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Guidelines for Cost-effective Agri-environmental Policy Measures

image of Guidelines for Cost-effective Agri-environmental Policy Measures

Improving the environmental performance of agriculture is a high priority in OECD and many non-OECD countries. This will be of increasing concern in the future given the pressure to feed a growing world population with scarce land and water resources. Policy has an important role to play where markets for many of the environmental outcomes from agriculture are absent or poorly functioning.   

This study focuses on the design and implementation of environmental standards and regulations, taxes, payments and tradable permit schemes to address agri-environmental issues. It deals with the choice of policy instruments and the design of specific instruments, with the aim of identifying those that are most cost-effective in very different situations across OECD countries.  

Key conclusions from the study are that: there is no unique instrument that promises to achieve all agri-environmental policy goals; the cost effectiveness of payments systems could be improved by using performance-based measures; and policy mixes need to combine policy instruments that complement and not conflict with each other.

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Design issues for agri-environmental payment programmes

A majority of OECD countries offer monetary payments to farmers to encourage them, on a voluntary basis, to implement more environmentally friendly farming practices going beyond those required by regulations, or defined as good farming practices. Most of these agri-environmental programmes offer a single, fixed payment for compliance with a predetermined set of environmental requirements, such as reduced tillage or limits on the intensity and timing of fertiliser, manure and pesticide applications. The obvious problem with this type of fixed-rate payment approach is that heterogeneity in either farmers’ compliance costs or siteproductivity of environmental goods supplied are not taken into account in policy design and implementation. Thus, offering a fixed-rate payment under heterogeneous conditions could reduce the cost-effectiveness of agrienvironmental payment programme.

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