a b s t r a c tEvidence is emerging from across Europe that contemporary agri-environmental schemes are having only limited, if any, influence on farmers' long-term attitudes towards the environment. In this theoretical paper we argue that these approaches are not 'culturally sustainable', i.e. the actions are not becoming embedded within farming cultures as part of conventional 'good farming' practice. We propose (following Bourdieu) that, in order to culturally embed the environmental values, beliefs and knowledges that underlie such schemes, policy-makers need to devise approaches that allow the creation of cultural and social capital within farming communities e rather than simply compensating for economic capital lost. We outline the theoretical basis of our position and discuss how the contemporary agri-environmental approach of paying for specified environmental management services restricts the ability of such schemes to generate cultural and, thereby, social capital. Finally, we outline two possible ways of accounting for cultural capital in scheme creation: either through the development of measures of cultural capital that enable its incorporation into contemporary economic models or through a major revision to the way we construct and apply agri-environmental schemes.

We employ an integrated spatial economic model to assess the net private and public benefits of converting marginal agricultural land into forest plantations (afforestation) in New Zealand. For numerous locations, we conduct policy analysis considering the magnitudes of net private and public benefits of land-use changes to determine whether a policy response is justified and, if so, to identify the appropriate policy instruments to encourage adoption of afforestation. Net private benefit is commonly negative, so much so, that in most cases no policy response is justified. However, in certain cases, net private benefits are slightly negative and public benefits are significantly positive justifying the use of positive incentives as the most appropriate policy instrument to encourage afforestation in New Zealand. The most commonly used policy instruments for afforestation in New Zealand, extension and awareness training, are found to be appropriate in only a minority of situations.

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