Monthly Archives: March 2007

95 – Linking research to policy

There is a lot of environmental research, and a lot of environmental policy, but the links between the two are often not nearly as strong as you would hope or expect. This story is about a case where the links are relatively strong.

For some years now, I’ve been trying to influence policy makers in Australia to improve the design of the national and state salinity policies. My concern has been that, from what we know of the science and economics of salinity, the approaches being used in the main policy programs are not making a meaningful difference to salinity management in most regions. Indeed, there are cases where policy has probably made matters worse.

There are quite a number of factors that appear to have contributed to the poor political response to salinity (Pannell 2005) including: the short-term focus of politics being inconsistent with the long-term nature of salinity; the tendency for political debates to manufacture a “crisis”, which can result in urgent ill-considered responses; the conflict between effectiveness and the perceived fairness of policy; the complexity and diversity of the salinity problem; and the fact that new research findings may not be quickly noticed and responded to by policy makers.

Then there is the question of knowing how to respond to new research results. I have spent quite a bit of time and effort communicating with people about the science of salinity and its policy implications. Initially I thought that, as a researcher, the appropriate thing to do was to give the relevant information to decision makers, and then step back and allow them to make the decisions. However, even in the face of compelling evidence, people seemed to flounder when it came to making decisions in response.

There were at least two lessons from this experience. Firstly, given a problem as complex and multifaceted as salinity, most people don’t have a way of stitching together the different parts of the problem into a coherent and logically consistent whole. For such problems, it seems, intuition is not enough – one needs a reasonably structured decision framework to help make sense of it all, and especially to work out how to respond to new knowledge.

Secondly, even providing a good decision framework is not enough, for several reasons: lack of commitment to it, lack of knowledge of the required inputs, unanticipated confusion or misinterpretation of the framework, and so on. It seems that, for problems as challenging as salinity, decision makers need help in quite a hands-on way. The decision should still be theirs, of course, but they need help integrating and interpreting the evidence.

So my collaborator Anna Ridley and I set out to provide both of those needs. First we created the Salinity Investment Framework III (SIF3), a much more detailed and easy-to-apply version of a framework previously developed in Western Australia (see here).

Then we offered to help two catchment management organisations to pilot SIF3: the North Central Catchment Management Authority (CMA) in Victoria, and SCRIPT, on the south coast of Western Australia. So far, we have finished our analysis of salinity for North Central CMA, and the outcomes have been very positive.

The CMA has broadly accepted the recommendations from SIF3, and is set to substantially alter the shape of its salinity investments. The new approach will target investment in on-ground works to a small-ish number of locations that meet a combination of criteria:

  • there are public assets of particularly high value in the location;
  • these assets face a likely high impact from salinity;
  • there are changes in land management or engineering responses that will substantially reduce the impact of salinity in a reasonable time frame;
  • if changes are required on private land, those changes are not excessively costly or unattractive to landholders;
  • the responses required to address salinity will not cause other major natural resource or economic problems.

In addition, the CMA will increase their investment in technology development, to provide options for landholders who do not fall within the tightly targeted areas for on-ground works, and to reduce the long-term cost of targeted interventions. As a result of their positive experience with SIF3, the CMA says that it will increase its emphasis on relevant science to improve future decision making.

Getting to this point has required persistence, patience and a lot of good will on both sides. The lessons of SIF3 are not yet fully embedded in the CMA’s operations, but progress has been very encouraging.

As well as being useful to environmental managers at the regional level, SIF3 has strong implications for policy design, and we’ve had increasingly productive engagement with governments about this at the state and national levels. The demonstrated success with the CMA has increased the credibility of related messages to policy makers. Two weeks ago, our recommendations for changes in salinity policy, supported by a paper summarising the evidence behind them, were considered by the NRM Standing Committee, a key national policy body that brings together senior bureaucrats from the Australian Government and all states and territories. They will now advise the NRM Ministerial Council, the top-level decision making body for NRM policy.

There is still some way to go, but the current signs are good that we may move towards a policy framework for salinity that is more consistent with the latest technical and socio-economic research. If so, there are also likely to be positive spin offs into other areas of policy for natural resources in Australia.

David Pannell, The University of Western Australia

Further Reading

Pannell, D.J. (2005). Farm, food and resource issues: politics and dryland salinity, Australian Journal of Experimental Agriculture 45: 1471-1480. Full journal paper (103K)Summary version (19K)

Ridley AM and Pannell DJ (2005). SIF3: An investment framework for managing dryland salinity in Australia. SEA Working paper 1901. CRC for Plant-based Management of Dryland Salinity, University of Western Australia, Perth. Summary version (simple 2 pager in pdf)

A new approach to public investment in dryland salinity – 2 pager (49K pdf file) outlining the need for a new approach, and illustrating results of SIF3 in North Central CMA region.

Why a new approach to dryland salinity planning/investment is needed

94 – Environmental stewardship payments

At a conference earlier this month, the Australian Minister for Agriculture, Peter McGauran, announced that the Australian Government has committed itself to a new “environmental stewardship” scheme, under which Australian farmers will be paid for “environmental services” that they provide to the Australian community.

This announcement reinforces signals that have been coming from the government for at least a year. At this stage we know nothing about the details of the scheme, but the use of the term “environmental stewardship” rings some alarm bells for me. The concern is that the government may take a leaf or two out of the European approach to stewardship payments. To be fair, McGauren has said that the scheme is “not in the same vein as the European farm payment environment subsidy program”. I don’t know what he has in mind when he says “the same vein”, but there are various features that he’d be well advised to avoid.

In the UK, the Department of Environment, Food and Rural Affairs launched its Environmental Stewardship program in 2005. This scheme offers payments for an amazing variety of “services” that farmers can perform, starting at £30 (about A$75) per hectare per year for the “entry level” scheme, £60 (A$150) per hectare per year for the second-level, and payments off into the stratosphere for an amazing range of services that farmers can choose to provide under the high-level scheme. For example, farmers can claim £600 (A$1500) per hectare per year for three years for converting an orchard into an organic production system, or £700 (A$1750) per hectare for creation of inter-tidal and saline habitat on arable land.

Many of the options that can generate an “environmental” payment seem remarkable to an Australian, including building new stone walls, planting fruit trees, installing infrastructure to re-introduce livestock to a farm (£538 per cattle grid!), and car parking for visitors. Clearly, some of the things that are deemed to constitute an environmental benefit in the densely populated and long-farmed UK countryside are radically different to what we would count as “environmental” in Australia, where our focus is on naturalness and conservation of natural resources. Many of the UK payments are offered to encourage traditional approaches to farming, or preservation of the UK landscape in a highly modified, but highly valued, state (preserving old farm buildings, using traditional animal breeds).

I don’t think there is any danger of the Australian scheme offering subsidies anywhere remotely near the levels offered in the UK version, and I doubt very much that we’ll start paying farmers to install cattle grids, but there are also other ways that our scheme can be smarter than the UK one.

I particularly dislike the way that the UK scheme has established a schedule of standard payments for specific actions. In doing this, it seemingly ignores the fact that the level of environmental benefits is likely to vary greatly from one case to another, so that the amount it would be worth paying for the same action would vary from place to place. It appears that the payment levels have been set with an eye to the likely cost to farmers, rather than the environmental benefits. For example, they pay more for creation of woodland than for maintenance of woodland. The relationship between payment levels and the value of actual environmental benefits generated is somewhere between loose and non-existent. I expect that many of the payments generate very small environmental benefits.

Even the consideration of farmer costs is pretty loose. There is no attempt to determine how much individual farmers would need to be paid to do one of the desired actions. For example, UK farmers can claim £500 for reversion of cropland by “natural regeneration”, irrespective of the opportunity cost to farmers of the cropland. No doubt, some farmers would be willing to convert some of their crop land for less than £500.

Another concern with the scheme is that it relies on one policy tool: grants to farmers. It ignores the reality that there is a range of different types of policy tools and that that each of them can be the most appropriate tool to use in different situations (e.g. see Pannell, 2006).

Still, the UK government seems happy with the scheme. In 2005, Sustainable Farming Minister Lord Rooker said:

“I am delighted with the success of Environmental Stewardship so far. With over 20,000 agreements, covering 3 million hectares, already in place, this means that over 30% of eligible agricultural land in England is now under some form of funded environmental management”. With the sort of money they are throwing around, it is not surprising that the take up has been impressive.

Overall, from an environmental perspective, the UK version of Environmental Stewardship seems certain to generate much fewer environmental benefits than would be possible for the money on offer. From a financial perspective, it will involve much higher costs to taxpayers than it need do for the environmental benefits generated. It is resulting in big transfers of income from taxpayers to farmers, but I guess that is part of the idea.

I hope that the Australian scheme will be more discerning and better designed. Peter McGauren said, “This is the government and the community purchasing these environmental management services. It’s not about the farmer deriving the benefit.” That is a pretty interesting comment from a Minister for Agriculture, and one that it will be difficult for him to deliver on.

David Pannell, The University of Western Australia

Further Reading

Pannell, D.J. (2006). Public benefits, private benefits, and the choice of policy tool for land-use change, Full paper (150K)

93 – Thinking like an economist 24: With and without

In Benefit:Cost Analysis, making a comparison with and without the project is not the same as comparing before and after the project.

Benefit:Cost Analysis involves making a comparison between alternative courses of action (“do something” versus “do nothing”). The different courses of action would have different outcomes, which we have to anticipate, quantify, value, and compare.

Crucially, the comparison in such an analysis has to be between “with” and “without” the action being considered, and not “before” and “after” its implementaion. “Without” is almost certainly not the same as “before”, due to changes in markets, technology, and other factors that would occur whether or not the project goes ahead. For this reason, a “before” versus “after” comparison can give a highly misleading impression of the merits of the project.

For example, suppose you are evaluating proposed research work to develop improved wheat varieties for a region. Suppose that the current average wheat yield is 1.5 tonnes per hectare, and that after the research, the best bet is that average yield will increase to 2.0 tonnes per ha by 2020. You might be tempted to say that the economic value of the research would be the financial value of the 0.5 tonne increase (Figure 1).

Figure 1. Before and after the research.

However, there may be changes in yield that would occur even without the proposed research. There may be trends in disease or pesticide resistance that mean that yields will decline, or there may be research by other research groups that would increase yield to say 1.8 tonnes per hectare in the absence of the proposed research (Figure 2).

Figure 2. With and without the research.

What we require for a valid evaluation of the project is estimates of both time paths of benefits and costs, with the proposed research and without the proposed research, and we calculate the difference in each time period.

It’s a simple idea but surprisingly often missed by non-economists.

We also need to discount the differences to make them comparable at a particular point in time (see PD#33).

Of course, comparing “with” and “without” can be substantially more difficult than comparing “before” and “after”. In the “without” scenario, one has to anticipate and quantify all the things that will happen in future in the absence of new action, whereas no prediction is required for the “before” scenario.

In the above example, we would need to anticipate the success not only of the research we wish to evaluate, but also the success of other researchers working in the same area. If we did not do so, we could substantially overstate the benefits of the research we are evaluating.

Based on Figure 2, and allowing for discounting at 5%, the average value of the yield difference per year would be the equivalent of 0.06 tonnes per ha – much less than the 0.5 tonnes per ha suggested by Figure 1.

David Pannell, The University of Western Australia

Further Reading

Alston, J.M., Norton, G.W., and Pardey, P.G. 1995, Science Under Scarcity: Principles and Practice for Agricultural Research Evaluation and Priority Setting, Cornell University Press, Ithaca.