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Costs and benefits of on-farm nature conservation
EC O L O G IC A L E C O N O M IC S 6 2 ( 2 0 07 ) 57 1 –5 79
a v a i l a b l e a t w w w. s c i e n c e d i r e c t . c o m
w w w. e l s e v i e r. c o m / l o c a t e / e c o l e c o n
ANALYSIS
Costs and benefits of on-farm nature conservation Paul B.M. Berentsen a,⁎, Astrid Hendriksenb, Wim J.M. Heijmanc, Haske A. van Vlokhovenb a
Business Economics Group, Wageningen University, P.O. Box 8130, 6700 EW Wageningen, The Netherlands Environmental Policy Group, Wageningen University, P.O. Box 8130, 6700 EW Wageningen, The Netherlands c Economics of Consumers and Households Group, Wageningen University, P.O. Box 8130, 6700 EW Wageningen, The Netherlands b
AR TIC LE I N FO
ABS TR ACT
Article history:
The costs of on-farm nature conservation is an important issue in Dutch agriculture. As
Received 22 March 2006
nature is a public good, nature conservation cannot do without subsidies from the
Received in revised form
government. The question of how much farmers should receive in subsidies in order to keep
17 July 2006
farms engaged in conservation activities is highly topical. In this article, the questions of
Accepted 25 July 2006
how much farmers should receive in subsidies and what other factors motivate or
Available online 11 September 2006
demotivate farmers to participate in on-farm nature conservation are addressed. The study was carried out for a particular region in the northern Netherlands and was initiated by the
Keywords:
concerns that farmers organisations had about the level of subsidies for landscape
On-farm nature conservation
conservation as a major form of nature conservation on dairy farms in this region.
Landscape conservation
In this study, both a normative model and a survey were employed. A normative economic
Agriculture
dairy farm model was first used to determine differences in income between a typical farm
Dairy farming
involved in landscape conservation and a typical farm not involved in landscape
Farm modeling
conservation. Results from the model show that the farm involved in conservation earned
Survey
a lower income than the farm not involved in conservation. This was due to the first farmer's smaller scale, lower intensity and lower productivity. The lower income, however, was compensated for by conservation subsidies. Next, a survey concerning on-farm nature conservation in general was carried out among the farmers in this area. From the survey results, it appeared that the majority of the respondents were satisfied, at least to some extent, with the level of subsidies for on-farm nature conservation. Moreover, the survey also revealed that the farmers' commitment to their natural environment strongly motivates farmers to get involved in on-farm nature conservation schemes, whereas the uncertainty about regulations and the feeling of being controlled too much demotivate them. The results show the complementarity of the two methods. The findings of the survey confirm the main findings of the normative model calculations, and, moreover, the survey reveals that in addition to monetary compensation, other factors play a role for farmers in the decision to get involved in on-farm nature conservation. © 2006 Elsevier B.V. All rights reserved.
1.
⁎
Corresponding author. Tel.: +31 317 483485; fax: +31 317 482745. E-mail address: [email protected] (P.B.M. Berentsen).
Introduction
An increasing number of EU-farmers are involved in on-farm nature conservation. In the Netherlands, the area involved in on-farm nature conservation schemes has increased from
0921-8009/$ - see front matter © 2006 Elsevier B.V. All rights reserved. doi:10.1016/j.ecolecon.2006.07.026
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18,000 ha in 1990 to some 70,000 ha in 2003, which is about 4% of the agricultural area in the Netherlands (Van Egmond and De Koeijer, 2005). Compared to the other 14 older member states of the EU, apart from Greece this is the lowest percentage. In the EU as a whole the area covered by agri-environmental contracts in 2002 was about 25% of the total utilized agricultural area (EU, 2005). Farmer interest in participation in on-farm nature conservation schemes is connected with the amount of public financial compensation that farmers receive for their conservation activities. Consequently, the economic incentive offered to farmers is important (Balk-Theuws, 2004). However, success of on-farm nature conservation schemes also depends on the psychosocial factors like the direct satisfaction farm households derive from their contribution to their natural environment. As a result, farmer participation may be improved if farmers have a personal interest in landscape and nature and if the contract that they sign has significant financial benefit for them (Dupraz et al., 2003). This paper describes a study done on the costs of on-farm nature conservation and on the willingness to participate in onfarm nature conservation schemes in a region in the northern Netherlands (see Fig. 1). This region consists of a northern and southern part. The northern part can be characterised as an open area with relatively little limitations for farming. This part is called the “Open Area”. The southern part, which is called “De Wouden”, has an interesting landscape with hedges and small land plots. Conservation of the landscape in De Wouden is done by means of on-farm conservation, subsidised by the central Dutch government. In both areas dairy farming is the main agricultural activity. This study developed from the concern of the regional farmers organisation that the compensation that farmers in De Wouden received for landscape conservation would be insufficient to cover the extra costs that originated from the landscape induced constraints on productivity, scale,
and intensity. The reference situation used as a basis for the concern was that of dairy farmers in the Open Area. Costs of on-farm nature conservation can be determined in different ways. Normative modelling, which utilizes a model at farm level, is an approach used by Kächele and Dabbert (2002), Van Wenum et al. (2004) and Schrijver et al. (2006). This approach can be used to make a clean economic comparison between situations with and without nature conservation. Biases that occur in practice but are not relevant for the research question can be left out. An empirical approach is a survey that asks farmers in the particular area how they feel about on-farm nature conservation as was done by Fish et al. (2003). This approach can give insight into both the strictly economic costs and benefits as well as the other less quantifiable costs and benefits of participating in nature conservation schemes. Here, the concept “willingness to accept” is of central importance (Boardman et al., 2001). The goal of this paper is to apply both normative modelling and surveying to determine if the compensation that farmers receive for on-farm nature conservation in the particular region is sufficient. Comparison of the results from the two approaches will show how the economics of on-farm nature conservation relates to the farmer's perception of it. Moreover, the survey will also reveal the importance of non-economic motives. In the following section of the paper, the analysis based on normative modeling and dealing with landscape conservation as a major form of nature conservation in this area is handled. This is followed by the empirical analysis which deals with onfarm nature conservation in general. Both parts deal with methodological aspects and results of the particular approaches. In the discussion section, the methods and results are compared in order to arrive at final conclusions.
2.
Normative analysis
In this section, determination of costs for dairy farmers of onfarm landscape conservation is done by means of normative modeling. Based on dairy farm data, first an average dairy farm for both the Open Area and De Wouden is defined in terms of size and productivity. Next, the average farm in De Wouden is modeled using an existing linear programming model of a dairy farm (Berentsen and Giesen, 1995). Input variables are then changed one by one to arrive at the average farm of the Open Area. After an input variable is changed, a calculation with the model is done in order to determine the effect of the particular change on labour income of the farm. Finally, the sum of all differences in labour income is compared to the current average subsidy farmers in De Wouden receive for on-farm landscape conservation.
2.1.
Fig. 1 – The region studied.
Data
Farm level data from both areas were acquired from AVM, an accountancy office specialized in agriculture. AVM does the bookkeeping for some 70–80% of all farms in the northern Netherlands. First, dairy farms whose entire agricultural area is located in De Wouden and in the Open Area respectively were identified using detailed maps of the region. Of these identified dairy farms, 42 farms in De Wouden and 54 farms in the Open Area
EC O L O G IC A L E C O N O M IC S 6 2 ( 2 0 07 ) 57 1 –5 79
were a client of AVM in 2005. The most current data possible on these dairy farms were acquired in order to get an idea of the current amount of landscape conservation subsidies paid to these farmers. This requirement of current data decreased the available number of farms in the database down to 23 farms in De Wouden and 33 in the Open Area. The data are from the fiscal year that runs from May 2003 to May 2004. From comparison of FADN dairy farming data for the Netherlands for different years it appears that 2003–2004 was quite average concerning the economic environment (LEI, 2006). The data acquired from AVM were mainly concerned with size and productivity. Size is measured by available milk quota, agricultural area, number of dairy cows and farm size, the latter of which is measured in Dutch Size Units (DSU). Productivity is measured by milk production per cow and by grass production per ha. Grass production per ha is not something that is recorded, but this was calculated by working out the total energy requirements per farm given the number of animals and subtracting from this all energy from purchased fodder, which is mainly concentrates. The remainder is the total energy production on the farm. Dividing this by the total area results in the energy production per ha. In addition to data on size and productivity, nature conservation subsidies, fertilizer costs, and costs of contract work and of mechanization were also acquired. The latter can show if the smaller parcels in De Wouden lead to higher costs of using the land. Table 1 shows that the dairy farms in De Wouden are significantly smaller than those in the Open Area in terms of milk quota and DSU. Consequently, the ratio between milk quota and area, which amounts to 10,322 and 11,875 kg/ha for De Wouden and the Open Area respectively, shows a lower intensity of production in De Wouden. Also, productivity in general and grass production/ha in particular is significantly lower in De Wouden. The latter can be explained by lower Table 1 – Average data for both areas on size, productivity, costs, and subsidies
Size of the farm : — Milk quota (kg) — Dairy cows (nr.) — Area (ha) — Dutch size units Productivity: — Milk production per cow (kg/year) — Net grass production (MJ NELb/ha) Costs: — Fertilizer (€/ha) — Contract work and mechanization (€/ha) Landscape subsidy (€/ha)
De Wouden
Open Area
Significancea
501,665 69.7 48.6 101.5
700,644 96.0 59.0 151.5
++ ++ − +
7197
7297
−
39,447
45,437
++
116 857
126 805
− −−
234
13
++
573
nutrient input from manure (nr. of cows/ha is smaller) and from fertilizer (fertilizer costs are lower) and by the effect of shadow of and nutrients used by trees. As a result from the lower grass production/ha, lower costs of contract work and mechanization can be expected, since less mowing and ensiling and less manuring per ha have to take place in De Wouden. However, the opposite is true. Costs for contract work and mechanization are higher, pointing to more time/ha needed per cut of mowing and ensiling, and per ton of manure applied. Finally, nature conservation subsidies are prevalent only in De Wouden because up till 2004 the only type of nature conservation that was subsidized in this region was landscape conservation. This is only relevant for De Wouden.
2.2.
LP-model of a dairy farm
The model that is used to determine the effects of landscape conservation is a whole farm linear programming model. The objective function maximizes labour income, i.e. the remuneration for labour and management that is left after all other costs have been paid. The initial farm situation is specified by the right-hand side values for land and milk quota and by farmspecific coefficients representing milk production per cow and grass production per hectare. Table 2 shows the general structure of the model with grouped activities and constraints. The central element in the model is a dairy cow with a fixed milk production, which is assumed to calve in February. A minimal ratio is required between the number of young stock and the number of dairy cows to guarantee replacement of dairy cows. The feeding part of the model consists of four parts. The dairy cows and young stock are fed separately, and a division is made between summer, when cows and young stock can graze, and winter, when livestock is kept indoors. For dairy cows, feeding constraints reflect demand and supply of energy and protein, dry matter intake capacity, and demand for fiber in the ration. Feed for dairy cows and young stock consists of grazed and conserved grass and maize silage produced on the farm, three types of purchased concentrates that differ in protein content, dried beet pulp, and purchased maize silage. In the model, the land can only be used for growing grass at five rates of mineral nitrogen (Nmin) from fertilizer and manure (100, 200, 300, 400 and 500 kg/ha year). Five Nmin rates are used to include decreasing marginal energy production with increasing Nmin rates. Together, the five production points (the combination of Nmin rate and energy production) form the grass production curve. In the model this curve can be shifted up or down to reflect higher or lower productivity of grassland. Nutrients for grass production are supplied by manure and fertilizer. The model estimates nutrient balances for N and P2O5 at the farm level based on nutrient inputs and outputs. For a more detailed description of the model see Berentsen and Giesen (1995).
2.3.
Set up of the calculations
a
(++) variables are different at the 1% level of significance, (+) variables are different at the 5% level of significance, (−) variables are not different at the 5% level of significance, (−−) variables are not different at the 20% level of significance. b NEL = net energy for lactation.
Table 3 shows the calculations that were done for six situations. The total difference between the average farm in De Wouden (the first situation in Table 3) and the average farm in the Open Area (the final situation in Table 3) is split up into five main
574
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Table 2 – General structure of the dairy farm LP-model Constraints
Activities Feed Purchase Animal Manure Purchase Other Machinery for of operations: owner's production of feed production application for onfertilizer owner's mechanization farm use mechanization or contract work
Land requirements Milk production Housing requirements
+1
Labour requirements Feeding requirements Fertilizing requirements Linking animal production and manure application
ai,j
Nutrient balances: — Farm level — Herd level — Soil level Linking production activities and operations Linking owner's mechanization and new machinery Object function
Righthand Nutrient side losses
≤ Available hectares ≤ Available quota ≤ Available cow places ≤ Available labour b0
ai,j ai,j
−ai,j
ai,j −ai,j
ai,j
ai,j
− ai,j
− ai,j
ai,j
ai,j − ai,j
−ai,j ai,j ai,j
Costs per ha
ai,j
−ai,j −ai,j
≤0
ai,j
=0
− ai,j
ai,j ai,j
ai,j − ai,j
ai,j
− ai,j
ai,j −ai,j
Costs per unit
Gross margins
Costs per unit
differences concerning farm structure and productivity. This division is done to show the separate effects of differences in parcel size, intensity, scale and animal and plant productivity. Table 3 shows the relevant variables to describe each situation. Parcel size is not a direct input variable in the model. It was used to determine costs of contract work for mowing, ensiling and manuring. Calculations to determine these costs per given parcel size were done with Agrowerk, a software package (Vink and Kroeze, 1999), As result of these calculations, it
Costs per unit
ai,j
− ai,j
Costs per unit
Annual costs
=0 =0 =0 ≤0
≤0
followed that costs of mowing and ensiling per ha and per cut were 25% and 29% higher with 1 ha parcels as compared to 2 ha parcels while costs of manuring per ton were 11% higher. The resulting costs for contract work per activity and per ha are input for the model. Feed purchases are used as input in the initial and the final situation in Table 3 to fix the exact level of the grass production curve because the level of this curve represents the basic conditions for the productivity of grassland. In the intermediate
Table 3 – Characterization of the modeled situations
Parcel size (ha) Milk quota (kg) Area (ha) Milk production per cow (kg milk/year) Feed purchases (1000 MJ NEL)
De Wouden
Larger parcel size
Higher intensity
Larger scale
Higher milk production per cow
Higher grassland productivity (=Open Area)
1 501,665 48.6 7197
2 501,665 48.6 7197
2 577,141 48,6 7197
2 700,644 59.0 7197
2 700,644 59.0 7297
2 700,644 59.0 7297
1617
–
–
–
–
2296
575
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situations, the curve is on the same level as in the initial situation, so in these situations feed purchases are output, as these are determined in the optimization process.
2.4.
Results of the normative analysis
The effects of the individual changes in farm structure and productivity on farm economics are shown in Table 4. Compared to Table 3, the first column is left out and a final column (Total) is added. In this final column, the economic effects of the individual changes are summed up. The increase of the parcel size and the resulting lower contract work tariffs result in an increase of the fertilizer level of grassland, meaning a more intensive use of the grassland. The effect on economic results is an increase in the costs of grassland and of fertilizer and a much larger decrease in the costs of purchased feed and contract work. As a result, labour income of the farm increases by 2214 euros. Due to more intensive grassland use labour hours increase by 23. The higher intensity, meaning an increase of the number of cows from 69.7 to 80.2, further increases the fertilizer level on grassland to have enough grass for grazing. The economic effects are multiple. Revenues from both milk and sold animals go up. The costs of grassland and contract work decrease as less grass is ensiled. All other costs increase substantially. Fixed costs increase because of extra housing costs for the larger herd. No fixed costs are included for acquiring extra milk quota. The net result is an increase in labour income by 8836 euros. The higher intensity requires 295 extra hours of labour. The increase of scale (more land and more milk quota) results in proportionate increases in cattle and in purchased feed, contract work and fertilizer. Consequently, it leads to an increase of all revenues and costs, labour income and labour hours. The change of milk production includes an increase in milk production of 100 kg per cow, a decrease of the fat content by
0.01% and an increase of the protein content by 0.01%. It results in a decrease of the number of cows by 1.4. Milk revenues slightly increase because of the changed fat and protein content. Revenues of sold animals slightly decrease because of the lower number of animals kept. As total feed requirements decrease because of a decrease in maintenance requirements, costs of purchased feed and fertilizer decrease. Increase of milk production per cow is very effective because it leads to higher income and less labour hours. To match the feed purchases in the situation with the higher grassland productivity, the net grass production curve in the model is shifted upwards by 1104 MJ NEL/ha. The model partly compensates for this higher production by slightly decreasing the fertilizing level. The result is a decrease in fertilizer and purchased feed costs and an increase in the costs of selfproduced grass. Both labour income and labour hours go up. In total, labour income of the optimized situation in the Open Area is 25,069 euros higher than that of De Wouden, and this extra income costs 908 h of extra labor. This means an income of 27.60 euros per extra hour which points at an economically preferable situation of the farms in the Open Area. However, some comments have to be made. First of all, costs of the extra milk quota on the farm in the Open Area are not included in the calculations so far. With current prices of milk quota in the Netherlands at some 2 euros per kg and 4% interest on a yearly base, yearly costs of quota amount to 8 euro cents per kg. These costs and the 200,000 kg higher milk quota in the Open Area would increase yearly costs by 16,000 euros. It is impossible to say how far these higher milk quota costs apply to the situation in reality. This depends on the milk quota history of the farms in both areas. In other words, farms in the Open Area might have had a larger milk quota from the introduction of the quota system without facing extra quota costs because quota was obtained for free at that time. Secondly, the farms in De Wouden have extra income (via subsidy) but also extra work from landscape
Table 4 – Effects of five differences in farm structure and productivity and total effect on economic results (in euros) and on labour hours (effects relate to the previous situation)
Revenues: — Milk — Sold animals Total Costs: — Grassland — Fertilizer — Purchased feed — Other cattle costs — Contract work — Fixed costs Total Labour income Labour hours
Larger parcel size
Higher intensity
Larger scale
Higher milk production
Higher grassland productivity
Total
0 0
+25,508 + 3677
+41,741 +6017
+207 −467
0 0
+67,456 +9227
0
+29,186
+47,757
−260
0
+76,683
+ 302 + 310 − 1401
−9 + 494 + 9385
+1927 +710 +9758
+13 −72 −459
+149 −162 −1361
+2382 +1280 +15,922
0
+ 3599
+5903
−447
0
+9055
− 1424
− 301
+2499
+130
+696
+1600
0 − 2214
+ 7179 +20,349
+15,035 +35,832
−840 −1675
0 −678
+21,374 +51,614
+ 2214
+ 8836
+11,926
+1415
+678
+25,069
+ 23
+ 295
+610
−32
+14
+908
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maintenance, neither of which is included in modeling. Total subsidy amounts to some 11,000 euros. This brings the calculated income difference down to some 14,000 euros. The amount of extra work for landscape maintenance is unknown. Taking into account the net income difference, the costs of extra quota that are not included and a probable difference in working hours, the economic situation on the farms in De Wouden cannot be considered worse than that of farms in the Open Area.
3.
Empirical analysis
Farmers in both De Wouden and the Open Area were surveyed and asked to make an assessment of the current regulations for on-farm nature conservation. The items of the questionnaire were based on research reports (Balk-Theuws, 2004; Dupraz et al., 2006; Morris and Potter, 1995; NEAA, 2004), expert knowledge (farmers organizations) and the outcomes of a small number of face-to-face-interviews with farmers. The central issue in the discussion with experts and during the face to face interviews appeared to be ‘willingness to accept’ the on-farm nature conservation schemes. According to Dupraz et al. (2003), this idea contains two elements: the costs of participating in such a scheme and the benefits of it. Both costs and benefits can be monetary but also nonmonetary. Therefore, the ‘willingness to accept’ concept gives insight into the farmers’ perception of all costs and benefits of on-farm nature conservation (NEAA, 2004). The main assumption of the experts was that there would be a significant difference between the assessments of the farmers in the two investigated areas. Farmers in De Wouden would be faced with restriction rules based on nature conservation schemes that would prevent them from benefiting from economies of scale (NEAA, 2004). As a consequence, experts presupposed a more negative attitude towards on-farm nature conservation schemes by farmers in De Wouden than by farmers in the Open Area. Data was collected at two different stages. The first stage included the face-to-face interviews, based on issues mentioned by experts, with farmers in both De Wouden and in the Open Area. The farmers were asked to assess the current schemes for on-farm nature conservation. This assessment served as one of the starting points for the second stage of the empirical approach in which a large scale survey was conducted. To begin with, a questionnaire was sent to all the dairy farmers in the investigated region. Analysis of the survey provided insight into the perception of the farmers regarding on-farm nature conservation schemes as well as the ‘willingness to accept’ concept.
3.1.
Face-to-face interviews
The goal of the face-to-face interviews was to gather information for developing a questionnaire. The focus during these interviews was based on the notion of the general situation in the two different areas, the willingness to accept the on-farm nature conservation schemes and the costs and benefits of nature conservation schemes in the current situation. In April 2005, a random sample of 15 farms both in De Wouden and in the Open Area was taken from the dairy farmers
in the two regions. After 24 face-to-face interviews, the point of saturation was reached. No new essential information was expected by the interviewers, and therefore, no extra interviews were conducted.
3.1.1.
Results of the face-to-face interviews
3.1.1.1. Notion of dairy farmers about the Open Area and De Wouden. In the opinion of the farmers, major differences exist between De Wouden and the Open Area. All the farmers know about the advantages and disadvantages of the area they dwell in, in comparison with the other area. However, in contrast to what was stated by experts, the farmers discuss this as a fact. Farmers in De Wouden recognize the entrepreneurial advantages of the Open Area but they do not consider or want to move to this region; they are proud to live in their respective area.
3.1.1.2. Willingness to accept concept. Farmers have different ideas about the subsidy level required to make sure individual farmers will be involved in on-farm nature conservation schemes. When discussing the concept of willingness to accept, all of the farmers stated that they are, first and foremost, ‘entrepreneurs’, and not nature conservationists. However, the majority of the interviewees were of the opinion that being an entrepreneur and acting for nature conservation can work together under the conditions that costs will be compensated. Farmers claim that there are several reasons for financial compensation when they participate in on-farm nature conservation schemes. The most frequently mentioned reasons are that they face a reduction in income and that they are confronted with an increase in labour hours on the farm and in administrative tasks. Most of the dairy farmers who have been interviewed are rather positive about the balance between costs and benefits of on-farm nature conservation. They think that, on the one hand, the rewards are reasonable; on the other hand, they state that they do not precisely count extra labour hours because they more or less still perform the same activities they did before they participated in on-farm nature conservation schemes. The major disadvantage of participating in on-farm nature conservation is the huge amount of administrative tasks and the lack of transparency and continuity in the regulations. 3.2.
Survey
Based on the findings of the face-to-face interviews, a written questionnaire was prepared. Again, the perception of the farmer was essential. The questionnaire contained 13 questions. The majority of the questions were close-ended, but an explanation was also sometimes asked for. The questionnaire consecutively discussed the positive and negative aspects of the current on-farm nature conservation schemes, the costs and benefits of contributing as well as other motives the farmers had for participating in the subsidy schemes. The questionnaire was sent out in July 2005 to all members of the farmers organisations in the two selected areas, meaning 424 addressees in the Open Area and 404 addressees in De Wouden. Although the member lists of the farmers organisations included retired farmers and other people that had stopped farming in addition to active farmers, we were only
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interested in the opinions of active farmers. To exclude other groups, the first question to the addressee was to respond to the questionnaire only if he or she was an active farmer. Compared to the situation in 2003/2004, on which the normative analysis is based, the policy for on-farm nature conservation changed in 2004. From 2005 onwards, two on-farm nature conservation schemes have been of concern in the investigated areas: landscape schemes and control schemes. Landscape schemes aim to preserve characteristic elements of the countryside. Control schemes intend to preserve plant and animal species and are open for farms in both De Wouden and the Open Area.
3.2.1.
Results of the questionnaire
From the questionnaires sent out, 201 questionnaires were returned of which 176 were completely filled in. Some 76% of the responding farms indicated that their main farming activity was animal husbandry. The response in the Open Area was higher than that in De Wouden, respectively 138 and 38 questionnaires were returned. The ratio between the number of dairy farms in the Open Area and De Wouden is approximately 5:3 (Louwes, 2005). Fig. 2 shows an overview of the participation rate of farms in the different subsidy schemes. The participation rate is different for the two areas because in De Wouden both landscape and control subsidy schemes are possible while in the Open Area only control subsidy schemes are possible. This explains the low participation rate in landscape subsidy schemes in the Open Area. In De Wouden, 62.2% of the farms participate in both subsidy schemes. In total, 42 farms do not participate in any on-farm nature conservation scheme. Farmers give different reasons for not participating. The three main reasons are that (1) applying for the subsidies is too complex and that the subsidy schemes are not clear, (2) requests for participation have been rejected by the subsidy provider, and (3) some farmers are against subsidy schemes for nature conservation on principle since they think that it is the task of any farmer to preserve nature, not only when it is subsidised.
577
3.2.1.1. Positive and negative aspects of on-farm nature conservation schemes. In the questionnaire, the farmers were asked to name negative as well as positive aspects of the nature conservation schemes they participate in. Most subsidy schemes have both positive and negative sides. The most frequently mentioned positive aspect is the financial compensation. Another positive aspect that many farmers point out is the embellishment of the landscape by restoring it to its original character. This latter activity contributes to a positive image of agriculture. Thus, in addition to a solid financial compensation, the beautification of the landscape is also an important positive aspect for farmer participation. The negative aspects of the various subsidy schemes are the loss of income and the feeling of curtailment regarding their own management since farmers have to adapt their management according to rules. Furthermore, farmers also criticize the increase of labour in order to meet the standards of the nature conservation schemes and the extension of administrative tasks.
3.2.1.2. Costs of participation in regulations for nature conservation. After inventorying the positive and negative aspects of the various regulations, the questionnaire discusses the costs of participation in nature conservation regulations. The costs are divided into extra labour demands, extra administrative demands, out of pocket costs and yield loss. Table 5 shows the scores on this question. The results demonstrate that participation in nature conservation schemes leads to more labour demands for the majority of the farms. Several farmers indicated that the complex administration of the regulations is time consuming and places extra demands on them. Out of pocket costs are the higher costs of hired labour and the extra feeding costs because of a decreasing quality of grass. Yield loss is the actual loss of grass production since farmers may only mow twice a season in stead of three times. It is important to mention that there can be some overlap in the different costs. However, since the assessment of the farmers is central, the actual costs are not measured but the costs as they are considered by the farmers. No major differences exist in the given answers between the two regions. However, this does not mean that the actual level of costs in the two regions is equal. Although farmers were asked to estimate the actual costs per aspect, only a small part of the respondents could point out what the amount of these extra costs was; most farmers only indicated that the participation in regulations led to extra costs but they did not estimate the actual costs per aspect.
3.2.1.3. Subsidy level when participating in on-farm nature conservation schemes. The financial benefits of participating
Fig. 2 – Participation rates of farms in different types of nature regulations.
in on-farm nature conservation schemes were asked for with an open ended question. Farmers were asked for the actual amount of money they receive as compensation. The given answers range from €200 to €36,000. Comparing the financial amounts is difficult because of the diversity of subsidy schemes, the possibility of participating in a combination of subsidy schemes and because not all farmers give an exact amount of the benefits. Many farmers roughly estimated their compensation by indicating a range on the questionnaire because of uncertainty about the level of current subsidies. Uncertainty arises since the level of some subsidies depends
578
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Table 5 – Costs of participation in subsidy schemes Open Area Costs Extra labour demands Extra administrative demand Out of pocket costs Yield loss
Yes
No
Don't know
De Wouden Yes
No
Don't know
72.7% 26.3%
1.0%
85.7% 11.4%
2.9%
64.6% 34.3%
1.0%
60.0% 37.1%
2.9%
33.3% 62.6%
4.0%
31.4% 65.7%
2.9%
62.6% 34.3%
1.0%
60.0% 37.1%
0.0%
on some not direct controllable aspects, like the number of protected species over a number of years. As a result, it is not possible to compare the two areas with respect to the financial benefits. While the benefits cannot be estimated, the degree of appreciation regarding the subsidies can be discussed. Fig. 3 provides insight into the appreciation of the farmers' actual subsidies. In general terms, the extent of appreciation corresponds in the two areas. According to 24.5% of the farmers in the Open Area, the amount of the compensation for conservation is insufficient. Assuming that ‘minimal’ implies a certain contentment, 75.5% of the farmers in the Open Area indicate that the compensation is more or less sufficient. In De Wouden this percentage is 77.2%. In this region, 22.9% of the respondents labelled the actual benefit as insufficient.
3.2.1.4. Motivation to participate in regulations for nature conservation. The farmers were asked to indicate how
Fig. 4 – Importance of the preservation of nature for participating in nature conservation schemes.
point. There is no significant difference found in the participation motives in subsidy schemes for nature conservation between the two areas. The questionnaire ended with the open question to give a description of the characteristics of the most ideal regulation. This question was only answered by a small number of respondents. Those who did answer the question frequently mentioned that the subsidy schemes should be more transparent and should cover the actual costs of conservation. Additionally, some of the farmers mentioned how important it was for them to stay in control of their own business. They want less government control. In short, farmers want to participate in on-farm nature conservation but they want minimal governmental interference.
important both the preservation of nature and the financial benefits are as a reason for participation. Figs. 4 and 5 provide insight into the corresponding scores. Without any doubt, the financial benefit is the most important reason to participate in on-farm nature conservation schemes. This is especially significant for the farmers in De Wouden. However, the preservation of nature also plays an important role in the decision to participate or not. The scores in De Wouden are also more pronounced with regard to this
4.
Fig. 3 – Appreciation of the actual benefits of the height of the subsidies by farmers.
Fig. 5 – Importance of the subsidies for participating in nature conservation schemes.
Discussion and conclusions
Comparison of the methods used in this study and of the results produced by both methods shows that the approaches are
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complementary. Normative economic modelling by means of linear programming gives a detailed picture of the economic consequences at farm level of the limitations farmers in De Wouden are faced with. Taking into account the subsidies these farmers get from the government and some additional uncertain costs leads to the conclusion that from an economic point of view, farmers in De Wouden are not worse off than their counterparts in the Open Area. However, the usual limitations to linear programming are also valid here (Hazell and Norton, 1986). In this regard, the most important limitation is that farmers have more objectives than only maximisation of economic results. This is exactly where the survey complements as it broadens the picture. Also from the survey it can be concluded that farmers are satisfied, to some extent, with the subsidies they get as a compensation for extra costs. However, more important, the results shows that farmers have also other motives for participating in on-farm nature production, the most important of which is the desire to maintain the natural environment in which they live. The survey also reveals that objections to participation in nature conservation schemes are more of a emotional nature than an economic one. The results of this research are especially important for policy makers. First of all, the results give a clear overview of the factors that play a role in keeping farming economically sustainable in an area where on-farm nature conservation is required from the governmental point of view. This can be of help in calculating the level of subsidy required to get farmers to participate in on-farm nature conservation schemes. Secondly, the results also show that other barriers prohibit participation like the farmers' feeling that they are being curtailed in their entrepreneurship, the high administrative load, and the uncertainty they feel because of low transparency of the regulations. Recognition of these barriers can serve as an incentive to change the form of the regulations from command and control to more output oriented regulations and to make the regulations as clear and as certain as possible for farmers. The results of this research are difficult to compare with other studies at the detail level especially because of the typical form of on-farm nature conservation in De Wouden (e.g. landscape conservation). However, at a more global level, the results fit well with results of a broader market research in which Dutch farmers were asked if they would be willing to participate in onfarm nature conservation schemes (Van Egmond and De Koeijer, 2005). Also in the latter research farmers appeared to be reluctant because of their perception of risk and uncertainty in the regulations. Generally speaking, it can be concluded from this research that, taking into account the compensation for on-farm nature conservation, a dairy farm in De Wouden is as profitable as a dairy farm in the Open Area. It is true that the latter are bigger, but they are faced with higher costs because of a larger milk quota and a higher input of own labour or hired labour. In general, the subsidy for on-farm nature conservation appears to be sufficient to compensate for the relative income deficit. However, the administrative complexities, the non-transparent regulations and the lack of continuity in the regulations negatively influence the opinion of the farmers about on-farm nature conservation. In order to stimulate nature conservation by farmers, these extra transaction costs for the farmers will have to be mitigated.
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REFERENCES Balk-Theuws, L.W., 2004. Stad en Ommeland, actoren nader in beeld gebracht. Achtergrond document bij Natuurbalans 2004. Report, vol. 14. Nature Management Planning Office, Wageningen. Berentsen, P.B.M., Giesen, G.W.J., 1995. An environmental–economic model at farm level to analyse institutional and technical change in dairy farming. Agricultural Systems 49, 153–175. Boardman, A.E., Greenberg, D.H., Vining, A.R., Weimer, D.L., 2001. Cost–Benefit Analysis. Prentice Hall, Upper Saddle River, New York. Dupraz, P., Vermersch, D., Henry de Frahan, B., Delvaux, L., 2003. The environmental supply of farm households: a flexible willingness to accept model. Environmental and Resource Economics 25-2, 171–189. Dupraz, P., Latouche, K., Bonnieux, F., 2006. Economic Implications of Scale and Threshold Effects in Agri-Environmental Processes. INRA-ESR, France. http://merlin.lusignan.inra.fr:8080/ eaae/website/pdf/74_Dupraz (visited 08-02-2006). EU, 2005. Agri-environmental measures; overview on general principles, types of measures, and applications. European Commission; Directorate General for Agriculture and Rural Development. http://ec.europa.eu/agriculture/publi/reports/ agrienv/rep_en.pdf (visited 13-07-2006). Fish, R., Seymour, S., Watkins, C., 2003. Conserving English landscapes: land managers and agri-environmental policy. Ecological Economics 48, 395–407. Hazell, P.B.R., Norton, R.D., 1986. Mathematical Programming for Economic Analysis in Agriculture. MacMillan Publishing Company, New York. Kächele, H., Dabbert, S., 2002. An economic approach for a better understanding of conflicts between farmers and nature conservationists; an application of the decision support system MODAM to the Lower Odra Valley National Park. Agricultural Systems 74, 241–255. LEI, 2006. FADN-data for several years. Agricultural Economics Research Institute (LEI). http://www.lei.wur.nl/UK/statistics/ Binternet/ (Visited 13-07-2006). Louwes, R. 2005. Agrarisch natuurbeheer in Noordoost Friesland; Economische verschillen tussen melkveebedrijven in de Wouden en het open gebied. MSc-thesis Business Economics, Wageningen University. Morris, C., Potter, C., 1995. Recruiting the new conservationists: farmers' adoption of agri-environmental schemes in the U.K. Journal of Rural Studies 11-1, 51–63. Netherlands Environmental Assessment Agency (NEAA), 2004. Natuurbalans 2004. Netherlands Environmental Assessment Agency, Bilthoven. Schrijver, R.A.M., Berentsen, P.B.M., Corporaal, A., Groeneveld, R.A., de Koeijer, T.J., 2006. Development of nature oriented dairy farm systems with an optimization model: the case of farming for nature in ‘de Langstraat’. German Journal of Agricultural Economics (Agrarwirtschaft) 55, 280–289. Van Egmond, P.M., De Koeijer, T.J., 2005. Van aankoop naar beheer; Verkenning kansrijkheid omslag natuurbeleid I. Netherlands Environmental Assessment Agency, Bilthoven. Van Wenum, J.H., Wossink, G.A.A., Renkema, J.A., 2004. Locationspecific modeling for optimizing wildlife management on crop farms. Ecological Economics 48, 395–407. Vink, A., Kroeze, G.H., 1999. A modern farm specific labour budgeting system. Proceedings XXVIII CIOSTA-CIGR V Congress, Horsens, Denmark, pp. 137–141. 14–17 June.
a v a i l a b l e a t w w w. s c i e n c e d i r e c t . c o m
w w w. e l s e v i e r. c o m / l o c a t e / e c o l e c o n
ANALYSIS
Costs and benefits of on-farm nature conservation Paul B.M. Berentsen a,⁎, Astrid Hendriksenb, Wim J.M. Heijmanc, Haske A. van Vlokhovenb a
Business Economics Group, Wageningen University, P.O. Box 8130, 6700 EW Wageningen, The Netherlands Environmental Policy Group, Wageningen University, P.O. Box 8130, 6700 EW Wageningen, The Netherlands c Economics of Consumers and Households Group, Wageningen University, P.O. Box 8130, 6700 EW Wageningen, The Netherlands b
AR TIC LE I N FO
ABS TR ACT
Article history:
The costs of on-farm nature conservation is an important issue in Dutch agriculture. As
Received 22 March 2006
nature is a public good, nature conservation cannot do without subsidies from the
Received in revised form
government. The question of how much farmers should receive in subsidies in order to keep
17 July 2006
farms engaged in conservation activities is highly topical. In this article, the questions of
Accepted 25 July 2006
how much farmers should receive in subsidies and what other factors motivate or
Available online 11 September 2006
demotivate farmers to participate in on-farm nature conservation are addressed. The study was carried out for a particular region in the northern Netherlands and was initiated by the
Keywords:
concerns that farmers organisations had about the level of subsidies for landscape
On-farm nature conservation
conservation as a major form of nature conservation on dairy farms in this region.
Landscape conservation
In this study, both a normative model and a survey were employed. A normative economic
Agriculture
dairy farm model was first used to determine differences in income between a typical farm
Dairy farming
involved in landscape conservation and a typical farm not involved in landscape
Farm modeling
conservation. Results from the model show that the farm involved in conservation earned
Survey
a lower income than the farm not involved in conservation. This was due to the first farmer's smaller scale, lower intensity and lower productivity. The lower income, however, was compensated for by conservation subsidies. Next, a survey concerning on-farm nature conservation in general was carried out among the farmers in this area. From the survey results, it appeared that the majority of the respondents were satisfied, at least to some extent, with the level of subsidies for on-farm nature conservation. Moreover, the survey also revealed that the farmers' commitment to their natural environment strongly motivates farmers to get involved in on-farm nature conservation schemes, whereas the uncertainty about regulations and the feeling of being controlled too much demotivate them. The results show the complementarity of the two methods. The findings of the survey confirm the main findings of the normative model calculations, and, moreover, the survey reveals that in addition to monetary compensation, other factors play a role for farmers in the decision to get involved in on-farm nature conservation. © 2006 Elsevier B.V. All rights reserved.
1.
⁎
Corresponding author. Tel.: +31 317 483485; fax: +31 317 482745. E-mail address: [email protected] (P.B.M. Berentsen).
Introduction
An increasing number of EU-farmers are involved in on-farm nature conservation. In the Netherlands, the area involved in on-farm nature conservation schemes has increased from
0921-8009/$ - see front matter © 2006 Elsevier B.V. All rights reserved. doi:10.1016/j.ecolecon.2006.07.026
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18,000 ha in 1990 to some 70,000 ha in 2003, which is about 4% of the agricultural area in the Netherlands (Van Egmond and De Koeijer, 2005). Compared to the other 14 older member states of the EU, apart from Greece this is the lowest percentage. In the EU as a whole the area covered by agri-environmental contracts in 2002 was about 25% of the total utilized agricultural area (EU, 2005). Farmer interest in participation in on-farm nature conservation schemes is connected with the amount of public financial compensation that farmers receive for their conservation activities. Consequently, the economic incentive offered to farmers is important (Balk-Theuws, 2004). However, success of on-farm nature conservation schemes also depends on the psychosocial factors like the direct satisfaction farm households derive from their contribution to their natural environment. As a result, farmer participation may be improved if farmers have a personal interest in landscape and nature and if the contract that they sign has significant financial benefit for them (Dupraz et al., 2003). This paper describes a study done on the costs of on-farm nature conservation and on the willingness to participate in onfarm nature conservation schemes in a region in the northern Netherlands (see Fig. 1). This region consists of a northern and southern part. The northern part can be characterised as an open area with relatively little limitations for farming. This part is called the “Open Area”. The southern part, which is called “De Wouden”, has an interesting landscape with hedges and small land plots. Conservation of the landscape in De Wouden is done by means of on-farm conservation, subsidised by the central Dutch government. In both areas dairy farming is the main agricultural activity. This study developed from the concern of the regional farmers organisation that the compensation that farmers in De Wouden received for landscape conservation would be insufficient to cover the extra costs that originated from the landscape induced constraints on productivity, scale,
and intensity. The reference situation used as a basis for the concern was that of dairy farmers in the Open Area. Costs of on-farm nature conservation can be determined in different ways. Normative modelling, which utilizes a model at farm level, is an approach used by Kächele and Dabbert (2002), Van Wenum et al. (2004) and Schrijver et al. (2006). This approach can be used to make a clean economic comparison between situations with and without nature conservation. Biases that occur in practice but are not relevant for the research question can be left out. An empirical approach is a survey that asks farmers in the particular area how they feel about on-farm nature conservation as was done by Fish et al. (2003). This approach can give insight into both the strictly economic costs and benefits as well as the other less quantifiable costs and benefits of participating in nature conservation schemes. Here, the concept “willingness to accept” is of central importance (Boardman et al., 2001). The goal of this paper is to apply both normative modelling and surveying to determine if the compensation that farmers receive for on-farm nature conservation in the particular region is sufficient. Comparison of the results from the two approaches will show how the economics of on-farm nature conservation relates to the farmer's perception of it. Moreover, the survey will also reveal the importance of non-economic motives. In the following section of the paper, the analysis based on normative modeling and dealing with landscape conservation as a major form of nature conservation in this area is handled. This is followed by the empirical analysis which deals with onfarm nature conservation in general. Both parts deal with methodological aspects and results of the particular approaches. In the discussion section, the methods and results are compared in order to arrive at final conclusions.
2.
Normative analysis
In this section, determination of costs for dairy farmers of onfarm landscape conservation is done by means of normative modeling. Based on dairy farm data, first an average dairy farm for both the Open Area and De Wouden is defined in terms of size and productivity. Next, the average farm in De Wouden is modeled using an existing linear programming model of a dairy farm (Berentsen and Giesen, 1995). Input variables are then changed one by one to arrive at the average farm of the Open Area. After an input variable is changed, a calculation with the model is done in order to determine the effect of the particular change on labour income of the farm. Finally, the sum of all differences in labour income is compared to the current average subsidy farmers in De Wouden receive for on-farm landscape conservation.
2.1.
Fig. 1 – The region studied.
Data
Farm level data from both areas were acquired from AVM, an accountancy office specialized in agriculture. AVM does the bookkeeping for some 70–80% of all farms in the northern Netherlands. First, dairy farms whose entire agricultural area is located in De Wouden and in the Open Area respectively were identified using detailed maps of the region. Of these identified dairy farms, 42 farms in De Wouden and 54 farms in the Open Area
EC O L O G IC A L E C O N O M IC S 6 2 ( 2 0 07 ) 57 1 –5 79
were a client of AVM in 2005. The most current data possible on these dairy farms were acquired in order to get an idea of the current amount of landscape conservation subsidies paid to these farmers. This requirement of current data decreased the available number of farms in the database down to 23 farms in De Wouden and 33 in the Open Area. The data are from the fiscal year that runs from May 2003 to May 2004. From comparison of FADN dairy farming data for the Netherlands for different years it appears that 2003–2004 was quite average concerning the economic environment (LEI, 2006). The data acquired from AVM were mainly concerned with size and productivity. Size is measured by available milk quota, agricultural area, number of dairy cows and farm size, the latter of which is measured in Dutch Size Units (DSU). Productivity is measured by milk production per cow and by grass production per ha. Grass production per ha is not something that is recorded, but this was calculated by working out the total energy requirements per farm given the number of animals and subtracting from this all energy from purchased fodder, which is mainly concentrates. The remainder is the total energy production on the farm. Dividing this by the total area results in the energy production per ha. In addition to data on size and productivity, nature conservation subsidies, fertilizer costs, and costs of contract work and of mechanization were also acquired. The latter can show if the smaller parcels in De Wouden lead to higher costs of using the land. Table 1 shows that the dairy farms in De Wouden are significantly smaller than those in the Open Area in terms of milk quota and DSU. Consequently, the ratio between milk quota and area, which amounts to 10,322 and 11,875 kg/ha for De Wouden and the Open Area respectively, shows a lower intensity of production in De Wouden. Also, productivity in general and grass production/ha in particular is significantly lower in De Wouden. The latter can be explained by lower Table 1 – Average data for both areas on size, productivity, costs, and subsidies
Size of the farm : — Milk quota (kg) — Dairy cows (nr.) — Area (ha) — Dutch size units Productivity: — Milk production per cow (kg/year) — Net grass production (MJ NELb/ha) Costs: — Fertilizer (€/ha) — Contract work and mechanization (€/ha) Landscape subsidy (€/ha)
De Wouden
Open Area
Significancea
501,665 69.7 48.6 101.5
700,644 96.0 59.0 151.5
++ ++ − +
7197
7297
−
39,447
45,437
++
116 857
126 805
− −−
234
13
++
573
nutrient input from manure (nr. of cows/ha is smaller) and from fertilizer (fertilizer costs are lower) and by the effect of shadow of and nutrients used by trees. As a result from the lower grass production/ha, lower costs of contract work and mechanization can be expected, since less mowing and ensiling and less manuring per ha have to take place in De Wouden. However, the opposite is true. Costs for contract work and mechanization are higher, pointing to more time/ha needed per cut of mowing and ensiling, and per ton of manure applied. Finally, nature conservation subsidies are prevalent only in De Wouden because up till 2004 the only type of nature conservation that was subsidized in this region was landscape conservation. This is only relevant for De Wouden.
2.2.
LP-model of a dairy farm
The model that is used to determine the effects of landscape conservation is a whole farm linear programming model. The objective function maximizes labour income, i.e. the remuneration for labour and management that is left after all other costs have been paid. The initial farm situation is specified by the right-hand side values for land and milk quota and by farmspecific coefficients representing milk production per cow and grass production per hectare. Table 2 shows the general structure of the model with grouped activities and constraints. The central element in the model is a dairy cow with a fixed milk production, which is assumed to calve in February. A minimal ratio is required between the number of young stock and the number of dairy cows to guarantee replacement of dairy cows. The feeding part of the model consists of four parts. The dairy cows and young stock are fed separately, and a division is made between summer, when cows and young stock can graze, and winter, when livestock is kept indoors. For dairy cows, feeding constraints reflect demand and supply of energy and protein, dry matter intake capacity, and demand for fiber in the ration. Feed for dairy cows and young stock consists of grazed and conserved grass and maize silage produced on the farm, three types of purchased concentrates that differ in protein content, dried beet pulp, and purchased maize silage. In the model, the land can only be used for growing grass at five rates of mineral nitrogen (Nmin) from fertilizer and manure (100, 200, 300, 400 and 500 kg/ha year). Five Nmin rates are used to include decreasing marginal energy production with increasing Nmin rates. Together, the five production points (the combination of Nmin rate and energy production) form the grass production curve. In the model this curve can be shifted up or down to reflect higher or lower productivity of grassland. Nutrients for grass production are supplied by manure and fertilizer. The model estimates nutrient balances for N and P2O5 at the farm level based on nutrient inputs and outputs. For a more detailed description of the model see Berentsen and Giesen (1995).
2.3.
Set up of the calculations
a
(++) variables are different at the 1% level of significance, (+) variables are different at the 5% level of significance, (−) variables are not different at the 5% level of significance, (−−) variables are not different at the 20% level of significance. b NEL = net energy for lactation.
Table 3 shows the calculations that were done for six situations. The total difference between the average farm in De Wouden (the first situation in Table 3) and the average farm in the Open Area (the final situation in Table 3) is split up into five main
574
EC O LO GIC A L E CO N O M ICS 6 2 ( 2 00 7 ) 5 7 1 –5 79
Table 2 – General structure of the dairy farm LP-model Constraints
Activities Feed Purchase Animal Manure Purchase Other Machinery for of operations: owner's production of feed production application for onfertilizer owner's mechanization farm use mechanization or contract work
Land requirements Milk production Housing requirements
+1
Labour requirements Feeding requirements Fertilizing requirements Linking animal production and manure application
ai,j
Nutrient balances: — Farm level — Herd level — Soil level Linking production activities and operations Linking owner's mechanization and new machinery Object function
Righthand Nutrient side losses
≤ Available hectares ≤ Available quota ≤ Available cow places ≤ Available labour b0
ai,j ai,j
−ai,j
ai,j −ai,j
ai,j
ai,j
− ai,j
− ai,j
ai,j
ai,j − ai,j
−ai,j ai,j ai,j
Costs per ha
ai,j
−ai,j −ai,j
≤0
ai,j
=0
− ai,j
ai,j ai,j
ai,j − ai,j
ai,j
− ai,j
ai,j −ai,j
Costs per unit
Gross margins
Costs per unit
differences concerning farm structure and productivity. This division is done to show the separate effects of differences in parcel size, intensity, scale and animal and plant productivity. Table 3 shows the relevant variables to describe each situation. Parcel size is not a direct input variable in the model. It was used to determine costs of contract work for mowing, ensiling and manuring. Calculations to determine these costs per given parcel size were done with Agrowerk, a software package (Vink and Kroeze, 1999), As result of these calculations, it
Costs per unit
ai,j
− ai,j
Costs per unit
Annual costs
=0 =0 =0 ≤0
≤0
followed that costs of mowing and ensiling per ha and per cut were 25% and 29% higher with 1 ha parcels as compared to 2 ha parcels while costs of manuring per ton were 11% higher. The resulting costs for contract work per activity and per ha are input for the model. Feed purchases are used as input in the initial and the final situation in Table 3 to fix the exact level of the grass production curve because the level of this curve represents the basic conditions for the productivity of grassland. In the intermediate
Table 3 – Characterization of the modeled situations
Parcel size (ha) Milk quota (kg) Area (ha) Milk production per cow (kg milk/year) Feed purchases (1000 MJ NEL)
De Wouden
Larger parcel size
Higher intensity
Larger scale
Higher milk production per cow
Higher grassland productivity (=Open Area)
1 501,665 48.6 7197
2 501,665 48.6 7197
2 577,141 48,6 7197
2 700,644 59.0 7197
2 700,644 59.0 7297
2 700,644 59.0 7297
1617
–
–
–
–
2296
575
EC O L O G IC A L E C O N O M IC S 6 2 ( 2 0 07 ) 57 1 –5 79
situations, the curve is on the same level as in the initial situation, so in these situations feed purchases are output, as these are determined in the optimization process.
2.4.
Results of the normative analysis
The effects of the individual changes in farm structure and productivity on farm economics are shown in Table 4. Compared to Table 3, the first column is left out and a final column (Total) is added. In this final column, the economic effects of the individual changes are summed up. The increase of the parcel size and the resulting lower contract work tariffs result in an increase of the fertilizer level of grassland, meaning a more intensive use of the grassland. The effect on economic results is an increase in the costs of grassland and of fertilizer and a much larger decrease in the costs of purchased feed and contract work. As a result, labour income of the farm increases by 2214 euros. Due to more intensive grassland use labour hours increase by 23. The higher intensity, meaning an increase of the number of cows from 69.7 to 80.2, further increases the fertilizer level on grassland to have enough grass for grazing. The economic effects are multiple. Revenues from both milk and sold animals go up. The costs of grassland and contract work decrease as less grass is ensiled. All other costs increase substantially. Fixed costs increase because of extra housing costs for the larger herd. No fixed costs are included for acquiring extra milk quota. The net result is an increase in labour income by 8836 euros. The higher intensity requires 295 extra hours of labour. The increase of scale (more land and more milk quota) results in proportionate increases in cattle and in purchased feed, contract work and fertilizer. Consequently, it leads to an increase of all revenues and costs, labour income and labour hours. The change of milk production includes an increase in milk production of 100 kg per cow, a decrease of the fat content by
0.01% and an increase of the protein content by 0.01%. It results in a decrease of the number of cows by 1.4. Milk revenues slightly increase because of the changed fat and protein content. Revenues of sold animals slightly decrease because of the lower number of animals kept. As total feed requirements decrease because of a decrease in maintenance requirements, costs of purchased feed and fertilizer decrease. Increase of milk production per cow is very effective because it leads to higher income and less labour hours. To match the feed purchases in the situation with the higher grassland productivity, the net grass production curve in the model is shifted upwards by 1104 MJ NEL/ha. The model partly compensates for this higher production by slightly decreasing the fertilizing level. The result is a decrease in fertilizer and purchased feed costs and an increase in the costs of selfproduced grass. Both labour income and labour hours go up. In total, labour income of the optimized situation in the Open Area is 25,069 euros higher than that of De Wouden, and this extra income costs 908 h of extra labor. This means an income of 27.60 euros per extra hour which points at an economically preferable situation of the farms in the Open Area. However, some comments have to be made. First of all, costs of the extra milk quota on the farm in the Open Area are not included in the calculations so far. With current prices of milk quota in the Netherlands at some 2 euros per kg and 4% interest on a yearly base, yearly costs of quota amount to 8 euro cents per kg. These costs and the 200,000 kg higher milk quota in the Open Area would increase yearly costs by 16,000 euros. It is impossible to say how far these higher milk quota costs apply to the situation in reality. This depends on the milk quota history of the farms in both areas. In other words, farms in the Open Area might have had a larger milk quota from the introduction of the quota system without facing extra quota costs because quota was obtained for free at that time. Secondly, the farms in De Wouden have extra income (via subsidy) but also extra work from landscape
Table 4 – Effects of five differences in farm structure and productivity and total effect on economic results (in euros) and on labour hours (effects relate to the previous situation)
Revenues: — Milk — Sold animals Total Costs: — Grassland — Fertilizer — Purchased feed — Other cattle costs — Contract work — Fixed costs Total Labour income Labour hours
Larger parcel size
Higher intensity
Larger scale
Higher milk production
Higher grassland productivity
Total
0 0
+25,508 + 3677
+41,741 +6017
+207 −467
0 0
+67,456 +9227
0
+29,186
+47,757
−260
0
+76,683
+ 302 + 310 − 1401
−9 + 494 + 9385
+1927 +710 +9758
+13 −72 −459
+149 −162 −1361
+2382 +1280 +15,922
0
+ 3599
+5903
−447
0
+9055
− 1424
− 301
+2499
+130
+696
+1600
0 − 2214
+ 7179 +20,349
+15,035 +35,832
−840 −1675
0 −678
+21,374 +51,614
+ 2214
+ 8836
+11,926
+1415
+678
+25,069
+ 23
+ 295
+610
−32
+14
+908
576
EC O LO GIC A L E CO N O M ICS 6 2 ( 2 00 7 ) 5 7 1 –5 79
maintenance, neither of which is included in modeling. Total subsidy amounts to some 11,000 euros. This brings the calculated income difference down to some 14,000 euros. The amount of extra work for landscape maintenance is unknown. Taking into account the net income difference, the costs of extra quota that are not included and a probable difference in working hours, the economic situation on the farms in De Wouden cannot be considered worse than that of farms in the Open Area.
3.
Empirical analysis
Farmers in both De Wouden and the Open Area were surveyed and asked to make an assessment of the current regulations for on-farm nature conservation. The items of the questionnaire were based on research reports (Balk-Theuws, 2004; Dupraz et al., 2006; Morris and Potter, 1995; NEAA, 2004), expert knowledge (farmers organizations) and the outcomes of a small number of face-to-face-interviews with farmers. The central issue in the discussion with experts and during the face to face interviews appeared to be ‘willingness to accept’ the on-farm nature conservation schemes. According to Dupraz et al. (2003), this idea contains two elements: the costs of participating in such a scheme and the benefits of it. Both costs and benefits can be monetary but also nonmonetary. Therefore, the ‘willingness to accept’ concept gives insight into the farmers’ perception of all costs and benefits of on-farm nature conservation (NEAA, 2004). The main assumption of the experts was that there would be a significant difference between the assessments of the farmers in the two investigated areas. Farmers in De Wouden would be faced with restriction rules based on nature conservation schemes that would prevent them from benefiting from economies of scale (NEAA, 2004). As a consequence, experts presupposed a more negative attitude towards on-farm nature conservation schemes by farmers in De Wouden than by farmers in the Open Area. Data was collected at two different stages. The first stage included the face-to-face interviews, based on issues mentioned by experts, with farmers in both De Wouden and in the Open Area. The farmers were asked to assess the current schemes for on-farm nature conservation. This assessment served as one of the starting points for the second stage of the empirical approach in which a large scale survey was conducted. To begin with, a questionnaire was sent to all the dairy farmers in the investigated region. Analysis of the survey provided insight into the perception of the farmers regarding on-farm nature conservation schemes as well as the ‘willingness to accept’ concept.
3.1.
Face-to-face interviews
The goal of the face-to-face interviews was to gather information for developing a questionnaire. The focus during these interviews was based on the notion of the general situation in the two different areas, the willingness to accept the on-farm nature conservation schemes and the costs and benefits of nature conservation schemes in the current situation. In April 2005, a random sample of 15 farms both in De Wouden and in the Open Area was taken from the dairy farmers
in the two regions. After 24 face-to-face interviews, the point of saturation was reached. No new essential information was expected by the interviewers, and therefore, no extra interviews were conducted.
3.1.1.
Results of the face-to-face interviews
3.1.1.1. Notion of dairy farmers about the Open Area and De Wouden. In the opinion of the farmers, major differences exist between De Wouden and the Open Area. All the farmers know about the advantages and disadvantages of the area they dwell in, in comparison with the other area. However, in contrast to what was stated by experts, the farmers discuss this as a fact. Farmers in De Wouden recognize the entrepreneurial advantages of the Open Area but they do not consider or want to move to this region; they are proud to live in their respective area.
3.1.1.2. Willingness to accept concept. Farmers have different ideas about the subsidy level required to make sure individual farmers will be involved in on-farm nature conservation schemes. When discussing the concept of willingness to accept, all of the farmers stated that they are, first and foremost, ‘entrepreneurs’, and not nature conservationists. However, the majority of the interviewees were of the opinion that being an entrepreneur and acting for nature conservation can work together under the conditions that costs will be compensated. Farmers claim that there are several reasons for financial compensation when they participate in on-farm nature conservation schemes. The most frequently mentioned reasons are that they face a reduction in income and that they are confronted with an increase in labour hours on the farm and in administrative tasks. Most of the dairy farmers who have been interviewed are rather positive about the balance between costs and benefits of on-farm nature conservation. They think that, on the one hand, the rewards are reasonable; on the other hand, they state that they do not precisely count extra labour hours because they more or less still perform the same activities they did before they participated in on-farm nature conservation schemes. The major disadvantage of participating in on-farm nature conservation is the huge amount of administrative tasks and the lack of transparency and continuity in the regulations. 3.2.
Survey
Based on the findings of the face-to-face interviews, a written questionnaire was prepared. Again, the perception of the farmer was essential. The questionnaire contained 13 questions. The majority of the questions were close-ended, but an explanation was also sometimes asked for. The questionnaire consecutively discussed the positive and negative aspects of the current on-farm nature conservation schemes, the costs and benefits of contributing as well as other motives the farmers had for participating in the subsidy schemes. The questionnaire was sent out in July 2005 to all members of the farmers organisations in the two selected areas, meaning 424 addressees in the Open Area and 404 addressees in De Wouden. Although the member lists of the farmers organisations included retired farmers and other people that had stopped farming in addition to active farmers, we were only
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interested in the opinions of active farmers. To exclude other groups, the first question to the addressee was to respond to the questionnaire only if he or she was an active farmer. Compared to the situation in 2003/2004, on which the normative analysis is based, the policy for on-farm nature conservation changed in 2004. From 2005 onwards, two on-farm nature conservation schemes have been of concern in the investigated areas: landscape schemes and control schemes. Landscape schemes aim to preserve characteristic elements of the countryside. Control schemes intend to preserve plant and animal species and are open for farms in both De Wouden and the Open Area.
3.2.1.
Results of the questionnaire
From the questionnaires sent out, 201 questionnaires were returned of which 176 were completely filled in. Some 76% of the responding farms indicated that their main farming activity was animal husbandry. The response in the Open Area was higher than that in De Wouden, respectively 138 and 38 questionnaires were returned. The ratio between the number of dairy farms in the Open Area and De Wouden is approximately 5:3 (Louwes, 2005). Fig. 2 shows an overview of the participation rate of farms in the different subsidy schemes. The participation rate is different for the two areas because in De Wouden both landscape and control subsidy schemes are possible while in the Open Area only control subsidy schemes are possible. This explains the low participation rate in landscape subsidy schemes in the Open Area. In De Wouden, 62.2% of the farms participate in both subsidy schemes. In total, 42 farms do not participate in any on-farm nature conservation scheme. Farmers give different reasons for not participating. The three main reasons are that (1) applying for the subsidies is too complex and that the subsidy schemes are not clear, (2) requests for participation have been rejected by the subsidy provider, and (3) some farmers are against subsidy schemes for nature conservation on principle since they think that it is the task of any farmer to preserve nature, not only when it is subsidised.
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3.2.1.1. Positive and negative aspects of on-farm nature conservation schemes. In the questionnaire, the farmers were asked to name negative as well as positive aspects of the nature conservation schemes they participate in. Most subsidy schemes have both positive and negative sides. The most frequently mentioned positive aspect is the financial compensation. Another positive aspect that many farmers point out is the embellishment of the landscape by restoring it to its original character. This latter activity contributes to a positive image of agriculture. Thus, in addition to a solid financial compensation, the beautification of the landscape is also an important positive aspect for farmer participation. The negative aspects of the various subsidy schemes are the loss of income and the feeling of curtailment regarding their own management since farmers have to adapt their management according to rules. Furthermore, farmers also criticize the increase of labour in order to meet the standards of the nature conservation schemes and the extension of administrative tasks.
3.2.1.2. Costs of participation in regulations for nature conservation. After inventorying the positive and negative aspects of the various regulations, the questionnaire discusses the costs of participation in nature conservation regulations. The costs are divided into extra labour demands, extra administrative demands, out of pocket costs and yield loss. Table 5 shows the scores on this question. The results demonstrate that participation in nature conservation schemes leads to more labour demands for the majority of the farms. Several farmers indicated that the complex administration of the regulations is time consuming and places extra demands on them. Out of pocket costs are the higher costs of hired labour and the extra feeding costs because of a decreasing quality of grass. Yield loss is the actual loss of grass production since farmers may only mow twice a season in stead of three times. It is important to mention that there can be some overlap in the different costs. However, since the assessment of the farmers is central, the actual costs are not measured but the costs as they are considered by the farmers. No major differences exist in the given answers between the two regions. However, this does not mean that the actual level of costs in the two regions is equal. Although farmers were asked to estimate the actual costs per aspect, only a small part of the respondents could point out what the amount of these extra costs was; most farmers only indicated that the participation in regulations led to extra costs but they did not estimate the actual costs per aspect.
3.2.1.3. Subsidy level when participating in on-farm nature conservation schemes. The financial benefits of participating
Fig. 2 – Participation rates of farms in different types of nature regulations.
in on-farm nature conservation schemes were asked for with an open ended question. Farmers were asked for the actual amount of money they receive as compensation. The given answers range from €200 to €36,000. Comparing the financial amounts is difficult because of the diversity of subsidy schemes, the possibility of participating in a combination of subsidy schemes and because not all farmers give an exact amount of the benefits. Many farmers roughly estimated their compensation by indicating a range on the questionnaire because of uncertainty about the level of current subsidies. Uncertainty arises since the level of some subsidies depends
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Table 5 – Costs of participation in subsidy schemes Open Area Costs Extra labour demands Extra administrative demand Out of pocket costs Yield loss
Yes
No
Don't know
De Wouden Yes
No
Don't know
72.7% 26.3%
1.0%
85.7% 11.4%
2.9%
64.6% 34.3%
1.0%
60.0% 37.1%
2.9%
33.3% 62.6%
4.0%
31.4% 65.7%
2.9%
62.6% 34.3%
1.0%
60.0% 37.1%
0.0%
on some not direct controllable aspects, like the number of protected species over a number of years. As a result, it is not possible to compare the two areas with respect to the financial benefits. While the benefits cannot be estimated, the degree of appreciation regarding the subsidies can be discussed. Fig. 3 provides insight into the appreciation of the farmers' actual subsidies. In general terms, the extent of appreciation corresponds in the two areas. According to 24.5% of the farmers in the Open Area, the amount of the compensation for conservation is insufficient. Assuming that ‘minimal’ implies a certain contentment, 75.5% of the farmers in the Open Area indicate that the compensation is more or less sufficient. In De Wouden this percentage is 77.2%. In this region, 22.9% of the respondents labelled the actual benefit as insufficient.
3.2.1.4. Motivation to participate in regulations for nature conservation. The farmers were asked to indicate how
Fig. 4 – Importance of the preservation of nature for participating in nature conservation schemes.
point. There is no significant difference found in the participation motives in subsidy schemes for nature conservation between the two areas. The questionnaire ended with the open question to give a description of the characteristics of the most ideal regulation. This question was only answered by a small number of respondents. Those who did answer the question frequently mentioned that the subsidy schemes should be more transparent and should cover the actual costs of conservation. Additionally, some of the farmers mentioned how important it was for them to stay in control of their own business. They want less government control. In short, farmers want to participate in on-farm nature conservation but they want minimal governmental interference.
important both the preservation of nature and the financial benefits are as a reason for participation. Figs. 4 and 5 provide insight into the corresponding scores. Without any doubt, the financial benefit is the most important reason to participate in on-farm nature conservation schemes. This is especially significant for the farmers in De Wouden. However, the preservation of nature also plays an important role in the decision to participate or not. The scores in De Wouden are also more pronounced with regard to this
4.
Fig. 3 – Appreciation of the actual benefits of the height of the subsidies by farmers.
Fig. 5 – Importance of the subsidies for participating in nature conservation schemes.
Discussion and conclusions
Comparison of the methods used in this study and of the results produced by both methods shows that the approaches are
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complementary. Normative economic modelling by means of linear programming gives a detailed picture of the economic consequences at farm level of the limitations farmers in De Wouden are faced with. Taking into account the subsidies these farmers get from the government and some additional uncertain costs leads to the conclusion that from an economic point of view, farmers in De Wouden are not worse off than their counterparts in the Open Area. However, the usual limitations to linear programming are also valid here (Hazell and Norton, 1986). In this regard, the most important limitation is that farmers have more objectives than only maximisation of economic results. This is exactly where the survey complements as it broadens the picture. Also from the survey it can be concluded that farmers are satisfied, to some extent, with the subsidies they get as a compensation for extra costs. However, more important, the results shows that farmers have also other motives for participating in on-farm nature production, the most important of which is the desire to maintain the natural environment in which they live. The survey also reveals that objections to participation in nature conservation schemes are more of a emotional nature than an economic one. The results of this research are especially important for policy makers. First of all, the results give a clear overview of the factors that play a role in keeping farming economically sustainable in an area where on-farm nature conservation is required from the governmental point of view. This can be of help in calculating the level of subsidy required to get farmers to participate in on-farm nature conservation schemes. Secondly, the results also show that other barriers prohibit participation like the farmers' feeling that they are being curtailed in their entrepreneurship, the high administrative load, and the uncertainty they feel because of low transparency of the regulations. Recognition of these barriers can serve as an incentive to change the form of the regulations from command and control to more output oriented regulations and to make the regulations as clear and as certain as possible for farmers. The results of this research are difficult to compare with other studies at the detail level especially because of the typical form of on-farm nature conservation in De Wouden (e.g. landscape conservation). However, at a more global level, the results fit well with results of a broader market research in which Dutch farmers were asked if they would be willing to participate in onfarm nature conservation schemes (Van Egmond and De Koeijer, 2005). Also in the latter research farmers appeared to be reluctant because of their perception of risk and uncertainty in the regulations. Generally speaking, it can be concluded from this research that, taking into account the compensation for on-farm nature conservation, a dairy farm in De Wouden is as profitable as a dairy farm in the Open Area. It is true that the latter are bigger, but they are faced with higher costs because of a larger milk quota and a higher input of own labour or hired labour. In general, the subsidy for on-farm nature conservation appears to be sufficient to compensate for the relative income deficit. However, the administrative complexities, the non-transparent regulations and the lack of continuity in the regulations negatively influence the opinion of the farmers about on-farm nature conservation. In order to stimulate nature conservation by farmers, these extra transaction costs for the farmers will have to be mitigated.
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