Category Archives: Social issues

98 – Agricultural research for the poor

Earlier this month, I was rubbing shoulders with people who rub shoulders with the two richest men in the world, Bill Gates and Warren Buffet, at an event that was about helping the poorest people in the world.

The Bill and Melinda Gates Foundation is a mind bogglingly large charitable foundation, with about US$30 billion of Bill’s money, which will also spend another US$30 billion contributed by the world’s second richest man, Warren Buffet. It has been interesting to learn something about the way that these (and other) extraordinarily rich Americans have embraced philanthropy. I’ve no idea how they live their lives, but even if they indulged in the most lavish of lifestyles, and made the most generous provisions for their offspring, they obviously could only use up a tiny fraction of their billions, so they’ve decided to spend most of it on helping others who are in need. It is really rather inspiring, and perhaps might eventually do something to improve the USA’s tarnished international reputation.

The Gates Foundation has three programs: one focused on education for disadvantaged Americans, one on global health which combines practical assistance and medical research, and one on global poverty and hunger, including agricultural research to benefit the poor.

I was privileged to be to be invited to attend three days of meetings in Minneapolis related to the agricultural research program.

The Foundation plans to spend a lot of money on agricultural research in Africa and South Asia. The big and very tricky question is, how to spend it to generate the greatest benefits. They have engaged Phil Pardey at the University of Minnesota and Stan Wood at the International Food Policy Research Institute to undertake a project called HarvestChoice to help them with this question.

A small group of scientists and economists spent a day discussing how to tackle the required analysis, especially in the area of biotic constraints to agricultural production (pest insects, diseases and weeds). It was a very interesting and fruitful discussion, and it resulted in a clear direction for the team doing this aspect of the analysis.

For obvious reasons, given the nature of his core business, Bill Gates is also interested in whether there are key information gaps, the filling of which could make a substantial difference to the poor. His Foundation asked Stan and Phil to convene a Roundtable meeting of about 40 experts of many different types to discuss what the opportunities might be, and I participated in that meeting too.

I must admit that I felt a bit out of my depth at times, in a room full of people with so much knowledge and experience in attempting to assist the poor in developing countries. The discussions at the meeting were an interesting mix of pessimism and optimism. The discussions reinforced how how very difficult it is to make a real difference given the range of factors stacked against the very poor.

On the other hand, people did feel that there were a number of areas where it may be worth investing in creation, collection or collation of new information. I don’t think there was enough consideration of exactly how they will make a difference, and this was reinforced by the Gates Foundation representative who was at the meeting, but it was a good start.

I really hope that both initiatives can meet their aspirations and deal with the substantial challenges they face.

David Pannell, The University of Western Australia

89 – Farmers as “consumers” of nature conservation

Many farmers put a high value on improving environmental conditions on their farm. In other words, government programs for land and water conservation in rural areas generate private, as well as public, benefits.

When I started work for the Department of Agriculture in Western Australia in 1983, the link between farm management and nature conservation was not a prominent policy concern. I don’t recall it being mentioned once during my four-year degree in Agricultural Science.

Things have changed. Twenty five years ago, the main aim of agricultural policy was, in various ways, to improve the economic performance of farms. These days, a big chunk of agricultural policy is concerned with “sustainable” management of resources.

To a significant extent, the aim now is to protect or generate public benefits, as opposed to the former focus on private economic benefits. For example, the Natural Heritage Trust provides funds to encourage farmers to do things that enhance nature conservation, and generate public benefits.

However, it is important to recognise that a farmer’s actions to enhance nature conservation may also provide benefits for that farmer, in the form of personal satisfaction or as benefits to agricultural production. These are, in a sense, private “consumption” benefits. Michael (2003) proposes that “the literature usually overestimates the opportunity costs of preservation” (p. 243) because it fails to take account of the willingness of farmers to bear some of the costs, reflecting the personal satisfaction that they gain by contributing to conservation, or perhaps gains in productivity on their land. This suggestion is supported by empirical evidence from the BushTender trial in Victoria, where landholders submitted bids in an auction, specifying the level of financial support they would require in order to undertake specified works to protect remnant vegetation.

“The diversity of bids, particularly the fact that some landholders offered low bids per hectare, implies that some landholders were probably prepared to share costs with the government to conserve biodiversity. Other landholders, it seems, charged NRE [the Department of Natural Resources and Environment] the full opportunity cost of land-based activities.” (Stoneham et al. 2003).

In the Landcare and Natural Heritage Trust programs, we have observed farmers contributing considerable time and resources to on-ground works intended to promote nature conservation (e.g., Doley 2003; English 2003; Lloyd and Butterworth 2003; McFarlane and McFarlane 2003). Under an economic interpretation, one of the objectives of Landcare could be expressed as increasing the farmers demand for (i.e., willingness to pay for) environmental improvements. These programs succeeded to some extent. I would hazard a guess that farmers now spend more per head on nature conservation than any other group in society.

On the other hand, at least some farmers object in principle to proposals to reduce clearing, even if compensation is offered, and especially if the proposal involves compulsion. The “willingness to pay” for nature conservation by some farmers seems to fall to zero when they are forced.

Even when there is no compulsion, we need to have realistic expectations about the extent of farmers’ willingness to pay. To a greater or lesser extent, almost all farmers are willing to make financial sacrifices for the good of their land or the environment, but they also must give priority to remaining in business and meeting other family and social objectives. The point is that the community can benefit from the generosity and environmental concerns of farmers, but that there are limits to what can realistically (or reasonably) be expected.

A common finding in economics is that most consumers of most goods experience “diminishing marginal utility” as their level of consumption increases. This means that the level of satisfaction for each additional unit of consumption falls as consumption reaches higher and higher levels. This is reflected, for example, in the fact that as the price of a good rises, consumers tend to choose to purchase less of the good (demand curves slope downwards). Turning that observation around, to encourage consumers to purchase more of a good (assuming tastes and preferences are fixed) one must reduce the price of the good.

It seems to me that the extent to which farmers have given of their time and money for environmental works in the recent past is a good indication of their personal benefits as consumers of environmental benefits. Attempts to encourage farmers to expand their contributions will come up against the influence of diminishing marginal utility. Substantial increases in the demand for nature conservation by farmers on their land may require substantial falls in the “price” to them. Two possibilities for achieving this are: provision of more substantial subsidies by the public, and development of less costly technologies that aid conservation (e.g., woody perennials that are more commercially attractive and so have lower opportunity costs). This is not to deny that there is scope for increased voluntary contributions from some farmers. Deeper knowledge of environmental issues from participation in government programs can be a strong motivating force for some farmers. In economic terms, this is an increase in demand, rather than a decrease in cost of supply.

David Pannell, The University of Western Australia

Further Reading

Doley, A., 2003. “Koobabbie”: ecological and economic sustainability. Pacific Conservation Biology 9: 42-48.

English, G., 2003. “Jangarri”: economics, environment, society. Pacific Conservation Biology 9: 36-38.

Lloyd, T. and Butterworth, J., 2003. Eden Valley Farm: an integrated approach to a sustainable future. Pacific Conservation Biology 9: 32-35.

McFarlane, M.R., and McFarlane, S.M., 2003. Dangemanning Farm: a holistic development. Pacific Conservation Biology 9: 39-41.

Michael, J.A., 2003. Efficient habitat protection with diverse landowners and fragmented landscapes. Environmental Science and Policy 6: 243–251.

Pannell, D.J. (2004). Heathens in the chapel? Application of economics to biodiversity, Pacific Conservation Biology 10(2/3): 88-105. Full paper (109K)

Stoneham, G., Chaudhri, V., Ha, A. and Strappazzon, L., 2003. Auctions for conservation contracts: an empirical examination of Victoria’s BushTender trial. Australian Journal of Agricultural and Resource Economics 47: 477-500.

49 – Cultural differences

Some observations from a visit to the USA. Interesting differences in crowd behaviour and patriotism.

International travel really helps highlight some of the things we take for granted, including the ways that people behave. Here are a couple of observations from my visit to the USA this week.

I attended a conference on salinity in Riverside California. There were a lot of Australians there (around 10% of the delegates), and on April 25, we held an “Australian night”. There was free beer, wine and Australian food provided by sponsors for people at the conference. Several of us were lined up to give very brief talks about salinity in Australia through the evening. However, it quickly became apparent that these talks would be very difficult, because our assumptions about norms of behaviour were wrong.

In Australia, once someone started to address a crowd in a context like that, people would pretty much stop and listen, especially if they belonged to a host organisation that was providing a free feed. Not absolutely everybody, of course, but in general it would be reasonably quiet while speakers had the microphone. Not in the US apparently. Only about a quarter of the crowd made any attempt to listen, and the rest pretty much carried on yacking and laughing at full volume. The formal speakers were pretty well inaudible. The Australians in the crowd became quite agitated about it, and felt a lot of sympathy for the people trying to speak. Some were saying things like, “This is really rude”, but the Americans seemed oblivious. It wasn’t that the talks were too long or boring. They were just a few minutes and not at all technical, but the noise never let up.

The former Premier of South Australia, John Olsen, was our MC for the night. He reassured us that it was nothing to worry about — that it was completely normal — that it didn’t mean there was anything wrong. He said that he had introduced talks by many high profile Australians in the US, including movie stars who are household names, and the only time he had seen the audience listen silently was for Rupert Murdoch. Americans respect power, apparently.

Despite our discomfort, our guests at the event did seem to have a great time. They kept telling us what a great time they had had and how much they appreciated it over the remaining two days of the conference.

The second observation wasn’t surprising to me, but sill notable. John Olsen said a few words about ANZAAC day. He explained the significance of the day, and played some footage of Australian soldiers on beaches and in trenches during World War 1. For this, thankfully, the audience was quieter. Then John said that Australia had stood behind the US in every conflict since 1900. This was calculated to push the buttons of the mainly US crowd, and it didn’t half work! They cheered and clapped wildly, and many of those who weren’t already standing stood up.

I can’t speak for every Australian there, but some of us were troubled by this, to say the least. It seems so clear that there is little to cheer about, and much to be sad or even ashamed about, in what has gone on with Iraq (and for that matter in Vietnam before that). The American reaction was just too gung ho. Too mindlessly patriotic. Too oblivious to the incredible damage and suffering they (and we!) have inflicted on innocent people. John Olsen’s comments were calculated to please, but it didn’t feel at all right to make them when such a large proportion of the Australian population has opposed the invasion and Australia’s involvement in it from the start.

David Pannell, The University of Western Australia

48 – Thinking like an economist 15: Economics and happiness

Richard Layard is an economist who works on happiness. He is interested in which factors are positively related to it, and what governments should do with that knowledge. His findings partly reinforce the old saying that money can’t buy happiness, at least at the scale of comparing countries, but the story is actually more complicated than that.

There was a fascinating interview on ABC Radio National last week. It featured Professor Richard Layard of the London School of Economics, talking about his work on the determinants of human happiness.

“We have this extraordinary paradox, that although we are now two or three times richer than we were 50 years ago, we are no happier.”

Apparently, money can’t buy you happiness. Actually it’s more complicated than that. Layard notes that the international survey evidence shows that at incomes below about US$20,000 per year, increasing overall national income is positively related to average happiness. Above that level, average income makes little difference to average happiness.

There is another way in which more money can be better: it allows you to climb the wealth ladder in your country. No matter what the average income in a country, people who are relatively well off are, on average, happier than people who are relatively poor. This applies at high average income levels as well as low. People seem to care a lot about their relative income, sometimes more than their absolute income. There is some experimental evidence showing people being willing to take a lower income if other people took even greater cuts!

One explanation for this (proposed in a book called Social Limits to Growth by Fred Hirsch) is that some important goods are in fixed supply, including some environmental goods (e.g. views) and some social goods (e.g. status). So increasing average incomes simply results in the price of those goods being bid up. They are always bought by more-or-less the same people (those in the high-income brackets), so nobody gets happier.

So here’s Layard’s overall summary:

“In every society, extra income makes an individual happier. The effect however is much bigger in poorer countries than the richer ones, because you’re nearer the breadline. It’s also true that in poorer countries, as they get richer, the country as a whole gets happier, and that is why those Third World countries which are still way behind the First World, are less happy than the First World countries. But it’s in the First World countries that we don’t see the increase in happiness as they get richer, because it’s become less important and comparisons [of relative incomes within their country] have taken over.”

If you think about this, it has major implications, including for government policy. Another finding with policy implications is that it is much easier to raise the happiness of really unhappy people than of already happy people. Common sense really, but it takes someone to point it out.

For those with enough wealth already (everyone reading this, I would guess), the key determinants of happiness are relationships and mental health with contributions also by physical health, a sense of purpose and/or spirituality, residential mobility, and so on. The importance of relationships inside a family is pretty self evident, but even at a more macro scale it matters. A survey question that has been asked in many countries now over many years is “Do you think most other people can be trusted?” There is a strong trend that the greater the number of people in a country who answer “yes”, the higher the average happiness rating for the country.

Of course there is much more to the issue than these few points. Some of it is covered in the transcript, which is here. I’ll be buying the book.

David Pannell, The University of Western Australia

Further Reading

“Happiness: Richard Layard at the LSE” (transcript of interview with Andrew Marr of the BBC). www.abc.net.au/rn/talks/bbing/stories/s1349351.htm (link now dead).

Layard, R. (2005). Happiness: Lessons from a New Science, Penguin.

Hirsch, F. (1976) Social Limits to Growth, Harvard University Press, Cambridge Mass.