When planning ways to boost organic agriculture, we have to consider measures that promote the growth of the sector such as public procurement policies but also tackle those that work against organic e.g. subsidizing the purchase of chemical fertilizers and pesticides.
Subsidies for Chemical Inputs at the Expense of Organic
Many countries subsidize agricultural inputs, particularly fertilizers, in an attempt to increase agricultural production. When the structure of the subsidy program is such that only commercial chemical fertilizers are subsidized and organic commercial fertilizers and on-farm produced fertilizers are not, the policy environment works against organic agriculture and has a detrimental effect on sector growth.
Similarly, when a country applies reduced value-added tax (VAT) for commercial fertilizers and pesticides, this acts as a subsidization of conventional agriculture, at the expense of organic agriculture.
It is therefore crucial, in a comprehensive strategy to promote organic agriculture that we tackle the issue of subsidies for conventional inputs and ideally reverse them.
Signs of Success
Generally speaking, there is a positive global trend, especially in developed countries, towards phasing out subsidies (or reduced VAT) for pesticides and fertilizers. We are seeing new policies impose taxes on synthetic pesticides and fertilizers as well as policies that give preferential fiscal treatment to organic fertilizers and biopesticides.
The rationale behind such steps can be either a deliberate attempt to promote organic agriculture or simply as part of a strategy to decrease the use of toxic and environmentally damaging substances in agriculture.
Putting Policy into Action
Some European countries introduced taxes on nitrogen fertilizers as early as 1976, 1985 and 1986 for Finland, Sweden and Austria respectively, with rates of taxation varying from 10% to 72% of the fertilizer price.
A study from 2001 evaluated the impact of such tax packages and concluded that the greatest impact (reduction of negative externalities caused by use of nitrogen fertilizers) is obtained when the tax system is combined with other policy instruments (advice, incentives, and regulations) and when the revenue raised through taxes is reinvested solely to promote sustainable alternatives.
Other European countries joined the trend of chemical fertilizer taxation in the following decade, but the history of fertilizer taxation in Europe is overall quite complex. There is a variety of approaches and several countries, after having implemented such programs for several years, are led by EU policy and court decisions to abolish or modify them.
In general, in the EU, national fertilizer control policies are dealt with in the framework of the EC Nitrate Directive (91/676/EEC), which applies equally to all member states. Nevertheless, there remain disparities, for example, in the VAT levels for fertilizers, Italy, Germany, France, and Austria put lower VAT on organic fertilizers compared to chemical ones.
In other developed regions of the world, the trend is also to phase out subsidies on chemical fertilizers. South Korea abolished subsidies for chemical fertilizers in 2005 and is now subsidizing the use of organic fertilizers and soil conditioners. Other countries such as Australia, New Zealand or the US do not subsidize fertilizers.
In the developing world, the fertilizer subsidy situation is still mostly unfavorable to organic agriculture, with many countries especially in Africa, Latin America and India still subsidizing chemical fertilizers and not subsidizing organic fertilizers, or exempting them from import taxes. However, here things are also beginning to change.
Subsidies Favoring Organic
In 2009, the provincial government of Bali (Indonesia) started to gradually reduce subsidies for conventional fertilizers and simultaneously introduce subsidies for organic fertilizers with an annual amount of EUR 69.7 million. The budget allocated to the subsidies for organic fertilizers was gradually increased every year (EUR 278.9 million in 2013, EUR 697.2 million in 2014) and the government altogether stopped subsidizing chemical fertilizers in 2012. Bali is a great example of a successful transition from a system subsidizing only chemical fertilizers to a system subsidizing only organic fertilizers over the course of three years.
The State of Sikkim, in India, underwent a somewhat comparable process, having progressively phased out subsidies on chemical fertilizers from 2003 to 2008 and having a deliberate policy to convert the Sikkim’s agriculture to organic. In December 2015, Sikkim became the first 100% organic state in the world with more than 66,000 farming families managing 75,000 hectares of certified organic farmland. Shri Pawan Chamling the Chief Minister of Sikkim was awarded the One World Award for his work in 2017.
Policies for an Organic Future
Experience has shown that changing agricultural policies is often a complex and challenging process. In addition to reviewing policies on subsidies for synthetic inputs, it is also advisable to look at other issues such as:
- Allowance and mandated applications of synthetic pesticides.
- Unfavorable regulations on organic fertilizers, plant protection products, and farmers’ seeds.
- Unfavorable agricultural risk management programs (crop failure compensation schemes, etc.).
- Food safety and environmental hygiene requirements.
- Allowance for GMO crops.
- Support for energy crops (biogas and biofuel plants).
- Farmland use policies.
- Competing environmental schemes.
