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Evaluating greening farm policies: A structural model for assessing agri-environmental subsidies

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  • Laukkanen, Marita
  • Nauges, Céline

Abstract

One quarter of the agricultural area in the European Union is registered in agrienvironmental programs. Despite the prevalence of such programs and increasing demands for environmental quality in the European Union, ex-post assessments of program benefits are rare. This study uses a structural econometric model to evaluate the impacts of agri-environmental payments provided through the Finnish Agri-Environmental Program, whose primary goal is to reduce nutrient pollution from agricultural land. Drawing on a representative sample of individual grain farms, the research quantifies the effects of agri-environmental payments on farmers' decisions on the use of agri-chemical inputs and on the allocation of land to grain production and set-aside (fallow) over the period 1996–2005. The effects of program payments are ascertained based on exogenous variation in payment rates across regions and over time. We find that the agri-environmental payments have reduced fertilizer inputs but that this impact has been modest. In terms of land allocation, the impact has been counterproductive in that the payments have slightly increased the grain area and reduced set-aside. To quantify the impact of agri-environmental payments on nutrient loading – the environmental outcome of interest – we then combine the predicted land allocation and fertilizer use with environmental production functions. Overall, we estimate that the payments have reduced the damage costs associated with nutrient pollution from grain farming by 11 to 12 percent.

Suggested Citation

  • Laukkanen, Marita & Nauges, Céline, 2012. "Evaluating greening farm policies: A structural model for assessing agri-environmental subsidies," Working Papers 40, VATT Institute for Economic Research.
  • Handle: RePEc:fer:wpaper:40
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    Cited by:

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    2. Lankoski, Jussi, 2013. "Counterfactual approach for assessing agri-environmental policy: The case of the Finnish water protection policy," Review of Agricultural and Environmental Studies - Revue d'Etudes en Agriculture et Environnement (RAEStud), Institut National de la Recherche Agronomique (INRA), vol. 94(2).
    3. Rajapaksha P. D. Gunathilaka & James C. R. Smart & Christopher M. Fleming & Syezlin Hasan, 2018. "The impact of climate change on labour demand in the plantation sector: the case of tea production in Sri Lanka," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 62(3), pages 480-500, July.
    4. Hyunseok Kim & GianCarlo Moschini, 2018. "The Dynamics of Supply: U.S. Corn and Soybeans in the Biofuel Era," Center for Agricultural and Rural Development (CARD) Publications 18-wp579, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    5. Grenestam, Erik & Nordin, Martin, 2018. "Estimating the impact of agri-environmental payments on nutrient runoff using a unique combination of data," Land Use Policy, Elsevier, vol. 75(C), pages 388-398.
    6. Hongxing Liu & Wendong Zhang & Elena Irwin & Jeffrey Kast & Noel Aloysius & Jay Martin & Margaret Kalcic, 2020. "Best Management Practices and Nutrient Reduction: An Integrated Economic-Hydrologic Model of the Western Lake Erie Basin," Land Economics, University of Wisconsin Press, vol. 96(4), pages 510-530.
    7. Bertoni, Danilo & Curzi, Daniele & Aletti, Giacomo & Olper, Alessandro, 2020. "Estimating the effects of agri-environmental measures using difference-in-difference coarsened exact matching," Food Policy, Elsevier, vol. 90(C).
    8. B. James Deaton & Chad Lawley & Karthik Nadella, 2018. "Renters, landlords, and farmland stewardship," Agricultural Economics, International Association of Agricultural Economists, vol. 49(4), pages 521-531, July.
    9. AJ A. Bostian & Moriah B. Bostian & Marita Laukkanen & Antti Simola, 2020. "Assessing the productivity consequences of agri-environmental practices when adoption is endogenous," Journal of Productivity Analysis, Springer, vol. 53(2), pages 141-162, April.
    10. James Shortle, 2017. "Policy Nook: “Economic Incentives for Water Quality Protection”," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 3(02), pages 1-11, April.
    11. Kuokkanen, A. & Nurmi, A. & Mikkilä, M. & Kuisma, M. & Kahiluoto, H. & Linnanen, L., 2018. "Agency in regime destabilization through the selection environment: The Finnish food system’s sustainability transition," Research Policy, Elsevier, vol. 47(8), pages 1513-1522.
    12. Zhang, Wendong & Wilson, Robyn S. & Burnett, Elizabeth & Irwin, Elena G. & Martin, Jay F., 2016. "What motivates farmers to apply phosphorus at the “right†time? Survey evidence from the Western Lake Erie Basin," ISU General Staff Papers 201608040700001588, Iowa State University, Department of Economics.
    13. Bareille, François & Dupraz, Pierre, 2016. "Biodiversity productive effects in milk farms of western France: a multi-output primal system," 149th Seminar, October 27-28, 2016, Rennes, France 244774, European Association of Agricultural Economists.
    14. Bostian, AJ & Bostian, Moriah & Laukkanen, Marita & Simola, Antti Mikko, 2017. "Assessing The Impact Of Agri-Environmental Management Practices On Farm Productivity When Adoption Is Endogenous," 2017 International Congress, August 28-September 1, 2017, Parma, Italy 261154, European Association of Agricultural Economists.
    15. Jianhua Wang & Chenchen Yang & Wanglin Ma & Jianjun Tang, 2020. "Risk preference, trust, and willingness-to-accept subsidies for pro-environmental production: an investigation of hog farmers in China," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 22(3), pages 405-431, July.
    16. James Shortle & Richard D. Horan, 2017. "Nutrient Pollution: A Wicked Challenge for Economic Instruments," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 3(02), pages 1-39, April.

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    More about this item

    Keywords

    agri-environmental programs; payments for ecosystem services; farm subsidies; structural models; panel data; policy evaluation; nutrient pollution; cost-benefit analysis; Environment; Ympäristö; Labor market and policies promoting economic growth; Työmarkkinat ja kasvua tukeva politiikka; H230 - Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies; Q180 - Agricultural Policy; Food Policy; Q280 - Renewable Resources and Conservation: Government Policy; Q530 - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling; Q580 - Environmental Economics: Government Policy (Environmental Taxes; Tradable Permits; Command and Control; Regulation);
    All these keywords.

    JEL classification:

    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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