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Business.2010 newsletter: Agribusiness

Volume 3, Issue 2 - February 2008: Agribusiness

When environmental practices rhyme with income

The astounding evolution of the carbon market into what has now become a multi-billion dollar planetary project is a sign of great hope for the promoters of payments for ecological goods and services (EGS). Compared to carbon, the application of economic tools to biodiversity remains, by and large, theoretical. Standard accounting systems fall short of reflecting the true value of biodiversity since the breakdown of biodiversity values is complex and does not necessarily pass through markets. Yet, biodiversity’s values are nevertheless very tangible for all of us; every day we rely on biodiversity for our very subsistence. Nowhere is this clearer than in the agricultural sector.

Healthy ecosystems are the foundation of agriculture and food production. Yet, the valuation of agricultural biodiversity remains — outside limited circles —unchartered territory. Beyond the impact on food supplies, agriculture is also the source of a wide variety of EGS, a reality which is not reflected in our economic system. This could be corrected by the recognition by policy-makers of the ‘multi-functionality’ of agriculture. We used this concept — which recognizes the multiple services offered by agriculture, among which the production of EGS is an integral part — in a recent analysis. This study, which we co-authored for Agriculture and Agri-food Canada on agricultural EGS defines the advantages society draws from the implementation of beneficial management practices (BMPs) at the farm level, including the instigation of riparian buffer zones and intercropping systems or simple hedgerows. This was an attempt to evaluate which type of policy is the most efficient in encouraging farmers to adopt a greater number of BMPs and expand the environmental advantages related to their activities, thus leading to the creation of desired EGS by the agricultural sector. Evidently, traditional financial incentives — linked to production levels of commodities or of revenues — fail to recognise other goods and services provided by agriculture for which no markets exist. The recognition of agriculture’s multifonctionality has the potential to include biodiversity indicators into a policy-maker’s decision matrix. Before setting up such procedures, however, we deemed it necessary to estimate the monetary value of agricultural EGS.

In our analysis, we evaluated a range of agricultural policies pertaining to EGS which indirectly generate co-benefits to biodiversity. Whilst the scope of the study did not allow us to value the benefits that relate to biodiversity, we were nonetheless able to identify the source of such co-benefits, including the creation of habitats for a large number of species. Since farmers cannot sell EGS they ‘produce’ through traditional markets, there is a rationale for compensating them for the provision of EGS enjoyed by society as a whole. Instead of using a traditional cost-benefit analysis, we preferred to base our recommendations on cost-efficiency. This is where I believe our approach is appealing. When used in conjunction with EGS economic assessments, cost-efficiency analysis is a concept that can help develop measures to ensure the conservation and sustainable use of biodiversity important to agriculture. The idea is to provide policy-makers with the proper implementation tools so as to develop voluntary programmes where farmers would be rewarded or ‘compensated’ for setting up and maintaining sustainable management practices favouring agricultural EGS implicitly beneficial to biodiversity.

The development of positive incentive measures could be of relevance to the forthcoming discussions on agricultural biodiversity under the Convention. In turn, it could be one step on the way to using economic instruments for the conservation of biodiversity in some of the world’s most prized ecosystems: humanity’s agricultural lands.

The story of the company I founded provides real hope for environmental conservation movements. In 2004, when I decided to leave the provincial government to create a consultancy firm specialized in environmental and natural resource economics, I could not imagine the demand would be so strong Moreover, this demand stems from a wide variety of stakeholders, including those in business, NGOs, government agencies and international organisations. The rapid growth in interest from all of these actors, especially from private enterprises, was a very welcome surprise! My own professional interest was to promote the practical application of economic tools and of market mechanisms to resolve some of the greatest challenges of our time, namely climate change and biodiversity loss. In our daily practice, we see such an application of these tools move from theory to practice.

Jean Nolet is Founding President, ÉcoRessources Consultants and Associate, International Institute for Sustainable Development (IISD).
(1) The concept came internationally to light after the 1992 United Nations Conference on Environment and Development.
(2) ÉcoRessources Consultants, forthcoming. Cost-efficiency analysis of possible environmental goods and services (EGS) policy options.
(3) ÉcoRessources Consultants is based in Quebec City, Canada and holds offices in Montreal, New-York City and Lima, Peru. The firm provides services in three main fields of expertise - all rooted in environmental and natural resource economics: climate change, energy and agrifoods / agribusiness.