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OECD Work on Multifunctionality Private (Non-Governmental) Approaches for Multifunctionality

OECD Work on Multifunctionality Private (Non-Governmental) Approaches for Multifunctionality. By Jun Shobu, Policies, Trade and Adjustment Division, Directorate for Food, Agriculture and Fisheries. FAO Workshop: Environmental Services for Poverty Reduction and Food Security, May 2005.

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OECD Work on Multifunctionality Private (Non-Governmental) Approaches for Multifunctionality

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  1. OECD Work on MultifunctionalityPrivate (Non-Governmental) Approaches for Multifunctionality By Jun Shobu, Policies, Trade and Adjustment Division, Directorate for Food, Agriculture and Fisheries. FAO Workshop: Environmental Services for Poverty Reduction and Food Security, May 2005

  2. STUDIES ON MULTIFUNCTIONALITY ANALYTICAL FRAMEWORK AND POLICIES (1999-2002) • Designing an analytical framework • Examining the empirical evidence • Drawing policy implications • Remaining issues REMAINING ISSUES (2003-4) • Non-governmental approaches • Policy related transaction cost • Farm structure and characteristics- links to multifunctionality REMAINING ISSUES (2005-6) • Information Deficiency • Degree of Jointness

  3. STRUCTURE OF PRESENTATION 1. Analytical Framework Policy options (Pigovian solutions) 2. Non-governmental options (Coasian solutions)

  4. DESIGNING AN ANALYTICAL FRAMEWORK • Agreed approach, common terminology • Both positive and negative externalities • A “positive” rather than a “normative” approach. DEFINITION OF MULTIFUNCTIONALITY • Multiple commodity and non-commodity outputs that are jointly produced • Some of the non-commodity outputs are externalities and/or public goods

  5. THE ANALYTICAL FRAMEWORK CALLS FOR A THREE STAGE, SEQUENTIAL EXAMINATION OF • Jointness • Market Failure • Appropriate Responses

  6. Technical interdependencies Non allocable inputs Allocable fixed factors Is there a strong degree of jointness between commodity and non-commodity outputs? JOINTNESS AND ITS SOURCES

  7. BETWEEN COMMODITY PRODUCTION AND.. Non-commodity outputs (positive externalities) • Environmental services / Landscape/ Wildlife habitat • Historical Buildings / Cultural Heritage • Rural Viability / Employment • Food Security • Land conservation Negative externalities • Environmental Quality (Soil, Air, Water)

  8. MARKET FAILURE

  9. BUT WHERE THERE IS A MARKET FAILURE • Intervention may be warranted • Best Strategy depends on the public good nature of the output • non-excludability • non-rivalry • The probability of policy failures should also be taken into account

  10. CLASSIFICATION THEREFORE HAS POLICY IMPLICATIONS

  11. FROM ANALYTICAL FRAMEWORK TO NON-GOVERNMENTAL OPTIONS 1. Analytical Framework Policy options (Pigovian solutions) 2. Non-governmental options (Coasian solutions)

  12. STUDY ON NON-GOVERNMENTAL OPTIONS Objective Seek ways to encourage non-governmental approaches by use of market mechanisms, the promotion of private transactions, and voluntary approaches

  13. APPROACHES 1. Approaches • Applying a practical approach • Focusing on institutions (mechanisms and their costs) • Case studies being the main information source • Also examining social aspects 2. Project implementation • 1st Phase: Literature review and establish an analytical framework (for this study) • 2nd Phase: Case studies • 3rd Phase: Synthesis outcomes and draw lessons

  14. LIST OF CASE STUDIES (Non-commodity outputs (NCOs))

  15. MAIN INSTITUTIONAL ARRANGEMENTS IN THE CASE STUDIES • Market price premiums (UK milk case) • Small premium added (5 pence per litre of milk), conversion of 10% of agricultural fields for conservation, coordination with environment NGO • Conservation trust (The National Trust) • Easement arrangement (US case) • Valuation of NCOs, legally binding • Landscape conservation (Austrian case) • Taxation on tourists

  16. FINDINGS FROM CASE STUDIES (NCOs) • NCOs traded and not traded • Exclusion mechanisms • Objectives for NCO conservation • Valuation and pricing of NCOs • Transaction mechanisms and transaction costs • Government interventions

  17. ASSESSMENT (NCOs) • Efficiency: NGAs generate efficient resource allocation (if free-riders are ignored ) • Equity: Higher income earners pay for NGAs, but anyone may benefit, i.e. equity is less of an issue. • Stability: Impossible to assess, but build-in various mechanisms to achieve stability.

  18. LIST OF CASE STUDIES (Negative Effects)

  19. FINDINGS FROM CASE STUDIES (NEs) • Direct transactions: private sector profitability, identification of stakeholders and property rights, involvement of researchers • Farmer-led voluntary approaches: bottom-up approaches, motivations to participate • Market-based approaches: environmental effectiveness, facilitation of trading, initial allocation of permits

  20. CONCLUSIONS (COMMON TO NCOs & NEs) • Every type has weaknesses and strengths • Various innovations in NGAs are found and mitigate weaknesses • A key role for government is clear identification of property rights • Proper institutions under well-defined property rights: - facilitate a change in resource use or restrict it, and achieve Pareto improvement - equip according financing mechanisms - are monitored

  21. THANK YOU…

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