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Agriculture and the Environment

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Presentation on theme: "Agriculture and the Environment"— Presentation transcript:

1 Agriculture and the Environment
Econ 4300 2008

2 Agriculture and Environment
Is dependent on the environment Climate Precipitation Heat units Can impact the environment Micro scale: micro climate, run-Off, sediment Macro scale: greenhouse gases (CO2, CH4, N20)

3 Agricultural Production
All production sytems produce a set of outputs, using a set of inputs Outputs of economic importance are yield, livestock gain, etc. Outputs that can impact others but not a private benefit are nutrient leaching, pesticide run-off. These are “negative” or “bad” outputs

4 Why the concern? Outputs that impact others are externalities
They typically impose an additional cost onto someone else Resource use and allocation will not be Pareto Optimal Examples: sediment from erosion, reduced water quality,

5 World Wide Environmental Issues
For over 200 years, the concern that population will outstrip food supply Increased land under cultivation, increased productivity, increased input use, new technologies Club of Rome in 1972 and Limits to Growth Economic activity is putting a strain on the plant’s resources

6 Ecological Footprint Concept is to measure ecosystem services demanded by humans, and the services that can be supplied To address the debate on the earth’s human carrying capacity “How large of an area is required to support a particular population?” Measures global resource uses

7 EF – Rees’ article Every human imposes some footprint
Land is used as the measure, all services are converted to a land area Land area is adjusted for productivity around the world Use only major categories of consumption and waste Is a function of population, standard of living, efficiency, productivity of ecosystem

8 EF – Rees’ article Based on final demand for goods, services
Consumption=production+imports-exports Covert consump. to land/water area required Sum footprints of individual consump. And waste categories Obtain a per capita measure (see Figure 1 of handout)

9 EF – Rees’ article To bring the world up to North American standards, would take 4 more planets like earth Many highly populated, small countries live at several times their domestic capacity (import goods and services) High income countries extend their EF into exporting nations

10 Nonrenewable Resources
How fast should society use these resources? Depends on: Technology – changes the technical feasibility Time preference – value place on the future The discount rate: private vs. society Sustainability and future generations Extract at a rate such that the value of the resource increases at the discount rate

11 Renewable Resources Flow of the resource will depend on the stock, the growth rate of the stock, technology (capture and growth) Stock will decline if harvested flow is greater than growth Growth of the stock will depend on the size of the stock

12 Renewable Resources What is the value of the resource?
The current value associated with harvesting the stock The value associated with the stocks impact on growth in the stock, and the future harvest of the stock

13 Deviations from Optimal Use Rate
Market Failure Resources might be depleted too fast because the future generation has no say in conserving resources to their use Policies can emphasize the present over the future

14 Deviations from Optimal Use Rate
Externalities Outputs for which there is no market, but the outputs do impact others Most externalities have a negative impact Producers of externalities are not covering their total production costs. They only consider their private costs, which are lower than private plus social costs

15 Correcting for Externalities
Internalize all costs so that the producer considers both direct (private) and social costs Need to create a market for the externality Not an easy action There is an incentive for the producer to reduce the externality The market determines the value/cost

16 Correcting for Externalities
Impose a tax Theoretically attractive Set the tax equal to the marginal external (social) cost Applied to a measurable output or input What is the appropriate tax rate? There is limited incentive to reduce the externality because the tax is not directly tied to the externality

17 Correcting for Externalities
Regulation Limit the application or use of an input, or emissions of an output Used with it is difficult to monitor the externality, uncertainty about the input-output relationship with the externality, high variability in externality production Easy to implement and enforce No incentive to reduce the externality

18 Property Rights Property rights impact resource use and externalities
Property rights need to be: Well defined Tradable Secure Enforceable

19 Property Rights In agriculture, these 4 conditions hold
For most land-based resources, these 4 conditions hold Some natural resources do not have well defined property rights They are non-excludable resources Example – fish in the ocean, it is difficult to exclude fishermen from fishing No incentive to conserve the resource

20 Property Rights Can some non-excludable resources be converted to excludable resources? For some goods, property rights can be defined to accomplish this Patents on manufactured goods to exclude others from its production Could fishing areas be assigned to exclude other fishermen? Some goods with wide-spread benefits are non-rival and non-excludable

21 Common Property The tragedy of the commons – common resources are typically over used Four property regimes State property – grazing leases Private property – private land Common property – group ownership Open access property – first to use

22 Measuring Exernalities
Externalities do not have a price Two possible approaches to measure Willingness to pay – how much would one pay not to have the externality Willingness to accept – how much would one need to be compensated to accept the externality

23 Non-Market Goods What is the price of non-market goods?
Use a substitute good for which there is a market Travel Cost Method – used as a proxy for the willingness to pay Contingent Valuation Method (CVM) – in a controlled setting, determine how much one would be willing to pay to obtain some environmental good or service

24 Ecological Goods and Services
Agricultural land owners supply ecological goods and services, but no compensation Producers compensated only for food and fiber produced and marketed EG&S – private benefits related to maintaining land productivity EG&S – social benefits related to those received by society

25 Ecological Goods and Services
EG&S – argument is that there is a market failure, and the market does not compensate the producer for the EG&S Can society expect agricultural producers to continue producing EG&S without compensation? EG&S are non market goods, so there is no market price for these goods

26 Ecological Goods and Services
Valuation methods for non market goods: Value of services that increase productivity Damage cost avoidance, replacement cost Travel Cost Method (recreation services) Contingent Valuation Method (survey of willingness to pay for specific services) Contingent Choice Methods (survey of trade-off selections to determine value)

27 Ecological Goods and Services
Can not include value in the market price of commodities, EG&S are non market goods The approach is one of compensating producers for using specific practices Example: Ducks Unlimited and practices that increase duck habitat A tax approach might be possible, but not a part of the current EG&S work

28 END

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