National Cooperative Council, the Netherlands.
“Had we known beforehand which ecological risks were involved with agriculture, we probably would never have started it”, Professor Jan de Veer, former Director of the Agricultural Economic Institute [Landbouw Economisch Instituut] used to sigh occasionally. Indeed, agriculture involves large environmental risks, but at the same time we know, of course, that agriculture - as a user of solar energy - is one of the most sustainable economic activities. This follows logically from the well-known basic laws of thermodynamics.
In addition, I would like to bring up a basic law in economics, which says that economy is concerned with reducing dissatisfaction and reducing non-sustainability. I mention ‘reducing’ to emphasise the direction and the speed of the change. We will have to keep this simple law in mind when dealing with the environment.
When applying economic laws to the environment, we often hear ‘the polluter pays’. I think that many politicians particularly should try to understand better the deeper meaning of this statement: the polluter charges or must charge his costs to the consumer, and in the end it is the consumer who pays (extra) for whatever it is that causes the pollution. In this manner, the market mechanism influences the consumer's behaviour of choosing and spending.
The problem the (Dutch) farmer is facing is that for a number of reasons he is not able to charge his environmental cost to the consumer.
First of all, the agricultural market has many small suppliers of which none are able to impose a price on the consumer - not even locally. It is quite simple for the demanders of food (including industry and store chains) to bring in food from other regions. This aspect is reinforced by the fact that the agricultural market is a surplus market.
A second and maybe just as important an issue is that the consumer is hardly or not prepared to pay extra for a more ecologically sound food product. In particular the subtle distinction - more ecologically sound - appears not to appeal to them. In practice, only the purely alternative or ecological agriculture successfully insists on higher prices. Until today this is only a very small market sector: even in a ‘food critical’ market such as in Germany the proportion of the biologically grown products was only two percent in 1994. As we said, an intermediate form - a less-sprayed potato, a more extensively bred cow - does not succeed in obtaining a higher market price. The consumer simply is not interested.
In addition, agricultural products are basic products between which the typical consumer has hardly or not been taught to distinguish, which makes it practically impossible for the supplier to introduce a noticeable distinction. An energy-saving dish-washer or a detergent with less phosphates can be advertised and sold as such, and their higher prices will be taken for granted. For a more environmentally sound agricultural product this cannot be claimed or organised quite as easily. The market for agricultural products has no premiums. There are only discounts.
In short, the above means that for agricultural entrepreneurs, for farmers and market gardeners, ‘the environment’ only manifests itself in additional costs and never in additional proceeds. This has two important consequences, which I wish to discuss here: 1) environmental policy meets with wide resistance among farmers and market gardeners, and 2) is it not the market but the government which will have to show the way to a change for the better.
I mentioned earlier that environmental requirements in agriculture and horticulture only cost money, and never yield any profit As a consequence, no individual farmer has any economic interest in a more environmentally sound production method. Except for the ecological market niche already referred to, there are no ways of recovering the extra environmental costs.
The resistance aroused in this way is reinforced by the fact that farmers, unlike many other occupational groups, are very much attached to their profession. A farmer wants to stay a farmer. As a consequence, a farmer who finds that his environmental costs are becoming prohibitively high will become increasingly zealous in his fight against the environmental conditions. This more or less results in a militant front of activists. This ‘Green Front’ remains a closed formation, also because those who can meet the environmental conditions (and there are many) have no interest whatsoever in actually doing so. For them as well, environmental conditions only mean extra costs and no potential extra proceeds. That is why they too, can only benefit from a delay in environmental policy. In fact, the ‘front’ is even broader in the sense that neither the supplying nor the processing industries have an interest in more stringent environmental regulations. Part of their farmer customers would not survive the introduction of stricter measures, and their national and international consumers show little sign of their willingness to appreciate additional environmental requirements in financial terms. Not until (important) customers indicate that they would rather change to other suppliers will the front show any real signs of starting to move.
Finally, it is important that the broad resistance is also fed by fear. Whenever a number of colleagues in the sector claim that they can produce in a more environmentally sound manner, all others tend to hush this up. They are afraid that such a production method, with the accompanying higher production costs, would otherwise be made compulsory at a faster pace.
One may conclude that the market, which in theory is the ideal controlling mechanism of entrepreneurial behaviour, does not function properly when it comes to ecological agriculture, and that each form of generic policy will fail sooner or later due to lack of support. There are simply no actors in the sector that benefit from higher production cost that cannot be compensated by higher prices.
Individualisation of the policy - to have each individual farmer pay for himself - does not offer a workable solution. In view of the market form, no farmer will gain by the bankruptcy of a colleague. The (international) market price does not depend on more or less national suppliers. For that reason, even in the case of individualisation of the generic policy, there is no one in the sector who would economically benefit from a stricter environmental policy.
No one? Before we lose ourselves in complete environmental pessimism, we must check our step and look at the brighter sides of the matter. Of course, many in the agricultural sector do indeed recognise the importance, of a stricter environmental policy. This importance prevails at many different levels. Well-known, but no less real, are the complaints of farmers that they would very much like to change their production methods provided that it would be economically rewarding to do so. This might be called an ‘emotional’ argument. It is an emotion expressed in the frustration with the lamentable image of many agricultural sectors. Within this context, many farmers regard a stricter environmental policy as a necessity for continuing their production in the more distant future, not only in the market, but also in political/social traffic. More importantly: a considerable group sees a potential long-term opportunity in the environment. Let us look at the example of the Netherlands: if the knowledge-intensive Dutch agriculture and horticulture succeed in perfecting their ecologically grown products before others do, that would be a new chance of success for the future.
As such, it should be possible to find (partial) support for an accelerated development in the direction of a more environmentally sound agriculture. One should take care, however, that the policy is not translated in a sector-wide increase of the costs without providing an increase in market proceeds. Another condition has already been referred to at the start of this article: the policy has to be directed unambiguously at changes in the right direction. Thus it is primarily a cleaner production method that should be stimulated.
What should a new policy look like?
First of all, the preconditions of the government should not only be purposeful but also strict and just. Maybe we are often too fearful of drastic measures. At the time, when the report ‘Caring for Tomorrow’ [Zorgen voor Morgen] by the Netherlands government stated that several forms of pollution had to be reduced by 70 to 90 percent, the reaction of the chemical industry was that this would only be possible provided that it was laid down in a compulsory measure (Opschoor, 1989). The background to this reaction was the understanding that Research & Development are always directed at the greatest restrictions. And the strictest measures, when introduced, provide the greatest challenges.
Justice in this context involves a number of aspects. Standards, for one, will have to be relevant. Anyone who does not stick to them will have to be sanctioned; and who does meet them must not be forced to incur additional costs. Also, there must be an incentive for those who actively try to meet the set standards.
It seems to me that all this could be realised through a system of levies and premiums. Levies would have to be paid only by those who do not meet the standards, and in proportion of the extent to which these standards have not been met. Those who do meet the standards, would not have to pay.
It is of crucial importance, also in view of the acceptance of a strict policy, that the levies are returned to the sector through specific innovation subsidies which are directed at achieving those same environmental objectives.
To some this may not agree with the idea that the polluter should be left to fend for himself, but there are two important counter-arguments: to a large extent the farmer gets what already belongs to him (what we might call presenting the farmer with a cigar from his own box), and in view of the environmental gains it is disirable to invest where the most environmental gains can be realised.
The real art, within the preconditions set, is to use the market mechanism as an efficient, impartial and strict controlling system. A number of these preconditions are, of course, ecologically self-evident. DDT, mercury compounds, parathion and other life-threatening substances should simply be banned. It is quite obvious that these go far beyond all recuperative limits and that the threat they constitute exceeds their practical economic use. An offence would in that case be punishable, just as levies would be beyond discussion in those cases. For other kinds of environmental taxes, such as for manure surpluses or for excess emissions of exhaust gases, it is important that farmers and drivers respectively share the burden. For such an issue, ‘the market’ can do its job.
For many reasons, I would urgently advise to deal with all this through a local or regional approach. I am supported in this view by the ‘Tailor-Made Control’ [Sturing op maat] report of the Dutch Minister of Agriculture which pleads for a regionalised environmental policy and for networking among agribusiness, government, ecology groups and conservation organisations. Such networking should not be noncommittal, but aimed at binding agreements. The role of the government would be limited to directing or conducting, and to setting the general framework - which incidentally means a quite drastic change of role.
First of all, such a regional approach is desirable in view of the involvement of the people in the sector. The policy becomes less anonymous because one can see how, in one's own region, the costs and the environmental gains are divided. The levies charged do not disappear in one big national pit, but are visibly returned to the region. In this way the environmental problem becomes more transparent and more understandable. One might say that regionalisation also stimulates support. In addition, it would very probably also introduce some form of social control.
Secondly, a regional approach would provide an opportunity to apply the spearheads of the environmental policy to the regional situation. The government could negotiate the details of the approach with each individual region. The regional authorities can enter into these negotiations with their specific knowledge of the particular regional circumstances. These negotiations would not only concern the standards themselves-in one region, for instance, the emission of ammonia, could be more problematic than in another - but they would also help define those aspects where the greatest environmental gain can be reached at short notice. One will, therefore, have the possibility to adapt the way of dealing with the innovation subsidies based on specific region-bound considerations.
By giving regions their own responsibility, the objective of environmental gain can also be made more manifest. Agreements regarding specific emission reductions are made with the government. If these reductions are not met, the levies for the next year would be raised, so that the region will have to generate more means to carry out the innovation investments. In this way, a ‘market’ is created which will make those farmers who do not (yet) comply with environmental regulations alert to a more efficient use of the innovation moneys. If those moneys are not properly spent, those farmers will receive additional charges in the subsequent year.
This last consideration is one of the reasons why I ardently advocate the establishment of environmental co-operatives as these would provide the regional approach with an organisational form. After all, the groups of farmers which until today have tried to approach nature and the environment as markets, have either considered or, indeed, adopted the co-operative form. This form enables farmers and market gardeners to operate independently within the region, while the technical implementation is taken care of by professional specialists. These could be given an independent position within the co-operative, as is the case, with an inspector at the auction. The moneys collected by the government in accordance with public law could be transferred in a central fund supervised by the farmers themselves. A Supervisory Board, consisting of experts and representatives from the government, for instance, could in turn supervise the co-operative's management. The blueprint of the co-operative structure not only seems to be a suitable form: it already exists. The required adaptations could be started immediately. At this stage, the question whether membership should be made compulsory has to be dealt with. Of course, someone who would not wish to participate in the co-operative still has to pay the levies as prescribed by public law, whereas he is not eligible for the innovation subsidies. Further investigation of specific conditions will have to show whether this is enough of an incentive.
There are few matters which companies welcome with quite as much enthusiasm as a predictable government. The Common Agricultural Policy of the EU is a unique example of this. With the current surpluses it is often forgotten how effective this policy has in fact been. The market and price policies led to predictable reactions of the market parties, which in turn was of great importance to greater stability as a precondition for efficiency. The basic idea was that the government and the business community knew and anticipated each other's reactions. It is precisely that which we should try to achieve in the environmental policy. I put my trust in the environmental co-operative as a regional means to meet the environmental requirements effectively. A means which appeals to one's sense of self-government and individual responsibility; which creates a new solidarity; and which introduces a clear sanction of increasing levies when, and only when, the environmental conditions are not met.