Subsidy removal and agroecosystem health

Agriculture Ecosystems & Enwronment ELSEVIER

Agriculture, Ecosystems and Environment 64 (1997) 245-260

Subsidy removal and agroecosystem health Ben Bradshaw, Barry Smit * Department of Geography, Universi~ of Guelph, Guelph, Ont. N1G 2W1, Canada Accepted 10 January 1997

Abstract Changes in government policy, such as the current reform of agricultural subsidies in Canada and elsewhere, are known to influence the condition of agricultural systems. Adopting an agroecosystem health framework, whereby change in subsidization is interpreted as a stress on an agroecosystem which may alter system health, this paper assesses potential environmental implications arising from the removal of economic subsidies in commercial agriculture by (1) documenting the current state of, and trends in, the economic subsidization of OECD and Canadian agriculture; (2) conceptualizing the problem of subsidy removal within an agricultural systems model; (3) empirically illustrating the short term impacts of subsidy removal in the case of New Zealand pastoral agriculture post-1984. Existing theory suggests two possible outcomes resulting from subsidy and regulatory reform. A reduction in input or output subsidies, such as those provided to fertilizer applications or upland pasture production, may result in a reduction in the use of inputs and the production of outputs, thereby reducing the intensity of production and hence improving agroecosystem (environmental) health. Conversely, the transfer of risk from the collective to the individual coupled with an increased reliance upon the market and its reduced marginal returns, may shorten planning horizons of individual farmers, resulting in more exploitative use of the environment, and hence deteriorated agroecosystem (environmental) health. Based on observed resource use changes in New Zealand pastoral agriculture, where large scale subsidy and regulatory reform was undertaken in the post-1984 period, the short term response to subsidy removal indicates a decrease in farming intensity brought upon by reduced input use and production levels, thereby potentially improving agroecosystem (environmental) health. In contrast, the longer term resource use behaviour, while not yet clear, may indicate the reverse. © 1997 Elsevier Science B.V. Keywords: Agricultural policy; Subsidization; Agroecosystem health; Canada; New Zealand

I. Introduction

1.1. Reform of economic subsidies in agriculture In order to correct for real or perceived imperfections in agricultural markets, stabilization has been an integral aim of agricultural policy throughout this

* Corresponding author. Tel., (519) 824-4120 x3279; fax, (519) 837-2940; e-mail, [email protected]

century (Gardner et al., 1984; Ilbery, 1985; Pierce, 1992; Skogstad, 1994). State intervention in the agricultural sectors of most state economies is as great as, or greater than, that of other sectors of those economies (Bowler, 1986; Robinson, 1989; Gardner, 1990). The patchwork of agricultural support programmes which was enacted throughout the industrialized world in the post-war era may have lacked consistent ideological direction and practical coordination, as Troughton (1989) suggests, yet its effects have been substantial. In essence, by providing sup-

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port in the form of guaranteed prices, input subsidies, deficiency payments, cheap loans, and disaster relief, government intervention produced the risk-free environment necessary to encourage massive investment (Barry, 1984; Bowler, 1985), thereby promoting and enabling the adoption of what Troughton (1985) terms an industrial mode of agriculture. Industrialization refers to the adoption of a model of technological and economic efficiency based on economies of scale, specialization of production and capital intensification. The structural, economic, social and environmental characteristics and consequences of industrial agriculture, as supported by state agricultural subsidies, have been well documented (see Bowers and Chesire, 1983; Body, 1984; Bowler, 1985; Berlan, 1989; Organisation for Economic Cooperation and Development, 1989; Goodman and Redclift, 1989; Smit and Brklacich, 1989; Stoeckel et al., 1989; MacRae et al., 1990; Troughton, 1991; Pierce, 1992). Ironically, many attributes of the 'farm problem' which originally justified government intervention, remain common to agriculture, as Goodman (1991, p. 60) concludes: Agriculture in advanced capitalist countries now exhibits precisely those characteristics which state regulation was intended to attenuate: market instability, low returns on capital, falling farm incomes, and farm failure. By the late 1980s, such recognition, combined with the fiscal challenge posed by increasing budgetary costs for agricultural support (Economic Council of Canada, 1988), prompted calls for agricultural policy reform at the international scale. The General Agreement on Trade and Tariffs (GATT) was seen as the obvious tool to deal with these deficiencies (Peterson, 1990). Agriculture's virtual exemption from the GATT rules ended in December of 1993 with the completion of the Uruguay Round (1986-1993) and the signing of an agreement between 117 states to dismantle the complex array of domestic measures believed to distort production decisions of producers and inhibit trade amongst states. Manifestations of this international trend towards the deregulation of agriculture are now being revealed at the national level, as was shown with the Canadian Government's

1995 budget cuts to the Western Grain Transportation Act, the dairy sector, and stabilization programmes. Among other consequences, by removing price buffer schemes, deregulation passes the onus of risk from the collective back to the individual (Johnson, 1989). How will this alter resource use at the level of the individual farmer, or as Le Heron (1988a, p. 286) ponders, what are the environmental implications of 'new terms of resource management by capital' in commercial agriculture? A variety of conventional analytical approaches lend themselves to addressing this question, including farm modelling and environmental impact assessment. An alternative framework which has been proposed to provide comprehensive assessments of the condition of agricultural systems is that of agroecosystem health.

1.2. Agroecosystem health In the mid-1970s, agroecology, and research on agroecosystems, emerged as an innovative and holistic approach to the study of agriculture (Lowrance et al., 1984). The common denominator, or central tenet, of the many definitions proposed for an agroecosystem is the recognition and treatment of agricultural systems as ecosystems (Cox and Atkins, 1979). Agroecology views a crop field as an ecosystem in which ecological processes found in other vegetation formations, such as nutrient cycling, predator/prey interactions, competition and mutualism, also occur (Hecht, 1987). As Odum (1984) suggests, agroecosystems are domesticated ecosystems that are in many ways intermediate between natural ecosystems, such as grasslands and forests, and fabricated ecosystems, such as cities. Agroecosystems differ from natural ecosystems because of their manipulation for the purpose of providing food, fibre and other agricultural commodities (Gliessman, 1990). Agroecosystems are less diverse, require added energy inputs, and are characterized by artificial selection of biotic material. Most distinctively, in agroecosystems, control is external rather than via system feedback (Odum, 1984). While contributors such as Altieri (1989) have promoted agroecology as a methodology to diagnose the condition of agricultural systems in more comprehensive or holistic terms, some practitioners have

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found such characterization to be difficult. As Soule et al. (1990, p. 166) acknowledge in their introduction to a documentation of the ecological impacts of modern agriculture: " W e will consider them [the impacts] one at a time even though they are inextricably intertwined". Addressing this limitation, the growing field of ecosystem health applies a medical health paradigm to ecosystem analysis with the aim of yielding a framework which is both comprehensive and evaluative (Rapport, 1994a). An extension of the health paradigm to agroecosystems has been proposed as a way to comprehensively diagnose and remedy the impacts of modern agriculture (WaltnerToews, 1994). For example, it provides 'measuring sticks' for assessing the health of agriculture, such as stability, sustainability, autonomy and resilience (Costanza et al., 1992), which are grounded in theories of agroecology, but are applicable to the examination of the environmental, social a n d / o r economic components that make up agroecosystems. In other words, these 'measuring sticks' or concepts which characterize and evaluate agricultural systems are sufficiently general so as to encompass ecological, social and economic processes in agriculture. 1.3. Subsidization and agroecosystem health

The concept of subsidization is familiar to analysts of agricultural systems. While energy subsidies have been widely addressed in agroecology (e.g. Odum, 1989), so too have economic subsidies (e.g. Bowler, 1986). Consistent to many of these analyses is the recognition that recent productivity gains in agriculture worldwide are a direct result of massive energy, nutrient, economic, and technological subsidies (Waltner-Toews, 1994). The agroecosystem health literature has addressed the concept of subsidization in at least two ways. One application treats the presence of a subsidy as an indicator of agroecosystem ill-health. For example, Rapport (1994b) argues that whether in the form of a fertilizer for depleted soils, medical services for the treatment of pesticide exposure, or support payments for disadvantaged farmers, from the perspective of agroecosystem health subsidies symbolize the infirmity of agricultural systems. The basis of this contention is that a subsidy, or external input, while not necessarily problematic itself, represents a loss of

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system self-reliance (Wall et al., 1995). In this view, the more an agroecosystem requires external subsidy to persist, the less healthy it is. Hence, by this interpretation, agroecosystem health would be improved in those countries acting on the 1993 GATT requirements to reduce economic subsidies to producers. However, all commercial agricultural systems have interactions beyond their immediate system boundaries, including for marketing of products and for acquiring inputs to production. Indeed, external inputs are viewed by some (e.g. Gregor, 1970) to be an essential, even necessary, feature of agriculture. As such, it may be argued that a purely self-reliant agricultural system is a paradox. This interpretation of subsidization as a generic measure of health is not developed further in this paper. A second application of agroecosystem health, and the one adopted in this analysis, interprets change in subsidization as a stimulus to an agroecosystem. By using agroecosystem health as a stress-response framework, an assessment of the implications of subsidy change would recognize impacts on the various components--environmental, social and econ o m i c - w h i c h interact over a range of spatial and temporal scales within an agroecosystem (Gallopin, 1994; Waltner-Toews, 1994). Further, the framework prompts interpretation of the effects in evaluative terms; that is, the effects are expressed as an improvement or deterioration in system health (Smit and Smithers, 1994). 1.4. Aim and outline of the paper

This paper employs an agroecosystem health framework to assess potential environmental implications arising from the removal of economic subsidies in commercial agriculture. Subsidy change is interpreted as a stress on, or stimulus to, an agroecosystern, which may alter system health. The focus of the paper is on agricultural resource use activities (e.g. fertilizer application rates) which are known to affect environmental conditions on farms (e.g. groundwater nitrate levels). The paper first documents the current state of, and trends in, economic subsidization in Organization for Economic Cooperation and Development (OECD) agriculture, with particular emphasis on Canada. Secondly, it reviews the theoretical context to an

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analysis of subsidy removal in agriculture and develops a conceptual model of subsidy change and agroecosystem health which recognizes the role of individual decision-making in light of altered conditions. Finally, alternative hypotheses about subsidy removal and agricultural resource use are explored in the case of New Zealand pastoral agriculture using published aggregate data for the period 1980-1993. 2. The state of economic subsidization in OECD and Canadian agriculture 2.1. Historical context

The first calls for national-scale farm support within OECD countries can be traced to the collapse of commodity prices following World War I. In the USA, the McNary-Haugen Plan was prepared and submitted to Congress in the early 1920s, but met defeat at the urging of President Hoover who feared that the plan would lead to inflation, overproduction, and oligopolistic control. Interestingly, these are the attributes which have come to characterize the present state of agriculture. Curtailed investment in agriculture during the depression of the early 1930s brought renewed calls for government intervention in agricultural markets. Benedict (1955) and Berlan (1989) argue that pressure from agribusiness, rather than from the farm community, advanced and secured state intervention. The price system of the market was too unreliable to shape a smooth path of capital accumulation; an unstable market for farmers also meant an unstable market for tractors and fertilizers (Berlan, 1991). This pressure resulted in the enactment of legislation such as the 1933 United States Agricultural Adjustment Act and, in Canada, the 1935 Prairie Farm Rehabilitation Act, the 1939 Prairie Farm Assistance Act and the 1934 Natural Products Marketing Act which allowed for the establishment of single-desk (i.e. exclusive seller) marketing boards such as the Canadian Wheat Board. The Wheat Board was designed as a temporary instrument of income stabilization in a critical period of economic distress in western Canada, yet went on to become a permanent fixture in the Canadian grain economy (Morriss, 1987). Food scarcities in Europe during the Second World

War renewed fear of Malthusian scenarios of starvation (Benedict, 1955), thereby creating a new and powerful rationale for agricultural support. Import substitution so as to achieve food self-sufficiency was a critical goal for many European states as reflected in the objectives of Article 39(1) of the 1957 Treaty of Rome, the Common Agricultural Policy (CAP): increase agricultural productivity; ensure a fair standard of living for farmers; stabilize markets; ensure food supply; ensure fair consumer prices (Harris et al., 1983). In the USA during the same period, agricultural support payments were espoused to deal with surplus production and farm income concerns, as reflected in the objectives of United States Public Law 480, enacted in 1954: dispose of surplus stocks through export subsidies; maintain farm incomes; develop foreign markets; gain political influence abroad; serve humanitarian purposes (Murdoch, 1980). Similarly, the aim of Canadian agricultural policy under the Diefenbaker government of the 1950s was to expand production and guarantee farmers a measure of security from market fluctuations. The main vehicles of this strategy were the Farm Credit Corporation, which provided cheap credit, and the Agricultural Stabilization Act of 1958, which provided support payments to producers during periods of low commodity prices. In addition, all-risk crop insurance was made available nationally under the 1959 Crop Insurance Act. Skogstad (1987) notes that these interventionist state initiatives were consistent with other welfare provisions of the day, such as the Canada Pension Plan, reflecting the prevalence of Keynsian economic principles of market regulation and state-led social security. Canada's national supply management agencies, such as the egg, milk and poultry marketing boards, were enabled under the 1972 Farm Products Marketing Agencies Act. These agencies, which continue to operate, act to regulate the production and distribution of the specified commodities through the use of quotas, provincial allocations and import controls, in order to meet domestic market demand and ensure appropriate returns to producers. 2.2. Measures of economic subsidization

The current state of economic subsidization in Canadian agriculture can be measured, in part, by

B. Bradshaw, B. Smit / Agriculture, Ecosystems and Environment 64 (1997)245-260

direct payments to producers from the state. The figures presented here do not include indirect transfers or 'price distortions' resulting from programmes such as supply management. Continuing a trend towards reduced subsidies, gross direct payments to Canadian agriculture for the year 1994 totalled (Canadian dollars) $1.6 billion, down from the $2.8 billion level of the year earlier, and $3.8 billion in 1992 (Statistics Canada, 1995). When government rebates for select expenses are included, such as rebates on fertilizer, seed, interest payments or feed, gross payments for 1994 reach $1.9 billion. Yet, as many of the direct payments derive from programmes which include producer premiums, a net payments figure for 1994 of $1.3 billion may be a more accurate appraisal of direct subsidization to Canadian agriculture (Statistics Canada, 1995). Fig. 1 details the variation in net direct payments to Canadian agriculture relative to total farm receipts for the years 1983 to 1994. Direct net payments over this time period varied from a low of $0.8 billion in 1983 to a high of $3.4 billion in 1987. These payments represent anywhere from 4.3% to 16.2% of total farm receipts. If direct payments are examined relative to net farm income rather than to total receipts, the critical role of economic subsidies in maintaining the livelihood of Canadian farmers is realized. For the same period, direct payments to producers consistently represented more than half of net farm income, and

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in some years (most notably 1987, 1988 and 1992, when market-derived income dropped below zero) payments represented more than 100% of net farm income (Statistics Canada, 1995). How does the level of subsidization in Canadian agriculture compare to other OECD states? In 1991, the 24 member states of the OECD spent US$321 billion on farm support (Dakers, 1994). In the USA alone, direct payments to farmers equalled US$45 billion in 1986, with one individual cotton producer in California receiving a US$12million payout (Wilson, 1990). Fig. 2 provides the producer subsidy equivalents (PSE), averaged for all agricultural sectors, for Canada, compared with other selected OECD states for the period 1979-1994. The PSE is a commonly used measure of state agricultural support which expresses, in percentage terms, the total value of state assistance to a product relative to its production value. 'Assistance' includes assistance to outputs (e.g. price supplements), inputs (e.g. fertilizer subsidies), and value adding (e.g. tax concessions). The PSE estimated for Canada for the period 19791994 ranges from 24% to 49%. Canada's agricultural support appears comparable with that of Europe and the USA. 2.3. Current trends." NAFTA, GATI" and the 1995 Canadian budget While recent deals such as the North American Free Trade Agreement (NAFTA) and the GATT, to

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which Canada is a signatory, make formal the movement towards desubsidization of the Canadian agrifood sector, the shift towards reduced government intervention and support can be traced to a 1987 Agriculture Canada planning document which marked, for the first time in three decades, a reversal in farm support policy. The new strategy included "reducing distortion of market signals; encouraging international competitiveness; and improving the ability of the agri-food sector to adjust to changing international conditions" (Agriculture Canada, 1987, p. 3). While similar strategies had been proposed previously, these attempts to reform farm support were unsuccessful due to the political strength of the farm lobby and what Wilson (1990) and others call the rural myth; that is, the romanticized vision of farm living which maintains broad public support for the farming community despite significant decline in its population. In contrast, the 1987 reform proposal and its successor, the 1989 policy proposal 'Growing Together' (Agriculture Canada, 1989), met with some acceptance. Wilson (1990) contends that this acceptance derived from the market chaos and huge subsidy bill of the years 1987-1989 which "altered the political and economic environment, allowing the debate [towards desubsidization] to begin in earnest without the taint of heresy that might have been expected in an earlier era" (p. 258). The NAFTA, which was proclaimed on 1 January 1994, reflects an extension of the Canada-USA Free Trade Agreement (FTA) to include Mexico. The FTA and the NAFFA contain several broad schedules for phasing out tariff protection over 10-15 years for a specified set of commodities. Many of the key provisions of the FTA were incorporated into the NAFTA including, for example, a prohibition on export subsidies in bilateral trade and mutual exemption from meat import restrictions (External Affairs, Canada, 1992). While there is some disagreement among the NAFTA's signatories on this issue (see McKenna, 1995), as the GATT supersedes the provisions of the NAFTA, the GATT will have far more significant implications for Canada's agri-food sector than will the NAFTA (van Duren et al., 1994). The final agreement of the GATT came into force on 1 January 1995 (subsequently renamed as the World Trade Organization (WTO)). The agreement specifies trade liberalization in four areas: (1) market

Table 1 Canadian tariffs under the WTO (formally GATI') rules for supply managed commodities. Data from McKenna (1995) and Frechette (1992) Commodity

1995 Tariffs (%)

2001 Tariffs (%)

Butter Cheddar cheese Milk Chicken Skim milk powder Eggs Turkey

351 289 284 280 237 192 182

298 246 241 238 201 163 155

access; (2) domestic support; (3) export subsidies; (4) sanitary and phytosanitary standards. In the area of market access, import quotas and restrictions, which are the central tenets of Canada's supply managed sectors, have been converted into tariffs with a 15% minimum reduction over 6years. From the Canadian agri-food sector's perspective, the 'tarrification' of import quotas represents the most notable reform of the WTO rules. The new tariffs are based on the difference between local prices and world market prices during the base period 19861988. Canada's established tariffs on a variety of supply managed commodities are provided in Table 1. As an example, if butter costs Can$2.001b.-I at the Canadian border, the 1995 tariff would be roughly Can$7.001b. -j , thereby affording competitive advantage on Canadian butter in the domestic market up to Can$9.001b. ~ By 2001, the tariff on the same butter would be reduced to about CanS6.00 lb. - L A second aspect of the market access stipulations of the WTO is minimum access for products for which there have been no imports. Tariff rate quotas (TRQs) ranging from 3 to 5% of domestic consumption have been established to provide limited access for foreign producers to the domestic market with little or no tariff attached. For example, Canada must allow entry of foreign butter up to 3% of total domestic consumption with no tariff attached; above that, the tariff is 351%. Also under the WTO, domestic support programmes such as the Gross Revenue Insurance Plan (GRIP), the Net Income Stabilization Account (NISA), tripartite and crop insurance, must be reduced by the year 2001 to 80% of the average in 1986-1988. Based on recent decreases in Canada's

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stabilization programmes, this requirement has already been met (Martin and Amanor-Boadu, 1994). In the area of export subsidies, the WTO calls for a 36% reduction in outlays and a 21% reduction in quantities on a 1986-1990 base. The Canadian agricultural sector's mid-1990s reformations to meet the requirements of the WTO are in many ways consistent with the restructuring of the state in general. Thus, the cuts to some segments of the agricultural sector's safety net, contained in the 1995 Canadian Federal budget, can be explained partially in response to the provisions of the WTO, and partially in response to concurrent reform of the welfare state in general (see Johnston, 1993). In the budget, the annual Can$560million subsidy to the railways under the Western Grain Transportation Act was eliminated in order to promote a transition towards market-determined freight rates. This cut effectively meets the requirements of the WTO in the area of export subsidies. Further, the dairy producer subsidy is to be reduced by 30% over 2years. Finally, overall funding for stabilization programmes, including NISA, GRIP and Crop Insurance is to be reduced by 30% over 3 years. Specifically, the budget called for a 21.5% reduction in spending for agriculture from Can$2.1billion in 1994-1995 to Can$1.6 billion in 1997-1998 (Department of Finance, 1995). These initial cuts are likely a prelude to more substantial cuts in the future and signify a shift towards reduced state intervention and support in Canadian agriculture. What are potential environmental implications of such reform as implied by changes in agricultural resource use?

3. A conceptual model of subsidy change and agroecosystem health This section reviews theory from agricultural geography, political economy of agriculture, agricultural economics, human ecology, and sustainable agriculture relevant to an assessment of potential environmental implications arising from the removal of economic subsidies in commercial agriculture. This provides a basis for developing a conceptual model of subsidy removal and agroecosystem health, which recognizes the role of individual decisionmaking in light of changed conditions.

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Most attempts to rationalize and explain agricultural decision-making originate with theories of economic rent (Ricardo, 1817 and Von Thiinen, 1826 in: Ilbery, 1985). These normative or idealized models assume that .the farmer, in seeking to maximize profits, considers all possible land uses and chooses that use which maximizes economic rent. Found (1971) notes that such models may not provide appropriate explanations for land-use decisions because (1) they assume perfect knowledge, and (2) the land-use decisions that such theory indicates may not be compatible with the behaviour of those expected to carry them out. Behavioural approaches, such as described by Wolpert (1964), emphasize satisfaction rather than optimization, thereby including multiple criteria such as physical well-being, the desire for leisure, a satisfactory income, and social considerations such as soil conservation. Yet, Ilbery (1985) argues that neither the optimizer nor satisfier models have explained the observed world adequately. Instead, approaches which focus on the sources and influences within agricultural systems may provide more insight to decision-making than do the deterministic models. The agricultural systems concept suggests that agriculture can be recognized as a complex system, which in turn is part of a broader macro system (Bryant and Johnston, 1992); in other words, "no farm exists unto itself" (Olmstead, 1970, p. 32). The basic unit of the agricultural system, as outlined in Olmstead (1970), is the individual farm, which interacts and operates within a hierarchical system of varying degrees of influence. The farm is a functioning system within four larger functioning systems; ecological, economic, social and political. Furthermore, the farm system itself is comprised of interrelated and overlapping sub-systems. Finally, like other open systems, there is a flow of energy, ideas and materials through the hierarchy of the system, between the individual farm and the external ecological, economic, social and political systems. In order to understand this functioning system, not just nationally but globally too, Marsden et al. (1986) contend that the agricultural systems concept be integrated with political economy. The premise of this assertion is that the agricultural systems concept is, not inherently but in practice, ineflbctual in its inclusion of political-economic determinants beyond such surface elements as market price or government

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regulation. The cornerstone of the school of agrarian political economy is its treatment of agriculture as part of a broader, predominantly capitalist, economy. For example, Le Heron (1988b), Bradley and Carter (1989) and Friedland (1991) trace the capitalization of agriculture and its emergence as a vertically integrated international agri-food system, so as to reveal that the so-called agricultural 'crisis' is structural and endemic to every advanced capitalist state. By revealing the similarities between various national agricultural sectors, such work suggests that there may be processes beyond the confines of agriculture alone which shape and influence the operations of agricultural systems. For example, agrarian political economists assert (in contrast to current arguments in support of market liberalization) that agricultural markets, like other markets, tend towards disequilibrium rather than equilibrium due to dissimilar relative degrees of competition between primary producers and processors; hence, farmers receive 'unequal exchange' (Lawrence, 1987). As Le Heron (1993, p. 203) suggests, the belief in the 'market knowing best' "misses the asymmetries of power enshrined in agro-commodity systems, the crucial non-economic issues which may define the meaning of 'right' decisions, and the inconsistencies between 'right' individual decisions and 'right' collective outcomes". Thus, the political economy perspective is able to consider the impact of imperfect competition or the role of economic and institutional structures at the macro scale, in constraining or altering individual resource use decisions. Such theory is increasingly relevant as OECD agriculture deregulates so as to increase its reliance upon the market. There has been limited empirical analysis of the implications of such reform for resource use and the environment, despite the fact that it represents a fundamental shift in the way resources are allocated. Cocklin et al. (1988) note that market intervention with respect to the allocation of natural resources is, or has been, the norm, even in staunchly capitalist economies; under deregulation, this is no longer certain. What are the implications of resource allocation within 'freer' markets? Gray and Lawrence (1992) speculate that one outcome of deregulation is further pressure on the environment as farmers seek to counteract falling commodity prices by producing more for sale. Recognizing a gap in knowledge,

Gray and Lawrence (1992, p. 270) state "much now needs to be understood about resource use behaviour in times of economic stress". What, if any, theory exists which might provide insight to this question? Neoclassical economic theory stresses that insecurity is inherent to a competitive economy. Insecurity is useful because it drives finns and individuals to render their best and most efficient service; "the ordinary rate of profit always rises more or less with the risk" (Smith, 1776, in: Barry, 1984, p. 7). However, as Galbraith (1958) notes, this insecurity, valuable though it seems in principle for the system, is never cherished by the individual him/herself. Instead, Galbraith (1958) suggests that a degree of security is essential for maximum productivity to be achieved. Boulding (1983) concurs, suggesting that efficiency is encouraged through stability (the use of price supports), because the uncertainty involved in meaningless market fluctuations discourages innovation and investment. Gardner (1990) contests this belief, arguing instead that innovation and its resultant advances in productivity are achieved through variability in production conditions and input prices. Hence, this theory provides little consistent basis for predicting resource use decisions in an era of reduced security. Some insight may derive from empirical research in human ecology which relates resource use and wealth (see Hudson, 1981; Ashby, 1985; Kishke, 1990; Hwang et al., 1994). Such research, mainly within developing economies, suggests that exploitative resource use is a product of shortened planning horizons caused by impoverishment. As poverty increases, farmers make more intensive use of available resources and the soil is mined. While exploitation of the resource base may prove fruitful in the short term, over the longer term such action becomes self-defeating as yields inevitably decline (Axelrod, 1984). Lower yields induce growing poverty which, in turn, results in greater exploitation of the land; a vicious cycle is born (de Janvry and Garramon, 1977). Without economic stability, conservation strategies cannot be implemented. Similarly, the sustainable agriculture literature argues the existence of systemic economic constraints to land stewardship in agriculture. Troughton (1991) documents the decline in stewardship among farmers through the transition of agriculture from its small scale traditional mode to

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its large scale and capital intensive, industrial mode, noting that "most farmers.., regret the lack of stewardship, but the pressures to produce more in the most economically efficient short-term manner are more compelling" (p. 79). The lack of short-term return on investments in stewardship, or in some cases, the loss in income resulting from lower yields, makes conservation untenable. Smit and Smithers (1992), in an analysis of the constraints to soil conservation, observe that the adoption of conservation technologies is hindered by the lack of security in farming; "for many farmers, long-term planning horizons are clouded by concerns over short-term survival" (p. 12). Fig. 3 provides a conceptual framework for assessing the environmental implications of subsidy removal via decision-making in agriculture. The framework suggest that individual operators decide upon what to produce and how to produce it, in light of signals from the biophysical, policy, social and macroeconomic environments. These interdependent external stimuli filter through the unique attributes of

individuals, and thereby influence the decisions made on numerous farms, resulting in aggregated economic, environmental (biophysical) and social impacts, the three basic components of agroecosystem health. In turn, these aggregated impacts influence and alter both the individual decision making environment and the macro environments within which decisions are made. The conceptual model indicates the broad structure of the myriad influences and constraints that operate around and within agricultural systems, and provides a means of specifying a causal chain between a policy change, such as subsidy removal, agricultural decision-making, and environmental health; as such, it can be interpreted as a general stress-process-response model. The external stimuli affecting operator decisions encompass a broad set of influences, which act independently or in tandem with one another. The biophysical environment, including land conditions and variability of climatic conditions, influences and constrains decisions. The policy environment includes not only agricultural policy such as produc-

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(RESPONSE) Fig. 3. Conceptual stress-process-response model of subsidy change and agroecosystem health. Adapted from Smitet al. (1996).

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tion subsidies, but also specific environmental or resource policies, such as clean water acts, as well as general welfare policies, such as social security. The social environment influencing individual decisions may include such factors as local knowledge and skills, societal institutions and infrastructure, or the societal function of production, be it profit maximization, satisfaction or other (i.e. societal norms or values). Finally, the macroeconomic environment includes not only customary factors such as market price, or access to labour and capital, but also the influence of market (in)stability, interest rates, or terms of trade. Of course, these external stimuli are not independent of each other. For example, policy may be designed so as to mitigate against climatic or market variability, or market prices may be influenced by social demands or adverse climatic events. The model also implicitly acknowledges the role of broader processes believed to underlie the surface influences of the macro environments within commercial agriculture. For example, the tendency towards market disequilibrium produced by market concentration among agri-food processors may underlie deflated market signals which primary producers, as predominantly price takers, respond to. In this sense, the observable stressors and effects captured in the model operate against a backdrop of capitalist political economy. The response of individual producers to external stimuli is somewhat variable, due to differing perceptions of, and sensitivity to, these stimuli, according to the unique attributes of individual farms, farm operators and farm families (Smit et al., 1996). Hence, farm decisions regarding risks, or the selection of inputs and outputs, which (unconsciously) reflect the type and rate of surplus extraction in production, are a function of not only external forces, such as market prices, but also internal filters such as indebtedness, religion or land tenure. These decisions result in aggregated economic, environmental (biophysical) and social impacts or consequences, such as changes in returns, soil erosion, or human health. In turn, these impacts act as feedbacks to both individual farm operations and aggregations of operations (i.e. regions), as well as to their external environments. An impact such as reduced returns may prompt individual, or groups of, farmers to undertake short-term adjustments, such as storing

output or lobbying for state support, as well as more long term strategic adaptations, such as improving land drainage or forming marketing boards. Similarly, these impacts may prompt both short and long term response in the biophysical, policy, social and macroeconomic environments, such as commodity market response to crop failures or the development of state subsidized crop insurance. The conceptual model provides a framework for considering variable hypotheses of the environmental implications of subsidy removal in commercial agriculture. Among these, two contradictory hypotheses are explored. A reduction in input or output subsidies, such as those provided to fertilizer applications or upland pasture production, should result in a reduction in the use of inputs and the production of outputs. In this way, desubsidization would reduce the intensity of production resulting in less exploitative use of the environment, and hence improved agroecosystem (environmental) health. Conversely, the transfer of risk from the collective to the individual coupled with an increased reliance upon the market and its reduced marginal returns, should shorten planning horizons of individual farmers, resulting in more exploitative use of the environment, and hence deteriorated agroecosystem (environmental) health. An opportunity to explore these hypotheses is provided by New Zealand, where agriculture has undergone substantial subsidy and regulatory reform. In the following section, trends in state subsidies are documented in tandem with changes in fertilizer use, land development expenditures and stocking rates in New Zealand pastoral agriculture for the period 1980-1993. These observed changes in resource use are then interpreted with respect to their potential implications for environmental health.

4. New Zealand pastoral agriculture The OECD (1993) notes that only two of its member states have significantly restructured their agricultural sectors towards greater market orientation: New Zealand and Australia. In New Zealand, state support in the agricultural sector, up to the mid-1980s, was similar to other OECD states (Fig. 2). In 1984, however, New Zealand's long history of

B. Bradshaw, B. Smit /Agriculture, Ecosystems and Environment 64 (1997) 245-260

state intervention was brought to an abrupt halt with the implementation of a restructuring plan which fundamentally altered the state's role in production, consumption and reproduction. New state policy aimed at giving greater market determination to capital allocation; reducing costs and improving flexibility in resource allocation; exposing producers to competition (Le Heron, 1988a). In the agricultural sector, restructuring was manifest in the removal of most direct and indirect subsidies, reflected in the decrease in the PSE from a high of 35% in 1983 to just 3% by 1993 (Fig. 2). The immediate impacts of the reduction in farm support were severe, including a downward slide in incomes, land prices and farm equities, increased debt, reduced stocking rates and a reduction in employed labour (Cloke, 1989; Johnson, 1989; Sandry and Reynolds, 1990). Focusing exclusively on pastoral agriculture in New Zealand, it is possible to contrast levels of state support to the sector with resource use intensity parameters, including fertilizer application, land development expenditures and stocking rates. Traditionally, pastoral farming in New Zealand has received direct subsidies in support of the purchase and use of fertilizer (superphosphate) inputs. In 1980, there was a sharp fall in the level of this subsidy as the government switched its focus of support from input to output assistance (i.e. from directly supporting the costs of inputs, to ensuring financial returns on output). In 1984, the subsidization of fertilizer 3600

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Subsidy Equivalent for New Zealand pastoral agriculture, 19801993. Data from Ministryof Agricultureand Fisheries(1993) and Statistics New Zealand (1995). transport and spreading costs was terminated, followed in 1987 by the elimination of the purchase subsidy. Simultaneously, output assistance was discontinued, thereby removing all forms of direct and indirect support for the use of fertilizers. Fig. 4 reveals that as the fertilizer subsidy declined between 1980 and 1988, fertilizer use also fell precipitously (the subsequent increase in fertilizer use is addressed later). The amount of capital investment in land development also decreased during the mid-1980s. Fig. 5 summarizes the trends in land development expenditure in relation to overall state support to pastoral agriculture (PSE). Prior to 1984, subsidies for land development and for increasing livestock numbers encouraged farmers to bring marginal and sensitive lands into production. Since these schemes were terminated in 1984, it has become less economic to bring additional land into production (Ministry of Agriculture and Fisheries, 1993). Over the period 1975-1983, sheep numbers in New Zealand pastoral agriculture escalated consistently, peaking at approximately 70 million. By 1994, their number dropped to less than 50 million. While this decline was counterbalanced somewhat by increases over the same period in beef and dairy stock, Fig. 6 reveals an overall decrease in total stock units in succession with reductions in overall assistance to pastoral agricultural (PSE). From these observed changes in resource use

B. Bradshaw, B. Smit / Agriculture, Ecosystems and Enuironment 64 (1997) 245-260

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following the reduction in state subsidies post-1984, a number of potential environmental health implications can be advanced. Reduced fertilizer use can be associated with decreased nitrate runoff, thereby improving water quality. Similarly, reduced land development expenditure can be associated with decreased felling of native forests and conversion of scrubland to pasture, thereby slowing the loss of indigenous flora and fauna. Finally, the decline in stock units can be associated with decreased production of organic material and soil erosion, thereby slowing land degradation. In this sense, the experience in New Zealand pastoral agriculture appears to lend preliminary support to the hypothesis that desubsidization reduces farming intensity, resulting in less exploitative use of the environment, and hence improved agroecosystem (environmental) heath. Yet, this illustration may not represent a complete picture of potential environmental health implications of fanning without state intervention and support. The post-1984 decrease in fertilizer use, land development expenditure and stocking rates may simply represent a short-term response to subsidy removal. Both fertilizer use and land development expenditure increased, or rebounded, in the post- 1988 period, without any corresponding increase in state support (Figs. 4 and 5). This subsequent increase may be the result of improved farm incomes post-

1988, as suggests Jones (1990, in: Ministry of Agriculture and Fisheries, 1993), or it may simply be the result of a reorganization of farm budgets so as to allocate personal funds towards the purchase of an input, or development, that was formerly paid for by the state. For example, prior to 1988, fertilizer costs were considered external to a farm operator's budget as much of their cost was covered by the state. Hence, as fertilizer subsidies decreased, the natural response of the operator was to decrease fertilizer use. In the post-1988 period, farm operators may have recognized that increased fertilizer use was essential to remain competitive and therefore altered their budgets so as to incorporate the cost. This latter explanation equates nicely with the numerous studies which document the effect of subsidy introduction on farm production decisions (e.g. Body, 1984; Bowler, 1985). In this sense, the observed short term response to subsidy removal may do more to illustrate the known health effects of past subsidization than it does the long term health effects of farming under increased individual risk, reduced security and increased economic pressure brought upon by reduced marginal returns. The short term resource use response to desubsidization indicates potential improved environmental health, but the longer term resource use behaviour, while not yet clear, may indicate a deterioration in health. In the New Zealand context, there has been much speculation, and some empirical testimony, in support of the alternative hypothesis, which suggests that pressures to compete in a deregulated market should shorten planning horizons and result in more exploitative use of the environment. For example, Blunden et al. (1996) surmise that subsidy removal has created greater uncertainty, thereby focusing farmers' attention on income creation rather than environmental objectives. This contention is empirically supported by Smith and Saunders (1995) who, based on a detailed study of 16 pastoralists in New Zealand hill country, observed decreased pasture health and fertility, as well as unabated soil erosion in the post-1984 period. Finally, the Ministry of Agriculture and Fisheries (1993, pp. 11, 18) observes: Problems with land degradation have become, if anything, more visible since the [1984] liberalisation

B. Bradshaw, B. Smit / Agriculture, Ecosystems and Environment 64 (1997) 245-260

[of New Zealand's agricultural sector]. Farmers have not had adequate income to steward land resources, to invest in soil conservation or the conversion of marginal pasture into forestry. The effects of liberalisation have thus cut both ways. Input use and stocking levels have declined but farmers have faced increasing income constraints... The major environmental problems not resolved by the agricultural liberalisation tend to be related to land-use problems such as soil conservation.

257

ing without the security blanket formally afforded by the state. Whether undertaken from the perspective of agroecosystem health or not, there exist a number of pertinent future research needs. Rather than infer altered environmental condition via change in agricultural resource use, future research may seek to measure select environmental parameters directly so as to observe the net environmental impact of subsidy removal. There is also a need to supplement aggregate scale analyses with investigations at the individual farm level to establish a better understanding of farmer behaviour under new terms of resource management in the post-subsidy era.

5. Conclusions Subsidy and regulatory reform of the Canadian and other OECD agricultural sectors is 'coming' and has the potential to fundamentally alter the nature of agricultural production, and hence, agroecosystem health. This paper has considered potential environmental health implications of reform based on existing theory and observed resource use in the case of New Zealand pastoral agriculture. The limited empirical information suggests that subsidy removal improves environmental health in the short term, but may also decrease health in the long term via reduced individual security and shortened planning horizons. That the short and long term impacts may differ is not antithetical to the agroecosystem framework. Indeed, the framework provides an opportunity to assess trade-offs between differing temporal or spatial scales, or amongst system components (e.g. environmental and economic health). While this type of trade-off analysis was not undertaken in this paper, it represents an obvious opportunity for future research. For this paper, the benefits of the agroecosystern health framework derived from its implicit attention given to interactions between system components, in determining the response of the system to a given stress, such as subsidy change, as well as its inherent evaluative quality. In general, our existing knowledge does not provide agreement on the implications of subsidy and regulatory reform for the economic, social and environmental health of agriculture, and hence thwarts informed implementation of reform. This is especially true of the environmental implications of farm-

Acknowledgements The research was supported by the Social Sciences and Humanities Research Council of Canada; the Ontario Ministry of Agriculture, Food and Rural Affairs; the Eco-Research Program of the Tri-Council Secretariat of Canada through the Agroecosystem Health Project at the University of Guelph; Agriculture and Agri-Food Canada, Policy Branch, Environment Bureau; the Human Dimensions of Global Change Studentship, Royal Canadian Geographical Society. The authors gratefully acknowledge the contributions of C. CocHin and G. Blunden, as well as the editorial suggestions of the two anonymous reviewers.

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