Interpreting the Green Environmental Payment Policy: How Can Public Trust Be Enhanced?

Taiwan has implemented the guaranteed-price rice purchase policy since 1974. In the past, the goals of the guaranteed-price rice purchase policy were to stabilize rice prices, encourage increased rice production, and maintain rice farmers' income. This policy may inadvertently encourage the production of low-quality, high-yield rice and may also create budget crowding-out problems. If a regulatory mechanism for purchasing rice based on quality were established, the government would have to bear the management costs involved. Therefore, the government hoped to gradually adjust toward an environmentally friendly payment policy. In 2006, the government's agricultural policy, the "New Agriculture Movement," promoted organic agriculture and healthy eating. In 2017, the "Guidelines for Subsidies for Organic and Environmentally Friendly Cultivation" were established, covering farmland that has passed verification under the Agricultural Production and Certification Management Act and is producing organic agricultural crops. In 2016, the direct payment policy for rice farming was piloted, and in 2018, the green environmental payment policy was formally implemented.

In 2018, we conducted in-depth interviews with rice farmers and farmers' associations to further understand the problems in actual implementation. For farmers, what they care about is whether rice prices look promising, whether the problem of overproduction can be sufficiently alleviated, and whether prices can return to the level of three years ago. They also suggested that agricultural authorities could, when overproduction occurs, use the news media to promote more guidance and avoid too many farmers continuing to plant rice. The policy of transitioning rice farmers to coarse grains mainly considers two aspects: (1) whether the soil is suitable for conversion, and (2) whether production and marketing proceed smoothly. Although Taiwan's land area is small, regional differences are considerable. Some areas are only suitable for cultivating rice or leaving land fallow. Areas with higher soil moisture and clay content cannot smoothly grow other crops, so the feasibility of conversion is low. Production and marketing problems have always tested government agencies. The many contract farming zones currently planned are meant to solve production and marketing problems. After converting to produce other crops, farmers mostly deliver them to farmers' associations, which often also causes the problem of excess inventory at farmers' associations. When farmers' associations have low willingness to purchase, this naturally affects whether farmers are willing to convert or choose to leave land fallow. In addition, rice farmers are very concerned about rising seedling prices. For rice farmers, sharply increased costs instead reduce income. Rice farmers question why, when rice is already overproduced, seedling prices do not fall but rise instead, and whether seedling businesses are colluding to raise prices.

Further Reading"What is meant by "land-oriented green environmental payment"?

Next, we interviewed several officials from farmers' associations. The farmers' associations expressed willingness to cooperate with the government as important actors in implementing agricultural policy, assisting in promoting various government measures and handling many agriculture-related operations. Public grain purchase and management are mainly carried out by farmers' associations. Under conditions of rice overproduction, the quantity of public grain increases greatly, and farmers' association warehouses become overflowing. Farmers also need to apply through farmers' associations for direct payments for rice farming or choose to deliver public grain, making these associations the main frontline window for grasping information on rice production for that season. However, farmers' associations have limited manpower. During busy farming periods, they must simultaneously verify whether farmers' application qualifications are abnormal, which becomes an operational difficulty. Regarding subsidies under the direct payment policy for rice farming, farmers' associations in important rice-producing areas in central and southern Taiwan have clearly felt the problem of overproduction. Many landowners of farmland that originally did not produce rice have resumed cultivation of rice to receive subsidies, and in some areas second-crop yields have increased. Farmers' associations themselves also operate self-managed grain. If purchase prices are good, this indeed helps farmers produce high-quality rice and receive direct payments for rice farming.

Integrated Production and Marketing Improving "Rice Surplus and Coarse Grain Shortage"

Under conditions where the government encourages contract farming, many farmers' associations have established contract farming zones, achieving an "integrated production and marketing" effect, which is very beneficial to local agricultural development. A small number of farmers' associations operate rice import and export businesses. Rice imports are brought in by private grain dealers and entrusted to private farmers' associations for storage. Rice exports are exported by farmers' associations' self-managed grain to Japan or the China market. Export volumes are not large, and market controls are strict, often using health and safety inspections to constrain rice imports.

The green environmental payment policy has three goals: (1) adjust the rice industry structure and balance supply and demand; (2) reward key crops for development and maintain food security; (3) transition to green environmental payments and achieve environmentally friendly cultivation. This policy has advantages such as saving public grain storage costs, raising farmers' income, enhancing farmers' awareness of green payments, increasing incentives for high-quality production, and not increasing government expenditure.

According to statistics from the Agriculture and Food Agency of the Council of Agriculture, Executive Yuan, Taiwan's existing cultivated land area in 2017 was about 745,517 hectares. For the cultivated area of individual crops, the total of the first and second rice crops was about 270,000 hectares; the vegetable production area in recent years was about 150,000 hectares; fruit was 180,000 hectares; special crops (tea, tobacco, sugarcane, sesame, rapeseed, cassava, cotton, mat rush, aromatic flower crops, sisal, yam, etc.): less than 23,000 hectares in total. Coarse grains (sweet potato, wheat, corn, millet, sorghum, peanut, soybean, red bean, mung bean, etc.): about 77,000 hectares in total.

According to the land-oriented green environmental payment policy, the goal is to improve the situation of "rice surplus and coarse grain shortage," cooperate with the major grain warehouse plan, increase domestic coarse grain production, strengthen production and marketing supply chain links, and achieve the goal of 100,000 hectares of coarse grain area by 2020, an increase of 30,000 hectares from the current level. According to statistics from agricultural authorities, "for every 10,000 hectares of coarse grains planted, output value of NT$6 billion is generated across the upstream, midstream, and downstream sectors." The NT$6 billion in output value covers the seedling industry, machinery industry, fertilizers, chemical pesticides, and harvesting. Preliminary estimates suggest that about 300,000 farmers and 320,000 hectares of farmland will benefit from the "land-oriented green environmental payment policy." Each hectare per crop season can increase income by NT$5,000 to NT$15,000.

Regarding comparison of farmers' income and choices. Under the guaranteed-price purchase for rice, each hectare can deliver public grain. Taking the first crop with production of 6,200 kg per hectare as an example, if rice farmers choose to deliver all as public grain, total income can reach about NT$144,400, including a drying fee subsidy of NT$2 per kg. If rice farmers produce more than 6,200 kg, then in addition to delivering public grain, they still have some rice that can be sold to grain dealers, and total income will exceed NT$144,440.

The guaranteed-price purchase policy for rice has the function of supporting the market price of rice, and market prices generally remain above the surplus grain purchase price of NT$21.6 per kg. Under the current direct payment policy for rice farming, each hectare of first-crop rice can receive NT$13,500. For ordinary rice farmers, if income would be higher than the NT$144,400 from delivering public grain, they will choose to receive the direct payment. The market rice price can be calculated as: (144,400-13,500)/6,200=NT$21.11. This is lower than the surplus grain purchase price of NT$21.6. If in that year the market price of first-crop rice is higher than the surplus grain purchase price, rice farmers will generally choose to receive the direct payment for rice farming. For rice farmers producing high-quality rice, taking Hualien and Taitung in the eastern region as examples, market prices are generally higher, so choosing the direct payment policy for rice farming is more advantageous. Whether receiving the direct payment for rice farming increases rice farmers' income compared with guaranteed-price purchase mainly depends on whether the rice price looks promising at harvest in that region that year. However, the determining factor of rice price lies in market supply and demand.

Direct Payment for Rice Farming VS Guaranteed-Price Purchase

Regarding the impact of the dual-track policy of direct payment for rice farming and guaranteed-price purchase operating in parallel, when the market price of rice looks promising, rice farmers choose to receive the direct payment for rice farming, increasing rice farmers' income. Precisely because of this incentive, when market prices look promising, rice farmers have a greater willingness to produce, which may lead to results such as increasing per-unit yield or increasing production area. Rice farmers who apply for direct payment for rice farming, if they later find that prices are poor or that they cannot sell directly to consumers, can also change their minds and not take the direct payment, instead selling to grain dealers.

If the number of rice farmers receiving direct payment for rice farming increases, the inventory quantity purchased by grain dealers will also increase, which may cause the market price of rice to slide and be unfavorable to rises in rice prices, until grain dealers expect inventory levels to begin trending downward.

According to statistics from agricultural authorities, before the direct payment policy for rice farming was implemented, in recent years the average income of first-crop rice farmers was NT$80,421 per hectare, and more than NT$80,000 each year; the average income of second-crop rice farmers was NT$46,435 per hectare, but in most cases it was below NT$45,000. Therefore, from the perspective of rice farmers' income, when agricultural authorities in the past encouraged fallow land subsidies, a subsidy of NT$45,000 per hectare per crop season could effectively increase second-crop rice farmers' willingness to leave land fallow.

However, for first-crop rice farmers, if they want to leave land fallow, the subsidy amount per hectare needs to exceed NT$80,000. There have also been past situations of water shortage and drought, and the fallow subsidy amount was about NT$85,000. Therefore, we estimate that after implementing the green environmental payment policy (direct payment for rice farming), possible impacts may include: (1) An increase in rice planting area: estimated income per hectare increases by NT$5,000 to NT$14,000, increasing production incentives, which may cause fallow farmland not to convert to coarse grains but instead to resume rice cultivation. However, limited by good farmland and available agricultural labor, this situation may have a greater impact on the second crop than the first crop; (2) Reduced incentive to leave land fallow: rice farmers mostly leave land fallow mainly for the second crop, primarily because weather conditions are poorer. After implementing the direct payment policy for rice farming, they can receive NT$10,000 more in payments, raising income levels, while the NT$45,000 production maintenance amount remains unchanged, greatly reducing willingness to leave land fallow; (3) Reduced incentive to convert: after implementing the direct payment policy for rice farming, it is estimated that rice farmers' income levels will rise. Taking conversion to hard corn as an example, profit per hectare is about NT$15,000, the payment amount is NT$60,000, and income from converting to hard corn is about NT$75,000. This is lower than the first-crop rice level but higher than the second crop, which may make conversion of the first crop relatively difficult, while willingness to convert the second crop will be higher.

The "land-oriented green environmental payment" policy is the initial stage of Taiwan's agricultural environmental policy. At present, analysis of this policy's effectiveness still needs further review. For this agricultural policy, which can be called an innovative concept, it is unavoidable that the public, individual farmers, and even consumers have many doubts. However, based on the policy's name and core concept, the agricultural green payment system should be integrated with the ecological environment and thereby serve as a direction for promoting agricultural environmental policy. This still shows that the government attaches importance to the multifunctional value provided by agriculture, and it can also thereby enhance the public's and farmers' awareness of agriculture's multifunctionality. During policy implementation, each execution stage still requires careful review of whether the policy deviates from its main axis. It is recommended that the government also strengthen explanation of the meaning of environmental service payments and enhance public trust in the government, as a basis for expanding and promoting environmental service payment policies in the future.

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