PhD thesis: chapter summaries

e-mail: els.wynen@elspl.com.au website www.elspl.com.au

The following sections are summaries of some of the chapters of the thesis.

The complete thesis is available from the National Library of Australia (www.NLA.gov.au).

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In a survey with so few participants statistical inference is not easy to apply. Although statistically significant differences between the samples were not always established where they were expected, a picture can be formed of sustainable farming as practised at present by cereal/ livestock producers in south-eastern Australia.

The first conclusion is that the average net financial results of producers who farm without the use of synthetic fertilisers and pesticides can not be seen to be different from those obtained on comparable conventional farms in 1985-86.

The sustainable farms were in areas with similar climate and soil quality (as measured by improved capital value per hectare) to that of their conventional counterparts. The use of less fertilisers per cropped unit of land on sustainable farms is therefore not due to the intrinsic quality of the land, but to a conscious decision to adopt an approach to farming very different from the conventional production system. The fact that some farmers tending towards sustainable practices, especially those in relatively marginal cropping areas, were still using some synthetic fertilisers indicates that not all problems have been solved regarding soil fertility and alternatives to conventional inputs.

Several methods were used by sustainable farmers to prevent loss of soil fertility. First, the percentage of arable area cropped was kept down. On average the fs farmers cropped less than half of the arable area, while the cfs farmers cropped more than three quarters. All of the fs farmers cropped less than their conventional counterparts. This was not true for the ss producers, whose cropping percentages were, on average, much closer to those of their conventional counterparts.

Soil fertility was also maintained by the use of animals. However, no statistically significant differences in number of livestock were recorded between the two systems per hectare grazed.

A third possible method of maintaining soil fertility is by diversifying crops. Although no statistical differences in number of crops were recorded, the percentage of cropped area in wheat was lower on sustainable than on conventional farms.

Most of these management tools (levels of cropping and stocking, and diversification of cropping) can be used not only to solve soil fertility problems, but also in the battle against pests. With regard to mechanical pest management, differences in cultivation practices were not immediately obvious from figures on fuel costs per hectare cropped. Also timing of cultivation was similar in the two systems, although sustainable farmers tended more towards the use of tined implements.

The differences in management practices did not lead to significant differences in yields. However, the sustainable farmers did obtain lower receipts from cropping per hectare operated. This was due to a smaller cropped area as a percentage of arable area. These lower receipts are at least partly compensated for by lower input costs of fertilisers, pesticides, and especially machinery and equipment.

Receipts from livestock per hectare operated were similar under the two management systems, for those pairs of farmers where both kept stock. When all eight fs and cfs farmers are included a difference can be shown for this variable.

Overall, the total cash costs of sustainable farming were significantly lower than those of conventional farming. Total cash receipts, though not different between the two systems for the fs-cfs and ss-css farmers separately, was higher for the conventional farmers if all 13 farmers were pooled. The bottom line, return to capital and management adjusted for interest and rent, was that a difference between the two systems could not be shown statistically.

Apart from indications of differences between sustainable and conventional farmers, a picture of differences between the fs and ss group of farmers emerged. The css farmers, although selected in the same way as the cfs producers, showed some characteristics distinct from those encountered amongst the cfs farmers. On average, the pattern of inputs for the css farmers indicates that it is likely that they farm in more marginal areas than cfs producers (for example, relatively low land prices), where cropping is relatively extensive (for example, relatively low use per hectare cropped of pesticides, fuel, machinery and equipment, and labour).

The question could be asked whether there is a causal relationship between the degree of adoption of sustainable farming and the degree of marginality of the area. If a relationship could be established, the question arises whether the reasons for such a relationship are agronomic problems, or whether they are different in nature. For example, in marginal cropping areas the area in crop per farm is relatively large, with low returns per hectare. Although input costs per hectare are also low, total expenditure on inputs per average farm is relatively high. This could imply that higher risks are taken by sustainable farmers in marginal areas than by those in non-marginal area when adopting a management system about which little information is available. It is only when the cause of a relationship between the degree of acceptability of the sustainable system and the degree of the area's suitability for cropping is established, that a beginning can be made with answering the question about the limits of sustainable agriculture.

It is unlikely that differences between practitioners of the two systems in formal and informal education, experience, and knowledge of local conditions influenced the relative financial returns of the two types of farming. Likely differences in management skills between some pairs of farmers probably depressed average returns on sustainable farms. It is also likely that lack of information about sustainable farming negatively influenced the financial returns from this type of farm system.

In summary, the results from the survey indicate that net private financial benefits from sustainable farming were similar to those in the conventional sector in certain areas in 1985-86. This was the case despite lack of information about the sustainable management system, and despite the fact that some conventional farmers were likely to be better managers than their sustainable farmer counterparts.

Yield patterns before, during and after transition from conventional to sustainable agriculture are interesting as they are one of the determinants of long-term viability of sustainable agriculture. Yet, this is an area which is difficult to assess. Apart from yields of all farmers in the last few years, historical data were difficult to obtain. Data suitable for time trend and variability analysis were available from only five of the surveyed pairs of farms.

The question whether there has been a difference between yields under the two farming systems cannot be answered in the affirmative. Although most conventional farmers thought that yields under a sustainable agriculture system must be lower than those obtained under conventional management, analysis of the data available from this survey does not bear this out. Between 1978 and 1987, average yields on sustainable farms were found to be significantly lower than on conventional farms in only one out of nine years.

The transition period is often mentioned as the time in which yields are low relative to what they would have been if continued with the conventional system. However, most of the sustainable farmers (seven out of ten) did not report a decrease in yields at that time. Two of the five farms for which several years of yield data are available reported a decrease. The figures show that a decrease in that period on those farms is plausible.

Is a drop in yields on sustainable farms likely after a number of years when the effect of conventional farming wears off? There were no signs in the data to suggest that this might be the case.

Yield differences between the two systems relating to climate, an aspect which is of considerable importance under Australian conditions, was observed by many sustainable farmers, but not by most of their conventional counterparts. The scant data available provide some support for the case that yields on sustainable farms are high relative to yields on conventional farms in years of dry weather conditions.

With present policies, and assuming output prices as discussed, the most profitable management strategy for the sustainable farmer is to adopt the rotation with a relatively high cropping and stocking intensity. For the conventional farmer the low cropping and stocking intensity rotation is optimal.

Negative externalities from the use of synthetic fertilisers can be decreased by encouraging conventional farmers to use less fertilisers or to convert to sustainable farming. This can be achieved by taxing fertilisers used on conventional farms. However, these taxes need to be considerable. A price increase of 73 per cent (or $290 per tonne) causes a decrease of fertiliser use by 17 per cent and of returns by 12 per cent ($4,400).

Ten out of the 13 conventional farmers said they would practise sustainable agriculture if returns from the two farming systems were equal. Assuming they were farming sustainably, on average they would be willing to forego $4,600 to stay with the sustainable system. This amount is similar to the decrease in returns to farming if fertiliser prices were increased by 73 per cent. Since none of these farmers is practising sustainable agriculture, they must consider the difference in returns from these two system to be at least $4,600. An increase in tax on fertiliser by 73 per cent is therefore more likely to affect a change in fertiliser use than a change in farm management system.

Extensive discouragement of the use of pesticides is not likely to be achieved by taxing pesticides, at least not in this industry. Only heavy taxes effect a reduction in the use of pesticides: a price increase of 37 per cent decreases the use by 25 per cent, and a 4-fold increase lowers it by half.

Negative externalities from conventional farming increase if stock prices rise while wheat prices fall. In such a case conventional farmers move towards a higher cropping intensity rotation with an emphasis on stocking, using more fertilisers and pesticides.

In the range of wheat prices explored in this model, increases in the price of organic wheat affect the revenue of organic farmers, but not the choice of rotation or the fertiliser rate.

There are a number of refinements that could be made to the model. First, the model is essentially static, with the dynamics being limited to the various agronomic effects that are captured in the specifications of the rotations. A multiperiod model would allow a more accurate specification of some of the activities which take place on a farm, in particular investment activities. The rotations specified here are determined exogenously. It would be more satisfactory if they could be determined within the model (the solutions greatly depend upon the available rotations). Endogenising the sequence of activities over time would involve, however, a considerable increase in complexity. The model results are likely to be sensitive to the fertiliser and pesticide response function. Alternative functional forms may generate different results.

With potential private net benefits from sustainable cereal/livestock farming seemingly equal to those of conventional farming in parts of south-eastern Australia (Chapter 5), and the net external effects of moving towards sustainable agriculture likely to be positive (Chapter 4), such a movement might well increase social welfare. Does this mean that there is an economic case for government to encourage sustainable farming? If there is, what policies would be appropriate? Several policies for encouraging sustainable farming are considered below. The reality that government intervention may bring its own problems must be recognised. The general problem of inefficiencies arising from government intervention (see, for example, Wolf (1979)) is not considered further. The distortions involved in revenue (Findlay and Jones 1982) is discussed further later.

External environmental and health costs resulting from use of synthetic fertilisers and pesticides in agriculture are instances of non-point pollution; the contributions of individual farmers to those costs are unknown. This rules out the first-best policy of taxing polluting farmers according to the external damage they cause. The best feasible policy depends on the circumstances of the case, and may involve fiscal measures or regulation (e.g. Chisholm, 1987). Internalisation of externalities from synthetic fertilisers and pesticides requires, however, that use of these inputs be directly or indirectly taxed.While it is unclear which approach would be most effective for making farmers pay the social costs of synthetic fertilisers and pesticides use, it is clear that the longstanding Australian policy of subsidising the use of phosphatic and nitrogenous fertilisers, terminated in July 1988, was inconsistent with that objective. Sustainable farmers did not receive a subsidy for their alternative source of nutrients (for example rock phosphate). In this way sustainable farmers were disadvantaged compared to many conventional farmers.

The policy of subsidising use of fertilisers is widely acknowledged to cause inefficiencies in the use of inputs and in the mix of conventional agricultural outputs produced (see, for example, Rose et al. 1984). The disincentive provided to the development and use of alternative agricultural systems that economise on fertiliser inputs, including systems that dispense with them totally, is an additional source of inefficiency in fertiliser subsidy policies. It is unlikely that equal treatment of the two farming systems was a consideration in abolishing the subsidies. With governments in Australia showing increased interest in sustainable agriculture, it is important to recognise the discrimination against this system of any re-introduction of fertiliser subsidies in the future.

Although pesticides do not attract a subsidy, it is likely that not all the costs of this input are paid for by farmers (Chapter 2), and that society subsidises pesticide use indirectly by being subject to negative external effects. The result is a further distortion of resource use away from sustainable agriculture. No subsidy is provided, however, on the substantial costs incurred by sustainable farmers in finding out about, and in using, such means as crop rotations, choice of crop varieties and timing of planting for the purpose of controlling pests. Tariffs, which raise prices, apply to pesticides in Australia. They were decreased from 30 to 15 per cent (nominal rate) in 1987 (Department of Primary Industry 1987b). Although tariffs are not instituted to reflect the external costs of using an input (and are not first-best for that purpose), that objective can be achieved if the increase in price reflects the external cost. However, if the increase in input price is less than the external cost, conventional farmers still have an efficiency-reducing advantage over sustainable farmers.

In Sweden taxes are levied on the use of pesticides to make farmers take account of external costs of their use. It is not clear how the size of the tax is determined (Eitjes and De Haan 1987).

An additional advantage of taxing the use of synthetic fertilisers and pesticides should be mentioned. When taxes are introduced which internalise external diseconomies, revenue is raised without the deadweight costs that characterise taxes used primarily to raise revenue (for example, Findlay and Jones 1982). In fact, by generating government revenue, a tax which corrects an external diseconomy allows reductions in other distortion-creating taxes; this improves the prospect of a net efficiency gain from a tax on use of synthetic fertilisers and pesticides from agriculture.

In terms of the public interest or market failure justification for government intervention, a role can be seen for government in extension activities for sustainable farming. Efficiency may be increased by policies which reduce the substantial gap between the knowledge that exists on sustainable farming and the knowledge possessed by practitioners and potential practitioners of this form of agriculture. The possibility of achieving national benefits in excess of the costs from extension programs that improve know-how on sustainable farming is enhanced by the external benefits that exist in both production and consumption from a shift towards this type of agriculture. Establishing the precise form of extension program that would be most effective would require careful consideration. The case for a government role in improving information on sustainable farming would be weakened, but not necessarily removed, with internalisation of external diseconomies of synthetic fertilisers and pesticides use and of externalities in the pricing of health services.

The traditional case for public sector involvement in research rests mainly on the public good nature of findings and on other external economies arising from research. These considerations apply to research oriented to sustainable farming, as well as to that directed towards conventional agriculture and other areas.

There is, however, a basis in technical considerations for expecting sustainable agriculture to be under-researched relative to conventional agriculture. This is the seemingly greater relative importance of physical input-demanding practices in conventional farming as opposed to knowledge-demanding practices in sustainable agriculture (Section 3.5.4.3.1). At present, most Australian research is oriented to conventional farming, while little research is useful to sustainable farmers. An increase in research into sustainable agriculture could be expected if externalities in the use of synthetic fertilisers and pesticides were removed, thereby enhancing the relative profitability of sustainable agriculture. Similarly, an increase in the demand for 'healthy' food upon removal of the subsidy for health services would be expected to induce extra research into sustainable farming. If the externalities arising from use of synthetic fertilisers and pesticides in agriculture and from underpricing of health services are not removed, the economic case for intervention in research is strengthened. Such intervention might be directed to reducing externalities in conventional agriculture (for example, by the development of less harmful pesticides) as well as research into sustainable farming. Perhaps research into the transition process from conventional to sustainable farming merits high priority.

In summary, while a full discussion of research issues cannot be given here, it is suggested that research directed to sustainable agriculture is underfunded relative to research for conventional agriculture. Key reasons for this suggestion are the minimal allocation of resources to sustainable farming, together with the existence of uncorrected diseconomies in conventional agriculture and in health services, and the greater difficulty of exerting property rights over research useful to sustainable agriculture.

The health benefits from the consumption of food produced on sustainable farms are likely to arise not only from reduced synthetic fertilisers and pesticide residues, but also from improved nutritional quality (Chapter 3). Reducing the use of synthetic fertilisers and pesticides in agriculture, for example by taxing synthetic fertilisers and pesticides, can be expected to improve health in both ways. However, there may be an economic case for action to promote directly the consumption of healthy food - not confined to food from sustainable farms - and balanced diets. One case is provided by consumers' deficient information on the private benefits from eating good quality food and a balanced diet. The first-best policy for doing this is not a subsidy on 'healthy' food - which encourages extra consumption by people already eating a good diet as well as those eating poorly - but provision of information. This policy would be neutral between domestic and imported food. If the externality due to pricing of health services is not removed (its removal being a first-best policy) the prospect for increasing economic efficiency with an information program - or a subsidy on healthy food - is enhanced. No attempt is made here to assess the adequacy of existing consumer information programs.

Marketing arrangements for agricultural products can restrict the opportunities available to sustainable farmers. Would-be consumers of the organic product are also disadvantaged by being denied the product of their choice. In Australia, it is compulsory to market some produce via marketing boards (Chapter 7). These mostly do not differentiate between produce from sustainable and conventional agriculture. Abolishing such regulations should be considered.

Government regulations requiring the application of pesticides before interstate import hinder the marketing of sustainable produce. For example, fruit from Queensland and Northern New South Wales cannot be imported into other States without a certificate stating that it has been dipped or fumigated against the fruit fly. (Victoria is the only State where, at a cost, a 100 per cent physical sampling by the Department of Agriculture is allowed to substitute for treatment with synthetic pesticides.) Such goods might no longer be bought for the premium price they would otherwise command. Alternative solutions should be considered.

Because buyers cannot differentiate between sustainable and conventional produce, control of standards is needed in the production and distribution stages. Costs associated with such control can be considerable (see Wynen 1989c). As social benefits from consumption of healthy food exceed private benefits, there is a case for government to take responsibility for implementing these standards.

Conversion from conventional to sustainable farming can cause several problems (Chapter 6). Research into the transition phase would allow better-informed decisions on adoption of sustainable farming. However, there appears to be no reason for thinking that the private costs of establishing sustainable farming exceed the social costs. Hence, while the adjustment costs retard the establishment of sustainable farming, they do not provide a first-best case for government intervention. More efficient ways of promoting sustainable farming should be considered before second, third or n-th best policies of subsidising establishment costs.

In Denmark subsidies for adoption of organic agriculture were introduced in 1987 (Anon. 1987).

The net benefits from a movement towards sustainable farming include several categories of externalities, while the costs of such a move are mainly privately borne. The survey results indicate that private financial net benefits from sustainable cereal/livestock farming in a steady-state situation in parts of south-eastern Australia could be similar to those from conventional farming. There are costs of transferring to sustainable farming which reduce the likelihood that people farming conventionally will change over. Research could reduce those costs. Several policies for achieving an efficiency-increasing movement of resources to sustainable farming were considered. The most clearcut policy recommendations are the non-subsidisation of synthetic fertilisers, and the introduction of a tax on the use of this input and on pesticides to reflect the external costs they cause. These actions would promote efficiency-increasing cut-backs in the use of synthetic fertilisers and pesticides by farmers remaining in conventional agriculture, as well as removing efficiency-reducing barriers to adopting sustainable farming. The prospect of a net increase in efficiency from this policy is increased because it would allow reductions in other revenue-raising taxes which generate marginal social costs. There is reason to think that economic efficiency would be increased by the allocation of extra resources to research and extension activities helpful to sustainable farming. There is an economic case for government to take responsibility for implementing quality control measures for sustainable produce. Subsidising establishment costs of sustainable farming is considered least desirable.

A major point in this thesis is that, although productivity of some agricultural inputs (such as land and labour) has increased greatly in the past due to conventional agricultural methods, considerable problems (such as with pest resistance to pesticides, human health, and soil and water quality) are intrinsic in this management system. The problems are such that the question arises whether it is socially desirable to adopt an alternative form of agriculture in which these problems do not occur.

Enough sustainable producers exist for researchers in the western world to get a glimpse of what the alternative considered in this thesis, sustainable agriculture, offers. The knowledge gathered from these producers is in the area of biological possibilities, financial returns and non-financial rewards and costs, and problems with implementing or continuing with the sustainable management method.

The first indications (which became available more than a decade ago) are that sustainable agriculture is not nearly as financially disastrous at the farm level as what was often believed. This is true despite the fact that the costs of inputs in conventional farming are based on different premises than of those used in sustainable agriculture. A subsidy on synthetic fertilisers (only used by conventional farmers) in the past in Australia is the most obvious example of differential treatment of practitioners of the two systems. The absence of a tax on the use of pesticides, and the existance of government-funded research into issues of importance to conventional producers, are equally relevant in this connection. This compares with no subsidies for inputs important in sustainable agriculture (especially for research and extension). In addition, policies which keep price premiums for organic produce down prevent consumer preferences from being well reflected in the market signals observed by the (potential) sustainable farmer. Each of the above (direct or indirect subsidies for inputs used in conventional agriculture; artificially low prices for organic produce) has consequences for the rate of adoption of the sustainable farming system.

Although it is clear that considerable negative externalities attach to conventional farming, research into the extent has only been carried out by a few. This might be partly due to the fact that quantifying the external effects of conventional agriculture is fraught with difficulties, such as the effects on human health (both in physical and economic terms). Research in which the external costs and benefits of conventional farming are scrutinised as compared to an alternative should enable estimation of the desirability and possibly the degree of urgency of research into sustainable options.

If a rechannelling of resources into issues of relevance to sustainable farming is to be productive, a considerable change in attitude is required of people at all levels of information gathering and dispersion. As sustainable agriculture is based on the whole system, a systems approach to agriculture as distinct from the reductionist approach used in conventional agriculture, is essential. It is outside the scope of this section to delve into this area more than superficially, but it is clear from the little learned from sustainable farmers that biological processes happening on those farms cannot necessarily be explained by current (conventional) knowledge. In a systems approach it is recognised that variations in climate, soil type, slope and other local conditions can be important in the use of naturally available resources such as predators and soil organisms. A more open attitude than in the past towards, for example, possibilities of interaction of facets of agriculture (both biological and social-economic) could well lead to results difficult to understand with present technology and theories.

If the transition from conventional to sustainable agriculture is costly, or perceived to be so, farmers might not convert to sustainable farming even if in the long run sustainable agriculture is as financially rewarding for farmers as conventional agriculture. At present one of the problems is the lack of knowledge about the process of converting to sustainable farming. Research into this area is essential to reduce the uncertainty about conversion costs.

Very little research has been carried out into the marketing of organic produce. As a new infra-structure needs to be set up in order to guarantee consumers the characteristics for which they are willing to pay, costs for the marketing can be considerable. Research in this area to develop an efficient system seems essential.

In summary, the areas of most pressing need for further research are considered to be: externalities from conventional agriculture; biological and socio-economic issues; transition from conventional to sustainable agriculture; and marketing arrangements.