Directorate for Food, Agriculture, and Fisheries 1 ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT ÉCONOMIQUES OECD Work on Multifunctionality Private (Non-Governmental) Approaches for Multifunctionality FAO Workshop: Environmental Services for Poverty Reduction and Food Security, May 2005 By Jun Shobu, Policies, Trade and Adjustment Division, Directorate for Food, Agriculture and Fisheries.

Directorate for Food, Agriculture, and Fisheries 2 STUDIES ON MULTIFUNCTIONALITY ANALYTICAL FRAMEWORK AND POLICIES ( ) 1.Designing an analytical framework 2.Examining the empirical evidence 3.Drawing policy implications 4.Remaining issues REMAINING ISSUES (2003-4) Non-governmental approaches Policy related transaction cost Farm structure and characteristics- links to multifunctionality REMAINING ISSUES (2005-6) Information Deficiency Degree of Jointness

Directorate for Food, Agriculture, and Fisheries 3 STRUCTURE OF PRESENTATION 1. Analytical Framework Policy options (Pigovian solutions) 2. Non-governmental options (Coasian solutions)

Directorate for Food, Agriculture, and Fisheries 4 DESIGNING AN ANALYTICAL FRAMEWORK Agreed approach, common terminology Both positive and negative externalities A “positive” rather than a “normative” approach. DEFINITION OF MULTIFUNCTIONALITY Multiple commodity and non-commodity outputs that are jointly produced Some of the non-commodity outputs are externalities and/or public goods

Directorate for Food, Agriculture, and Fisheries 5 THE ANALYTICAL FRAMEWORK CALLS FOR A THREE STAGE, SEQUENTIAL EXAMINATION OF 1.Jointness 2.Market Failure 3.Appropriate Responses

Directorate for Food, Agriculture, and Fisheries 6 JOINTNESS AND ITS SOURCES Technical interdependencies Non allocable inputs Allocable fixed factors Is there a strong degree of jointness between commodity and non-commodity outputs?

Directorate for Food, Agriculture, and Fisheries 7 BETWEEN COMMODITY PRODUCTION AND.. Non-commodity outputs (positive externalities) Environmental services / Landscape/ Wildlife habitat Historical Buildings / Cultural Heritage Rural Viability / Employment Food Security Land conservation Negative externalities Environmental Quality (Soil, Air, Water)

Directorate for Food, Agriculture, and Fisheries 8 MARKET FAILURE

Directorate for Food, Agriculture, and Fisheries 9 BUT WHERE THERE IS A MARKET FAILURE Intervention may be warranted Best Strategy depends on the public good nature of the output –non-excludability –non-rivalry The probability of policy failures should also be taken into account

Directorate for Food, Agriculture, and Fisheries 1010 CLASSIFICATION THEREFORE HAS POLICY IMPLICATIONS

Directorate for Food, Agriculture, and Fisheries 1 FROM ANALYTICAL FRAMEWORK TO NON-GOVERNMENTAL OPTIONS 1. Analytical Framework Policy options (Pigovian solutions) 2. Non-governmental options (Coasian solutions)

Directorate for Food, Agriculture, and Fisheries 1212 STUDY ON NON-GOVERNMENTAL OPTIONS Objective Seek ways to encourage non-governmental approaches by use of market mechanisms, the promotion of private transactions, and voluntary approaches

Directorate for Food, Agriculture, and Fisheries 1313 APPROACHES 1. Approaches Applying a practical approach Focusing on institutions (mechanisms and their costs) Case studies being the main information source Also examining social aspects 2. Project implementation –1 st Phase: Literature review and establish an analytical framework (for this study) –2 nd Phase: Case studies –3 rd Phase: Synthesis outcomes and draw lessons

Directorate for Food, Agriculture, and Fisheries 1414 LIST OF CASE STUDIES (Non-commodity outputs (NCOs)) Type #TypeTypical CaseImplemented Case Studies P1 Market provision (Consumers: Individuals) Agri-tourism  Agritourism in Italy P2 Market price premiums  A brand of milk production and sale in the UK P3 Club provision (Consumers: Clubs, or organizations) Conservation trusts  The National Trust in the UK  Easement arrangement in the US  Agritourism and land conservation program in Austria  Tourist train in Norway P4 Community Supported Agriculture  Consumer movement in Japan P5 Voluntary provision  Voluntary flood control in Japan  Biodiversity and landscape Conservation in New Zealand

Directorate for Food, Agriculture, and Fisheries 1515 MAIN INSTITUTIONAL ARRANGEMENTS IN THE CASE STUDIES Market price premiums (UK milk case) –Small premium added (5 pence per litre of milk), conversion of 10% of agricultural fields for conservation, coordination with environment NGO Conservation trust (The National Trust) Easement arrangement (US case) –Valuation of NCOs, legally binding Landscape conservation (Austrian case) –Taxation on tourists

Directorate for Food, Agriculture, and Fisheries 1616 FINDINGS FROM CASE STUDIES (NCOs) NCOs traded and not traded Exclusion mechanisms Objectives for NCO conservation Valuation and pricing of NCOs Transaction mechanisms and transaction costs Government interventions

Directorate for Food, Agriculture, and Fisheries 1717 ASSESSMENT (NCOs) Efficiency: NGAs generate efficient resource allocation (if free-riders are ignored ) Equity: Higher income earners pay for NGAs, but anyone may benefit, i.e. equity is less of an issue. Stability: Impossible to assess, but build-in various mechanisms to achieve stability.

Directorate for Food, Agriculture, and Fisheries 1818 LIST OF CASE STUDIES (Negative Effects) Type #TypeImplemented Case Studies N1 Direct transactions  A mineral water bottler in France N2 Voluntary approaches  Findings and lessons are drawn from earlier OECD work  Wine growing program in New Zealand N3 Market-based approaches  Manure trading in the Netherlands  Mitigation banking in the US

Directorate for Food, Agriculture, and Fisheries 1919 FINDINGS FROM CASE STUDIES (NEs) Direct transactions: private sector profitability, identification of stakeholders and property rights, involvement of researchers Farmer-led voluntary approaches: bottom- up approaches, motivations to participate Market-based approaches: environmental effectiveness, facilitation of trading, initial allocation of permits

Directorate for Food, Agriculture, and Fisheries 2020 Every type has weaknesses and strengths Various innovations in NGAs are found and mitigate weaknesses A key role for government is clear identification of property rights Proper institutions under well-defined property rights: - facilitate a change in resource use or restrict it, and achieve Pareto improvement - equip according financing mechanisms - are monitored CONCLUSIONS (COMMON TO NCOs & NEs)

Directorate for Food, Agriculture, and Fisheries 2121 THANK YOU…