Course:ECON371/UBCO2009WT1/GROUP4/Article5
Group 4 - The Environmental Impacts of Agriculture in British Columbia
Article:[1]
Fraser Institute Says Scrap the ALR (October 20, 2009)
Summary:
The Fraser Institute, a right wing think tank, recently produced a report arguing that BC's Agriculture Land Reserve (ALR) is a contributor to BC's high real estate prices. They also stated that the benefits of local food production are highly exaggerated. Many have disregarded the claims made by the Fraser Institute as ideological and indicated that their supporting evidence is flawed. The Fraser Institute, is a major defendant of the free-market and is generally adverse to government intervention.
The ALR was established by the British Columbia New Democratic Party government of David Barrett in 1973, and has been controversial since its inception. An interesting fact is that the the Fraser Institute was created to oppose the Premier David Barrett's government[2].
The purpose of the ALR is to protect valuable agricultural land in BC, which is among the most fertile soil in the country. However, despite having been in existence for over 30 years, the ALR struggles to protect land threatened by urbanization.
Many fruit growers and agricultural groups support the Agriculture Land Reserve and dismiss the Fraser Institute's report. The proponents of the ALR stress the importance of protecting the small amount of arable land in BC. They make the point that such fertile land is much scarcer than residential land. It is also argued that the benefits from local food production greatly outweigh the costs of higher housing prices. Those that advocate for it also admit it that the ALR system does have its flaws. Regardless, they stress that its deficiencies are no reason to discard it completely. They emphasize that it is important that the policy is kept, though hopefully improved.
Analysis:
Social Benefits:
The Agricultural Land Reserve (ALR) is a provincial zone in which agriculture is recognized as a priority use. Farming is encouraged and non-agricultural uses are controlled. The ALR comprises those lands within BC that have the potential for agricultural production. The ALR takes precedence over, but does not replace other legislation and bylaws that may apply to the land. Local and regional governments, as well as other provincial agencies, are expected to plan in accordance with the provincial policy of preserving agricultural land. The mission of ALR is preserve agricultural land and encourages and enables farm businesses throughout BC. Also the ALR system fosters economic, environmental and social sustainability. In addition to protecting arable land, the ALR ultimately prevents the demise of the agricultural sector in B.C. It is an extension of the government's right to zone land for various uses. Without the ALR, developers would buy up fertile land near strong housing markets and the province would lose much of its agricultural output capacity. Defenders of the ALR have been distressed in recent years at what they see as the weakening of the policy, by the designation of golf courses as "agricultural land" and the removal of ALR-protected lands for residential, commercial, and industrial development [3]. The social benefits that the ALR provides by protecting farmland can be quite substantial. The agricultural sector in B.C. provides employment for many farm workers and workers in related industries (butchers, winery workers, etc.), enables consumers to buy locally grown produce, and reduces food transportation costs. Farmland may also provide additional social benefits to the residents of British Columbia that can be seen in their willingness to pay (WTP) to protect the farmland landscape. Their WTP can be given a value by using hedonic estimation and observing the influence of aesthetic farmland scenery on house prices, through contingent valuation surveys, and by observing the surrogate market and the differences in prices paid for locally and non-locally grown produce. By summing the WTP of consumers as well as taking the employment factors and lowered costs into account, a fairly good approximation can be made of the social benefits from the ALR.
Social Costs:
There are also some fairly significant social costs that can be attributed to the ALR. Critics of ALR policy, such as the Fraser Institute, claim that ALR restrictions create negative pecuniary externalities that have caused land prices — especially in British Columbia's rapidly growing Lower Mainland region — to artificially inflate (the region is hemmed in by the ocean, mountains, and the US border, limiting available land supply). The claim is also made that owners of land in the ALR are not sufficiently compensated for their property, and that the ALR constitutes unreasonable interference in private property rights. Owners of farmland would likely be able to sell or lease their land to developers for a much higher price than they would be able to do so with other farmers. Critics also maintain that in densely populated areas, agricultural land exists mainly as tiny several-acre plots that barely meet the minimum lot size for ALR regulations, destroying the economies of scale of large scale farming. In addition to these inefficiencies, the agricultural sector is a considerable pollution source. Farms often have high levels of water consumption, methane emissions, fertilizer run-off and contribute to soil erosion and habitat destruction. However, these environmental effects must be compared with the environmental effects of residential areas, which are also important sources of pollution. Therefore, it is unclear if the agriculturally zoned land usage would have a larger environmental impact than residentially zoned land usage.
Government Policy:
The government must view the ALR as having net benefits to society as it is protecting the arable farmland instead of letting market forces dictate the outcome.
The Fraser Institute argues that the ALR effectively increases the demand on a limited supply of available land for development - causing an increase in price. Although the outcome of the ALR is an increase in property prices, the Fraser Institute has mis-represented the mechanism by which this occurs - not taking into account the positive externalities generated through implementing the ALR policy.
The ALR policy can be thought of as a positive externality - by protecting the land from general development it increases the demand for available land and also provides unintended benefits to local residents who value the farmland for its aesthetic properties.
Preserving arable land for the production of local and exported food stuffs continues to provide communitites with increased employment opportunities - bringing external money into a region through the sale of food. Furthermore, the ALR although limiting the land available for development has been exercised in the public's interst - supporting a trade-off ensuring that locally grown food is supported through the regulation of land use causing a reduction in supply of land and therefore increasing the price.
Prof's Comments
An important issue is the opportunity cost of the ALR. You get at much of that in your listing of the costs and benefits. Another issue is the distribution of those costs and benefits. It is a transfer from farmers to non-farmers, as without the ALR local government would have to purchase land to provide parks and open space. With the ALR, farmers provide it. It is also a transfer from immigrants to existing property owners, as the price of residential properties increases faster than it otherwise would. With respect to the graph, I think that there is both a positive externality conferred by the ALR, as well as a restriction in the supply of land. The supply restriction is an upward curving or inward shift of the supply curve.