How to Unlock Canada’s Clean Growth Opportunity in Agriculture & Agri-Food

October 14, 2021

The Opportunity

Canada’s agriculture and agri-food sector is on the cusp of an extraordinary economic growth opportunity. It is expected that demand for high-value food will increase significantly in the coming decades, as a result of population growth and an increase in the global middle class. In recognition of this opportunity, the Canadian government’s Economic Sector Strategy Table for Agri-Food adopted an ambitious target to reach $85 billion in agriculture, agri-food and seafood exports and $140 billion in domestic sales by 2025. As the world’s 5^th largest agricultural exporter, Canada has the opportunity to leverage its position as a trusted global leader in supplying safe, nutritious food to diversify its export markets. A new major report from Smart Prosperity Institute explores how to unlock the clean growth opportunity in Canada’s agriculture and agri-food sector.

The Challenge

While poised for growth, Canada’s agriculture and agri-food sector faces a challenge – it already has a significant environmental footprint. If the sector is to help meet Canada's targets, production will have to increase in a sustainable manner. While the overall greenhouse gas (GHG) emissions-intensity of agriculture has been declining, some concerning trends remain. The agriculture sector (including on-farm fuel use) accounted for about 10% of Canada’s total GHG emissions, absolute emissions from crop production have increased significantly since 2005, and Canada’s annual soil sequestration rates have tapered off over the past 15 years.

Current Approaches

Canada has not been stagnant on this issue, and steps toward reducing the environmental impact of Canada’s agriculture sector have already been taken. Federal and provincial governments, as well as industry leaders, have made commitments to reduce emissions, source agri-food inputs sustainably, and protect natural resources on farmland.

However, current approaches have not been enough to decouple economic growth from environmental harm. The suite of cost-share programs offered under the Canadian Agricultural Partnership (CAP) act as one of the main vehicles for promoting the adoption of environmentally beneficial management practices (BMPs), but these programs are still grappling with a number of problems, such as selection biases and producer preferences for adopting highly visible, easy to trial, or economically beneficial practices.

Unlocking Canada’s Clean Growth Opportunity

To explore how Canada can decouple economic growth from environmental harm and increase the adoption of BMPs, SPI held a workshop in January 2020 with representatives from governments, industry, academia, and environmental non-governmental organizations. The representatives assessed the strengths and weaknesses of 6 focus areas that could help unlock the agriculture and agri-food sector’s clean growth opportunity. Participants identified 3 focus areas:

1) Nitrogen fertilizer management has clear economic and environmental benefits that can be realized by reducing nitrogen fertilizer overapplication, and is scalable in many different production systems.

2) Improving soil health has the potential for large environmental and economic benefits, both for farmers and broader society. Other co-benefits include reduced nutrient run-off, lower flooding risk, and climate change adaptation on the farm.

3) Circular economy approaches to agriculture and agri-food have the potential to realize economic and environmental benefits, and would engage the entire agri-food supply chain and the private sector in solutions. Food waste is also a significant issue in today’s society.

Key Policies

Although the CAP cost-share programs have helped advance Canada’s environmental objectives, new policy instruments will be necessary to unlock this clean growth opportunity. SPI identified several policy instruments that show promise in addressing the environmental problems facing Canada’s agriculture sector, while improving economic competitiveness and farmers’ livelihoods:

1) Behavioral Economics Approaches (or ‘Nudges’): Nudges have some potential advantages relative to more traditional environmental policy instruments. Nudges usually do not introduce direct regulatory or economic distortions or impose significant financial burdens on farmers. Designing and implementing nudge policies can increase the cost-effectiveness of new and existing policies, and may have lower absolute costs compared to other kinds of agri-environmental policies.

2) Targeted Agri-environmental Subsidies – Reverse Auctions: Some literature suggests that conservation auctions usually outperform fixed-payment schemes. A properly designed reverse auction can increase the cost-effectiveness of BMP adoption and improve the allocation of government funding.

3) Offsets for Greenhouse Gas Emissions, Water Quality, and Biodiversity: Offsets provide farmers with an incentive to adopt climate friendly practices; however, there are many considerations when designing an offset program. The environmental integrity of the offset protocols depend on how they account for: permanence (ensuring the continued persistence of the environmental benefits generated by the offset); additionality (ensuring farmers wouldn’t have implemented the credited environmental management actions anyways); and leakage (whereby the credit merely shifts environmental harms to other times and places, without actually reducing them in the aggregate).

Conclusion

Canada is facing an unprecedented opportunity to foster growth in the agriculture and agri-food sector, while also contributing to our environmental objectives. But current approaches are not enough to get us there. Through innovative policy approaches, federal, provincial, and territorial governments can help benefit producers, industry, the environment, and all Canadians.

To learn more, read Smart Prosperity Institute’s new report on unlocking clean growth in Canada’s agriculture and agri-food sector.