CONCEPTUALIZING THE ENVIRONMENTAL ROLE OF

CHILEAN AGRICULTURE: ENVIRONMENTAL EXTERNALITIES

MODULE Raúl O`RyanManuel Díaz

Cristian Pincheira

Program for Environmental Economics and Management (PROGEA)

Industrial Engineering DepartmentUniversidad de Chile

OBJECTIVES

General Objective To identify environmentally related

externalities associated to agricultural development in two distinct broad geographic areas of Chile (natural experiment)

Specific Objectives To identify the main factors perceived as driving

agricultural development in two different regions of Chile in the last twenty years.

To determine the changes perceived in environmentally related externalities resulting from the development of the agricultural sector in each Region.

To apply a methodology that allows obtaining a comprehensive view of the main drivers and externalities associated to agricultural development.

OBJECTIVES

GENERAL METHODOLOGY

 1.      Selection of Regions for analysis

2.      Selection of geographical areas to study in each Region

3.      Selection of qualified Respondents 4.      Development of an extensive list of local environmental externalities

(19 positive and 30 negative) 5.      Design of questionnaire and pilot application

6.      Application of the questionnaire

7.      Processing and analysis of the information

DELPHI METHODOLOGY

Conceptual Framework: Environmental Market Failures Related to Agriculture

Too Few Public Goods Amenities (valued visual attributes) Habitats (space and Sustenance for plants and

animals)

Externalities Ecological functions beyond the boundary of the

farm (water accumulation, hedgerows, fixation and recycling of nutrients,formation of soil, etc.)

Health effects Loss of export revenues

Conceptual Framework: Sourcesof Growth and Environmental Externalities (López)

Growth in profitability of the sector

Expansion of the Agricultural Sector

Sources of Growth

Environmental Effects

Neutral

Non Neutral

Soil

Forests

Water

Property Rights Permanence of Changes

Conceptual Framework: Intensity of Use intensity versus externalities development

Source: Traill (1988) en University of Aberdeen & Macaulay Land Use Research Institute (2001)

Overview

Agricultural Sector (including agroindustry)

15% GDP

VII region• Regional growth rate: 7,9%

•Agricultural growth rate: 10%

•2,1% of GDP

•Agriculture is 32% of regional GDP

•700 mm annual precipitation

IV region• Regional growth rate: 7,6%

•Agricultural growth rate: 10%

•0,4% of GDP

•Agriculture is 20% of regional GDP

•200 mm annual precipitation

Average growth rate

8.5% per year (1985-1997)

Period 1987-1997

Crops Considered

Statistics (1)

•Fruit and grapes

•Vegetables and flowers

•Tree plantations

Respondents(2)

•Fruit and grapes

•Vegetables

•Cereals

IV Region VII Region

Statistics

•Fruit and grapes

•Vegetables and flowers

•Artificial pastures

Respondents

•Fruit and grapes

•Cereals

•Vegetables

(1) Panorama económico y social: Las regiones de Chile 1990-1999, Instituto Nacional de Estadísticas, Ministerio de Planificación y Cooperación, 2001.

(2) Information based on questionnaire.

Description of Specialists(Panel of Experts)

Sector IV Region (%)

VII Region (%)

Public 45.0 74.1Private 55.0 25.9

•Different professional backgrounds considered•55% agronomists, 8.5% forest engineers, 6.4% veterinarians, 6.4% farmers, etc.

Public: Public organizations (37.0%), Academics (23.9%)Private: Professionals (19.6%), Farmers (19.6%)

Results

1. Drivers that Determine Agricultural

Development (IV and VII region)

Drivers ConsideredEconomicSector policiesGeneral policiesTechnologicalInstitutionalGeoclimatic

1. Drivers that Determine Agricultural Development (IV and VII region)

Most important: Economic and TechnologicalEconomic: Market opening , Installation of food export businesses (both with an 83% agreement), Installation of cold storage plants (77%)

Tecnological: Incorporation of new irrigation technologies (89% agreement)

Sectoral policy: Improvement in road infrastructure (77%)

Less important: Environmental Institutionality (17%), Environmental NGO’s (2%), Environmental Policy (21%)

1. Drivers that Determine Agricultural Development (IV and VII region)

Drivers Very Some Little None N/RInstallation of food export businesses in the Region 83 12,8 4,3

Installation of cold storage plants in the Region 76,6 14,9 8,5 Market opening and increase in exchange rate 83 12,8 4,3

Growth in international environmental demands 51,1 35,6 11,1 2,2 Improvement in road infrastructure 76,6 23,4

Sector policies and investments 57,4 34 6,4 2,1 Development of new dams 51,1 22,2 11,1 13,3 2,2

Law Nº 18.450 to promote private investment in irrigation and drainage projects 58,7 28,3 8,7 4,3

Rules and stability of land ownership. 45,7 34,8 17,4 2,2 Definition of water rights 53,2 36,2 8,5 2,1

Existence of clear environmental policies and standards 21,7 45,7 19,6 13 Incorporation of new irrigation technologies 89,4 10,6

Technical support in the use of appropriate technology 61,7 36,2 2,1Existence of clear rules for agricultural investment 44,7 38,3 12,8 2,1 2,1

Presence of environmental institutions 17 40,4 29,8 12,8 Presence of environmental NGOs 2,2 17,8 42,2 37,8

Good Weather 70,5 22,7 4,5 2,3 Temperatures in the area 77,3 18,2 4,5 Quantity of precipitation 48,9 40 11,1

Soil Characteristics 31,8 38,6 20,5 9,1 Mindset change of farmers: from traditional to entrepreneurial 59,1 29,5 11,4

Improvement in the economic expectations of farmers 68,2 29,5 2,3

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In both Regions:

•growth based on neutral sources

•clear definition of property rights

•perception that profitability increases would be permanent

(following López expect: improved soils and water supply/balance conditions; uncertain effects on water pollution)

1. Conclusion: Sources of Growth

2. Externalities: Regional Analysis

In both regions agreement exists that there have been positive and reduction of negative externalities associated to the agricultural development in the period. Also negative externalities are observed.  According to 50% or more of those interviewed:

•In the IV Region, 13 of the 19 positive externalities were observed in the period whereas in the VII Region only 11 positive externalities were observed•Only 10 of the 30 negative externalities were observed in the IV Region, whereas a significant 27 were observed in the VII Region

 It can be concluded that the recent agricultural development of the IV region is perceived as more beneficial environmentally than the one of the VII region.

P: Positive; N: NegativeNote: The positive externalities and reduction of the negatives with a high level of agreement that YES they were present in the region are in bold. The positive externalities and reduction of the negatives that were NOT present with a high degree of agreement are in bold and italicized Source: Author’s calculations based on questionnaire

2. Externalities with 70% or Greater Agreement IV Region

Parameter Externalities Sense Si No

Reduction of erosion due to less topsoil loss induced by water flow P 89.5 10.5Reduction of erosion caused by rain and wind given stable topsoil P 70 30Increased erosion due to improper soil usage N 15 85Increased costs of drinking water treatment due to soil sediments N 5.6 77.8Lower crop and farm vulnerability when confronted with extreme climatic events P 70 30Increased damage to health of farm workers through greater exposure to agrochemicals and pesticides etc. N 80 20Increased damage to health of locals through drinking contaminated water N 25 70Improvement/maintenance of rural landscape P 84.2 15.8Increased agrotourism and gastronomy P 80 20Loss of visibility because of smoke from agricultural burning? N 21.1 78.9Increase in rate of desertification N 16.7 83.3Better crop productivity through genetic improvement P 94.7 5.3Support for management and conservation of Protected Forest Areas by producing biological corridors between protected areas P 23.5 70.6

Reduction and transformation of natural habitat through clearing of natural vegetation N 84.2 15.8Loss of genetic variability through single crop cultivation N 73.7 26.3Increased presence of bad odors induced by agricultural waste, fertilizers and pesticides N 70 25Increased methane emissions N 17.6 70.6Improved pasturelands for livestock P 21.1 73.7

Recuperation of fauna in rivers and lakes P 20 70

Recuperation of flora in rivers and lakes P 15 75Increased costs of drinking water treatment N 16.7 72.2

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P: Positive; N: NegativeNote: The positive externalities and reduction of the negatives with a high level of agreement that YES they were present in the region are in bold. The positive externalities and reduction of the negatives that were NOT present with a high degree of agreement are in bold and italicized Source: Author’s calculations based on questionnaire

2. Externalities with 70% or Greater Agreement VII Region

Parameter Externalities Sense Si No

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ks Increased damage to health of farm workers through greater exposure to agrochemicals and pesticides etc. N 76.9 19.2Increased ecotourism P 84.6 15.4

Increased agrotourism and gastronomy P 81.5 18.5

Bad odors N 76 20Better crop productivity through genetic improvement P 96.2 3.8Reduction and transformation of natural habitat through clearing of natural vegetation N 88 12Loss of biodiversity due to clearing of natural vegetation N 87.5 12.5Deforestation due to clearing of natural vegetation N 83.3 16.7Disequilibrium in the trophic chain due to clearing of natural vegetation N 75 25Decreased biodiversity by introduction of foreign? species N 72 24Loss of genetic variability through single crop cultivation N 70.8 29.2Improved contribution to the normal hydrological cycle P 20 80

Recuperation of flora in rivers and lakes P 8 92

Recuperation of fauna in rivers and lakes P 7.7 92.3

Contamination of groundwater N 92.3 7.7Water pollution by improper disposal of pesticide and herbicide containers N 85.2 11.1Damage to flora and fauna in rivers and lakes N 83.3 16.7

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Conclusions

1. Drivers:• Based on perceptions by qualified repondents,

it is possible to conclude that the main drivers of change in agriculture in both Regions are similar: economic, technological and road infrastructure

• There are important Regional differences: In the IV Region, better road infrastructure, development of new dams and support for irrigation projects were relevant. A better definition of water rights was also considered very important. In the VII Region only the first was considered very important in the period.

Conclusions

2. Externalities: There are important Regional differences• 49 externalities were consulted:19 positive and

30 negative• 13 of the 19 positives externalities were

perceived in the IV Region. Only 11 were perceived in the VII Region.

• 27 of the 30 negative externalities were perceived in the VII Region. Only 10 were perceived in the IV Region.

Conclusions

3. Some positive and negative externalities appear in both Regions:

• Positive: land quality (increases in land productivity and value), agrotourism, ecotourism and gastronomical tourism.

• Negative: three biodiversity implications (natural habitat loss, trophic chain desquilibrium, genetic diversity loss) ; bad odors generated by production; damage to health of workers due to exposure to agrochemicals and pesticides.

Conclusions

4. Other externalities are specific to each Region.

• IV Region: Less soil erosion, maintenance and improvement of the rural landscape, lower crop and farm vulnerability when confronted with extreme climatic events. Surprisingly, impacts on water quality and availability are not observed.

• VII Region: improved pastureland for livestock. Important problems in water quality and water availability in downstream sectors.

•In the dry IV Region, the technification of irrigation and the growth of the sector based on a significant increase in grape production, has required less use of agrochemicals than other substitute products.

•Land contamination by agrochemicals is significant in the VII Region.

Conclusions

5. Results support proposal of López partially: Growth sources should lead to improved

soils and water supply/balance conditions.

• What is observed? Land quality has improved in both Regions. Downstream water availability is not affected in the IV Region. However in the VII Region 63% are of the opinion that availability has been negatively affected.

Conclusions

• Lopez proposes that the effect on water contamination of agricultural growth is uncertain. The empirical results show that water contamination in the IV Region has not been perceived as too significant whereas in the VII Region this negative externality is important.

Conclusiones

6. The results also seem to support the notion that land use intensity is related to the environmental implications of agricultural growth.

• VII Region: A long tradition (important intensity) has resulted in negative impacts in biodiversity and water pollution.

• IV Region: Low intensity. Pollution –though present- is clearly lower in land, water and agricultural products.

• Landscapes improve in both Regions but a greater majority agrees that this is so in the IV Region.

Conclusiones

7. The Delphi methodology applied allows relatively fast results:

• Establishing where to focus future research efforts.

• This is a very useful initial step towards advancing in the valuation of the externalities, a necessary next step to determine the relative importance of the landscape, biodiversity and pollution externalities present as agriculture expands.