55% by 2050

Limits and potential to improve water use productivity in agriculture Ø Major new irrigation infrastructure development difficult, because of financial and physical limits Ø Potential for agriculture to recycle wastewater, but desalinated water costly Ø High priority to improve irrigation productivity and water productivity of rain-fed systems Ø Productivity performance varies, partly reflecting different policy reform paths Source: OECD Environmental Performance of Agriculture At a Glance 2012 forthcoming

Summary of cost recovery rates for water services to agriculture in OECD countries (c. 2009) Ø 100% recovery of Operation and Maintenance (O&M) and Capital Costs (CC): Austria; Denmark; Finland; New Zealand; Sweden; United Kingdom Ø 100% recovery of O&M Costs, but less than 100% recovery of CC: Australia, Canada, France, Japan, United States Ø Less than 100% recovery of O&M and CC: Greece; Hungary; Ireland; Italy; Mexico; Netherlands; Poland; Portugal; Spain; Switzerland; Turkey Ø Less than 100% recovery of O&M Costs, with CC fully supported: Korea

Using water pricing and market incentives to improve water use efficiency in agriculture Ø Most OECD countries have embarked on water reform programmes by making greater use of water pricing Ø Great variation in farm water charges within and across countries, but cost recovery rates have been increasing Ø Recovery of O&M costs common, but recovery rates for capital costs poor, and other policies often used to cover env. costs Ø Higher water charges and reduced overall farm support has not led to reduced farm output or incomes, e. g. Australia, Israel Ø Groundwater policies usually rely on licences and other regulatory measures, water pricing rare & illegal pumping occurs

Policy messages toward improving the efficiency of water resource use in agriculture Ø Ensure charges for water supplied to agriculture at least cover full supply costs (operation, maintenance and capital costs) but use social policies to support poorest farmers Ø Address financing issues related to upgrading and ageing irrigation infrastructures in agriculture Ø Remove perverse incentives that impede achieving more efficient water use, notably removal of production related agricultural support, but reforms are lowering and changing composition of support Ø Encourage uptake of technologies (drip irrigation), farm management practices (conservation tillage) and establishing knowledge and information systems, especially to enhance resilience to climate change Ø Address knowledge and information deficiencies to better guide decision making from farm to national policy scale

Challenges for agriculture and policy makers in addressing water quality issues Ø Agriculture generates externalities for which there are no markets, both positive (wetland conservation) and negative (water pollution) Ø Challenge for agriculture is to meet growing demand for food, feed, fibre and fuel, while reducing (encouraging) external impacts of production Ø Improving water quality a top environmental concern in public surveys, with growing focus on agricultural diffuse and point source water pollution Ø Designing policies to control diffuse pollution is complex because: § Low pollution concentrations take diffuse pathways into water system § Cumulative effects on water systems from pollution across large areas § Highly variable in space and time and commonly costly to monitor § Frequently require cooperation from sub-national to international scale

Projected agricultural nutrient surpluses to 2050 Nitrogen Phosphorus Source: OECD Environmental Outlook OECD BRIIC OECD Regions BRIIC Regions

The costs of agricultural water pollution are high for taxpayers, water utilities and consumers Ø Taxpayers across OECD countries pay € billions annually to assist farmers in reducing water pollution Ø Water treatment utilities and consumers incur costs of € billions annually, to treat water to remove agricultural and other pollutants Ø Other water users also incur costs from water pollution, such as eutrophication of water bodies imposing costs on: § Fisheries § Recreational uses (e. g. swimming) § Ecosystems

National monetary costs of water pollution (not all due to agriculture) Country (year of study) Type of water quality impact Monetary Cost and % share of Agriculture Gross Value Added (GVA) Cost in Euro Million % share of GVA France (2010) Water treatment and eutrophication of surface and coastal waters € 610 – € 2200 2% – 8% Germany (2005) Water degradation costs € 370 – € 980 2% – 6% Netherlands (2010) Total damage from nitrate and phosphorus € 403 – € 754 2% – 3% Sweden (2009) Eutrophication: • Coastal € 860 € 492 - € 1466 } 1% - 3% € 340 3% • Baltic Sea United Kingdom (2007) Total agricultural damage

Key OECD policy messages toward sustainable water quality (WQ) management in agriculture - 1 Ø Use a mix of policy instruments to address water pollution: § Each policy instrument has strengthens/weaknesses § Growing interest in using innovative policy tools and market approaches (e. g. water quality trading in Canada, US, payments to farmers by Vittel France and South West Water UK § Key focus of many recent initiatives is in changing farmer behaviour, rather than emphasis just on taxes/subsidies Ø Enforce compliance with existing WQ regulations, by improving on-farm inspection and imposing penalties more effectively, e. g. currently limited sanctions for not implementing EU Nitrates Directive Ø Remove perverse support in agriculture to improve WQ, with 29% of total EU producer support in 2008 -10 providing incentives to produce and/or use inputs, but share was 62% in 1995 -97 Ø Take into account the polluter-pays-principle, but can be difficult with diffuse source agriculture water pollution 19

Key OECD policy messages toward sustainable water quality (WQ) management in agriculture - 2 Ø Set realistic WQ targets for agriculture, that can reveal progress for a given programme and are easily measurable and have a clear time frame Ø Improve the spatial targeting of policies, to areas where water pollution is most acute, but can be difficult if policy measure is voluntary, e. g. EU Nitrates Directive operates uniformly when sub-catchment targeting optimal Ø Assess the cost effectiveness of different policy options, to enable informed discussion about production/environment trade-offs in achieving water quality benefits Ø Take a holistic approach to agricultural pollution policies, some policies may lead to environmental conflicts (e. g. ammonia/nitrate) others to co-benefits (e. g. riparian buffers) Ø Establish information systems, as farmers, water managers and policy makers need more information for a given policy change of the physical impacts, costs, and farmer reactions

Summary of key policy responses to address agricultural water management challenges Ø Create incentives, to signal value of water & pollution costs -- water pricing, cost recovery, enforcing regulations, water trading -- Ø Ensure coherence of water, energy and agricultural policies -- unravel policy and institutional conflicts, develop stakeholder vision -- Ø Invest, in improved water management and infrastructure -- farm practices and systems, water storage, manure storage -- Ø Enable innovation, by changing agro-food chain behaviour -- stakeholders, education/training, improve knowledge/information -- Ø Strengthen institutions and governance -- secure water property/user rights, rationalise institutional structures -- Ø Build resilience, to address climate change -- develop mitigation/adaptation strategies for climate change --

OECD Work on Agriculture and Water Policy: Agriculture and Water Ø Sustainable Management of Water Resources in Agriculture, 2010 Ø Water Quality and Agriculture: Meeting the Policy Challenge, March 2012 Ø Agriculture, Water and Climate Change, Early 2013 Policy: OECD Horizontal Project on Water Ø Water: Meeting the Reform Challenges, 2012 Ø Outlook for Water to 2050, from OECD Environmental Outlook to 2050, 2012 Ø Policy coherence between water, energy and agriculture, late - 2012 Data Ø Environmental Performance of Agriculture at a Glance, late 2012 Ø Workshop on Improving Water Information Base, Zaragoza, 2010

Visit the OECD websites: Ø Agriculture & water: www. oecd. org/agriculture/water Ø Water general: www. oecd. org/water Ø Agri-environmental indicators: www. oecd. org/tad/env/indicators Contact: Kevin. Parris@oecd. org