Course:ECON371/UBCO2009WT1/GROUP4/Article2
Group 4 - The Environmental Impacts of Agriculture in British Columbia
Article: [1]
Support Our Local Farmers (September 26, 2009)
Summary:
Agriculture in the Okanagan is a significant economic driver - generating both direct benefits by way of producing fruit (q) and selling it on the open market (p) and indirect benefits. Indirect benefits may include an associated increase in price of properties that are surrounded by orchards because of their aesthetics, reduced noise and air pollution (for the most part) and proximity to locally grown food.
The author suggests that the fruit industry in the North Okanagan contributes $200M in revenue and $900M in economic activity. Further economic advantages are realized by the region because other economic sectors including tourism benefit from local agriculture - in part because of the associated aesthetic and attractive sense of place and in part because the products themselves (apples) and agricultural value-added products (apple cider for example) are significant draws for tourists to sample and enjoy during their visit.
For local residents, the ability to purchase fruit imported into the region for less than local products is a source of complaint by some. Fruit production in the Okanagan has many input costs associated with its production including cost of land, water and taxes. High land prices and a tax structure that supports social programs such as health care and public education coupled with the relatively high cost of employment result in a higher cost of producing locally grown food than other regions (South America for example) where the marginal costs for growing fruit are significantly less.
On the other hand, the increasing popularity of community farmer markets indicates that the local residents do value locally grown foods – even if they cost more. In part this trend may be due to increased disposable income from new residents retiring to the Okanagan. The Okanagan has seen one of the fastest growth rates in Canada over the past 35 years – a trend that is anticipated to increase as the demographic bulge has more retirees looking for quiet havens dominated by agriculture landscape, fresh local food, and a four season playground.
Analysis:
Okanagan Productivity Possibility Frontier
One trade-off experienced in the Okanagan is the replacement of agricultural land by residential development. Sandra Postel appropriately commented during her visit to the Okanagan last year, “When I flew into the Kelowna airport, from the air you look like you are growing houses here instead of food.” The demand for land to build homes provides more value than a farmer can realize by farming the same property.
The reduction of agriculture (and green space) in the Okanagan reduces our environmental quality. Community index curves, indicating the choice of the mix of goods and environmental quality of the region, may provide a tool to identify how much agriculture land residents are willing to loose before the very qualities that attracted them to the region are destroyed – an example of tragedy of the commons.
The Social Benefits of Agriculture/WTP:
As the article’s author points out, various social benefits can arise from local farm production. By employing thousands of people and providing delicious fruit to residents, the local farming industry might be worth protecting. It may help lower the unemployment rate in the area without any social opportunity costs if the workers hired would otherwise be unemployed. It also normally takes one or two days to transport fruits and vegetables from larger farms in Canada or the United States to a local supermarket at a substantial cost, however, these transportation costs and the transportation time can be substantially reduced when local farms are involved. The picturesque orchards and crops often serve as public goods to many tourists and residents by providing them with the enjoyment of the scenery and landscape. These beautiful views may increase property values in the surrounding areas and increase the benefit to those residents. Hedonic estimation could be used to reveal the full value of these benefits and estimate the residents' willingness to pay (WTP) for the aesthetic surroundings (See Figure 1). This would be obtained by comparing property values in the region and isolating the scenic qualities of the orchards and farmland. The local produce market is essentially a surrogate market, wherein many local residents often pay more to purchase locally grown fruits and vegetables than they would pay to purchase fruits and vegetables grown elsewhere. This serves as an estimate of how much people value the local goods in contrast to other non-local goods. For these reasons, local residents would likely be willing to pay to protect local farmland and orchards (WTP) or would require a payment to give up some local farmland and orchards (WTA). A contingent valuation questionnaire could be used to get people to show their willingness to pay to keep a healthy local farming industry. By using hedonic estimation, analyzing the surrogate market values and using the contingent valuation method, a fairly accurate assessment of the benefits to society from the local farming industry can be obtained. However, this ignores the fact that local farm production also exerts some implicit and explicit costs on society that would reduce the net social benefits.
The Social Costs of Agriculture:
Local farm production is not costless to areas surrounding the industry. There are many environmental costs that need to be taken into consideration. Various negative externalities can include water pollution from fertilizer and pesticide runoff, soil erosion, high water consumption, habitat destruction, and methane emissions from livestock. To reduce the damages (MD) that agriculture has on the local region, farms in the area must spend money to limit their environmental impact (MAC) and thus lower their marginal environmental damages. Local governments must try to estimate the social benefits and costs accurately in order to promote the socially efficient equilibrium. Government officials can force local farms to reduce emissions and environmental damages by passing laws restricting water use, pesticide use, or emissions or by demanding that the industry adopt cleaner technology. There may be certain undesirable costs if these occur though, such as farms reducing output and laying off workers. Society as a whole would have to face these adjustment costs as a result. If the government feels that there should be a larger output from the local farming industry, they can promote the region and more readily allow land to be zoned for agricultural use. The costs and benefits must be carefully estimated and weighed in order to find the social equilibrium that maximizes the net benefit to society. In the Okanagan, many people (including the author of the article) feel that the social benefits currently exceed the social costs of local agricultural production.
Government Policy:
The aim of government policy is to use to maximize social benefit. In the current market the social benefit, as indicated by the article, is not maximized. Consumers recognize the higher relative cost of local fruit and do not recognize its benefits, therefore making it an inferior good to imported fruit. Although the total cost of the local fruit includes not only increased relative price but increased local environmental damage and natural resource consumption, there are numerous benefits to its consumption. The benefits of local fruit consumption include; reduced global environmental damage due to decreased transport; increased economic sustainability of local orchards; increased tourism; improved quality of fruit; and increased local economic productivity.
If the total benefit of local fruit is greater than the total cost, then it is realistic for the government to intervene in the market and adjust the price to favour the consumption of local fruit. In practice, a subsidy for consumers could be implemented, but a producer subsidy that could reduce the cost of their product as well as aid them in managing the environmental impact of production would be preferable. It should be noted that the net cost of any subsidy should affect the decision of how much to subsidize (as it is a social cost).
Prof's Comments
Good overview of the costs and benefits of local agriculture. I'm generally suspicious of the large economic impacts stated, as much of this is in secondary markets, where were it not for agriculture, those resources would still be employed somewhere doing something. Likewise for employment. Agriculture is a very important part of the history of the valley, enabling it to be settled by immigrants from outside North America. However, today I think that if agriculture were to vanish from the valley, the employment impact would be minimal. However, as you rightly point out, there are many other values that are pretty significant provided by agriculture. If the agricultural element of the Okanagan landscape is worth $50 per year to the average Okanagan resident - which is only $1000 in present value terms if the discount rate is 5% - then agriculture contributes more than $300,000,000 worth of value to the valley before selling a single apple.