Agricultural policy objectives Multifunctionality: a new rationale for support

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Agricultural policy objectivesMultifunctionality
a new rationale for support?

• Economics of Food Markets
• Lecture 5
• Alan Matthews

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Classes this week
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Classes next week
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Lectures next week

• Because of Bank Holiday, changed to
• Wednesday 1-3 pm, Room AP3.19
• Reading and website

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The European model of farming

• Emphasises the non-commodity outputs provided by
  farming activity
• Cultural heritage
• Rural development
• Landscape
• Biodiversity and environment
• Food security
• Does provision of these non-commodity outputs
  provide a distinct justification for support to
  farming?
• Is an example of multifunctionality

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Multifunctionality

• The existence of multiple commodity and
  non-commodity outputs that are jointly produced,
  AND
• The fact that some of these non-commodity outputs
  exhibit characteristics of externalities or
  public goods
• Why multifunctionality matters
• High protection countries argue that maintaining
  agricultural production is a necessary
  prerequisite for these non-commodity benefits

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The issue of jointness

• Think about jointness wrt cultural heritage,
  rural viability via agricultural employment,
  landscape, environmental quality, food security
• Can these non-commodity outputs be provided by
  the non-agricultural sector?
• Are there economies of scope such that
  agriculture has a competitive advantage in
  supplying these outputs?
• Does jointness imply fixed proportions?
• Could there be non-agricultural provision?

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The issue of externalities/public goods

• Non-commodity outputs that constitute positive
  externalities do not necessarily cause market
  failure
• The existence of a positive externality is not
  necessarily an argument for intervention how
  much of the non-commodity output is optimal?
• The problem of valuation
• Not all public goods necessarily imply government
  provision, e.g. possibility of clubs, voluntary
  groups
• The spatial and scale dimensions of non-commodity
  outputs

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Policy implications

• Agriculture produces negative as well as positive
  spillovers, yet advocates of multifunctionality
  do not net out or consider these negative effects
• Using agricultural support in one country to
  attain multifunctional benefits lower the
  benefits from agriculture, including
  multifunctional benefits, everywhere else
• Unlikely that blanket measures to encourage
  agricultural production will ensure just the
  right outputs of non-commodity benefits in the
  right places at reasonable cost
• Provides an argument for improving targeting and
  decoupling of policy measures

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Reading

• Evolution of agricultural policy objectives
• Winters, A., (1990), The so-called non-economic
  objectives of agricultural support, OECD Economic
  Studies 13, pp. 237-266.
• Multifunctionality
• Cahill, C. and Shobayashi, M., 2000. 'The concept
  of multifunctionality of agriculture results of
  OECD research', Proceedings of the Agricultural
  Economics Society of Ireland.
• Bohman, M. et al. 1999. The Use and Abuse of
  Multifunctionality, US Department of Agriculture
  Economic Resarch Service.
• See also the Commission's defence of
  multifunctionality in the context of the WTO
  agricultural negotiations.
• Read the Australian Bureau of Agricultural and
  Resource Economics, Multifunctionality A Pretext
  for Protection, ABARE Current Issues paper 99.3,
  Canberra, ABARE, for a critical view.