SOLUTIONS #57

NOVEMBER 2023

TRANSFORMATIVE ACTIONS. SOLUTIONS #57 OPTIMIZING POTENTIALLY HARMFUL AGRICULTURAL INCENTIVES TO PROTECT BIODIVERSITY IN PERU: A FOCUS ON MONITORING AND GOVERNANCE MECHANISMS Manuel Rojas

Project Coordinator in Peru, Expertise France

Danaé Moyano-Rodriguez

Editor, Post-2020 Biodiversity Framework – EU Support

Agricultural fields and lush mountain biodiversity in La Merced Valley, Peru ©Hans Luiggi

“WITHIN THIS FRAMEWORK, VARIOUS ACTIONS HAVE BEEN TAKEN, RANGING FROM SEEKING CONSENSUS AT THE LEVEL OF THE GENERAL DIRECTORATES OF BIOLOGICAL DIVERSITY (DGDB) AND ENVIRONMENTAL ECONOMICS AND FINANCING (DGEFA) OF MINAM, ON THE CONCEPTUALIZATION OF INCENTIVES CONSIDERING THE GUIDELINES OF THE CBD AND THE GBF.” ” - Manuel Rojas, Project Coordinator in Peru, Expertise France

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Peru, one of the world’s megadiverse countries, faces challenges in conserving its biodiversity.

To support KMGBF implementation, the Post2020 Biodiversity Framework – EU Support Project partnered with Peru’s Ministry of Environment (MINAM) to identify potentially harmful incentives and help achieve Target 18.

This publication outlines key results from the process and next steps.

The Kunming-Montreal Global Biodiversity Framework (KMGBF), sets out four global goals and twenty-three targets to halt and reverse biodiversity loss by 2030.

Target 18 focuses on identifying potentially harmful incentives that subsidize detrimental activities; gradually eliminating them; establishing clear deadlines and transition mechanisms; and redirecting financial flows towards activities that promote biodiversity conservation and sustainable use.

As one of the world’s megadiverse countries, Peru faces significant challenges in the conservation of its biodiversity. Its agricultural policy instruments, while instrumental in the growth of the sector, have often contributed to the loss of biodiversity, especially in the Amazon rainforest regions1. For this reason, the National Biological Diversity Strategy 2050 calls for the adoption of urgent and transformative measures, aligned with the objectives of the KMGBF. To facilitate implementation, and promote concrete solutions, the Post-2020 Biodiversity Framework – EU Support Project, supported a short-term initiative to help the Peruvian Ministry of the Environment (MINAM) achieve Target 18. Working alongside the general directorates of Biological Diversity (DGDB) and Environmental Economics and Financing (DGEFA), the aim was to design a work plan to characterize and report on potentially harmful incentives. This first step supports the design of a Roadmap for the reform of prioritized potentially harmful incentives, starting in 2025. This publication highlights key findings and lessons learned throughout this process, and presents the next steps.

TRANSFORMATIVE ACTIONS. — SOLUTIONS #57

1. AGRICULTURAL EXPANSION AND ITS IMPACT ON BIODIVERSITY AND SOIL DEGRADATION IN PERU Over the past three decades, despite being essential for sector growth, agricultural policy instruments have often contributed to biodiversity loss.

The disorderly expansion of agriculture and livestock activities, especially in the ecosystems of the Amazon rainforest, and the intensification of export-oriented agriculture in some areas of the Andean region, have contributed to increased intensive pollution that results in ecosystem degradation. The National Strategy for Biological Diversity 20502, seeks to provide solutions to these issues.

A peruvian woman harvesting Potatoes. ©Suca 1 The following World Bank study provides insights on the evolution of public policies since 1990: Banco Mundial, 2017. Tomando impulso en la agricultura peruana: oportunidades para aumentar la productividad y mejorar la competitividad del sector, p.14-128. https://documents1. worldbank.org/curated/ en/781561519138355286/pdf/ Gaining-momentum-in-Peruvianagriculture-opportunities-toincrease-productivity-andenhance-competitiveness.pdf On the impacts of the expansion of the agricultural sector in regions of the Amazon rainforest, see the following studies: Cambios en la agricultura y deforestación en la selva peruana (1994-2012): análisis basado en el IV Censo Agropecuario, págs.

162-163”. En “Agricultura peruana: nuevas miradas desde el Censo Agropecuario. GRADE, Lima, setiembre 2015. https://www. grade.org.pe/wp-content/uploads/ LIBROGRADE_CENAGRO.pdf, p. 282 Cruz, M., Pradel, W., Juárez, H., Hualla, V., Suarez, V. 2023.

Deforestation Dynamics in Peru.

A Comprehensive Review of Land Use, Food Systems, and SocioEconomic Drivers. International Potato Center. 45 p. DOI: 10.4160/cip.2023.12.007 https:// cgspace.cgiar.org/server/api/core/ bitstreams/4dd04f65-e0904ba5-b92f-dc4f6f11c021/conten 2 https://cdn.www.gob. pe/uploads/document/ file/7132016/6124002-estrategianacional-de-diversidad-biologicaal-2050-link.pdf?v=1729864295 3 Atlas of the agricultural surface of Peru, 2021, cited by ENDB 2050 4 CEPLAN. Análisis de la deforestación y pérdida de vegetación a nivel nacional y el impacto a nivel regional (https:// geo.ceplan.gob.pe/uploads/ Analisis_deforestacion.pdf P.10), Primera Edición, Marzo 2022.

5 INEI. Perú: Anuario de Estadísticas Ambientales 2022, p.26-28. This data was registered in 1996.

6 Andaluz C. y Torres J. 2005.

Perfil temático en desertificación y sequía. Proyecto Autoevaluación de Capacidades Nacionales para la Gestión del Medio Ambiente Mundial. CONAM, Lima.

Citado por la MINAM-Cuarta Comunicación Nacional del Perú a la Convención de Lucha contra la Desertificación y la Sequía (2011) p.30. https://www.euroclima.org/ images/Publicaciones/Suelos/ Peru_4Inf_Desertificacion1.pdf

In its diagnosis, the National Strategy insists on the progress of land use change processes. This is largely driven by deforestation and unsustainable practices, particularly in expanding agriculture, livestock, and aquaculture, as well as in agro-industrial and agro-export models, often altering ecosystem structure and functions. In 2021, the area dedicated to agriculture in the country was calculated at 11.7 million hectares, representing 64% more than that registered in 20123.

According to a document from the Presidency of the Council of Ministers: + Nearly half (45.3%) of Peru’s deforested areas are categorized as forests without assigned property rights. + At the national level, 26.3% of these forests lack any form of authority or protection. These are followed by the forests that belong to native communities (16.5%), and permanent production forests (12.3%). + The forests that belong to Protected Natural Areas (ANP) only reach 3.5% of the deforested areas. + Since 2000, the years with the highest deforestation rates were 2014, 2016, and 2020, with 177,566, 164,662, and 203,272 hectares deforested, respectively. The year with the lowest deforestation rate was 2003, with 72,872 hectares. Since 2007, there have been over 100,000 deforested hectares per year, with 2020 being the year with the highest registered deforestation4.

Furthermore, soils suitable for agricultural use are the country’s scarcest resource (7% of the national territory), and are also the most threatened by deterioration processes, especially due to salinization in the coast, gradual erosion in the mountains and loss of fertility in the Amazon caused by deforestation and ecosystem degradation. + According to INEI (2022), citing sources from INRENA and MIDAGRI, SINIA (2005) and GEOBOSQUES (2024), out of the total area of 128.5 million hectares of Peruvian territory, 8 million hectares had severe erosion (with loss of more than 75% of the surface layer of the soil), and approximately another 300,000 had salinization problems. + Of the total severe erosion, 66% affected the Sierra Region5.

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+ In the Coast, land degradation is mainly due to salinization, that affects 40% of the cultivated surface (Andaluz, 2005)6. + In the Peruvian Amazon rainforest, the accumulated deforested area by 2000 was 7,172,554 hectares, equivalent to 9.25% of the surface area of the Amazon forest and 5.58% of the national territory (SINIA)7. In the 2001-2023 period, deforestation was estimated at approximately 3,314,905 hectares (GEOBOSQUES)8. + By 2017, under the “Land Degradation Neutrality (LDN)9“ approach, the MINAM recorded a total of 15,213,144 hectares, corresponding to the degraded ecosystems of the Peruvian rainforest.

2. DESIGNING A PROPOSAL TO OPTIMIZE BIODIVERSITY-HARMING INCENTIVES IN PERU’S AGRICULTURAL SECTOR In 2024, the Post-2020 Biodiversity Framework – EU Support Project worked alongside the directorates of Biological Diversity (DGDB) and Environmental Economics and Financing (DGEFA) of the Peruvian Ministry of Environment (MINAM), focusing on potentially harmful incentives to biodiversity in the agricultural sector. This participatory process supported the development of a Roadmap for the reform of potentially harmful incentives that will be launched in 2025. Directorates of the Ministry of Agrarian Development and Irrigation (MIDAGRI), stakeholders from the private sector, representatives from academic institutions, and representatives of Expertise France, also took part in the initiative.

More so, the document “Estudio para identificar y evaluar instrumentos económicos con efectos sobre la biodiversidad en el Perú: opciones para su reforma, reducción, rediseño o eliminación”, prepared with the support of BIOFIN-UN in 2023, was taken as a reference within this process10.

The following activities were carried out throughout this process: a. A review of studies and documents on the development of agricultural systems in Peru over the past two decades provided valuable insights. It identified key trends, analysed the expansion of agricultural production, assessed its impact on productive growth and territorial development, and examined technological development models. Additionally, the review evaluated the impacts on natural resources and ecosystem services.

b. A review of sectoral policy frameworks, regulatory tools, financing and investment funds, and institutional support for the agricultural sector with potential impacts on biodiversity was conducted.

This involved the systematization and evaluation of measures with input from experts on the ground. It also examined how policy instruments influence the behaviour of sector actors in relation to achieving policy objectives focused on growth and well-being.

7 https://sinia.minam.gob.pe/sites/ default/files/sinia/archivos/public/ docs/173.pdf

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OPTIMIZING POTENTIALLY HARMFUL AGRICULTURAL INCENTIVES TO PROTECT BIODIVERSITY IN PERU: A FOCUS ON MONITORING AND GOVERNANCE MECHANISMS

TRANSFORMATIVE ACTIONS. — SOLUTIONS #57

c. A classification of the incentives that derive from the management instruments of the sectoral policy in the agricultural sector was conducted.

Within the different types of policy tools, the following categories were identified and submitted to MINAM’s consideration11: institutional instruments; regulatory instruments designed to protect biodiversity and mitigate damage through mandatory compliance; and economic, fiscal, and financial instruments, which aim to incentivize behaviours beneficial to biodiversity and discourage those potentially harmful to it (see Table 1).

Table 1.

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Workshop intersectorial dialogue ©Manuel Rojas

8 https://geobosques.minam.gob. pe/geobosque/view/perdida.php 9 This approach allows considering degraded areas under three parameters: vegetation cover, land productivity dynamics, and soil organic carbon. Measurements are made using remote sensors for both vegetation cover and land productivity dynamics.

Degradation due to fragmentation of Amazonian forests in Peru was included as an indicator. See: https://sinia.minam.gob.pe/inea/ indicadores/ecosistemas-degradados-por-tipo-y-region-natural-2017-hectareas/ 10 This study was aimed at identifying economic instruments provided for in public policy, with an impact on biodiversity, in the agriculture, production and construction sectors. Through this approach, 30 instruments were preliminarily identified and analysed, and through a qualitative evaluation process, of the 4 sectors considered, two were prioritized to be the subject of an immediate reform plan: Exemption of VAT on Pesticides and the Procompite Program. The above in the context of Target 18 of the KMGBF. 11 These three categories were not yet approved by MINAM at the time this report was issued.

12 Moreno Sánchez, 2012 13 This classification was not yet approved by MINAM at the time this report was issued.

14 The aforementioned law facilitates uncontrolled land appropriation, promotes deforestation and forest degradation, violates the rights of indigenous peoples, and encourages conflict and criminal activities such as illegal mining.

It also endangers. Prior, free and informed consultation was not carried out as required by national and international standards.

15 In Peru, there are approximately two million families with Small Agricultural Units, under 5 hectares. https://openknowledge. fao.org/server/api/core/bitstreams/3ddaf037-674e-40308f54-379546fc27ef/content 16 https://www.cifor-icraf.org/

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of forest zoning for enabling titles and supporting illegal logging14.

A hybrid incentive simultaneously produces positive and negative effects on biodiversity. This means that the same policy or practice can promote conservation in some respects, while deteriorating it in others.

The Peruvian agricultural sector has a set of policy instruments with these characteristics: in its vision and mission design, it foresees sustainable development objectives, however, the economic objectives of achieving high productive yields prevail, not excluding conventional practices and technologies that in some way affect biodiversity.

An example is presented by AGROIDEAS, a program focused on small producers of rural family farming, which have previously determined environmental safeguards, and are even part of the file of investment proposals. However, the emphasis on achieving profitability in the short term (three years in average) restricts the option of using resources and inputs that do not contribute to the deterioration of biodiversity. The Environmental Eligibility Criteria for the AGROIDEAS Technology Adaptation Project are: + do not promote forest clearing, nor develop deforestation activities, + do not implement in Protected Natural Areas, areas declared as Cultural Heritage, wetlands, non-mitigatable risk areas and intangible zones, + do not to become a land use change from forests to agriculture or forestry.

However, there is no mention of restrictions on the use of agrochemical inputs, monoculture systems, genetic varieties, etc.

Positive incentives have a specific environmental purpose or are oriented towards agrobiodiversity and sustainable development. Activities promote sustainable practices and involve citizen participation and the inclusion of local and traditional knowledge. There is vast experience in the sector, especially concerning Family Farming15.

An initial hypothesis was sought on the types of incentives that affect the conservation and sustainable use of biodiversity and presented to the MINAM for consideration. Incentives can be classified into negative, hybrid, and positive, according to the nature of the impacts they have on biodiversity13: Negative incentives promote economic development in the agricultural sector without considering resource sustainability or environmental externalities.

They are often caused by a lack of environmental safeguards in terms of production models that use agrochemicals intensively, monoculture practices, and water resource management, among others. They can provoke changes in land-use, deforestation, pollution, water depletion, and soil salinization from poorly managed water infrastructures.

An example from the public sector includes: + The land property rights regulations, such as Law No. 31973 of 2024, which suspends the requirement

Examples include promoting organic agriculture practices, agroforestry, silvopastoral activities, trade with biodiversity products, agrobiodiversity conservation, and community-based systems and life plans for underprivileged communities.

“WHILE RECENT STUDIES TEND TO SHOW THAT GOVERNMENTS CONTINUE TO SPEND BILLIONS OF DOLLARS ANNUALLY ON SUBSIDIES THAT ARE HARMFUL TO CLIMATE AND BIODIVERSITY, IT IS IMPORTANT TO PROPOSE MECHANISMS TO IDENTIFY AND CLASSIFY THE NEGATIVE ENVIRONMENTAL IMPACTS OF SUCH SCHEMES, EVEN ON A QUALITATIVE BASIS. THE PROJECT AIMS TO SUPPORT THE PERUVIAN AUTHORITIES IN THIS DIRECTION.” - Nicolas Thomas, Knowledge & Capacity Building Coordinator, Post2020 Biodiversity Framework – EU Support

OPTIMIZING POTENTIALLY HARMFUL AGRICULTURAL INCENTIVES TO PROTECT BIODIVERSITY IN PERU: A FOCUS ON MONITORING AND GOVERNANCE MECHANISMS

TRANSFORMATIVE ACTIONS. — SOLUTIONS #57

d. A Multicriteria Analysis Matrix was designed and submitted to the MINAM´s consideration. This tool was proposed to evaluate and prioritize incentives with the input of sectoral experts. The process included validating criteria and assessing the impacts of various policy tools on biodiversity, and identifying those with the most detrimental effects. e. Following the development of the Multi-Criteria Analysis Matrix, two intersectoral dialogues were initiated between technical experts from the agricultural and environmental sectors: The first intersectoral dialogue created a space for reflection and debate among experts, decision-makers, and key stakeholders from the agricultural sector. The concept of incentives management was explained, and specialists shared their experiences and points of view on some examples of incentives that had been previously identified.

Photograph 1: Ilustration of soil degradation. ©Bernd Dittrich Photograph 2: Nevado Pastoruri landscape ©Willian Justen

knowledge/publication/35563/ 17 https://www.fao.org/giahs/ around-the-world/en 18 The Roadmap was conceived based on discussions with the Post-2020 teams in Paris, RIMISP-UNIANDES in Colombia, which developed one of the first analyses on harmful incentives in the agricultural sector for biodiversity, and the contributions received from the NetDrive methodological approach developed by ICRAF-CIFOR in the country over the past five years.

19 Although communication mechanisms were not formalized, focal points of reference were identified in MIDAGRI in the different departments that participated in the first dialogue and relevant issues were discussed for joint work between the two ministries to continue the process around the reform of sectoral incentives.

The second intersectoral dialogue was conducted as a webinar, sharing national experiences in the application of methodological approaches to identify the causes of biodiversity loss and decentralized and participatory management models, such as the DriveNet methodology16, developed by ICRAF-CIFOR, and the Globally Important Agricultural Heritage Systems (GIAHS)17.

3. Preliminary results and next steps: designing a roadmap for the optimization of incentives in the agricultural sector in Peru The following steps should be considered in the development of a Roadmap18 for the optimization of incentives in the agricultural sector that are potentially harmful to biodiversity: + Consulting on hypotheses regarding negative

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incentives for biodiversity involving public, private, and academic stakeholders. + Selecting territories for analysing drivers of biodiversity loss. By using geospatial and statistical analyses, combined with hypotheses from the Multicriteria Analysis Matrix, territories were identified where agricultural policy instruments—acting as negative incentives—have observable impacts on land use change and pollution, contributing to biodiversity loss. + Field work with the application of multi-causal analysis methodologies, participatory analysis, and governance mechanisms in the management processes of policy instruments in the territory, quantitative analysis with market and ecological criteria. + Design of the proposal for Incentive Reform: based on field work in the territory, the reform strategy is designed with the participation of the stakeholders, objectives, financing measures, and design of indicators and follow-up and monitoring processes. + Definition of measures or regulations for incentive access: establishing measures or regulations to reform, adjust, or eliminate incentives, ensuring they are aligned with biodiversity conservation goals. These measures aim to evaluate intervention levels in territories, safeguarding the resilience and recovery conditions necessary for biodiversity conservation and sustainable use. + Design for the implementation of an adequate monitoring and adjustment system for the operation of the reformed or designed instruments Furthermore, communication channels between the agricultural and environmental sectors have been established19, providing a foundation for future dialogue. During the proposal design phase, a pedagogical process was implemented to convey the key messages of the KMGBF, including the scope of Target 18. This facilitated a shared understanding of incentives, their classification, and the application of qualitative and quantitative analysis tools to identify and address potentially harmful incentives in the agricultural sector.

20 This pedagogical process allowed for the initiation of mutual understanding between agricultural sector officials and MINAM environmental sector experts; the dissemination of progress made in the Biological Diversity Strategy; and the mutual recognition of some issues and policies that contribute to enriching the country’s proposals on commitments around the Global Biodiversity Framework and Target 18.

POST-2020 BIODIVERSITY FRAMEWORK – EU SUPPORT IS FUNDED BY THE EUROPEAN UNION AND IMPLEMENTED

BY EXPERTISE FRANCE. IT AIMS AT FACILITATING THE EFFECTIVE ADOPTION AND THE PROMPT IMPLEMENTATION OF A TRANSFORMATIVE POST-2020 GLOBAL BIODIVERSITY FRAMEWORK. THIS PUBLICATION IS FUNDED BY THE EUROPEAN UNION. ITS CONTENTS ARE THE SOLE RESPONSIBILITY OF THE POST 2020 BIODIVERSITY FRAMEWORK-EU SUPPORT PROJECT AND DO NOT NECESSARILY REFLECT THE VIEWS OF THE EUROPEAN UNION.

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OPTIMIZING POTENTIALLY HARMFUL AGRICULTURAL INCENTIVES TO PROTECT BIODIVERSITY IN PERU: A FOCUS ON MONITORING AND GOVERNANCE MECHANISMS

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