those products meet the requirements of customers both on the domestic and export market. Research and extension services have a vital role to play in this effort and must be prepared to reform quickly to meet the challenges of globalization.

     In many respects national research programs have succeeded in their goal to achieve food security, the current emphasis should now be to develop dynamic and commercially oriented research that supports improved market analysis, market access and added value processing. Extension services should now focus on assisting producers to trade more effectively within a liberalised market. Special attention should be given to aspects such as linkage of production to markets, access to credit and collective marketing which will enable the millions of atomised, small-scale farmers to gain from economies of scale in their input and output markets.

      Government research services need to work closely with the private sector which is increasingly developing its own research capacity, particularly in regard to higher value commodities and research related to issues and problems further up the value chain.

7.2.6 Market mechanisms to optimize environmental externalities

Agriculture generates environmental externalities (see 7.1). There are currently few market mechanisms that internalize these externalities.

     The environmental impacts of agricultural trade stem at least in part from the globalization of market failures, as well as the lack of market mechanisms to internalizing the environmental externalities of production and account for the positive externalities (Boyce, 1999). Trade liberalization leading to the displacement of traditional jute production in Bangladesh by imported synthetic fibers is an example. Nearly the entire price advantage enjoyed by synthetics over jute would be eliminated if environmental externalities were factored into the price (Boyce, 1999). At the same time, traditional producers receive no compensation for the positive environmental externalities, e.g., biodiversity conservation, associated with many forms of traditional production. Similarly, U.S. corn production which requires significant energy and agrochemical inputs that cause significant environmental externalities is sold at below the cost of production in Mexico, displacing traditional corn production in the small and medium farmers who plant diverse traditional varieties (Nadal and Wise, 2004).

      Trade agreements bring two distinct kinds of production into direct competition, with vastly different environmental impacts and with significant ramifications. In both cases the market price for the modern product fails to internalize or account for significant environmental externalities. At the same time, the positive environmental externalities that are present in many forms of traditional agriculture are not assessed.

7.2.6.1 Policy options for internalizing environmental externalities

Some OECD countries adopted economic measures, including environmental taxes on agricultural inputs as a part of a policy package to reduce the environmental impacts

of pesticides, fertilizer and manure waste. Denmark, Norway and Sweden, for example, have introduced taxes on pesticide use, as incentives to reach pesticide use reduction targets. Similarly, the Netherlands imposed an excise manure tax. The recent reforms of the European CAP may be interpreted as a move towards rewarding farmers, not only as producers of food, but as caretakers of natural resources and environmental services. European support for organic agriculture is an important aspect of this recognition (Egelyng and Høgh-Jensen, 2006).

      Many critical ecosystem services are undervalued or unvalued; there are no market signals that would spur technological development of alternative supplies (Najam et al., 2007). Charges to internalize cost of transportation energy expenditure in globalized agriculture, such as "food mile" taxes are one policy approach. Food mile taxes could help internalize the social and environmental externalities of transport, including the climate impacts, pollution, and the cross-border movement of pests and livestock pathogens, among others (Jones, 2001).

      Policy approaches to assist small-scale producers to articulate their carbon rating will be key, especially as an oversimplified response may be to simply ban long haul agricultural goods, and provide greater support to local food systems and season procurement policies that could end year round supply of off-season goods. In some cases though, an integrated analysis of energy costs and GHG emission from distant developing country production as compared to local northern country production will be favorable for developing country production. For example a recent analysis showed that Kenyan flower production exported long distances to the European market nonetheless generated fewer GHG emissions than hot-house flower production in the Netherlands (DFID, 2007).

7.2.6.2 Payments for agroenvironmental services

Ecosystem services remain largely unpriced by the market. These services include climate regulation, water provision, waste treatment capacity, nutrient management, watershed functions and others. Payments for environmental services (PES) reward the ecosystem services provided by sustainable agriculture practices. PES is a policy approach that recognizes the multifunctionality of agriculture and creates mechanisms to value and pay for these benefits. In principle, payments for environmental services (PES) such as watershed management, biodiversity conservation and carbon sequestration, can advance the goals of both environmental protection and poverty reduction (Alix-Garcia et al., 2005).

      PES is an approach that, like economic instruments used for pollution prevention, seeks to support positive environmental externalities through the transfer of financial resources from beneficiaries of the services to those who protect or steward the environmental resources that provide the service. PES schemes often focus on environmental services provided by forest conservation, reforestation, sustainable forest extraction, and certain agroforestry and silvo-pastoral practices. Carbon sequestration services are also involved in several PES schemes, both to increase active absorption through reforestation or to avoid carbon emissions through forest conservation.