Building an empirically-based framework to value multiple public goods of agriculture at broad supranational scales
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.
Section snippets
The valuation framework: overall approach and concepts
The valuation framework developed in this article is grounded on three basic conceptual elements: first, the definition of the good(s) to be valued; second, the specification of the agricultural landscape and its role in valuation scenarios; and third, the way broad-scale socio-ecological heterogeneity across the EU was taken into account in the framework. This last element refers to a central concept within the framework: that of Macro-Regional Agri-Environmental Problems (MRAEPs). This
Developing the valuation framework: data and methods
A typology of MRAEPs within the EU-27 was developed and tested in six sequential steps. This section discusses the data and methods used in these steps. The first step, identifying and describing macro-regions (MRs), is presented in Section 3.1. The second, assessing current PG provision levels in each MR, is discussed in Section 3.2. The third, testing whether these MR types and PG provision levels were understandable by survey respondents, and making the required adjustments, is the focus of
Typology of macro-regions
Table 4 presents the 13 MRs that resulted from the cluster analysis. The interpretation of the MR clusters is carried out based on the MR averages of the diverse variables in the table columns.
The first two MRs (1 and 2) correspond to Mediterranean Europe. Their major fingerprints are the significance of permanent crops in both agricultural land use and specialization pattern of farms, the relevance of irrigation and small farms, and their low stocking rates and high economic intensity of
Conclusion: assessment of the proposed valuation framework
This paper discusses a methodological framework to generate scenarios for the economic valuation of changes in multiple PGs of agriculture at broad, supranational scales. The MRAEP is the key concept in the proposed valuation framework. It allows for context-rich scenarios in broad-scale valuation exercises enabling survey respondents to make context-dependent choices on policy-relevant trade-offs. The detailed, evidence-based approach used in developing the valuation framework, though not
Acknowledgements
The research discussed in this paper was only made possible with data from on-going research which had been generously provided by the respective researchers. For this we are very grateful to the following: Joachim Maes (JRC), Maria Luisa Paracchini (JRC), Adrian Leip (JRC), Florian Wimmer (Centre for Environmental Systems Research University of Kassel), Francesca D'Angelo (DG-AGRI), Gesa Wesseler (DG-AGRI) and Tracy Durrant (JRC). In addition, we would like to thank the valuable support of
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