Payments for public goods: Rethinking what it is to be a good farmer
- Applied Institute for Research in Economics
Engagement in sustainable farm practices and policy initiatives is not solely based on a rational financial calculation of costs versus benefits. This makes the impact of any new policy interventions, such as shifting from direct payments towards payments for public goods hard to predict, as participation in ecosystem markets may not be in keeping with farmers’ own personal goals and values. A careful consideration of ways in which we can best encourage farmer engagement in any new policy initiatives (or the delivery of ecosystem services more generally) will, therefore, be an important step towards maximising the effectiveness of any changes in policy.
A more detailed version of this blog has previously been published in the form of a policy brief on the N8 Food Systems Policy Hub available here.
On average, farmers make more money from EU subsidies (around £3.5 billion annually) under the Common Agricultural Policy (CAP) than they do from farming. Thus, the decision to withdraw from the EU leaves farmers in a precarious financial situation. This decision also has the potential for serious environmental consequences, given the important role that farmers play in environmental issues ranging from water quality and biodiversity conservation to climate change. While the government has promised to maintain existing levels of support until 2022, they are looking to develop a new suite of agricultural support policies to replace the CAP.
What will these new policies look like?
The majority of existing payments from the EU to farmers, while subject to some environmental and other obligations (termed as cross compliance), are direct (coupled) payments simply based on how much land is farmed. As evident by England’s Agricultural Bill 2019-2021, post-Brexit agricultural policies across the UK are moving to varying extents towards decoupled payments, which means that payments may no longer be tied to how much land is farmed or historical production levels (the basis of current CAP payments), rather farmers will be paid to produce public goods such as environmental improvements. This approach has been broadly welcomed on all sides as it recognises the importance of farming not just for the production of food, but also for environmental issues.
Payments for public goods
While the level of financial support made available in any new environmental initiatives will be key, there may be a number of sociocultural and psychological factors to overcome if any new policy initiatives are to be successful in engaging large numbers of farmers. One such factor highlighted in some of our previous research relates to a productivist mindset. Farmers often strive to maximise output to the best of their ability even if is financially optimal to do otherwise. Such behaviour is in keeping with their own identity and conceptualisation of what it is to be a good farmer. Recognising this, we suggest that the success of new policy initiatives will be enhanced by framing the provision of ecosystem services in production terms.
Another related consideration is that for many farmers, the production of food is not just a way to make money, but a vocation that is valued in itself. In essence, as we have illustrated in previous work, while profitability is clearly important, farmers often trade off income to engage in farm work that may be more rewarding when one considers both non-pecuniary as well as pecuniary benefits. It is an open question, at least in the short to medium term, as to whether farmers on the whole will derive the same intrinsic value from producing environmental public goods and services as they do from producing food. This is not to say that farmers don’t care greatly about environmental issues. Our own research suggests the opposite, but at the same time farmers make on-farm decisions based on a consideration of a multitude of factors. This makes policy intervention quite difficult to predict as participation in ‘ecosystem’ as opposed to more traditional markets may not just depend on the financial support available, but also to what extent the required behaviours are in keeping with farmers own personal goals and values.
A further often overlooked consideration is that paying farmers for environmental protection may crowd out (at least to some degree) intrinsic motivations for doing those same activities. Such motivational crowding out has been shown to occur across a number settings. Perhaps the best known example is in the area of blood donations where it has been observed that paying people has often been found to lead to a reduction in volunteers. Such ‘backfire’ is very unlikely to occur in a farming context, but at the same time, formalising the exchange between money and environmentally beneficial farm practices may make it less likely that some behaviours will be undertaken on a voluntary basis in future.
How can we increase engagement with environmental initiatives?
In research undertaken as part of the Global Food Security's “Resilience of the UK Food System Programme” (Iknowfood), my colleague Neel Ocean and I sought to test the effectiveness of various nudges (non-monetary interventions) for encouraging pro-environmental behaviours. The use of nudges has come to the fore in the UK through the Behavioural Insights Team often referred to informally as the ‘Nudge Unit’. This team has successfully used Nudge techniques to change people’s behaviour in a variety of areas such as the payment of income taxes on time and the decision to invest in retirement saving schemes.
In the spirit of these nudge interventions, one intervention we identified, in partnership with Championing the Farmed Environment, with significant potential is simply providing farmers with an opportunity to demonstrate their ‘green credentials’ to the wider public. The basic idea here is that the very many good things that farmers do for the environment are often hidden from public view and simply providing farmers with an opportunity to demonstrate their ‘green credentials’ publicly (e.g. publicity on a website or a non-monetary reward scheme) can significantly boost conservation efforts.
An additional nudge type intervention we found to be effective related to the use of message framing designed to encourage a desire to fit in (social norms). Many farmers engage in a host of informal environmental practices without any policy support and merely providing this information to other farmers in an accessible manner can encourage others to engage in conservation practices through norm conformity. Paradoxically and perhaps even humorously, people (including ourselves) tend to underestimate the influence of such nudges on their own behaviour.
Doing more with less: Reframing policy
A further related question we asked in our research is: whether we could improve engagement with agri-environmental policy initiatives without necessarily increasing the level of financial compensation? Our research suggests that we can. One illustration is through the use of labelling. Perhaps the most well-known example of the power of labelling in the UK is the winter fuel payment. Despite the freedom of recipients to spend this support payment as they wished, recipients typically spent a much larger proportion of it on fuel than what would have occurred if the support payment was left unlabelled. In a similar vein, our research illustrates that carefully crafting labels when it comes to any support payments for farmers (perhaps different labels across areas) may help to promote pro-environmental behaviours.
As an example, we find attaching an ‘environmental protection’ as opposed to ‘agricultural payment’ label to a support payment can nudge farmers towards spending additional resources on environmental initiatives even when there are no restrictions attached to the support payment. What this means in essence is that a simple and cost-effective ‘nudge’ to promote more sustainable or environmentally beneficial behaviours would be to name any support payment to include a label that promotes the kinds of behaviour (e.g. water conservation, carbon sequestration) that has the most environmental benefit in a particular area.
Our research also highlights the importance of streamlining and simplifying the application process when it comes to encouraging farmer engagement in any new policy initiatives. Over and above reducing the administrative burden, we find that as a result of loss aversion integrating the application costs into the subsidy (i.e. taking it at source) rather than something that farmers have to pay separately to access, such as a payment to an agricultural advisor, would substantially increase the attractiveness of any policy initiative.
This idea is best demonstrated with an example: while both the following options lead to the same net financial position, the net utility or psychological value from receiving A) a subsidy of £10,000 directly is significantly greater (and thus looks more attractive) than B) if farmers were first presented with a subsidy of £11,000 along with having to make a subsequent payment of £1,000. This finding reflects a commonly observed phenomenon in the behavioural science literature, namely that losses loom (hurt us more) than equivalently sized gains (by a factor of 2-3 to 1).
Looking forward, the upside (if it can be characterised as such) associated with withdrawal from the EU is that in a post-Brexit agricultural landscape, there will be an opportunity to redesign any new environmental policy initiatives in order to maximise the potential for engagement and overall effectiveness. Taking advantage of some of the proposals here at the design stage we hope may help strengthen conservation efforts by encouraging engagement by farmers with any new initiatives.
The IKnow Food project is funded by Global Food Security’s ‘Resilience of the UK Food System in a Global Context’ programme with support from BBSRC, ESRC, NERC and Scottish Government. Find out more at https://iknowfood.org/
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