Multifunctionality, Agricultural Policy, and Environmental Policy

Agricultural and Resource Economics Review, Apr 2004 by Abler, David

In addition to supplying food and fiber, agriculture is a source of public goods and externalities. This article addresses two questions. First, do price and income support policies promote a multifunctional agriculture in an effective manner? Second, would policies targeted more directly at multifunctional attributes be more efficient than price and income support policies? The answer to the first question is no, at least for policies targeted at outputs (price supports, export subsidies, etc.). Public goods are not directly linked to production, but rather to land use and agricultural structures. Evidence in response to the second question is sketchier with respect to policies targeted at land.

Key Words: agricultural policy, environment, jointness, landscape amenities, multifunctionality, trade, transaction costs

The primary function of agriculture is to supply food, fiber, and industrial products. However, agriculture can also be a source of several public goods and externalities. Rural and urban populations often value agricultural land as open space and as a source of countryside amenities. Agricultural land is frequently a habitat for wildlife species. The agricultural sector can contribute to the economic viability of many rural areas and to food security. On the other hand, conversion of forest and wetlands to agricultural production can damage ecosystems. Agricultural nutrients, pesticides, pathogens, salts, and eroded soils are leading causes of water quality problems in many countries. Water used for irrigation in agriculture is water unavailable to nonagricultural sectors or ecosystems. There is concern about the negative effects of livestock production on animal welfare. On either the positive or negative side, agriculture can be both a sink and a source for greenhouse gases.

The term multifunctionality refers to the fact that an activity can have multiple outputs and therefore may contribute to several objectives at once. As applied to agriculture, the term first came into use in the late 1990s in the European Union for, it is often argued, protectionist reasons (Bohman et al., 1999; Swinbank, 2001). Some governments have attempted to justify agricultural price and income support programs and trade restrictions as a means of preserving the multifunctional attributes of their countries' agriculture. This has led to friction among member governments at the World Trade Organization (WTO) negotiations and in the Organization for Economic Cooperation and Development (OECD). However, the attention given to multifunctionality has also opened up a research agenda for agricultural and resource economists (OECD, 2001a; Batie, 2003), and provided a new outlet for existing lines of research on topics such as countryside amenities, agricultural land preservation, and rural economic development.

This paper is motivated by two questions. First, do agricultural price and income support policies promote a multifunctional agriculture in an effective manner? Second, would policies targeted more directly at multifunctional attributes be more efficient than traditional price and income support policies? Toward this end, the current state of the literature is assessed on two topics: (a) jointness between agricultural commodity production and production of multifunctional attributes, and (b) transaction costs in agricultural and environmental policy design and administration.

Multifunctional Attributes of Agriculture

Agriculture globally is a source of a number of public goods and externalities (Abler, 2001 a, b ; Shortle, Abler, and Ribaudo, 2001 ; OECD, 2001 a, b; Blandford, Boisvert, and Fulponi, 2003). Table 1 provides a listing of public goods that have been often mentioned as multifunctional attributes of agriculture, along with several negative externalities identified in the literature.

Agriculture is a major user of land in most countries, and rural landscapes are often defined by agricultural structures, cropping patterns, the presence of livestock, and the presence of wildlife in agricultural areas. Related to landscape amenities are open-space amenities. Farmland, forests, wetlands, parks, wildlife refuges, golf courses, undeveloped vacant lots, and even cemeteries fall into the general category of open space. There has been concern in many countries about conversion of agricultural land to urban uses and agricultural land abandonment, and how the loss of agricultural land might change the character of rural landscapes.

Landscape and open-space amenities are perhaps the most frequently mentioned multifunctional attributes for agriculture. These terms are sometimes used in a broad sense to encompass several of the other public goods listed in table 1 (e.g., Hellerstein et al., 2002). As used here, they refer in the narrower sense to the aesthetic value of scenic vistas and the enjoyment or tranquility derived from using or being near open areas. They include utility derived from recreational activities in open areas (hunting, fishing, camping, swimming, hiking, bird watching, etc.), which are public goods insofar as these activities are not subject to exclusion or congestion effects. There may also be beneficial externalities that do not rise to the level of a pure public good-for example, open space may increase property values on adjacent parcels of land (Geoghegan, Lynch, and Bucholtz, 2003).