Economic and environmental performance of alternative policy measures to reduce nutrient surpluses in Finnish agriculture

Abstract

This paper provides an economic sector level analysis of the effectiveness of different policy measures in decreasing nitrogen (N) and phosphorus (P) surpluses from agriculture in order to reduce nutrient runoff from agricultural fields to watercourses and to improve water quality of surface waters. Assuming no changes in the EU level policies after CAP reform 2003 we focus on national level policy measures such as full or partial de-coupling of national support from production, payments for reduced nutrient surpluses of N and P, and N fertiliser tax.None of the analysed policy measures is superior one with respect to environmental performance, since full decoupling of national support would be the most effective in reducing P surpluses while payment for reduced nutrient surplus performed best with respect to N surpluses. Economic performance (farmers' compliance cost per %-reduction of N or P surplus) of full and partial de-coupling of national support is clearly better than that of specialised agri-environmental policy instruments, because both decoupling scenarios result in the increase of farmers' income in comparison to base scenario, and thus compliance costs are in fact negative in these two cases.Our analysis confirms the fact that the overall policy package matters a lot for the effectiveness of agrienvironmental policy measures. Environmental performance of agri-environmental policy measures may be significantly reduced, if they are implemented jointly with production coupled income support policies. Thus, in order to increase the effectiveness of agri-environmental policy measures agricultural income support policies should be decoupled from production and this alone would bring substantial reduction in nutrient surpluses.

Exploring the determinants for adopting water conservation measures. What is the tendency of landowners when the resource is already at risk?

“…For farmers who operate on farms that are plant production oriented, adoption was more likely but the parameter was only statistically significant in model 2. Although livestock farms are associated more with nutrient run off, income support through AES is more vital for plant production farms (Lehtonen et al, 2007) justifing their higher tendency to participate. The appraisal of information was found to be a significant and positive determinant of adoption, as expected.…”

“…Also, is a 1 Agri-environmental scheme (AES) in Finland is based on a three level system, i.e mandatory basic measures, additional measures and special measures (Lehtonen et al, 2007). Its main goal is to reduce nutrient runoff and maintain agricultural landscape as well as biodiversity.…”

Static yields and quality issues: Is the agri-environment program the primary driver?

“…Such changes in N use associated with yield declines correspond to 2.5 and 4.8 %, respectively (Ylätalo 1996). Lehtonen et al (2007) applied the same functions after calibrating them with more recent data and got similar results for all cereals. It was concluded that the major price changes experienced in Finland after 1995 resulted in no greater than 5 % total reduction in cereal yields, according to short-term, farmlevel profit-maximization variable costs and returns.…”

Effects of climate and historical adaptation measures on barley yield trends in Finland

“…In 1995, when Finland joined the European Union, crop prices decreased by 40 to 60% and fertiliser prices by approximately 10%, and a large scale Agri-Environment Programme (AEP) was launched. Lehtonen et al (2007), however, concluded that the major price changes experienced in Finland after 1995 resulted in total reductions in cereal yields of no more than 5%, due to the short-term farm-level profit maximisation based on variable costs and returns. The AEP provided a stable €93−120 per ha support payment, on the top of Common Agricultural Policy (CAP) Pillar 1 (€150-240 per ha, depending on region) and Least Favourable Area (LFA) payments (averaging €250 per ha), for those farmers who committed to comply with the N fertiliser limits and other conditions of the AEP.…”