Building an empirically-based framework to value multiple public goods of agriculture at broad supranational scales

Highlights

• Macro-regional patterns of public good provision by EU agriculture are revealed.

• Landscape and agricultural diversity explain patterns of public good provision.

• Context-rich scenarios are developed to value public goods of EU agriculture.

Abstract

Agricultural landscapes deliver multiple, highly valued goods such as cultural amenities, biodiversity conservation and climate stability. These goods are often delivered as side-effects of farmers' production decisions driven by broad-scale, supranational changes in agricultural, trade or other policies. Human well-being is thus affected in ways not taken into account in these macro-policy decisions. To avoid this policy failure, there is a growing demand for the valuation of broad-scale changes in public goods by the general public. For this purpose, context-rich valuation scenarios at this broad scale need to be developed which are empirically-based, policy-relevant and understandable by the general public. In this way, respondents are focused on actual trade-offs rather than invited to give symbolic reactions. This paper presents and discusses a valuation framework developed to fulfil these criteria. The approach is based on a typology of Macro-Regional Agri-Environmental Problems (MRAEP). Each MRAEP is defined by: (1) prevailing farming systems and agricultural landscapes; (2) current levels of public-good delivery; (3) expected direction of land-use change; and (4) expected effects of such change on public-good provision in each macro-region. Multivariate analysis of EU-wide data on agricultural landscapes and farming-systems led to identify thirteen macro-regions in the EU. Current public-good provision was described using public-good indicators. Only those public goods that are expected to change or could be improved by available policy options (core public goods) were used to generate choice alternatives for survey respondents. The paper ends by discussing innovative elements in the proposed approach, achievements, shortcomings and possible policy uses.

Introduction

Cultural and environmental goods and services delivered by agriculture, such as biodiversity conservation or aesthetic amenity, are often provided as side-effects of production decisions made by farmers in response to market prices and diverse public policies. In addition, many of these goods and services exhibit different degrees of non-excludability (and also non-rivalry) in consumption. This side-effect, public-good character of cultural and environmental goods of agriculture makes them prone to significant market failure, which calls for policy interventions, such as agri-environmental schemes or input taxes, aimed at internalizing the values of those goods and services into farmers' production decisions. Environmental economists have advocated the use of nonmarket valuation techniques to value cultural and environmental benefits of environmentally sensitive farming as part of a full benefit-cost evaluation of agri-environmental policy schemes.

On the other hand, farming systems and the bundles of public goods (PG) they deliver are often driven, at broad supranational scales, by changes in agricultural and trade policies (e.g., Common Agricultural Policy reforms or World-Trade-Organization rounds) which change prices, policy payment schemes and other drivers of farmers' production decisions. PG-related human well-being is thus significantly affected by these macro-policies in ways which are largely not taken into account in policy decisions. The need to assess different policy options and to avoid these policy failures, e.g., by considering non-trade concerns within trade policy or available opportunities to use agricultural policy reform to correct market failure in PG provision, led to an increasing demand for the economic valuation of changes in multiple PG of agriculture at broad, supranational scales, which has been acknowledged in the valuation literature (Santos, 2000, Randall, 2002, Randall, 2007, EFTEC, 2004, Hein et al., 2006, Madureira et al., 2007).

There are many challenges involved in developing a valuation framework to address this policy demand. Basically, this framework needs to be both empirically-based and policy-relevant, that is: focused on available policy options at broad macro-regional scales. It also needs to be understandable by the general public of the many involved countries whose preferences for the PGs at stake are to be gauged in valuation surveys. In addition, economic values are context-dependent and should be valued as such; providing context-rich scenarios is thus essential for people to engage in the assessment of the actual trade-offs (as required by valid valuation) instead of simply giving us their symbolic reactions to very abstract scenarios. An additional challenge for such a valuation framework is how to take into account substitution effects across goods and services to avoid large aggregation biases when dealing with changes in multiple PGs (Santos, 1998). These challenges might explain why, as far as the authors are aware of, no valuation frameworks have been developed for this purpose within the economic valuation literature in spite of an existing demand for such broad-scale valuation exercises.

This paper discusses the main issues involved in building a valuation framework for changes in multiple PGs of agriculture at broad, supranational scales by developing and discussing one such framework focused on empirically-based and policy-relevant trade-offs. This is supported by a EU-wide analysis of the supply-side of PG provision, using a macro-regional frame of reference to account for socio-ecological gradients across this vast spatial scale, and eventually leading to the identification of the core public goods to be valued in each macro-region. These issues, while crucial to ensure the policy-relevance of valuation exercises, in general, are unfortunately not always addressed with the required detail and rigour in many valuation studies, which prefer to focus instead on experimental design or econometric modelling details. In particular, the valuation of multiple PGs at a broad supra-national scale requires an even more careful consideration of empirical supply-side and policy-relevance issues, which calls for using and analysing complex, heterogeneous (across countries and PGs), incomplete and often limited-quality data.

A related goal of this paper is exploring and discussing the effort involved in the proposed valuation framework to convey context-rich scenarios that may enable respondents to engage in the economic trade-offs that are required to assess different policy options for the provision of multiple PG.

Section 2 discusses basic elements and the foundations of the overall approach used to develop the valuation framework. Section 3 discusses data and methods used in developing the framework. Section 4 presents the main results and assesses the framework’s ability to frame the valuation of multiple PGs of EU agriculture at a broad, macro-regional scale. Section 5 concludes by underlining the most innovative elements in the proposed approach, as well as its achievements and shortcomings, and identifies possible applications in informing relevant policy debates.