Stimulating green production through the public procurement of final products – the case of organic food

This paper adds to the scarce literature on the empirical economic evaluation of the costs and the effect from stimulating environmentally friendly production by public procurement. Green public procurement (GPP) is increasingly promoted as a policy tool to increase environmentally friendly production by both the European Commission and individual EU member states. Action has not at least been called for to increase the area of organically farmed land through the consumption of organic food. This study evaluates with detailed data the budgetary costs and potential limitations associated with stimulating an input in primary production with the consumption of final goods. By decomposing food consumption into different food categories, we found that both the cost and the effect from GPP critically depends on which food items procurers choose to buy. Additionally, we found that the prospect of stimulating organically farmed land by GPP inversely depends on yield growth as less farmland is needed to produce organic food as yields per hectare increase. Finally, our study illustrates that the leakage of funds from public procurement to domestic organic farmers hampers the cost effectiveness of GPP.