Adverse environmental consequences of depressed agricultural prices

Agricultural pricing is affected by foreign exchange policies. When a currency is over-valued and the domestic marketing system does not intervene, the producer of export products receives less domestic currency in real terms from international trade. The effect of this on the environment is similar to that following underpricing of production, which contributes to rural poverty. Depressed prices may induce producers to increase production volume at the expense of sound land management. If the income that can be earned from farming is inadequate, farmers reduce inputs (such as for land conditioning) or migrate to areas with more promising prospectives, like new forest frontier areas. Both reactions to rural poverty aggravate environmental problems.

During the decade up to 1987, the loss to Nigerian producers of agricultural products attributable to currency over-valuation equalled more than 60% of the revenue from crop sales. Conversely, currency overvaluation in effect subsidizes imported inputs (such as agrochemicals) and so can induce excessive use. The impact that reduced agricultural prices have on the environment is ambiguous. In some cases reduction in the intensity of input use may be good although if land prices subsequently become depressed this, in turn, reduces the value of investments in farmland development or soil conservation. Moreover increased poverty can have wide-ranging negative consequences for the environment.

During the recessionary period that followed the boom in commodity prices and production of the late 1970s, most developing countries removed growth stimuli such as subsidized credit, tax and land concessions, with a view to reducing fiscal and external imbalances. Often this implied a reduction in public and social investment. Moreover, debt pressure forced Governments to adopt liberal exchange rate policies and encourage the production of trade commodities. There was pressure to expand output. Although the depressing impact of these measures on world commodity markets is clear, the impact on the environment and sustainable development is not as readily quantifiable. Although it may be suggested that recession may be more environmentally benign that malign (it lowers resource use), case studies show that this is not necessarily the case. Among the specific environmental effects of recessionary tendencies are: higher vulnerability to attacks for pests and disease owing to financial inability to protect crops adequately; disinvestment in environmental control technology, particularly in processing; and abandonment of arable land or diversification into cash crops with distinctly more negative environmental effects.