PRB 00-14E
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THE MULTIFUNCTIONALITY OF
AGRICULTURE:
SUMMARY OF THE CANADIAN FEDERATION
OF AGRICULTURE CONFERENCE
Prepared by:
Frédéric Forge
Science and Technology Division
23 October 2000
TABLE OF CONTENTS
WHAT DOES
"THE MULTIFUNCTIONALITY OF AGRICULTURE" MEAN?
THE EUROPEAN MODEL
THE SITUATION IN CANADA
THE AMBIGUITIES OF MULTIFUNCTIONALITY
CONCLUSION
THE MULTIFUNCTIONALITY OF
AGRICULTURE:
SUMMARY OF THE CANADIAN FEDERATION
OF AGRICULTURE CONFERENCE
During the round of World Trade
Organization (WTO) negotiations that began in December 1999 in the U.S. city of Seattle,
some countries in particular, Japan and the countries of the European Union
used the concept of the multifunctionality of agriculture to justify the support they
provide to their farm industry. The fact that the Canadian Federation of Agriculture (CFA)
held a workshop on multifunctionality at its general meeting in February 2000 is a sign of
growing interest in the concept among Canadian farmers. This document draws on the key
presentations made during that workshop. It begins with a definition of the concept of
multifunctionality, then briefly explains how the European Union uses multifunctionality
to support its agriculture sector. The situation in Canada and the ambiguities of
multifunctionality in terms of international trade are discussed in the following
sections.
WHAT
DOES "THE MULTIFUNCTIONALITY OF AGRICULTURE" MEAN?
An activity is said to be multifunctional
when it plays a number of roles that may contribute to the well-being of society. In
economic terms, impacts other than the primary objective of an activity are called
"externalities"; these externalities may be positive or negative. For example,
the pollution of water by fertilizers or pesticides is a negative externality of
agriculture. However, references to multifunctionality focus more on the positive impact
of an activity on the well-being of society.
Agriculture does more than produce food
and fibres; it serves other functions that vary depending on the importance attached to
them in each society or country. In Japan, agriculture contributes to flood prevention and
the preservation of cultural elements, such as the traditional cultivation of rice.
European Union (EU) countries focus on: preserving rural life (stopping population outflow
from rural areas); carrying out land use planning (maintaining a balance between city and
country); and protecting landscapes that attract tourists. During the CFA conference, the
Canadian delegates also noted agricultures role in the protection of wildlife
habitats and in carbon sequestration mechanisms that reduce the quantity of greenhouse
gases in the atmosphere.
Multifunctionality is not unique to
agriculture, but agriculture is the sector in which the concept is most often mentioned;
multifunctionality is an increasingly prominent element of agricultural policy in some
countries. The multifunctional nature of agriculture is referred to in a number of
statutes, particularly those related to Europes 1992 Common Agricultural Policy and
Japans New basic law for food, agriculture and rural areas. The Organisation
for Economic Co-operation and Development (OECD) also recognized the concept in the
communiqué from the March 1998 meeting of agriculture ministers:
In many OECD
countries, because of this multifunctional character, agriculture plays a particularly
important role in the economic life of rural areas. There can be a role for policy where
there is an absence of effective markets for such public goods, where all costs and
benefits are not internalised. The reform of agricultural policy according to the
principles agreed upon in the OECD in 1987, including well-targeted policy measures, will
enable the sector to contribute to the viability of rural areas and address environmental
issues, while enhancing efficient and sustainable resource use in agriculture.
Some countries have therefore introduced
tools to support the multifunctionality of agriculture, which translates into increased
revenue for the farming industry.
THE EUROPEAN MODEL
Although Europes Common Agricultural
Policy (CAP) was drawn up at the end of World War II to support the production of food and
fibres, it was gradually broadened to include two other key roles played by agriculture:
With regard to environmental protection,
it is generally assumed that "sound farming practices" include compliance with a
number of standards aimed at ensuring sustainable use of resources. In cases where society
asks for more than simple use of sound farming practices (for example, measures to improve
biodiversity or preserve a certain type of landscape), farmers provide a public service
for which they are not compensated. Agro-environmental measures are the means adopted by
the EU to provide compensation for those services. The payments cover extra costs or
shortfalls incurred in pursuing an environmental objective, such as reducing the amount of
nitrogen applied to sensitive land or converting of cropland to pasture.
For European institutions, the key to
preserving an active and dynamic rural population lies in preserving agricultural
activity, especially in very isolated areas. The EU uses structural and rural development
programs to meet that objective. The programs encompass a wide range of tools, including:
training and placement of
young farmers;
financial support for farm
adjustment;
support for disadvantaged
areas or areas subject to environmental constraints; and
support for diversification
beyond agriculture.
Because of the tremendous variety of
Europes farming conditions, agro-environmental and rural development measures can be
adapted to local conditions and managed in a decentralized manner through local projects.
For example, since 1999, France has awarded land use contracts (CTEs) under which farmers
agree to apply certain measures related to environmental objectives such as biodiversity
protection, restoration of pasture and improvement of water quality, or objectives related
to employment, for example, or diversification of activities. Measures are identified
locally based on the environmental, land use and socio-economic problems faced by farmers
in the particular region. The EU accepts this mechanism on the condition that the measures
carried out by farmers under CTEs lead to additional costs or shortfalls. This means that
no special assistance is given for "sound farming practices."
Despite the large number of tools which
support the other functions of agriculture, the funding levels allocated to those programs
remain low and account for only a small portion of European agricultural assistance. Most
of that assistance is provided through price support and direct aid for production; for
example, there are direct payments for cultivated land. However, the EU is planning to
shift funds for production support to support for multifunctionality.
Japans approach to the
multifunctionality of agriculture is very similar to that of the EU. The approach is
recognized in legislation, and tools have been developed to implement it. Support for
multifunctionality takes the form of direct assistance to enable farmers in mountainous
areas (approximately 40% of all farms) to overcome the handicaps arising from the natural
setting.
THE SITUATION IN CANADA
The multifunctionality of agriculture is
not officially recognized in Canada, but the various federal government representatives
attending the CFA conference acknowledged that support for other functions of agriculture
is already being provided. In addition to providing production support based on risk
management (crop insurance, etc.), the federal government has introduced a number of rural
development tools and initiatives that support the environmental benefits of agriculture.
For example, the Canadian Adaptation and
Rural Development (CARD) Fund provides project funding to enable the farm industry to
preserve an active rural component by adjusting to technological changes, environmental
constraints, new markets, etc.
One example of the environmental benefits
of agriculture is linked to the ability of farm soil to trap carbon and thus reduce the
impact of greenhouse gases. Canada supports the inclusion of farm soil in the Kyoto
Protocol and the creation of a market for the reduction of carbon emissions that would
enable farmers to reap economic benefit from a service they provide to society. There are
other programs that reward efforts to conserve wildlife habitat (North American waterfowl
management plan), and Bill C-33 on endangered species tabled in April 2000 was
designed to compensate landowners if it became necessary to prohibit the destruction of
habitats essential to certain species of wildlife. Bill C-33 died on the Order Paper
in October 2000.
THE AMBIGUITIES OF MULTIFUNCTIONALITY
Most countries agree that agriculture
entails more than the production of food products and fibres, and that it has other
functions. The issue debated in the CFA workshop, and being discussed by the WTO, is which
tools can be used to enable agriculture to play its multiple roles.
The New Zealand and Canadian delegates at
the CFA conference underscored the need to decouple multifunctionality assistance tools
from food and fibre production. Those tools must target their goal directly, whether that
goal is a specific environmental benefit (preserving a specific area of hedge) or a
socio-economic benefit (economic diversification beyond farming). The instruments
described in the two previous sections meet that criterion.
However, the speaker from the
International Trade Policy Directorate of Agriculture and Agri-Food Canada pointed out
that support for multifunctionality may be legitimate, but it must not conflict with other
objectives, such as trade liberalization. The New Zealand delegate sees multifunctionality
as a way of preserving types of assistance that create trade imbalances and lead to
overproduction by encouraging too many farmers to devote all their energy to farming.
These remarks were clearly aimed at the
direct production aid provided by the EU to European farmers aid that indirectly
supports externalities such as the preservation of a rural population. The EU is therefore
in an ambiguous situation, because it does not officially recognize this
multifunctionality assistance. The amounts it allocates specifically to "other
functions" of agriculture remain low in comparison to the amounts spent on price
support and direct production assistance. Moreover, official EU documents do not establish
a close link between the various types of production assistance and the multifunctional
nature of agriculture. This implies to some that multifunctionality is nothing more than a
way to justify forms of production assistance that can create trade imbalances and affect
agriculture in other countries.
Some countries, Japan in particular, are
engaged in a more enlightened debate. The Japanese believe that multifunctionality is
closely related to production and that subsidies based on or tied to production are needed
to support the other functions of agriculture; for example, rice paddies have to be
created in order to prevent erosion.
The New Zealand delegate pointed out,
however, that production assistance can have adverse effects that are the opposite of what
support for multifunctionality endeavours to achieve: specifically, they can foster
intensive production systems that create more pollution. To reduce the adverse
environmental impact of having too many animals on marginal lands, New Zealand eliminated
assistance for the production of mutton, lamb and wool, which has reduced its sheep
population by more than a third, allowing some land to be converted to more suitable uses
(reforestation, for example). However, as another delegate noted, in addition to greatly
reducing undesired environmental impacts, the measure has also led to a drop in the number
of farmers.
Although the links between production
assistance and multifunctionality are still unclear in some cases, multifunctionality may
well be a way to tap other budget envelopes, such as environmental budgets, to reduce
production assistance. There is a strong desire in Europe to reduce spending on
agriculture, which accounts for a large chunk of the EUs budget. As matters stand,
agricultural spending may increase sharply if the EU expands to include countries in
eastern Europe. Because environmental issues are a major consideration in WTO trade
negotiations, subsidies for positive externalities could be provided in the name of
environmental protection rather than in the name of multifunctionality.
CONCLUSION
Some Canadians view multifunctionality as
a possible gateway to the future for agriculture in this country. Because the WTO trade
negotiations are moving toward a decrease in production aid, it is tempting to look for
ways of supporting agriculture other than with traditional risk management tools, but
within the rules of international trade.
Before a policy supporting
multifunctionality can be adopted in Canada, the following and other political questions
will have to be considered.
People in Europe and Japan
seem to support this approach to agriculture. Where do Canadians stand?
If farmers bear the cost of
negative externalities (polluter-pay principle), can they be compensated for the services
they provide, particularly environmental services?
If so, how can they be
compensated (subsidies, tradeable permits for carbon sequestration, etc.)?
Steps must also be taken to ensure that
support for multifunctionality does not conflict with other objectives Canada has set for
agriculture. Specifically, any link between production and support for multifunctionality
must be decoupled so as not to create an incentive to increase production or to produce in
a way that creates more pollution.
In its February 2000 report on the farm
income safety net, the Standing Committee on Agriculture and Agri-Food recommended that
the government continue to work on a rural development policy that identifies the
direction agriculture should take in Canada and the role agriculture should play. Because,
according to some officials, there is already a form of multifunctionality in Canada, it
remains to be seen whether the concept of multifunctionality has to be formally included
in such a policy and what tools should accompany it.
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