1. CONCEPTUALIZING THE ENVIRONMENTAL ROLE OF CHILEAN AGRICULTURE: ENVIRONMENTAL EXTERNALITIES MODULE Raúl O`Ryan Manuel Díaz Cristian Pincheira Program for Environmental Economics and Management (PROGEA) Industrial Engineering Department Universidad de Chile

2. OBJECTIVES General Objective To identify environmentally related externalities associated to agricultural development in two distinct broad geographic areas of Chile (natural experiment)

3. 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

4. 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

5. DELPHI METHODOLOGY

6. 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

7. Conceptual Framework: Sources of 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

8. Conceptual Framework: Intensity of Use intensity versus externalities development Source: Traill (1988) en University of Aberdeen & Macaulay Land Use Research Institute (2001)

9. 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

10. 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.

11. Description of Specialists (Panel of Experts) SectorIV Region (%) VII Region (%) Public45.074.1 Private55.025.9 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%)

12. Results

13. 1. Drivers that Determine Agricultural Development (IV and VII region) Drivers Considered Economic Sector policies General policies Technological Institutional Geoclimatic

14. 1. Drivers that Determine Agricultural Development (IV and VII region) Most important: Economic and Technological Economic: 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%)

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

19. 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

20. 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.

21. P: Positive; N: Negative Note: 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

22. P: Positive; N: Negative Note: 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

23. 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.

24. 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.

25. 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.

26. 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.

28. 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.

29. 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.

30. 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.

31. 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.

32. 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.