Economic Measures of Sustainability

Sustainable Agriculture is a term that has grown out of global call for sustainable development. Unfortunately, the term has been very widely adopted to represent a variety of initiatives. If the term is to retain any meaning it must be refined and defined. In this paper sustainability was defined as: The maintenance of the net benefits agriculture provides to society for present and future generations. This definition is very much a humanist approach, which includes both consumer and producer surplus. The paper identifies the conflict that may occur between consumer surplus, producer surplus and total economic surplus. From a consumer surplus point of view food security, and discounting are major issues. The compensating variation of a famine may be infinite making food security a primary goal of many nations. The maximization of the net returns from agricultural production represents me producer surplus point view. A second, somewhat related concern is the maintenance of minimum level of income in the agricultural sector. Consumer surplus is threatened by food scarcity, and agricultural income is threatened by surpluses. Price is the best measure we have of scarcity. To discuss sufficiency in the absence of price is very misleading. Similarly, describing sustainability in terms of expected output and prices is also misleading. It is unplanned scarcity and abundance that threatens food security and economic viability respectively. It is therefore, the ability of the agricultural system to respond and rule out extreme price that is central to the issue of sustainability. Given the inelastic nature of the demand the ability for sustainable agriculture may largely be a function of the elasticity of supply. The ability of fixed factors such as land to enter and exit a sector may also augment sustainability. A thirdsource, of economic flexibility is alternative technologies that can be applied at very low or high prices. This flexibility has to be valued not at expected prices but rather for the option values at extreme prices. Government has a role in sustainability. Governments should pursue policies which enhance the elasticity of supply. Policies that stabilize income through prices have the opposite effect. These programs should at a minimum be decoupled. Secondly, governments should spend research dollars on technologies that enhance the elasticity of supply. Finally, land set aside programs, add great deal to the elasticity of supply.