Food, agriculture and fisheries, and biotechnology teampest project
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SEVENTH FRAMEWORK PROGRAMME THEME 2 FOOD, AGRICULTURE AND FISHERIES, AND BIOTECHNOLOGY TEAMPEST PROJECT WP5: ECONOMIC SUSTAINABILITY, BIODIVERSITY LOSS AND SOCIALLY OPTIMAL PESTICIDE USE TASK 5.1: LITERATURE REVIEW 
WP5: ECONOMIC SUSTAINABILITY, BIODIVERSITY LOSS AND SOCIALLY OPTIMAL PESTICIDE USE TASK 5.1: LITERATURE REVIEW
Prof. Spiro E. Stefanou Prof. Alfons Oude Lansink February 2009 Business Economics Group Wageningen University The Netherlands
This report presents an interpretive review of the literature in support of the work package on “Economic Sustainability, Biodiversity Loss and Socially Optimal Pesticide Use.” Particular attention is focused on the interaction between production decisions and biodiversity loss, reduction of environmental quality and impacts of agricultural and environmental policy on pesticides use. This review is organized along the three major themes. Economic Growth and the Environment During the last decades, there is a considerable increase in the global level of production of goods and services. This economic growth that was brought about mainly by technological innovations has its impact on the environment. The over-exploitation of natural resources has resulted in environmental degradation but, on the other hand, the development of pollution abatement technologies promises to ease these environmental problems. Sustainable economic growth is of primary importance in sustaining human needs and protecting the natural habitat. This major theme can be partitioned into macro and micro (disaggregated or decision maker level) perspectives. Pesticides and Biodiversity With the productivity gains and cost reductions realized by pesticide use, there are several disadvantages that relate to the broader ecosystem, genes and species in a region, which constitutes the region’s biodiversity. Pesticide overuse or use at the crop edges which constitute forage and nesting habitats for farmland fauna can reduce biodiversity. Non-target plant species that benefit farmland fauna can also extinct due to competition for nutrients with target species. Precise use of pesticides can address these problems. Pesticide Policies Many international and national policies are trying to regulate pesticide use as consumers are becoming more aware of pesticide externalities and demand pesticide free agricultural products and cleaner and safer natural habitat. The current level of food production is already causing serious environmental problems. Important efforts towards regulating pollution have been made in industrialized countries in the form of increasingly stringent environmental regulations. Although much of the environmental regulations are directed at industrial production, agriculture is affected as well, especially from pesticide regulations and clean water acts. European Union is struggling to implement coherent pesticide regulations in an effort to protect public health and the environment. Regulations on the marketing of plant protection products, maximum residue levels and the thematic strategy on the sustainable use of pesticides compose the puzzle of the European pesticide policy. The imposition of a tax or levy scheme is not a costless procedure and its entire regulatory cost creates uncertainty concerning the optimal time that has to be imposed. In an initial period there is uncertainty about the stage of the world. Environmental externalities have not still fully documented and the external costs have not been quantified precisely. Therefore, policy makers are not sure whether they must introduce a tax now or to wait for further information and introduce it later. Imposing a tax at an early period can prove to be more costly as there are no precise indicators of external costs. This absence of knowledge can lead a policy maker to delay his intervention and to wait to identify the exact external costs and reflect them in the prices of the different commodities by imposing a suitable tax. Therefore, delaying reduces somehow the economic risk of imposing a tax scheme. On the other hand waiting can prove to be costly in cases of irreversible damages. Organization With over 220 scientific publications and reports reviewed, several organizational directions are undertaken. Each publication was reviewed along a set of common criteria: a) abstract, b) setting, c) modeling framework, d) data, e) applications, and f) results and policy implications. This review is comprised of three components. The first is the narrative document which follows. In this document the review develops the three major themes and their branches, with a view toward identifying the important results, gaps, overlapping results and policy implications. The second component is a more dynamic organization of this literature in a web-based map where the user can scan through the outline to obtain a brief description of each theme and sub-theme, and follow the branches to view the relevant literature in terms of the six common criteria identified above. The final component of this review is a spreadsheet organizing the literature along these same criteria that can provide a means for rapidly searching for keywords. Acronyms and definitions AC Active Substance CBS Statistical Agency of The Netherlands CMR Cause Cancer and have Mutagenic or Reproductive Effects CO CVM Contingent Valuation Method DPR Department of Pesticide Regulation EC European Commission EFSA European Food Safety Authority EKC Environmental Kuznets Curve EPA Environmental Protection Agency EU European Union EUROSTAT European Statistical Agency FQPA Food Quality Protection Act GM Genetically Modified IPM Integrated Pest Management ITP Income Turning Point IUCN World Conservation Union LZ Lichtenberg-Zilberman MJP-G Multi Year Program for Crop Protection MRL Maximum Residue Level NAP National Action Plan PBT Persistent Bioacummulative and Toxic POP Persistent Organic Pollutant PPP Plant Protection Product PREC Pesticide Regulation and Evaluation Committee RASFF Rapid Alert System for Food and Feed SP Stated Preferences UNEP United Nations Environment Program UK United Kingdom US United States VAT Value Added Tax vPvB very Persistent and very Bioacummulative WP5 Work Package 5 WRI World Research Institute € Euro
$ Dollar Table of Contents I. Introduction This report presents a literature review in support of work package five (WP5) entitled “Economic Sustainability, Biodiversity Loss and Socially Optimal Pesticide Use”. The literature review is organized into three major themes: I) Economic Growth and the Environment, II) Pesticides and Biodiversity, and III) Pesticide Policies. As each sub-theme is introduce, a schematic of related concepts is presented to provide the reader with a perspective on how to organize one’s conceptualization of the issues. The first theme addresses the relationship between economic growth and the natural habitat, by looking at both the macro and micro levels. At the macro level economic growth has brought changes in global policies, agreements and trade patterns while the micro level focuses on the impact on agricultural producers, consumers and local institutions. These macro and micro level changes have their own characteristic impacts on the environment. The second major theme defines plant protection products and provides an overview of their use, impacts and properties. This theme introduces the concept of biodiversity and reviews its relationship with pesticides and farm productivity. The final theme presents the pesticide regulations of European Union (EU) and the United States, and deals with the uncertainty of introducing a pesticide policy and the impacts of pesticide regulations on the competitiveness of agricultural firms. Finally, the review document is accompanied by a web-based map (http://www.personal.psu.edu/ttc/econo_pest_1.htm) where the user can scan through the outline of this review to view a brief abstract of each component and a reference list for the terminal modes. The reference list provides the abstract, setting, modeling framework, data and applications, and results and policy implications for each citation. II. Economic Growth and the Environment During the last decades, there is a considerable increase in the global level of production of agriculturally related goods and services. This economic growth that was brought about mainly by technological innovations has had its impact on the environment. The over-exploitation of natural resources has resulted in environmental degradation but on the other hand, the development of pollution abatement technologies promises to ease these environmental problems. Sustainable economic growth is of prime importance in supporting human needs and protecting the natural habitat.
Global economic growth has both positive and negative impacts on the environment. An overview of the environmental Kuznets Curve studies can shed light to this relationship. World trade and international policies and agreements play an important role in the process of economic growth. Global policies and world trade can increase agricultural intensification leading to environmental pressure. Conversely, global agreements have proven to be an effective approach toward addressing environmental problems which are often transnational and require a collective response. Global trade can also provide the means for transferring cleaner technologies.
The environmental Kuznets curve (EKC) hypothesis proposes that there is an inverted U-shaped relationship between economic performance and environmental pollution, which suggests that an economy is associated with lower levels of pollution after clearing an income threshold. Simon Kuznets’s name was attached to the curve by Grossman and Krueger (1993), who noted its resemblance to Kuznets’s inverted-U shaped relationship between income inequality and development. A number of empirical studies have examined the EKC for various time periods, regions and pollutants. The early EKC studies are Grossman and Krueger (1993), Shafik and Bandyopadhyay (1992), Selden and Song (1994), Panayotou (1993) and Cropper and Griffiths (1994), which found that the inverted U-shaped relationship is monotonically increasing or decreasing. Stern (2004) and Dasgupta et al. (2002) have undertaken comprehensive reviews and discussions of these empirical studies have shown that there is no single relationship between environmental degradation and income that concerns all types of pollutants, time periods and regions. Meta-analysis is a statistical approach that models related empirical studies by synthesizing their results in a statistical framework. The EKC meta-analyses of Cavlovic et al. (2000) and Li et al. (2007) indicate that study methods, estimation techniques, data characteristics and pollution categories, all affect the presence or absence of the EKC, its shape and the income turning points (ITPs) (Figure 1). It is important to notice that many studies that had dealt with anthropogenic greenhouse gases (e.g. CO2) did not manage to find ITPs or an improved environment-income relationship. 
Figure 1. EKC Meta-analysis features. Source: Author, 2008 Stern et al. (1994) critiques the EKC on the following grounds (Figure 2): a) the assumption of unidirectional causality from economy to environment; b) the assumption that environmental quality is not affected by changes in trade relationships; c) data problems (data on environmental problems are of poor quality); d) econometric problems (simultaneity); e) asymptotic behavior; f) the mean-median income problem; g) and the isolation of some EKCs from EKCs for other environmental problems. 
Figure 2. EKC problems Source: Author, 2008 Managi (2006) adds to this list of concerns that the empirical EKC studies do not examine carefully the mechanisms of the inverted U-shaped relationship. The use of a time trend is not an efficient tool to fully reflect technological progress and the inclusion of technological variables seems to be of utmost importance in capturing productivity and technological progress factors.
Agricultural Intensification refers to an increase in the productivity of resources (e.g., land, water) in order to produce more output in a given area (Tiffen et al., 1994). In this respect, attention is given to the way the inputs are used, how this use affects the environment and if a sustainable agricultural intensification is a feasible target. a. Inputs Use
Source: Author, 2008 It is defined as “increased average input of labor or capital on a smallholding, either cultivated land alone, or on cultivated and grazing land, for the purpose of increasing the value of output per hectare” (Tiffen et al., 1994). Figure 3 depicts the trajectory of inputs use under agricultural intensification and its impacts. The agricultural machinery and the irrigated area have grown by approximately twofold during the last decades (Pretty, 2007). Input use had a tremendous increase with many advantages and disadvantages. The “Green Revolution” of 1960s brought the high yielding seeds that boosted agricultural production. The use of fertilizers has increased substantially during the second half of the last century, but their use declined in recent years (Stoate et al., 2001). Pesticide use also increased during the same period but their great importance in reducing crop damage has led only to a slight decline in the recent years. Sexton et al. 2007 state that despite the existence of alternatives to chemical pesticides (e.g., GM crops, biological control), the pesticide industry sales total $32 billion with the annual pesticide application levels estimated at 5 billion pounds. b. Environmental Pressure 
Figure 4. Environmental impacts of agricultural intensification Source: Author, 2008 Agricultural intensification has significant impacts on the environment (Figure 4). Among the negative consequences are increased erosion, reduced biodiversity, lower soil fertility, eutrophication and chemical residuals in food. Nitrogen and phosphorus runoff from the use of fertilizers can contaminate freshwater aquifers and other marine ecosystems. Groundwater can also be contaminated from nitrates and pesticides leaching while air pollution can result from the use of pesticides. Modern arable management with increased mechanization and farm size, simplification of crop rotations and loss of non-crop features has led to soil deterioration and decreased biodiversity (Stoate et al., 2001). c. Agricultural Sustainability 
Figure 5. Agricultural Sustainability Source: Author, 2008 Agricultural sustainability implies a way of thinking as well as of using agricultural practices. Figure 5 presents the theoretical basis of this concept, its characteristic goals and practices. Agricultural sustainability includes the concepts of resilience and persistence. Resilience is the capacity of systems to endure stress while persistence refers to systems’ capacity to continue over long periods. Among the goals of sustainable agriculture are environmental stewardship, prosperity of farming communities and farm profitability. The core of sustainable agriculture is the development of agricultural technologies and practices that will be easily accessible and effective for farmers and will not have adverse impacts on the environment. Emphasis is given to the long-term ability of farmers to obtain inputs and manage resources like labor and also to the long-term effects of practices on the environment. Therefore sustainable agricultural systems are those that focus on the optimal use of environmental resources and services without damaging these assets (Altieri 1995; Tilman et al 2002; Kesavan and Swaminathan 2008).
Figure 6. Aspects of global trade Source: Author, 2008 Global trade plays an important role in global economic growth, serving as the means of transferring goods and services that can stimulate all kinds of economic activities (Figure 6). Furthermore, trade liberalization has the potential to combat hunger and provides the opportunity to people to consume products that cannot be grown in their regions. On the other hand, trade liberalization contributes to environmental pressure by trading non-renewable resources, endangering species and leading to changes in land use and excessive use of chemical inputs in order to satisfy the increasing demand for specific products. Dasgupta et al. (2001) report that agricultural trade liberalization has led to increased pesticide use in Brazil, particularly in export crops. Trade liberalization and direct investment enables industries to transfer their production units to countries with more lenient environmental regulations (Panayotou, 2003). Therefore, there has been an uncoupling of production and consumption of resource intensive and polluting products. Finally, global trade provides a unique chance to combat environmental pressure by technology transfer through foreign direct investment (Dinda, 2004).
Figure 7. Interactions of Political Environment Source: Author, 2008 Political environment plays an important role not only in the economic growth of a country or a union of countries but also in the effort to protect the environment (Figure 7). Panayotou (2003) states that the relationship between income and the environment varies across political systems with environmental quality tending to be lower in non-democratic regimes. Democratization can have beneficial effects on environmental quality and economic growth through the introduction of more secure property rights and accounting of benefits for public goods. Many countries are participating in global environmental agreements such as the Kyoto protocol and/or unions with common environmental policies (e.g. European Union). These agreements are important in promoting the effort to reduce environmental externalities as most of the environmental problems are not restricted within the borders of a country but concern many nations simultaneously and require joint abatement efforts. Sometimes, participation in the pre-mentioned agreements is not unanimous as some countries consider that some of the agreements can pose a burden on their economic growth, as abatement policies can bring economic loses for industries and other sectors.
Additional insight into the relationship between economic growth and the environment is gleaned by focusing at the decision makers’ level of analysis. Agricultural entrepreneurs and consumers have their own special contribution to the growth-environment relationship. Additionally, institutions and regional policies play a major role on decision making and therefore affect both economic growth and environmental quality.
Figure 8. Productivity and input use Source: Author, 2008 There is a large range of positive outcomes from the use of agrochemicals but adverse impacts to human health and the environment are a related consequence. Agricultural productivity experienced a significant increase as inputs use increased. Some of the impacts of this increase are summarized in Figure 8. The increased use of fertilizers and pesticides had improved not only the quality of soil but secured crops from insects and herbs. Not only has production increased, but also farmers can obtain high quality products that can have a positive impact on their revenues. Additionally, the use of herbicides has freed labor that was used for weeding and now can be allocated to other agricultural practices. In general, technological advances like new and high quality seeds, more efficient pesticides and machinery in conjunction with a wide range of information on agricultural practices that farmers can receive (e.g. extension services) have contributed in a significant rise of agricultural productivity. 
Figure 9. Structural Changes Source: Author, 2008 During the second half of the last century agricultural firms faced great changes (Figure 9). Increased farm size and mechanization were predominant features in a process of intensification that had to satisfy the increased demand for agricultural outputs. A simplified arable system was the tendency of the more progressive farmers in an effort to maximize their yields and to cultivate those crops that they yielded higher revenues (Nassauer and Westmacott, 1987). For Europe, the simplification of arable systems led to a decline in landscape diversity with consequences on biodiversity and crop productivity (Meeus, 1993). In the last decades there are a number of factors that have driven farmers to become more aware of the environmental externalities of their agricultural practices (Figure 10). Agricultural extension services enable farmers to obtain new information and knowledge in order to enhance their agricultural activities and therefore to maximize their revenues while protecting the environment. Furthermore, young farmers with better knowledge are entering the agricultural sector and investing in new technologies and practices. In this direction, the increasing farm size appears to be a positive factor as it provides the economies of scale for adopting new technologies and machines. 
Figure 10. Drivers of farmers’ Environmental Awareness Source: Author, 2008 The over-reliance of agricultural production on agrochemicals has brought several adverse effects on the environment and human health. Changes in consumers’ behavior towards higher environmental quality like chemical-free products have induced a tendency toward a structural change in the agricultural sector. Agricultural producers responding to this demand and gaining additional expertise (from the extension services and other training) on the externalities that their practices can cause are trying to apply “cleaner” agricultural practices and in general more sustainable production systems. Furthermore, policies aiming to mitigate the negative externalities of agriculture oblige producers to follow “cleaner” agricultural practices.
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