Farmers’ Preferences for New Environmental Policy Instruments: Determining the Acceptability of Cross Compliance for Biodiversity Benefits

This paper addresses the issue of farmers’ views concerning the perceived legitimacy of environmental cross compliance as a governance mechanism. Recent work on the theory of regulation emphasises the importance of the legitimacy ascribed to a regulation in determining the effectiveness with which it can be implemented. The current study outlines a rationale for why this motivational question should receive attention in economic studies of policy design and reports the results of a survey of 102 arable farmers in East Anglia, UK, which investigated the level of support for the principle of cross compliance for biodiversity objectives. It was found that two attitudinal factors, referred to as ‘Stewardship Orientation’ and ‘Technological Beliefs’, were by far the most significant in determining the acceptability of cross compliance in the sample, and that structural and socio‐demographic factors were considerably less important. The study also identified clusters of farmers according to their overall attitudinal orientation. Of the five groups thus categorised, four appeared on average likely to reject cross compliance as a general principle, leaving only the most ‘Environmental’ cluster in support. The policy implications are discussed and some conclusions drawn.     

Managing increasing environmental risks through agrobiodiversity and agrienvironmental policies

Agrobiodiversity can provide natural insurance to risk‐averse farmers by reducing the variance of crop yield, and to society at large by reducing the uncertainty in the provision of public‐good ecosystem services, for example, CO₂ storage. We analyze the choice of agrobiodiversity by risk‐averse farmers who have access to financial insurance, and study the implications for agrienvironmental policy design when on‐farm agrobiodiversity generates a positive risk externality. While increasing environmental risk leads private farmers to increase their level of on‐farm agrobiodiversity, the level of agrobiodiversity in the laissez‐faire equilibrium remains inefficiently low. We show how either one of the two agrienvironmental policy instruments can cure this risk‐related market failure: an ex ante Pigouvian subsidy on on‐farm agrobiodiversity and an ex post payment‐by‐result for the actual provision of public environmental benefits. In the absence of regulation, welfare may increase rather than decrease with increasing environmental risk, if the agroecosystem is characterized by a high natural insurance function, low costs, and large external benefits of agrobiodiversity.     

The Potential for Cross‐Compliance in Canadian Agricultural Policy: Linking Environmental Goals with Business Risk Management Programs

Environmental cross‐compliance links agricultural program payments to producer commitments to achieve agri‐environmental policy goals. The objective of this study is to determine the feasibility of using cross‐compliance to achieve environmental goals in a Canadian policy context. While Canadian policy makers have flirted with cross‐compliance, with the exception of phosphorus regulations for Quebec hog farms, they have never adopted this approach. The potential for effective cross‐compliance depends on producer participation, producer compliance with regulations, environmental performance, and overall welfare implications. This study reviews the application of cross‐compliance in the United States and EU with regard to the potential application to Canadian agriculture. Policy options are considered which link current business risk management (BRM) programs to alternative environmental regulations (wildlife habitat preservation, nutrient management plans, and beneficial management practices for nutrient management). In general, individual Canadian agricultural support program do not provide sufficient incentives for farmers to participate in cross‐compliance. However, if support programs are combined, it is better to link programs that redistribute income with environmental programs than to link agriculture programs that already address specific market failures.     

Adoption of farm‐based irrigation water‐saving techniques in the Guanzhong Plain,China

This article analyses adoption of farm‐based irrigation water saving techniques, based on a cross‐sectional data set of 357 farmers in the Guanzhong Plain, China. Approximately 83% of the farmers use at least one farm‐based water‐saving technique. However, the traditional, inefficient techniques border and furrow irrigation are still prevalent whereas the use of advanced, more efficient techniques is still rather rare. We develop and estimate an adoption model consisting of two stages: awareness of water scarcity and intensity of adoption. We find that awareness of water scarcity and financial status enhance adoption of more advanced techniques whereas access to better community‐based irrigation infrastructure discourages it. We furthermore find both community‐based irrigation infrastructure and farm‐based irrigation water‐saving techniques have mitigating effects on production risk. From the results it follows that adoption can be stimulated via financial support and via extension aimed at enhancing awareness of water scarcity.     

Use of Compliance Rewards in Agri‐environmental Schemes

Ensuring that farmers comply with the terms of agri‐environmental schemes is an important issue. This paper explores the use of a ‘compliance–reward’ approach under heterogeneous net compliance costs with respect to cost‐share working lands programmes such as the Environmental Quality Incentives Program (EQIP) in the United States. Specifically, we examine the use of a reward under asymmetric information and output price uncertainty. We examine two possible sources of financing under the assumption of budget neutrality: (i) funds obtained by reducing monitoring effort; and (ii) money saved by reducing the number of farmers enrolled. We discuss the advantages and disadvantages of each source of funding and analyse these numerically for both risk‐neutral and risk‐averse farmers. We also examine the trade‐off between increased expenditure on monitoring effort and compliance rewards when additional budgetary resources are available. We show that under certain conditions a compliance reward can increase compliance rates. For risk‐averse farmers, however, conditions that ensure a positive outcome become more restrictive.     

Farmers’ risk preferences and pesticide use decisions: evidence from field experiments in China

China faces health and environmental problems associated with the use of agricultural chemicals, including pesticides. While previous studies have found that risk aversion affects pesticide use in China, they have focused primarily on commercial cotton farmers. In this study, we consider the case of smaller, semisubsistence and subsistence farmers in a poor and landlocked province of China (Yunnan). We use a field experiment to measure risk aversion and collect detailed data on farm production and input use to specifically ask whether risk aversion affects pesticide use, and whether this effect differs for subsistence farmers producing exclusively for home consumption versus semisubsistence farmers who produce both for home and the market. We find that risk aversion significantly increases pesticide use, particularly for subsistence farmers and for market plots by semisubsistence farmers. Further, this effect of risk aversion significantly decreases with farm size for subsistence farmers, but not for semisubsistence farmers, implying that pesticide use may be used to ensure sufficient food supply for home consumption. Finally, we find barriers to the use of pesticides for subsistence farmers, both in terms of financial constraints and economies of scale. This finding implies that risk‐mitigation strategies, such as crop insurance, may not target food security concerns of subsistence farmers. Given these different motivations for pesticide use, policymakers may wish to consider effective tools to support rural food security for farmers in the poorer regions of China in order to decrease pesticide use.     

Bias from Farmer Self‐Selection in Genetically Modified Crop Productivity Estimates: Evidence from Indian Data

In the continuing debate over the impact of genetically modified (GM) crops on farmers of developing countries, it is important to accurately measure magnitudes such as farm‐level yield gains from GM crop adoption. Yet most farm‐level studies in the literature do not control for farmer self‐selection, a potentially important source of bias in such estimates. We use farm‐level panel data from Indian cotton farmers to investigate the yield effect of GM insect‐resistant cotton. We explicitly take into account the fact that the choice of crop variety is an endogenous variable which might lead to bias from self‐selection. A production function is estimated using a fixed‐effects model to control for selection bias. Our results show that efficient farmers adopt Bacillus thuringiensis (Bt) cotton at a higher rate than their less efficient peers. This suggests that cross‐sectional estimates of the yield effect of Bt cotton, which do not control for self‐selection effects, are likely to be biased upwards. However, after controlling for selection bias, we still find that there is a significant positive yield effect from adoption of Bt cotton that more than offsets the additional cost of Bt seed.     

EU Food Safety Standards,Pesticide Use and Farm‐level Productivity: The Case of High‐value Crops in Kenya

This article provides an empirical analysis of the impact of European Union (EU) private food safety standards on pesticide use and farm‐level productivity among small‐scale vegetable producers in Kenya. We apply an extended three‐stage damage control production framework, accounting for multiple endogeneity problems, to farm‐level data collected from a random cross‐sectional sample of 539 small‐scale producers. Estimation results show that farmers producing vegetables for the domestic market use significantly lower quantities of pesticides than do export farmers. However, contrary to findings elsewhere, the econometric evidence here shows that both domestic and export‐oriented vegetable farmers in Kenya use pesticides at levels below the economic optimum. The results also show that the adoption of standards by export farmers does not have any significant impact on total pesticide use. However, adopter categories are distinguishable in terms of types of pesticide used, i.e. adopters use safer pesticides based on World Health Organization (WHO) classification. The third‐stage structural revenue model results demonstrate that adoption of standards has a positive and significant impact on revenue raised in vegetable production. Nevertheless, farmers producing for the export market are indistinguishable from those producing for the domestic farmers in terms of the total revenue earned from producing vegetables during the rainy season, on a ‘per acre’ basis. Although standards can potentially prevent resource‐poor smallholders from maintaining their position in the lucrative export markets, they can also result in positive changes in the production systems of those small‐scale farmers who adopt it, as shown by these results.     

CAP MTR versus environmentally targeted agricultural policy in marginal arable areas: impact analysis combining simulation and survey data

On June 2003 the final version of the Common Agricultural Policy Mid‐Term Review (CAP MTR) was published. The driving forces of this policy change include inter alia the compliance with World Trade Organization (WTO) negotiations' requirements, improvement of social support for agricultural policy, adjustment to budget constraints and adaptation of agricultural practices to environmental requirements. This article reviews how this policy performs in marginal areas regarding one of those objectives: the provision of environmental outputs related to agricultural activity. As an alternative to this reform, a policy based on agri‐environmental measures designed to maximize environmental outputs, is proposed. Both options are evaluated from a cost‐effectiveness point of view. Data from a farm survey and a positive mathematical programming model for a cereal steppes agro‐system in Spain are combined in order to simulate the effects of this reform and our alternative instrument on several environmental indicators. Results show that in marginal areas, where land abandonment is a clear threat, more environmental output can be achieved for the same cost, while maintaining, if not increasing, the levels of achievement for the other goals.     

Internal and contextual drivers of dairy restructuring: evidence from French mountainous areas and post‐quota prospects

The end of the milk quota system in Europe has resulted in substantial structural changes to the dairy industry, calling its future into question, especially in mountainous areas. This study analyzes the internal and contextual factors that influence dairy restructuring in French mountainous areas. Three complementary logit models are used to specify farmer decisions (e.g., dairy production exit, stability, and growth). Original and exhaustive geo‐located administrative datasets are combined to create a farm longitudinal dataset and characterize farm‐restructuring patterns on a fine geographical scale. Farm size, corporate legal status, and specialization are positively associated with farm growth. Viable diversification strategies through either farm processing or agro‐environmental scheme contracting are also highlighted. Farm sustainability is supported by the economic success of the local industry and the propensity to adopt extensive practices. With respect to public policy, dairy policy appears to have the strongest impact. Thus, the liberalization of dairy policy threatens the future of dairy farming, particularly in areas with low milk density and no production under labels. This work calls for a policy that promotes the collective dimension of dairy farm performance. The current rural development policy alone may be insufficient to support farms’ long‐term sustainability.     

Agrobiodiversity conservation under an imperfect seed system:the role of Community Seed Banking schemes

The study is an empirical investigation of agrobiodiversity conservation decisions of small farmers in the central highlands of Ethiopia. The primary objective is to measure the effectiveness of Community Seed Banking (CSB) in enhancing diversity while providing productivity incentives. Our results indicate a significant impact of participation in CSB on farm‐level agrobiodiversity. However, the level of biodiversity conservation was not found to have the expected reinforcing impact on participation, indicating no support for simultaneity. CSB participation also led to an increase in productivity, consistent with a need for such incentives in order to enhance diversity at a farm level. Our assessment of the performance of the GLS estimator yielded a significant discrepancy between the GLS and bootstrap estimates. This led to the conclusion that bootstrapping asymptotic estimations might be required for appropriate inference.     

Off‐farm work,technical efficiency,and rice production risk in Taiwan

This article investigates the differences in yield production, production efficiency, and yield risk for farmers both with and without off‐farm work. Using a nationwide survey of rice farmers in Taiwan, we estimate two stochastic production frontier models that accommodate technical inefficiency and production risk simultaneously for farmers both with and without off‐farm work. The stochastic dominance criterion is then applied to compare the differences in the distributions of the estimated technical efficiency and yield risk between groups. The empirical results indicate that these two groups of farmers use resources in different ways, and off‐farm work is not necessarily associated with lower technical efficiency. For farmers in the lower percentiles of the efficiency distribution, those with off‐farm work are more efficient than their counterparts without off‐farm work. In addition, farmers with off‐farm work face higher production risk and this result is robust for the entire distribution.     

Impacts of Decoupled Agricultural Support on Farm Structure,Biodiversity and Landscape Mosaic: Some EU Results

The decoupling of direct payments from production represents a substantial reform of the Common Agricultural Policy (CAP). Farmers are no longer required to produce commodities to be entitled to support but only to keep land in Good Environmental and Agricultural Condition. If output declines as a result, there is concern that landscape services produced jointly with commodities will also decline. The aim of this paper is to assess the long‐term effects of the 2003 reform on farm structure, landscape mosaic and biodiversity for a sample of EU regions. Impacts are quantified using a spatial agent‐based modelling approach by simulating agricultural development with links to indicators of landscape value. Our results demonstrate that eliminating the link between support payments and production has possible negative consequences for the landscape, but only under particular circumstances. It is shown that these effects could be offset by strengthening (Pillar II) agri‐environmental schemes. Further the single payment scheme results in higher land rental prices which reduces its ability to achieve its goal of providing income security for farmers. Implications of these results for the direction of continued CAP reform are discussed.     

Vertical coordination,access to capital,and producer loyalty in the Polish dairy sector

Numerous studies have shown that processing and retail industries have actively assisted farmers in joining the modern food marketing systems. Data from the Polish dairy sector show that assistance is provided not only for the traditional‐channel farmers wishing to modernize, but also for farmers already included in the modern marketing channel. Two explanations can be provided to account for this phenomenon. One, even modern‐channel farmers may lack sufficient funds to maintain required quality/quantity on their own. Two, it may be the case that even after undertaking necessary adjustments, modern‐channel farmers are more likely to quit their relationship with a processor and turn elsewhere, in which case assistance is provided to prevent them from defecting. Using farm‐level data, we investigate the impact of supply chain modernization on farmers’ access to credit and their loyalty toward processors. Our results do not provide compelling evidence to support either hypothesis, suggesting at most a partial explanation for the existence of vertical linkages between processors and modern‐channel farmers in Poland.     

Modelling Farmers’ Participation in an Agri‐environmental Scheme using Panel Data: An Application to the Rural Environment Protection Scheme in Ireland

Previous studies that have attempted to model the participation decision of farmers in agri‐environmental schemes have used a static framework where it was not possible to examine changes in the participation decision of farmers over time. This is rectified in this paper by utilising an 11‐year panel that contains information on 300 farmers for each year. The structure of this dataset allows us to employ discrete time duration random effects panel data logit models to model the determinants of entering the Irish Rural Environment Protection Scheme (REPS). We introduce a dynamic element into a number of the models by using the random effects logit model estimator, with lagged dependent variables as additional explanatory variables. The results point to the fact that systems of farming that are more extensive and less environmentally degrading remain those most likely to participate in the REPS. In addition, the results highlight the fact that where no attempt is made to control for unobserved heterogeneity or path dependency the effects of the farm‐ and farmer‐specific characteristics may be overestimated.     

Worth the Risk? The Behavioural Path to Well‐Being

There is increasing interest in the ‘economics of happiness’, reflected in the volume of articles appearing in mainstream economics journals exploring the major determinants of self‐reported well‐being. We contribute by exploring the factors influencing how satisfied farmers are with their quality of life. We find that farm income, subjective perceptions relating to the adequacy of household income, debt, health and personal characteristics such as age and relationship status are significantly associated with farmers’ self‐reported life satisfaction. While significantly associated with farm income, farm structural variables such as farm size, farm type and the presence of a farm successor were not found to be significantly related with life satisfaction. Our results also suggest that farmers who are more risk averse enjoy significantly lower levels of both life satisfaction and farm income than their more risk seeking or risk neutral counterparts. We suggest that, in the same way that risk aversion inhibits farmers from making choices that could lead to an increase in their income, it may also constrain farmers (and the wider public at large) from engaging in certain types of behaviours that could lead to an increase in their self‐reported quality of life. Finally, we find that while farm income is significantly related to self‐reported life satisfaction, the direct correlation between these variables is weak, suggesting that farmer life satisfaction can be distinct from business success.     

Towards Agricultural Policy 3.0 – an agenda for agricultural research

This article reviews the development from market‐based support measures (‘Agricultural Policy 1.0’) towards direct and decoupled payments (‘Agricultural Policy 2.0’) which are increasingly justified by environmentally friendly practices (‘Agricultural Policy 2.1’) to which payments are bound. It describes frequent problems connected with today's agri‐environmental programmes, particularly non‐compliance and a too indirect link between practices paid for and environmental effects. Other programmes have started to pay farmers more directly for environmental outputs on their fields, such as the number of valuable plants on their grassland. Transaction costs for the administration and control of these programmes have been shown to remain at an acceptable level, so that such output‐related policies may be effective and promising options. It is suggested to direct the work of agricultural researchers, including economists, into looking for a stronger link between environmental outputs and public support, something that could be termed Agricultural Policy 3.0. This could lend some more visibility, relevance and attractiveness to our discipline .     

The role of dairy company policies in support of farm green infrastructure in the absence of government stewardship payments

Intensive dairy farming has substantial impacts on freshwater and terrestrial ecosystems. Determining how to mitigate them while increasing production is driving the quest for sustainable milk production internationally. Green infrastructure (G.I.) provides private and public ecosystem services, including mitigation of farming environmental impacts. However, there are implementation barriers among farmers. New Zealand government supports farmer self-regulation as long as farmers meet environmental targets. Farmers are neither compensated for reducing environmental impacts, nor for setting aside G.I. in support of nature conservation. Dairy companies are under increasing pressure to ensure socially acceptable milk production practices among farmer suppliers. They may play a role in encouraging farmers to implement G.I. as a way of helping farmers meet regulatory compliance, and best farming practice. Using a content analysis of company policies, the role of dairy companies in encouraging G.I. among farmers is explored. Results indicate companies are concerned about the effects, and perception, of poor environmental farming practices on their profitability, and have developed some riparian G.I. policies, with government and farmer support. However, policies are farm-focused and are limited to one year, and thus lack the capacity to encourage G.I. in support of key ecosystem services, such as water cleansing and support for indigenous biodiversity that require landscape scaled networks and longer periods. Even at the farm scale, a majority of companies lack policies that encourage significant G.I. networks. Policies suggest companies, and by extension farmers, lack sufficient motivation to protect or restore them voluntarily. Under these conditions, significant G.I. is unlikely to develop under self-regulation, unless supplemented through motivating government stewardship payments.