Economics, Environment, Social issues

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.