Monthly Archives: February 2008

119 – The policy zeitgeist

Is a new policy zeitgeist emerging for environmental and natural resource policy for rural Australia?

In 1893 New Zealand was the first major self-governing country to give women the right to vote. Australia followed suit soon after, in 1902. (At our first national elections in 1901, only in South Australia and Western Australia did women have the vote). Other western countries followed in dribs and drabs through the first half of the 20th century: the United States in 1920, Britain in 1928, France in 1945, Switzerland in 1971! Given how almost all of us feel about the issue these days, these are remarkably recent dates. In a world where Maggie Thatcher is part of history and where we have a woman as a serious contender to be the next US President, it is hard to fathom how much and how quickly public attitudes have changed. And not just in relation to women’s suffrage. Most of us think very differently about issues of race, the environment, war, and religion than did our grandparents, or especially our great-grandparents, at our age.

I’m interested in not just the fact that our attitudes to these things have changed, but that we have all, more or less, changed together. It seems like an incredibly difficult thing to have so many people change their ideas so thoroughly, so quickly.

The above changes have affected the whole community, but this sort of change in mindset can also occur amongst smaller sub-groups. I’m thinking about environmental and natural resource policy and ideas about how it should best be designed and implemented. Like many areas of policy, this seems to go through phases of thinking about what should and should not be done, lasting of the order of a decade.

We have recently had a change of national government in Australia, just at the time when two major national environmental programs are about to come to an end. There is a lot of interest around what sorts of changes the new government will make in the policy program that replaces them. One thing for sure is that the decisions made will be affected by the the current views of people with an interest in the area – that is, by the zeitgeist.

Prior to the 1980s, we didn’t really have major national environmental policies for rural Australia. In the 1990s, we had the Landcare movement, emphasising broad participation of landholders, working in small groups with paid facilitators. There was a focus on raising awareness, empowering people to do the environmental works that they wanted to do, and using peer pressure to bring people along. For a while, the popular support for Landcare was high. Eventually, though, critics started to point out its weak spot: its limited delivery of environmental benefits. It was great in theory, but just alright in practice.

Now, less than a decade after the end of the “Decade of Landcare”, the general sentiment among people interested in the area is much less positive than it was. A fair number are absolutely scathing in their assessment of Landcare, a few are still very positive about it, but most would probably not object violently to an assessment that it was just alright – useful for raising awareness and prompting small changes, but not a driver of major changes. Somehow, we all changed our minds, roughly in synchrony. (As a side comment, I occasionally read opinions from commentators in other countries that Landcare has been hugely successful in Australia and is worth copying. There seems to be a lag in the diffusion of our national re-assessment.)

This century, rural environmental policy in Australia shifted emphasis to regionalism, where planning, prioritisation and implementation of environmental programs were devolved to 56 regionally based bodies. This wasn’t really the result of a change of zeitgeist – it was imposed by the national government. The common view is that at the political level, part of the appeal of the regional model was that it allowed the national government to sideline the state governments (mostly of a different political persuasion) by channeling funds directly to regionally based bodies. More generally it was justified by the greater local relevance that could be achieved through locally based decision making. And partly it was an experiment.

The regional model has never had the same popular appeal as Landcare did in its early days, but a lot of people have put a lot of effort into trying to make it work. It seemed like, because it was the only game in town, even people who had misgivings about the approach tried to get behind it. In a sense, people put aside their doubts and it became the zeitgeist.

But now the government that brought in the regional model has gone, what will the new one do? To the extent that they will be affected by the current zeitgeist, what is the current zeitgeist? It’s hard to tell when you’re in the middle of it, but my sense is that some of the reservations about the regional model that were buried have been re-emerging. I hear more people expressing reservations about it than previously, and there have been a few signs from government that suggest that support for the current system is not assured. But the messages are mixed; there is still support for it out there as well.

Feeding into this milieu is a new report by the Australian National Audit Office (2008), on “The Regional Delivery Model”. It makes some pretty serious criticisms of the existing system, including:

  • “at the present time it is not possible to report meaningfully on the extent to which these outputs contribute to the outcomes sought by government.”
  • “There is little evidence as yet that the programs are adequately achieving the anticipated national outcomes.”
  • “The ANAO considers that documentation of the economic costs and benefits of different ‘on ground’ actions needs to be substantially improved. There is still little information as to what options are best to deliver value for money outcomes.”

It seems to me that most of the criticisms relate to the implementation of the program, rather than problems with regional delivery per se. In any case, given its release just when the new policy direction is being determined, it seems possible that this quite critical report may further influence the zeitgeist. On the other hand, I’m sure that there are supporters of the current system who are pushing hard for its retention. Time will tell how the forces play out.

Epilogue

Since I wrote the above, I discovered that there was a lengthy discussion about the future of the regional arrangements during a Senate Estimates hearing in Canberra on February 19. See the full transcript here. The Minister present (Senator Wong) and the departmental officials stress that final decisions have not been made yet, but from their various comments, I interpret that there is likely to be less funding for the regional system than there was previously, and that the funding they do get may be more tied to specific projects determined from Canberra.

Here are a few quotes to give you the flavour:

Mr Borthwick— The incoming government had quite a different approach to bring to this area, which was reflected in the reef rescue package, in wanting to build up our national reserves system and indigenous protected areas, in facial tumour disease with Tasmanian devils, cane toads, et cetera.

:

Mr Borthwick— … the intention will be to use regional groups as a vehicle for delivering aspects of the NHT as they have been in the past.

Senator SIEWERT—Are you saying there is a commitment to continuing regional groups, but you do not know what level of funding is available for regional groups?

Senator Wong—No, … the government is considering the arrangements in relation to the NHT.

:

Mr Borthwick—For some time we have been trying to get the regional groups to focus on national environmental priorities. The process when the regional groups first started off was more of a bottom-up process. Over time we have tried to get them to focus more on wetlands or threatened species or combating salinity et cetera. The incoming government clearly has in mind focusing even more activity on things of nationally environmental significance but also being conscious of a lot of the work that the regional groups and other groups such as Landcare and Coastcare do in particular areas. As to what is the exact balance between the particular activities and the national activities, you will have to wait and see until the government makes an announcement.

 

David Pannell, The University of Western Australia

Further Reading

Australian National Audit Office (2008). Regional Delivery Model for the Natural Heritage Trust and the National Action Plan for Salinity and Water Quality, Audit Report No.21 2007–08, Canberra. http://www.anao.gov.au/uploads/documents/2007-08_Audit_Report_21.pdf

118 – Farmers over-using chemicals

Why do some farmers apply more agricultural chemicals (fertilizers, herbicides, pesticides) than seems to be good for them, let alone for the environment? What should governments do about it?

I’ve just finished reviewing a research paper that asks why some farmers apply excessive rates of fertilizers, and the same question could be asked of herbicides and pesticides. Coincidentally, I was also asked a question about it at a conference presentation I gave last week, so here is my perspective on the issue.

If it was just that the farmers were wasting a bit of money, it wouldn’t be a particular policy concern, but given the likelihood of environmental costs from nutrients or pesticides entering the environment, it does become an issue that potentially justifies a policy response.

Commentators on this issue seem to get particularly frustrated when calculations show that farmers could actually increase their profit by cutting their use of chemicals, and yet they persist in using high chemical rates. There are several possible explanations for this observation:

(a) The farmers are misguided, or are not paying attention. Maybe they are all following common practice amongst their peers without thinking deeply about the consequences, but that begs the question of how the common practice emerged. As a rule I think it is safer to assume that there are good reasons for farmers’ observed behaviour.

(b) The farmers are getting poor advice. Maybe they are following the recommendations of chemical companies who have a vested interest in selling more of their products, or from agronomists who focus on yield instead of profit.

(c) The calculation of profit is inaccurate. That’s always possible. The calculations may have used inaccurate assumptions, or may have failed to capture the heterogeneity of farming situations. Mind you, if that were the case, you’d expect recommended rates to be sometimes above and sometimes below what farmers generally do, whereas “below” seems to be more common in practice. One possibility that would bias recommended rates downwards is the failure to consider carry-over benefits in future years from using an input this year. This is particularly important in the case of herbicides, and can be relevant to fertilizers and pesticides.

(d) There are potential profit gains from cutting rates but they are too small to encourage farmers to change their approach. This is almost certainly a factor. It is almost universally observed that profit functions are flat in the region of the optimal input rate (Pannell, 2006). Figure 1 shows a typical example. If a farmer’s current fertilizer rate is greater than F*, he or she could increase profits by cutting back to F*, but the gain in profit from doing so would be small. This doesn’t explain why the farmer’s current rate is greater than F*, but it may explain why it doesn’t change.

Figure 1. Profit functions are typically flat in the region of the optimal input rate.

 

(e) Factors other than profit are influencing their behaviour. This, too, is likely to be part of the explanation. One issue is risk. Note that the profit curve in Figure 1 has a steeply rising section followed by a wide flat area. In practice, a farmer does not know where the rapidly rising area finishes, so there is a motivation to put on more fertilizer just in case the steeply rising section is wider than average this year. The cost of putting on too much fertilizer is small, but the cost of putting on too little fertilizer could be large – potentially large enough that it’s worth over-fertilizing each year as a form of insurance.

Another non-profit factor could be that farmers value high yields and pest-free crops for their own sake, irrespective of profit outcomes. I’m pretty sure that this is a factor for some farmers. It’s not hard to imagine why; most of us care what our peers think of our competence. Having a lush, green, weed-free crop is a way to signal that you are a good farmer, whereas there may not be so much kudos from peers for a more profitable but less attractive crop.

If either of these two non-profit factors is important, or if benefits have only been calculated for a single year, it may be that there are not actually benefits to the farmer from cutting their input rates – the calculations that indicated benefits from lower rates are inadequate. I suspect that is commonly the case.

The conference question I mentioned (asked by John Rolfe at the Australian Agricultural and Resource Economics Society conference in Canberra) was about the appropriate policy tool to use to get farmers to reduce their input levels in this situation. He commented that, in a case he was aware of, lower rates seemed to be more profitable, but extension (i.e. communication, persuasion, information provision) had not been effective in promoting change. The best choice of policy tool can be guided by my public benefit: private benefit framework (Pannell, 2008). Figure 2 shows a graph I presented at the conference, which is adapted from the version that is soon to be published in Land Economics.

Figure 2. Suggested choice of policy tools, depending on public and private benefits from the proposed management changes.

 

Given the earlier discussion, we would expect the private net benefits of reducing input rates (including profit and non-profit factors) to be close to zero. Let’s suppose that it is very slightly positive (e.g. points a and b – they are both just to the right of the Y axis, indicating that private net benefits are positive but small).

Then the appropriate policy response depends on the level of public environmental benefits. If the environmental benefits from reducing rates are low (point a), the best response is probably no action. If environmental benefits are high enough (point b), it may be worth applying an incentive mechanism to encourage positive change. This could include beneficiary-pays mechanisms (e.g. subsidies) or polluter-pays mechanisms (e.g. a pollution tax), depending on political attitudes about who should pay. The assumption is that given such low private net benefits, farmers will adopt the practice very slowly, if ever, and extension will not do much to change that.

Another option is to invest in “technology development”, meaning actions that could move point b upwards or to the right. For example, appropriate R&D may develop new strategies or technologies that increase the profitability of using lower rates, such that the practice becomes much more adoptable. Or R&D may increase the environmental benefits of changing rates, such that it is even more worthwhile employing a positive incentive mechanism.

Either way, John Rolfe’s intuition that it is not appropriate to rely primarily on extension in this situation seems sound.

David Pannell, The University of Western Australia

Further Reading

Pannell, D.J. (2006). Flat-earth economics: The far-reaching consequences of flat payoff functions in economic decision making, Review of Agricultural Economics 28(4), 553-566. Final published paper at journal web site here. Prepublication version here (44K).

Pannell, D.J. (2006). Thinking like an economist 24: Flat-earth economics, Pannell Discussions, No. 88, 6 Nov 2006, here.

Pannell, D.J. (2008). Public benefits, private benefits, and policy intervention for land-use change for environmental benefits, Land Economics 84(2): 225-240. See here