Category Archives: Agriculture

310 – Additionality can be tricky to assess

Many environmental policies and programs pay public money to people or businesses (or give them tax breaks or discounts) to encourage them to adopt more environmentally friendly practices and behaviours. A seemingly common-sense rule for these sorts of programs is that we shouldn’t pay people to do things that they were going to do anyway, without payment. But it can be quite a hard rule to apply in practice.

The idea that we shouldn’t pay people to do things that they were going to do anyway goes under the name of “additionality”. (It is also related to the with-versus-without principle in Benefit: Cost Analysis, and the concept of market failure – see PD272).

The idea behind “additionality” is that, when a program pays money to people to change their behaviours, the environmental benefits that result should be additional to the environmental benefits that would have occurred anyway, in the absence of the payments.

The reason this matters is that, if we are able to target payments to those behaviours that do result in additional environmental benefits, we’ll end up with greater environmental benefits overall, compared to paying for non-additional benefits – we’ll get better value for taxpayers’ money.

Some environmental programs do a poor job of checking for additionality. As I noted in PD272, much of the money given to farmers in US agri-environmental programs is not additional. In Australia, the Direct Action program for climate change doesn’t consider additionality well when selecting the winning bids in their reverse auctions (it compares practices before vs after signing up to the program, not with versus without).

So, environmental programs that allocate money to people or businesses should worry about additionality, but how? It can be harder than it sounds. It’s all very well to say, “only pay people if they would not have done it anyway”, but how do we know what they would have done anyway?

Sometimes it’s reasonably easy. There are cases where we can be pretty confident that people would not have done the environmental action, and will not start doing it in future, without a payment or regulation. I suspect that most of the work on Australian farms to fence off waterways to exclude livestock would not have happened without payments to cover the cost of fencing materials.

In the US, the Conservation Reserve Program pays farmers to remove agricultural land from production and plant environmentally beneficial species. This is probably mostly buying actions that lead to additional outcomes.

The nature of these additional activities is that they are things that are not normally done by farmers. This is largely because they cost the farmer money.

Judging additionality can be much trickier for environmental actions that also generate enough private benefits to be potentially worth doing by the private individuals or businesses. Zero tillage is a good example. Widespread adoption by farmers of zero tillage in Australia, Canada, the US and some other countries has substantially reduced soil erosion, with a range of off-farm benefits. But the reason this practice has been adopted so widely is that it can be very beneficial to the farmers who adopt it. Paying Australian farmers as a reward for doing zero tillage would be pointless, because most of them are already doing it. The public benefits would not be additional.

But imagine how it was in the early days of zero tillage. From the time when it was first developed, it took several decades for zero tillage to be taken up by most farmers. For the first decade, there were very few adopters. A program looking at subsidising zero tillage in 1990 would probably have judged that the payments would lead to additional benefits, and I would not have blamed them.

In fact, at that time, before the systems and technologies to make zero tillage work as well as it does now had been fully developed, payments in many cases would have satisfied the additionality condition. But only temporarily. At some point, the payments would have needed to be switched off, but judging when to switch them off would have been incredibly difficult. Most likely the payments would have continued for quite a while after additionality was lost.

For some practices, additionality comes and goes. For example, planting perennial pastures sequesters more carbon in soils than is found under annual crops, so it might be worth paying crop farmers to convert. But only if they would not otherwise have done so. The area of perennial pastures in Australia rises and falls over time in response to the prices of livestock products, the performance of available perennial pasture varieties, and the economic performance of cropping. If an agency started to pay farmers to plant perennial pastures, ideally they would keep a close eye on the economics of perennial pastures relative to cropping, in case additionality was lost. If it was lost for a period, then payments for that period are achieving nothing, and could be cut without losing the sequestered carbon.

But how would the agency know? The economics of a mixed farming system are very complex, and highly context specific. I worked on nothing but the economics of mixed farming systems for about 15 years, and it would take me quite a bit of effort to assess the additionality of perennial pastures on a particular farm. It would likely vary from paddock to paddock within the farm. The agency could potentially pay consultants to regularly assess the economics, but the costs of doing so on an individual farm would probably outweigh the value of the additional stored carbon.

What the Australian Government’s Emissions Reduction Fund does instead is a before-vs-after comparison of soil carbon, and it assumes that all of the increase is additional for the life of the agreement. This works initially, but the longer the agreement goes on, the larger the chance that additionality will be lost. If it is lost, then the public money allocated for converting to perennial pastures will just be a gift to farmers who would have done it anyway. The gifts could be small and short term or large and long-term; it’s impossible to know in advance. If it turns out to be large and long term, it is the farmer’s good luck – there is no mechanism in the program to turn the payments off.

Should the program have been designed differently? As I said earlier, rigorously assessing additionality on each farm over time is probably not feasible for this practice. It would cost so much that the investment in soil carbon sequestration was not worthwhile.

Additionality could be assessed for a region, rather than for many individual farms. That would make it more affordable, but given the high heterogeneity of the economics of perennial pastures within a region, or even within a farm, the assessment would be wrong in many cases. Still it might be judged to be acceptable as a compromise.

The other alternative is not to provide payments for soil carbon sequestration at all. Personally, that would be my recommendation. There are other problems with paying for soil carbon as well – leakage and permanence, not just additionality (Thamo and Pannell 2017) – and I don’t believe it’s possible to develop a sound policy that is worth the transaction costs.

Although assessing additionality can be difficult, I’m not saying that it is irrelevant. It is always worth thinking it through carefully when setting up an environmental program, and sometimes it is feasible to do a reasonably reliable assessment of it at reasonable cost. But not always. If not, then the program managers have to judge whether the risk of non-additionality is so high that it is not worth proceeding with the program. That’s a difficult judgement that should not be made lightly.

Further reading

Thamo, T. and Pannell, D.J. (2016). Challenges in developing effective policy for soil carbon sequestration: perspectives on additionality, leakage, and permanence, Climate Policy 16, 973–992. Journal web page

307 – John Kerin’s memoirs

John Kerin was Minister for Primary Industries in the Australian Government between 1983 and 1991. His memoirs are now available as a free download. Having seen him speak several times since he ceased being a minister, I think his memoirs should be fascinating and very informative. Agriculture was very lucky to have him as minister during this period of great change and disruption. 

John Kerin was unusual as a minister in that he knew a lot about the issues he was responsible for. Not only was he experienced as an agricultural producer, but he was also trained as an agricultural economist, and worked for a while in the Bureau of Agricultural Economics.

Apparently, his expertise was not always appreciated by his department. In the last part of the book he says “the ethos of some government departments was that they preferred ministers who knew nothing – the better to manage or control them. However, I thought that it was not necessarily an impediment to know something about your portfolio areas. The constant rotation of ministers is not good for policy making.”

Not only did he know a lot, he was clearly very thoughtful and remarkably frank. “Nor … do I want to give the impression that I was always sure about what I was doing, what the outcome of some policy options may be or where the changes and reforms we were introducing may lead. … By nature I am a pessimist, slow to come to decisions and generally believe that I am wrong until convinced of the path to take.”

A landmark event during his term as minister was the wool crisis. His eventual decisions for the industry were critically important and rather heroic as they faced fierce opposition from the whole industry, which seemed determined to do itself almost unlimited damage.

Some of his perspectives are all too relevant in our current political climate. “I have always been terrified by people in politics who are absolutely sure they are right, have God on their side or tell me they are ‘men of principle’. Such people seem able to blind themselves to their own hypocrisy and humbuggery – and are dangerous.”

I’m really looking forward to reading the book.

Further reading

Kerin, J.C. (2017). The Way I Saw It; The Way It Was: The Making of National Agricultural and Natural Resource Management Policy, Analysis and Policy Observatory, Melbourne. Available here: http://apo.org.au/node/76216

Pannell, D. (2014). Supply and demand: the wool crisis, Pannell Discussions no. 266.

304 – Predicting behaviour change by farmers

I have a new paper out describing ADOPT, the Adoption and Diffusion Outcome Prediction Tool. We’ve paid the money to make it Open Access, so I hope you will make it worth our while having done that by going to the journal web site and downloading the paper for free.

There are many hundreds of research papers on the adoption of new practices by farmers. Pretty much all of them set out to explain the relative contributions of different factors to the past adoption or non-adoption of particular practices in particular regions. There are a bunch of review papers that try to make sense of the voluminous literature (including a beauty by Pannell et al. (2006)).

However, neither the original papers nor the reviews set out to address an issue that really matters to many people working in the agricultural sector, in research, extension, natural resource management, policy, sales, etc. That issue is the likely future adoption of a new practice that has not yet been adopted. An interdisciplinary group of us set out to fill this gap by developing ADOPT.

There are a large number of users of ADOPT – there have been over 1000 downloads of the tool, and many examples where it has been used effectively in planning or evaluation of research, extension or policy.

Now we have published this paper, which describes how we developed and validated the tool, how it is structured, and some example of its use.

You can download the paper for free here and you can download the ADOPT tool for free here. If you do it quickly, you’ll be one of the first to get a new update of the model, just released on June 29.

Also available now is Version 1.0 of the “Smallholder” version of ADOPT, designed for use in developing countries. Download it from the same web site here.

Also see http://www.ruralpracticechange.net for a set of videos on the topic of farmers adopting new practices.

References

Kuehne, G., Llewellyn, R., Pannell, D.J., Wilkinson, R., Dolling, P., Ouzman, J. and Ewing, M. (2017). Predicting farmer uptake of new agricultural practices: a tool for research, extension and policy, Agricultural Systems 156, 115-125. Journal web site for free download of the paper.

Pannell, D.J. and Vanclay, F.M. (eds) (2011). Changing Land Management: Adoption of New Practices by Rural Landholders, CSIRO Publishing, Canberra. Available at the publisher’s website.

Pannell, D.J., Marshall, G.R., Barr, N., Curtis, A., Vanclay, F. and Wilkinson, R. (2006). Understanding and promoting adoption of conservation practices by rural landholders. Australian Journal of Experimental Agriculture 46(11): 1407-1424. Journal web site, or email David.Pannell@uwa.edu.au to ask for a copy.

 

300 – MOOC feedback

Last week I checked out the comments that people have left about the free online course (MOOC) that I offer, called “Agriculture, Economics and Nature”. Some of the comments were so heart-warming that I thought they were worth sharing.

They highlight what an amazing thing it is to provide things to the world on an open-access basis. Thanks to the internet, you can connect with, influence and help hundreds or thousands of people who you will never meet. The diversity of commenters, and their circumstances, is just amazing.

My motives in preparing the MOOC were selfish (to attract students to our courses at UWA, to raise our School’s profile), but reading these comments gave me such a warm glow that it makes me hardly care about that aspect (although it clearly has been somewhat successful in delivering those selfish aims as well).

It may seem like I’ve cherry picked the comments, but I promise that these are quite average in their enthusiasm. I’ve only tried to select the more interesting ones. I’ve edited out names and tidied some up a little, but not changed content at all.

I am a 52 year old single mother, from Barbados. It is my intention to operate a herbal production and agricultural business. I took the course as I needed the knowledge, since the area of agriculture would be a new and unknown area of business for me, This course has started me on the road to gaining all the knowledge I need going forward, it has exceeded my expectations, since I did not realising how intense it would be. It was a real pleasure and great learning experience for me. I am truly encouraged. Based on what I have learnt, I can now understand how to apply all of it to my pending operation, it’s invaluable. I loved the structure of the course, the intensity, interest, delivery and concise method of explanation and teaching.

I’m from Nepal. I recently completed my Masters in Plant Biology and Plant Biotechnology from India. I took this online course since I was idle at home, and also because I was curious about the title. I was pleasantly surprised by the richness of the content, and I appreciate your efforts profusely. I enjoyed ‘Pannell Discussions’. There, for the first time in my life, I came across the expression- “bang for the buck” (fascinating and crisp indeed!). I’ve been throwing that that expression around for sometimes.

mooc1Thanks for this great opportunity to learn and gain insight about these complex but relevant interactions between economy, agriculture, and environment. I have learnt about a lot of complex theoretical models dealing with sustainable development, but written by bureaucrats or academics and usually not applicable on the field. This course was refreshingly down to earth, assuming realistic scenarios of limited funding, farmer’s basically economic orientation, and scepticism to change.

Thanks for the course. I enjoyed it a lot – some new content, some refreshing old information, and an agriculture/farmer focus which was what I wanted and was new to me. It was well structured in bite-sized parts perfect for this type of learning. I also enjoyed the excel components, and in fact I have found some published studies I want to apply some of this mathematics to. I currently work in a freelance capacity, recently relocated to Vietnam, but from the UK where I previously worked for the Overseas Development Institute. I focus on the economic and policy challenges to achieving better climate and development outcomes. I have had many insights from your course.

Wow. I have never really been an academic but have always tried and tried and tried again until I finish it. I am from South Africa and have moved here for my partner who is a country lad. I fell in love with the farming here and now I work for a fruit and veg company and I loved your course. I had to retake a lot but I have finally done it. Thank you!

I very much enjoyed your course, which provided me a comfortable introduction to the wide spectrum of agro-eco issues, and dovetailed nicely with a microeconomics Coursera offering that I happened to be taking concurrently. I am a geographer at University of California Santa Barbara.

I am an Agriculture and development economics, doctoral student from University of Agricultural Sciences, Raichur. I have learnt a lot of new things in the course. I thank you for giving such an amazing enriching inspiring lecture. The references taken in the course were precise, perfect and appropriate and very useful links and pictures. Thank you once again.

mooc2I work for an environmental NGO in California where we engage farmers to adopt more sustainable/resource conservation practices (e.g., habitat restoration, strategic water use) that are compatible with sustained levels of production. The course already sparked some questions that I have brought to my job, such as what do we actually know about the economic payoff of landscape-scale conservation. Thank you so much for the course. This was my first-ever MOOC and I’m glad I took it!

I am much pleased to learn from your experience and knowledge. I am a BSc undergraduate (biochemistry) student of the Kwame Nkrumah University of Science and technology in Ghana. I am planning of venturing into Msc. Agriculture as graduate studies and that triggered in partaking this course because of how poor our agricultural system is gradually heading way into abyss and if measures are not put in place by right expertise, failure will eventually embrace us.

Greetings from Rwanda! I would like to express my deepest gratitude for the ”Agriculture, Economics and Nature” course offered by the University of Western Australia on Coursera. I am now happy to have passed all the quizzes on the 4th of September with 79.4%, and received my Certificate. I will use the skills gained in my daily work.

I am got the BSC degree in the field of soil science from the college of agriculture and forestry, Mousel University in 1979 and the MSC degree from the college of agriculture, Baghdad University in the field of soil chemistry (Salinity) in 1985. This help me in my job (Project director).I love the proposal of all subjects in this course. Finally I thanks professor david pannell so much. excuse me about the language.

I really enjoyed the program. I wish I had a chance to say a proper thank you in person to you for the way you lectured. It was simple, precise and very resourceful. I am an agribusiness postgraduate student in NZ, originally from Cameroon. Worked in the bank as farm loan manager and then operation manager.

I will be going off to King’s College London this September to study international development. I would like to say a big thank you for putting together such an interesting and informative course!! I learned a lot about current problems facing the agricultural industry and different agri-environmental projects both in a global and an Australian contexts (which is really cool since I have always wanted to live in Australia at some point in life!). I will definitely recommend this course to my friends!

Hi, i am from Ghana. I am a young lady who wants to venture into the field of Agriculture. This six-week course has enlightened me on all resource available to farmers and how policies are put in place to help and motivate farmers. Every section was educative and self-explanatory.

I am from Zimbabwe but currently staying in the US. I would like to take this opportunity to express my gratitude for your service. It was an interesting course and I really enjoyed all your lectures. I am an animal scientist, I have a passion for animals and agriculture as a whole. I wish to start my own agriculture enterprise because I can feel I am now well equipped with all the knowledge needed. Once again, thank you very much for such a rich and life transforming course.

The course structure made participation an unforgettable experience; Professor Pannell expertly delivered lessons and the interview sections with stakeholders further underpinned everything taught. To Professor Pannell, I want to say learning with you has been a memorable one.

First of all, I would like to thank you for giving me a great opportunity to learn more about economics in agriculture. I’m an agronomist, and I’m currently the Food Security Advisor for World Vision Niger. I’m so excited about the opportunity to explore the scope and nature of relationship between Environmental Governance and Disaster Risk Reduction.

Thanks for going through the trouble of delivering this course online. I am just finishing my PhD in environmental sciences at the moment and felt like I needed some perspective if I were to undertake research for agriculture in the future. A lot I learnt in this course, thank you.

I work in the Agribusiness department of a commercial bank, and i took the course as one of the preliminaries to a Master degree in Agribusiness since my background is not in Economics. Prof Pannell made the teaching so easy to follow and understand especially the calculations and the graphs. i was so excited when i learnt how to calculate the discounting factor. This is my first experience in certificate online course and i find it very inetersting and a bit challenging too.

cornThank you so much for providing this course. I had learned a lot I had never known before. I’m an Au pair living in Virginia U.S. currently. I spent my free time after babysitting to finish the online course. I had an Agriculture bachelor degree which related to crop protection, and I had been working in a Fungicides company for two years before I came to the US. Meanwhile, I’m seeking the opportunity to work on some organic farms here. I will be working on a local organic farm from this month to next month. Thanks for laying out plenty of online resource about agriculture and this fantastic course.

Thank you so much for the methodology used in this course. The questions and answer are very good they make you think very well. Even though I had problems with my internet during the course but I still got through. Thank to other contributors of the the program. Am looking to work on Food and Nutrition Security Using Urban and Peri-Urban Agriculture for a better livelihood for my PhD work.

I hold a Masters Degree in Physical Geography from Free University of Berlin in Germany and specialized in Natural Resource Management. Many thanks for this really great course. I liked every section of the course, I really enjoyed all the relevant material and advice and those tremendous valuable tools! Thank you so much. Returning to Germany it will certainly help me in my new career here at ADRA Germany coordinating the department for Climate Change Adaptation and Renewable Energies.

Many thanks for a really interesting and well-paced course, it was fantastic. I’m going to miss those slides and the music!

Maybe this collection of stories and feedback has inspired you to check out the course yourself, joining the 7000 people who have already enrolled. You can do so at: https://www.coursera.org/learn/agriculture-economics-nature

For more information about the course, you could check out this video.

 

 

290 – Advice for successful agri-environmental policy

Research and practical experience with agri-environment programs around the world provides many lessons on what leads to success or failure. New programs are often designed without sufficient awareness of these lessons, resulting in lost opportunities to achieve more valuable outcomes. A workshop to identify these lessons was held a couple of years ago, and the results have just been published by ANU Press as a book.

The book is available for sale or free download here. I’ve got a couple of chapters in the book, including one where I try to identify “best-practice in design and implementation” of agri-environmental policies. It is based on my experience over the past 15 years or so, working with federal and state agencies and regional bodies in Australia, and some similar organisations in several other countries. Here’s a longish extract. This is a longer-than-usual PD as I wanted to keep this material together in one post.

Design of programs/institutions

Additionality: Agri-environmental programs should aim to avoid paying farmers for undertaking actions that they would have done in any case. In other words, managers need to evaluate whether the benefits generated by a program investment are ‘additional’.

Continuation after investment ends: Where a program is intended to provide only temporary support to farmers (eg, in all Australian programs, but not in European programs), it is important to ensure that the actions being supported are attractive enough that farmers will continue to undertake them once funding ends. Otherwise the investment has no enduring benefit. These first two principles combine to mean that, where support will be temporary, perhaps the only defensible role for agri-environmental payments is to encourage farmers to get experience in a new practice that they are likely to be keen to continue once funding ends. The practice might be something new of which farmers are currently unaware, or one that becomes more attractive to farmers with experience.

aesAppropriate institutional delivery: In some agri-environmental programs, responsibility for overseeing some or all on-ground delivery of projects is devolved to regional organisations. This has been the case in all of Australia’s major programs since the late 1990s. In these cases, the program needs to be designed in a way that provides incentives for these regional organisations to respond appropriately. In particular, they should be incentivised to pursue sustained improvements in natural resource outcomes, rather than to support project activities without considering their resulting outcomes. There should be an emphasis on spending program resources well, rather than rapidly. Unfortunately, some of Australia’s major programs have generated incentives that go directly against these recommendations. Short time frames for programs and rules that funding will be withdrawn if not spent rapidly enough increase the difficulty of meeting this best-practice requirement. (Chapter 5 on environmental NGOs discusses how these organisations can help here.)

Balancing small, moderate and large projects: In programs where the availability of funding is small relative to the amount needed to fund all attractive projects (ie, in all Australian programs), there is often a temptation to share the available resources amongst a large number of small projects. Sometimes this results in good leverage of program resources, but often it means that almost all projects have inadequate resources and are unable to achieve worthwhile outcomes. This advice sometimes clashes with political preferences to support many projects rather than few. A compromise strategy could be to use a portion of funding (eg, 25 percent) to support many small projects to satisfy political needs, and use the remaining 75 percent to support larger projects that are more likely to be effective. On the other hand, achieving the most ambitious environmental targets is often disproportionately expensive, with costs increasing dramatically as targets become more ambitious. To maximise outcomes, it may be best to pursue a moderate number of moderate sized projects, rather than many small or few large projects.

Sufficient time for planning: Program performance is often hampered by a tendency for agencies to delay planning new programs until the end of a previous program is imminent or past. Good planning and design of programs and prioritisation of investments requires more time than is usually allowed. Ideally, organisations should commence planning and analysis to develop the next program years before the end of the current program. Even though the scope and parameters of the next program cannot be known in advance, these can be predicted, and sometimes influenced, by the agency to some extent. Having already-analysed investment options ready to put forward can be highly persuasive, and increases the likely environmental benefits generated.

Investment longevity: Finally, funding for agri-environmental programs in Australia tends to be temporary and short-term – typically five years. Environmental problems usually take much longer than this to resolve, so systems for providing long-term funding should be used where possible. If it is not possible to ensure long-term funding, then this should have a strong influence on which projects are selected for funding. In particular, projects that would require significant funding in the long-term to maintain the benefits generated by an initial project should not be supported. For example, most projects for control of feral animals or plants would fall into this category because feral animals reinvade once control ends. Similarly, cases where farmers are likely to disadopt practices once funding ends should be excluded. Typically, programs are much too optimistic about ongoing adoption of practices post-funding.

Design of projects/investments

SMART targets: A number of agri-environmental programs have been criticised for failing to establish appropriate targets (eg, European Court of Auditors, 2011; Auditor General, 2008; Park et al, 2013). Specifically, targets should be SMART (Specific, Measurable, Achievable, Relevant and Time-Bound) in order to facilitate monitoring and evaluation of a program, and to ensure that the funded investments are focused onto suitable activities (see Chapter 4 on setting SMART targets).

Project logic: Many projects funded in agri-environmental programs are not designed in a logically consistent way. They are consistent with a ‘project logic’ but only in a qualitative sense. They fail when assessed against quantitative questions, such as ‘are the funded activities sufficient to achieve the intended land-use changes?’ or ‘are the intended land-use changes sufficient to achieve the desired natural resource outcomes?’ A good project logic is more than a description or diagram of connections between elements of the system being managed or influenced; it quantifies the connections and makes assumptions transparent.

Selecting the right policy tool: There is a tendency for little thought or analysis to be put into the selection of policy mechanisms to be used in a project or program, resulting in inappropriate choices in many cases. In Australia, there is too much reliance on extension in situations where it cannot deliver the desired outcomes. For example, Australia’s national salinity program between 2001 and 2007 relied mainly on extension to encourage farmers to change their practices, but the practices being promoted were not attractive to farmers on the required scale and so were adopted to a very limited extent – much too limited to achieve the program’s goals (Pannell and Roberts 2010). On the other hand, in Europe and the United States, financial payments are almost the sole mechanisms used, often funding activities that are not additional. The framework of Pannell (2008) helps organisations to evaluate the type of mechanism that is most suitable for a particular project. (See also Chapter 18 on the choice of tools depending on public benefits and private benefits arising from an investment.) Sometimes programs specify which policy mechanisms will be used by projects prior to identification of the projects, and then project investments are selected without considering whether they are suitable for the pre-determined policy mechanism. Preferably, policy mechanisms should be selected to match the type of projects that will be necessary to achieve the desired program outcomes. They should be project-specific, to some extent. As noted in Chapter 18, Australian programs tend to rely too much on extension and too little on the development of technology.

Ranking projects/investments

Prioritisation: Where funding is limited, prioritisation of investment options is essential. The quality of the prioritisation process can make a major difference to the natural resource outcomes delivered (eg, Barry et al, 2014).

Rank projects: Programs should prioritise projects, not problems, regions or issues. Some programs prioritise regions or issues without defining projects, but this means that it is not possible to properly consider issues of project cost, project risks, project benefits, or time lags, all of which should be factored into the prioritisation process.

Rank according to value for money: Projects should be ranked according to their value for money: a measure of their benefit divided by their cost (see Chapter 15 on designing cost-effective agri-environment schemes). Failure to do this is one of the most serious mistakes that can be made when ranking projects, but unfortunately it is common. Some systems fail to consider costs entirely, some do include costs but fail to divide by them, and many include only some of the costs that should be considered. For example, it is important to factor in long-term maintenance costs, since they vary so much between different projects, but few Australian systems do so. If maintenance costs are needed but are not expected to be provided, then project benefits should be scaled down accordingly in the ranking process.

Measure the gain against a counterfactual: When ranking projects, benefits should be estimated from the predicted difference in natural-resource outcomes with versus without the proposed investment (Chapters 19 on counterfactuals). Although this seems like common sense, Maron et al, (2013) found that 15 out of 16 systems in actual use for ranking biodiversity projects failed to do this correctly.

Incorporate all the benefits and risks: There are many factors that could be considered when estimating the benefits of a proposed project. The essentials are: the potential values generated, the likely level of adoption/compliance with the project by landholders (Pannell et al., 2006; Chapters 12 and 13) various risks that might result in project failure (technical, social, financial and managerial risks) and time lags until benefits are generated.

Use a sound metric: A commonly neglected issue is how to combine the variables that determine benefits and costs into a metric for ranking projects. Most metrics in actual use are theoretically unsound and provide poor rankings, even where project information is accurate. Indeed, as is discussed in chapter 17, the level of benefit delivered is more sensitive to the quality of the metric than the quality of the information fed into the metric. Potential benefits from investment are very sensitive to the use of inferior ranking metrics. Chapter 17 on metrics and Pannell (2015) outline the requirements for a sound ranking metric.

Managing uncertainty

When decisions about project funding are being made, uncertainty about those projects is usually high. Common areas of major uncertainty include the technical feasibility or effectiveness of the proposed actions to be funded by the project, and the valuation of those environmental benefits that are generated. Uncertainty should be accounted for in several ways.

Identify key uncertainties: Project proponents should be required to identify key uncertainties, and to specify what will be done in the project to reduce them.

Carry out feasibility assessment and pilot studies: Projects above a certain scale should be subject to rigorous feasibility assessment before longer term funding is committed. Funding to support information collection, perhaps in a pilot study, should be provided for 6 to 12 months, after which longer-term funding should be conditional on the results obtained.

Learn from early experience: Projects and programs should be managed in an adaptive way, with information collected during early stages of the program or project being used to inform changes in management or even cessation in some cases. In practice, few programs operate with that degree of flexibility, resulting in continuation of poorly designed investments past the time when their faults are apparent.

Managing people’s biases, preconceptions, self-interest

Acknowledge the values that people bring with them: Being human, the people involved with agri-environment programs are subject to biases, preconceptions and self-interest (consider the way restoration vs conservation is valued in different ways in different places Chapter 10), all of which can reduce program performance. If managers are aware of these human traits, they can introduce systems to limit their negative impacts.

Optimism vs realism: A pervasive problem is the tendency for people to be overly optimistic about proposed projects. It is common to see proposals in which the benefits are exaggerated, and the costs, risks and time lags are under-estimated. Several factors contribute to this, including vested interests, wishful thinking, and a failure to recognise all relevant difficulties and risks that are likely to affect a project. The ideal strategy to overcome this problem is serious independent expert review of project proposals, but this is only justifiable where projects are sufficiently large. This is another factor that tends to favour moderately large projects over small.

Self blindness: People involved in allocating program funds commonly perceive that their existing prioritisation process is of high quality. For example, in a survey we found that staff from most regional natural resource management organisations believe that their process is better than average – clearly an impossibility. In reality, the majority of prioritisation processes I have examined have had serious problems. The belief that they are strong is an impediment to the improvements that are needed. Addressing these misperceptions required strong leadership and participation in appropriate training, and it may be assisted by appropriate signals and incentives built into the program.

Equity vs effectiveness: Proposals to target investment in high-priority projects sometimes meet resistance in the form of arguments that this is inequitable – that resources should be distributed widely amongst many projects on the grounds of fairness. If natural resource or environmental outcomes are desired, these arguments should be resisted, as they can have a serious adverse effect on the achievement of those outcomes. A case built on maximising environmental benefits can readily be built.

Managing transaction costs

When considering potential improvements to the design and implementation of agri-environmental programs, there is a balance to be struck between improving natural resource outcomes and increasing transaction costs (Pannell et al., 2013b; and Chapter 16). The most detailed rigorous approaches are only worth the transaction costs involved for relatively large projects. To limit overall transaction costs I have two suggestions.

Beware many small projects: Avoid having the program being dominated by numerous small projects for which an investment in information and analysis cannot be justified. Such programs have little prospect of delivering and demonstrating genuine natural resource benefits.

Start broad, finish deep: Secondly, when evaluating potential investments, adopt a strategy of starting broad/shallow and finishing narrow/deep. In the early stages of the process, you can consider numerous potential projects, but each is evaluated in a relatively simple way that requires low transaction costs. This simple procedure is used to eliminate most of the projects from consideration. In the final stages, consider a relatively small number of project proposals, but require them to be developed in a rigorous way to allow sound decision making about them.

Further reading

Ansell, D., Gibson, F. and Salt, D. (2016). Learning from Agri-Environment Schemes in Australia: Investing in Biodiversity and Other Ecosystem Services on Farms, Australian National University Press, Canberra. The complete book is available for download (free) or hard copy (purchase) at http://press.anu.edu.au/publications/learning-agri-environment-schemes-australia