Land sharing vs. land sparing for biodiversity: How agricultural markets make the difference

We analyze how intensive versus extensive farming systems affect land use, biodiversity, and welfare when these production systems are compared at market equilibrium rather than for a target production level. As long as demand reacts to prices and extensive farming has higher production costs, extensive farming tends to be more beneficial to biodiversity than intensive farming, except when there is a very high degree of convexity between biodiversity and yield. This beneficial effect holds in a large set of situations even if, in conformity with short-term estimates in the empirical literature, the price elasticity of demand for agricultural products is very low. Extensive farming’s potential benefits for biodiversity must be weighed against higher prices and smaller quantities for consumers, while its effect on agricultural producers is indeterminate. Extensive farming could additionally decrease the agricultural pressure on protected areas by reducing farmers’ incentives to infringe on them. A shift from intensive to extensive farming primarily reduces the agricultural outlet for animal feed, for which price elasticity is higher, while leaving the biofuel outlet almost unchanged due to mandatory blending policies. It has no straightforward effect on food security, as it increases food prices but provides better revenues for poor farmers and better ecosystem services for agriculture and for society.