This report examines the linkages between agriculture and water quality. It discusses the overall trends and outlook for agriculture and water quality in OECD countries; describes recent actions by policy makers to address water quality issues in agriculture; and provides a set of recommendations for countries to meet the challenge of improving agricultural water quality. In an earlier publication, as part of OECD work on agriculture and water, the linkages between agriculture and water resources were examined in OECD (2010) Sustainable Management of Water Resources in Agriculture.

The key challenges for policy makers in addressing water quality issues in agriculture are to reduce farm contaminant lost into water systems while encourage agriculture to generate or conserve a range of benefits associated with water systems (e.g. recreational use). Water pollutants from agriculture include runoff and leaching into water systems from nutrients, pesticides, soil sediments, and other contaminants (e.g. veterinary products).

A major challenge for agriculture is to produce more food, feed, fuel and fibre, to meet growing global demand. Agricultural production also generates effects external to markets, both positive, conserving a wetland, and negative, such as water pollution. As there are no markets for these externalities, although they can provide a great benefit or impose a high cost on society, there is little incentive for farmers to internalise the costs of these external production effects, other than the farmer’s own motivation to do so.

A major challenge for agriculture is to produce more food, feed, fuel and fibre, to meet growing global demand. Agricultural production also generates effects external to markets, both positive, conserving a wetland, and negative, such as water pollution. As there are no markets for these externalities, although they can provide a great benefit or impose a high cost on society, there is little incentive for farmers to internalise the costs of these external production effects, other than the farmer’s own motivation to do so. The key challenges for policy makers in addressing water quality issues in agriculture are to reduce farm contaminant lost into water systems while encourage agriculture to generate or conserve a range of benefits associated with water systems. Clean water is vital in securing economic benefits for agriculture and other sectors, meeting human health needs, maintaining viable ecosystems, and providing societal benefits, such as the recreational, visual amenity, and cultural values society attaches to water systems.

The impact of agriculture on water quality is either stable or deteriorating, with few cases where significant improvements are reported across OECD from the mid-2000s to 2010. While the current situation varies within and across OECD countries, agriculture is often the main source of water pollution. Achieving further reductions is a challenge for policy makers, especially as a major part of agricultural water pollution is from diffuse sources. The outlook over the next ten years for agriculture and water quality suggests that the growth and intensification of agricultural production could further heighten regional pressures on water systems in some countries. But whatever the projections hold for the future, the task of achieving water quality objectives in agriculture will become more difficult in the coming years as a result of climate change, although this is a poorly understood and researched aspect of climate change science to date.

The overall economic, environmental and social costs of water pollution caused by agriculture across OECD countries are likely to exceed billions of dollars annually, although no satisfactory estimate of these costs exists. The economic cost of agricultural water pollution is significant in many countries. Treating water to remove nutrients and pesticides to ensure water supplies meet drinking standards can be substantial for water treatment companies, and ultimately paid for by consumers. Eutrophication of fresh and marine waters can also impose economic costs on ecosystems, recreational and amenity benefits, spiritual values, and recreational and commercial fisheries. Monetary values for the impacts of agriculture on water systems is lacking in the policy debate, with reliance largely on physical measures of water quality. When reliable estimates of economic costs and benefits from agriculture on the environment, including water systems, can be calculated, they can define the scale of different environmental problems for policy makers and direct focus to areas with the greatest potential societal costs.

Policy responses to address agricultural water pollution across OECD countries have typically used a mix of economic incentives, environmental regulations and information instruments. A large range of measures have been deployed at the local, catchment, through to national and transborder scales, across an array of different government agencies. Many measures to control water pollution from agriculture are voluntary. Water supply utilities and the agro-food chain are also engaged in co-operative arrangements with farmers to minimise pollution, such as providing farm advisory services. This policy mix has had mixed results in lowering agricultural pressure on water systems. Over many years these policies, according to OECD estimates, have cost taxpayers billions of dollars annually. For some countries policies to reduce agricultural water pollution have been successful, with a package of input taxes, payments and farm advice. In other cases, despite substantial expenditure on efforts to lower agricultural pollution of a specific water ecosystem, little progress has been made. More recently, some private and public initiatives, for example, water quality trading in agriculture and establishing co-operative agreements to address water pollution are showing signs of success, albeit on a limited scale to date.

There are a vast number of policy instrument and policy mixes that OECD countries are using in their programmes to address water quality issues in agriculture. It is outside the reach of this report to provide a comprehensive assessment of these programmes, instead this chapter focuses on a number of illustrative policy case studies of how some OECD countries are addressing different aspects of water quality in agriculture, including: addressing nitrate pollution from agriculture in the European Union; restoring the Chesapeake Bay in the United States; reducing salinity in Australian agriculture; experimenting with water quality trading in New Zealand; improving research on diffuse source pollution in France and the United Kingdom; reforming governance to address social concerns with water quality in New Zealand; addressing transborder pollution control for countries surrounding the Baltic Sea; and establishing co-operative agreements in France, New Zealand, United Kingdom, and the United States to address diffuse source pollution.

Policy reforms to improve the economic efficiency and environmental effectiveness of the current policy mix to lower agricultural pressure on water systems are important steps toward the sustainable management of water quality in agriculture. Where there are policy and market failures to address water pollution in agriculture, it can also help to seek and introduce innovative policy tools and market approaches to overcome these failures. A strategy toward the sustainable management of water quality in agriculture, that seeks to lower budgetary expenditure of abatement programmes and reduces the external costs of agricultural pollution, while building on recent policy reforms in OECD countries should consider the following: enforce compliance with existing water quality regulations and standards; remove perverse support in agriculture to lower pressure on water systems; take into account the Polluter-Pays-Principle to reduce agricultural water pollution; set realistic water quality targets and standards for agriculture; improve the spatial targeting of policies to areas where water pollution is most acute; assess the cost effectiveness of different policy options to address water quality in agriculture; take a holistic approach to agricultural pollution policies; and establish information systems to support farmers, water managers and policy makers.