Agricultural
landscapes (summary)
Table of Contents
1.1 Issue definition
1.2 Working group objective
1.3 Working group methodology
1.4 Research summary
1.4.1 Environmental farm plans (EFP)
1.4.2 Municipal property tax credit (MPTC)
for on-farm conservation areas
1.4.3 Conservation cover program (CCP)
Table 1 - Estimates of external benefits of a
conservation cover program in the Upper Assiniboine River Basin
in eastern Saskatchewan and western Manitoba
1.4.4 Challenges and opportunities-The way
forward
1.1 Issue definition
Within agricultural landscapes, EFR might be applied
to provide better incentives for ecologically sound land management
and pollution control. The desired long-term outcome is to enhance
the ecological integrity of agricultural landscapes-where healthy
water, healthy soil, and biodiversity are maintained. This outcome
requires the cooperation of private landowners.
Background
Papers
More Reading on the Agricultural Landscapes Case Study |
These NRTEE background papers are available:
- Ecological Fiscal Reform and Agricultural
Landscapes
- Environmental Farm Plans and Ecological Fiscal
Reform
- Property Tax Credits for Conservation
- Conservation Cover Incentive Program Case
Studies
[For more information on these background papers please
contact the NRTEE Secretariat at admin@nrtee-trnee.ca
or (613) 992-7189 ]
|
Incentives may be required, since private owners cannot
be expected to pay the full cost of creating and maintaining social
goods such as ecological services. However, farming practices must
also be carried out in a sustainable fashion, requiring private
investments and changes in operating procedures that are worked
into the costs of production. Designing the right package of incentives
is the challenge. Actual experience is quite varied, as demonstrated
by cases in the United States, Europe, New Zealand, and in various
farming regions of Canada. And the realities are complex. Political
and administrative philosophies can dictate choices of instruments.
There are many types of agricultural landscapes, many different
aspirations on the part of farmers, and a wide variety of ecological
needs. And, importantly, many options are available.
1.2 Working group
objective
The objective of the Agricultural Landscapes Working
Group's activities was to:
Determine the feasibility of redirecting governmental
(federal, provincial, and municipal) taxation and expenditure programs
affecting farmers across Canada to meet conservation needs and pollution
reduction from farmlands.
1.3 Working group
methodology
The case study followed three lines of inquiry:
- examination of existing efforts within North America,
Europe, and other areas such as New Zealand, with some points
summarized in the present report;
- identification of analytical needs, including economic
analysis and modelling reviews and other studies required to make
the case for EFR in terms that are relevant to decision makers
at the federal and other levels of government; and
- examination of three approaches in detail, drawing
on Canadian initiatives and data. These three cases are summarized
here, with the full studies available as annexes.
These three approaches for applying elements of EFR
for conservation within agricultural regions show that a suite of
instruments will most likely be drawn upon to achieve the desired
outcomes. The first two examples, development of environmental farm
plans (EFP) and municipal property tax credits (MPTC) for conservation
lands, draw upon existing initiatives that were started recently
as regional pilot programs but have potential for national application.
The third is an economic analysis that could be used for the design
of a variety of conservation cover programs (CCP). This example,
for the first time in Canada, rigorously investigates the net social
benefits of expanding the extent of conservation cover based on
watershed-level information.
The EFP case is an example of an expenditure program
designed for awareness raising and education at the level of individual
farmers and groups of producers. It aims for behavioural change
with respect to ecological health and protection at the farm level.
The MPTC example is a tax credit for on-farm conservation activities.
The CCP example could serve as the analytical basis for designing
support/subsidies for conservation and environmental inputs and
conservation cover programs. Conservation cover programs can include
protection of riparian areas, wetland protection/restoration, and
the transfer of cultivated lands with high ecological value to vegetative
cover that is not used for agriculture (also called "set-asides"),
as well as more generic initiatives for reducing annual cropping.
1.4 Research summary
1.4.1 Environmental
farm plans (EFP)
Starting in the early 1990s, farm organizations and
governments began devising new methods of helping farmers become
more aware of their impact on the environment. The most comprehensively
developed EFP programs are in Ontario and Quebec. Each model is
quite distinctive, revolving around environmental farm plan workbooks
and peer review processes in Ontario, and agri-environmental advisory
clubs in Quebec. Currently, there are seven versions of EFPs in
Canada, along with several new ones in the making. EFPs build on
voluntary action and link education and action of value to health,
safety, and environmental concerns both on and off the farm. Environmental
farm planning helps identify the environmental risks, liabilities,
strengths, and assets affecting a farmer's operations, as well as
on- and off-farm environmental conditions. From this analysis, farmers
can flag areas of concern and identify opportunities for improvement.
Environmental farm planning also makes farmers more aware about
regulations that may apply to their farm.
The Quebec and Ontario programs use incentives quite
differently. The private benefits of program content of both are
delivered through participation, and a cash transfer or fee. In
Ontario, there is a cash transfer of $1,500 to participants. The
transfer is paid out to farmers, after initiation of their farm
plans, to help cover costs of implementation. Quebec's farm "clubs"
charge members a $500 annual fee in exchange for information and
individual assistance (25 hours) that has a market value far in
excess of $500. The difference in cash incentives (a $1,500 payment
versus a $500 fee) may reflect the difference in the valuation of
the private benefits provided by the program. Ontario producers
face no regulatory requirement to produce an EFP or comply with
specific environmental management requirements. As a result, the
private benefits of the program accrue from the value of the information
provided in reducing costs of production and in community relations.
In Quebec, as noted, farmers receive technical assistance.
This may be of particular benefit to cattle growers, who face regulations
for manure management.
A number of factors influence program uptake. The
most important include:
- that it is a producer-driven, voluntary initiative;
- confidentiality to ensure farmers feel that
they will not be put at a competitive disadvantage with other
farmers or exposed to government fines or other regulatory action;
- incentives sufficient to secure farmer interest;
- recognition of due diligence that might aid in
future loan acquisitions;
- recognition that profitability may be enhanced
through actual on-farm environmental improvements;
- recognition of potential for improved market
access/branding through adoption of environmentally safe practices;
and
- educational benefits through access to information
regarding new and innovative farm technologies and practices.
An EFP is a way to address environmental awareness
raising and capacity building within the farm community. But it
has potential to go beyond these important needs. Unfortunately,
a key gap in these programs is the lack of systematic monitoring
of environmental impacts. For example, is water quality actually
improved? A University of Guelph farmer survey found risks to the
health of the farm family, risks to soil health, and risks to water
health as the main environmental issues addressed by farmers (in
that order). The $1,500 incentive produced a very substantial private
investment.
Environmental farm plans can be unique to each type
of farm operation and the distinct geography of farms across Canada.
There is considerable latitude in design. They can be tied to other
incentive approaches such as awards and peer interaction. And they
may backstop other incentive-based or regulatory programs. Support
seems to be strongest for voluntary programs that are driven by
farmer organizations and provincial considerations. While the greatest
interest has been in central and eastern Canada, there is potential
for a national program that takes into account these points. In
June 2001, Canada's agriculture ministers agreed to work toward
a comprehensive plan for accelerated environmental action, fully
covering all Canadian farms. This decision provides a significant
opportunity for EFPs nationally.
1.4.2 Municipal
property tax credit (MPTC) for on-farm conservation areas
A municipal property tax credit can encourage various
conservation land uses. A variety of examples exist, especially
in the U.S. For this case study, a pilot project in Manitoba was
examined. The incentive effects of property taxes depend on whether
mill rates vary by land use characteristics, on whether property
owners know how the rates vary, and on any other specific features
of the property tax system. If the assessed value assumes the land
is being used for production and the tax rate is uniform across
all types of land use, there is a clear incentive to use the land
for agricultural products (i.e., crops and livestock production).
Any unused land-that set aside for conservation assuming a strict
conservation interpretation of no agricultural use-will generate
no revenue for the farmer but will incur the property tax. A profit-maximizing/cost-minimizing
farmer will then set aside land for conservation only if development
for agriculture generates net private losses.
If a rural municipality (RM) offers a tax credit,
resulting in a reduction in property taxes for each acre/hectare
of land set aside for conservation, the incentive is now much stronger
to set aside land of low market value. The tax credit is a negative
tax and as such provides a reward to the landowner for conservation.
The incentive will be strongest for lands that have the lowest opportunity
cost-those with the lowest value in production.
A three-year pilot study covering two rural municipalities
in Manitoba provided a $1 per acre municipal tax credit for landowners
who adopt specified environmentally sustainable land use practices.
Funding for the project comes from Ducks Unlimited Canada, the Prairie
Farm Rehabilitation Administration, and the Northwest Soil Management
Association. The two municipalities provide support in-kind. Participation
is voluntary. Land is eligible for the tax credit if it is used
for conservation initiatives that include tame forage, native grassland,
wetlands, riparian buffer zones (trees or grass within 100 metres
of a waterway), and annual cropland with a minimum of 40% straw
cover.
The size of the tax credit was based on two factors:
$1 per acre represented the average property tax paid in Manitoba
for wetlands and bush, and it was felt that any smaller amount would
not provide a strong enough incentive for farmers to sign up for
the program. The tax credit is clearly not sufficient to compensate
owners for the total ecological services provided by their land,
but it provides a small amount of compensation for allowing society
to benefit from conservation. The sponsors of the program also emphasize
its educational value-illustrating to farmers the need for conservation
practices on their lands and that society does value them.
Landowners must apply for the tax credit each spring,
specifying the lands that they consider eligible. RM staff help
landowners prepare their applications. Satellite imaging confirms
land uses in the appropriate conservation category for each applicant.
Ground inspection for a small percentage of each RM's area helps
to ensure compliance. Tax credits to those in compliance are paid
at the time taxes come due in the fall. In 2000, the program protected
some 31% of the land base, including 6,538 acres of wetlands, 15,116
acres of land under conservation tillage, and 39,334 acres of tame
forage, native prairie, and riparian zones. The average tax credit
payout was $261, with individual farmers receiving between $1 and
$1,628. An evaluation of the program via mail survey indicated that
86% of participants felt the program was worthwhile and 88% agreed
that the property tax system was effective compensation. The total
cost of the program in 1999 was $75,787, of which approximately
$61,000 represented the tax credits. The balance was for administrative
costs, including satellite analysis, advertising and communications,
labour, travel, processing, and program evaluation.
To assess the "value" of the program, the
focus should be on the present value of the social benefits and
costs-that is, those incurred by society as a result of the
program. The social benefits of using an MPTC are believed to include
improvements in environmental quality such as:
- preservation of soil quality/reduction in erosion;
- improvements in water quality for drinking and
for recreation;
- reduced flooding;
- increase in and maintenance of wetlands;
- protection of air quality (carbon sequestration);
- preservation of riparian ecosystems, with associated
benefits;
- biodiversity conservation;
- wildlife habitat enhancement for aquatic and terrestrial
species; and
- energy conservation.
Social benefits also include reduced public expenditures
on environmental infrastructure such as:
- less silt removal needed from waterways;
- lower water treatment costs;
- reduced flood control expenditures;
- lower erosion, culvert, and crossing repairs; and
- less drain clogging.
These benefits have not been quantified, but it is
not unrealistic to assume that the savings in public expenditures
could amount to at least $1 per acre. The program, therefore, pays
for itself in cost savings to municipalities. Over time, improvements
in environmental quality may also lead to higher land productivity
due to less soil erosion, for example. This could raise land values,
and, in turn, generate more property tax revenue, which could be
allocated for public goods and services. The MPTC could even lead
to a more diversified local economy through more recreational opportunities
on conserved lands, more tourism, different crop mixes, and so on.
The well-being of residents may rise.
Social costs (to the municipalities) could
include:
- forgone revenues;
- incremental administrative costs (above those for
normal property tax collection); and
- costs of assessing the program's effectiveness
in meeting environmental targets.
Another issue is the jurisdictional level at which
the social benefits and costs of the program are measured-municipal,
provincial, or national? Normally, one would focus on the jurisdiction
doing the decision making, in this case, the municipality. But this
is problematic for the MPTC, because the environmental benefits
may extend far beyond municipal boundaries. Thus, some costs of
the program may logically be borne by governments at the two higher
jurisdictional levels.
Lessons from the Manitoba initiative show that a variety
of factors contribute to a program's success. For example, a program
benefits from:
- support from a broad spectrum of affected parties,
including local government;
- being voluntary;
- tax credits that can reduce a landowner's property
taxes to less than zero;
- annual review, permitting reversible land
use and return of cash to the farmer in each year of participation;
- a relatively small minimum acreage required for
participation;
- administrative simplicity, including fewer
and less complex eligibility requirements;
- public awareness and a favourable political
climate, with no sense that the program is an unwarranted
subsidy, but simply a payment that recognizes the social benefits
from conservation occurring on private lands;
- a design that is not likely to initiate any
international trade actions;
- a structure adapted to local conditions
and more flexible than a "one size fits all" program;
and
- being a stand-alone program that does not
require landowners to participate in other programs, but can be
readily integrated with other conservation initiatives.
Based on a review of several MPTCs in North America,
the challenges include:
- sustainable program funding, since the tax
credit affects municipal revenues;
- low participation rates/lack of awareness of
the program, arising from factors such as size of acreage
covered, insufficient advertising/communication, eligibility requirements
that are too costly and complex for the landowner to comply with,
and program design not well targeted at clear environmental objectives;
- difficulty in measuring the environmental benefits;
- determining whether the tax credit is even necessary
(i.e., whether landowners would have taken action without the
incentive);
- setting the tax credit at an appropriate
rate-too low and it will fail to get participation, too high and
the landowner gets unnecessary rents; and
- integration with other programs to avoid double
dipping.
On this last point, if more than one program operates
in a region simultaneously, the challenge is to ensure that the
landowner is not collecting two payments for the same activities,
unless this is the goal (perhaps resulting from different funding
sources).
In summary, the MPTC is an incentive-based policy
that merits continuation-and extension beyond the pilot programs-as
one of a potential suite of EFRs designed to improve environmental
quality. A MPTC creates a market-like value for conservation activities
valued by society but not traded in traditional markets. The landowner
looks at the "price" (tax credit) per unit of land if
specified conservation activities are undertaken and compares this
price with the land's marginal returns in any other use. While typically
a modest incentive, it conveys the idea to landowners of valuing
non-market environmental benefits. Programs with clear eligibility
requirements, low compliance costs, and flexibility in land allocated
(through small minimum acreage levels) are more likely to draw participants
and deliver environmental benefits. Key challenges are funding the
tax credit and measuring net benefits of the programs to ensure
that they are successful in improving environmental quality.
1.4.3 Conservation
cover program (CCP)
In the past year, Ducks Unlimited Canada has proposed
a national conservation cover program. Targeted lands would have
a number of conservation values, such as those exhibited in riparian
zones or wetland areas. A CCP provides for the removal of these
lands from agricultural use either permanently or for a period of
years. Economic incentives to encourage this land conversion provide
a policy instrument that facilitates a public investment into private
land use decisions, ensuring that the agricultural landscape provides
a range of goods and services valued by society.
These external environmental benefits may involve
a number of factors associated with improved water quality, including
- decreased treatment costs;
- lower dredging costs to remove sediment from water
conveyance and storage infrastructure; and
- increased recreational opportunities (including
fishing and swimming).
Other external benefits may include:
- greater wildlife use;
- biodiversity;
- stewardship for species at risk;
- aesthetic values;
- increased carbon sequestration and decreased net
greenhouse gas emissions; and
- mitigation of flooding.
External costs of the conservation cover program may
include the extra costs associated with delivering land conversion
incentives and compensation required for incremental crop depredation
by wildlife.
It is assumed that if the landowner decides to convert
a parcel of land to conservation cover, the private benefits (including
the economic incentive provided by the institution responsible for
delivering the program) are greater than the private costs associated
with the conversion. Therefore, quantifying only the external benefits
and costs associated with the land conversion will facilitate calculation
of the net external benefits (or costs) of the program. The three
river basins/watersheds selected for the study are the Upper Assiniboine
River Basin of Saskatchewan and Manitoba; the Grand River Watershed
located near Guelph, Ontario; and the Mill River Watershed in western
P.E.I. These units were selected because they represent agricultural
landscapes within different regions, and because reasonable data
exist for each one.
While some data problems remain, there is a consistent
pattern demonstrating a substantial net external benefit from a
conservation cover program. In the case of the Grand River, the
best estimate was net external benefits of $195/ha/year (with a
range of $79 to $342). The Upper Assiniboine River demonstrated
net external benefits in the range of $29 to $106, with a best estimate
of $65/ha/year. Information on the Mill River falls in between the
other two (range $69 to $236, with a best estimate of $142/ha/year).
In the case of the Upper Assiniboine River, it has been possible
to determine optimal program impacts using a supply response based
on known lease rates. Table 1 shows both the calculated values for
the external benefits and the calculated optimal program impacts.
Information on the other two watersheds is provided in the main
report.
The external benefits in this and the Grand River
case show a similar pattern. The largest external benefits arise
from a combination of carbon sequestration and greenhouse gas emissions
reduction. But the next largest benefit is saved government payments,
because land is taken out of agricultural production. In the Grand
River case, the figure is even higher ($46.00 compared with $12.00).
Also in the Grand River, there are additional benefits such as phosphorus
reduction ($23.50), recreational fishing ($26.00) and high non-consumptive
wildlife use value. These factors all contribute to the higher net
external benefit for a CCP in this river, which flows through areas
of relatively high human population density.
The major contribution of this study is the substantial
level and quality of information compiled. An economic analysis
like this has not been done before. Moreover, the analysis is not
based on "back of the envelope" guesses. The figures are
rigorously developed from the best available economic and ecological
information. They make a compelling case that a conservation cover
program would provide a very good return to society in a variety
of watershed settings representing different environmental and regional
conditions across Canada. The figures compiled for each case represent
an "average" watershed situation-a baseline condition.
With more fine-tuning, it would be possible to examine the benefits
of particular kinds of conservation cover programs, for example,
for riparian zones. This fine-tuning would require more information
on the specific impacts of various types of riverside and watershed
cover on factors such as sediment trapping by riparian vegetation,
nutrient removal, and enhanced fish production. In each instance,
such information would have to be translated into economic impacts.
|
The three watersheds were chosen to represent different
agricultural regions and, thus, different climates, farming operations,
and farming practices. The information could be refined over time,
and the analysis to date has revealed a variety of data gaps. In
its own right, this "shortcoming" can add value, because
it highlights research needs. There would be high returns to our
knowledge by compiling additional and better information around
these three rivers, rather than repeating the exercise at a superficial
level in other basins.
1.4.4 Challenges
and opportunities-The way forward
There is little doubt that EFR initiatives can be
successfully implemented and help society to safeguard and provide
ecological services in agricultural landscapes. Success will come
by engaging a substantial portion of the farmers within a region.
To do this, it will be necessary to adjust incentives, consider
the impact of issues such as cross-compliance, and build a level
of understanding about what exactly is to be achieved. The compelling
strengths of the examples studied are that they are voluntary and
have the potential to save society and governments money. They demonstrate
that each level of government can play a role in EFR for agricultural
landscapes, yet not every level of government needs to be involved
in each case.
The range of instruments available provides many options
and opportunities to assemble suites of instruments that are mutually
supportive, expand the opportunity for voluntary stewardship action,
and lend substance to the notion of the eventual "green branding"
of Canadian agriculture. There must be a progression from building
awareness and knowledge, to implementation, to adequate assessment
of outcomes (especially improved environmental conditions in agricultural
watersheds and landscapes).
Environmental farm plans can act as a precursor for
action-providing the baseline knowledge and "kick-start"
for small initiatives at the individual farm level. The municipal
property tax credit shows that even a modest incentive can help
encourage and reinforce conservation behaviour. The EFP and MPTC
are complementary, since the former would help landowners identify
which land is best to set aside, and municipalities might wish to
extend a MPTC to those with an EFP. Economic analysis of net external
benefits can be used not only for CCP design, but also for a range
of other purposes, including the monitoring of which lands are most
valuable for conservation easements or for determining the most
appropriate lands to qualify for incentives such as the MPTC.
The study identified key factors influencing program
uptake. One very important matter is to remember that one size will
not fit all. Provincial inputs and philosophies, flexibility of
designs based on inputs of specific agricultural sectors and regional
groups, simplicity in operation and administrative rules (even if
this means less capacity for targeting at the initial stage), and
modest administrative costs are all hallmarks of a successful program.
There is a need to examine how best to tailor EFR to specific regions,
especially when several initiatives are layered on current (command
and control) regulatory approaches such as zoning. A "one window"
approach may be helpful for farm producers faced with a variety
of programs and regulatory concerns. It is not clear what level
of uptake constitutes success. The notion of continuous improvement
will be helped as the participant base expands.
Strategic investment in science and program assessment
is required to support the various EFR initiatives. It is difficult
to sort out the value of individual programs when several are contributing
to changes, so science must be linked in many instances to economic
analysis. This is most clearly demonstrated in the watershed net
external benefit analysis. There are years of work ahead, especially
for targeted activities such as riparian zone conservation initiatives.
But this should not prevent the development and implementation of
incentive programs, if, from the outset, a commitment is made to
evaluate them through rigorous scientific monitoring. It will be
an inexpensive way for society to obtain information about the environmental
conditions and ecological dynamics of agricultural landscapes.
The goals of EFR in agricultural landscapes need to
be focused on the positive net benefits/externalities for society
in terms of enhancing and maintaining ecological integrity. Private
benefits may also accrue, but it is not necessary for society to
pay for them. In the design of programs, revenue-neutrality may
be a goal, keeping in mind that programs may be effectively revenue-neutral
if the conservation activities result in lower costs to government
for mitigation of environmental degradation. The important point
is to be able to demonstrate as clearly as possible that the results
truly reflect a cost-effective, positive level of social benefit.
The expression of benefits must be easily understood by a range
of people and organizations, including producers, stakeholders and
decision makers. Failure to communicate benefits effectively will
threaten otherwise well-planned initiatives. Often this will mean
partnerships that can generate and use knowledge in an adaptive
fashion-learning by doing, as outlined above.
EFR for agricultural landscapes will be implemented
only to the extent that demand exists to drive programs forward,
sometimes in the face of barriers that favour the status quo. At
least some of the demand will be generated through global accords
such as climate change, where there is interest in carbon sequestration,
and through voluntary initiatives such as greener production certification
at national or international levels. Unless net societal benefits
are clearly articulated and can be verified by monitoring of outcomes,
the full value of EFR approaches (which provide farmers with flexible
options) is not likely to be achieved.
The following recommendations are proposed for follow-up
action to this report:
- The NRTEE should continue to explore EFR, focusing
on increasing understanding of the potential applications to the
agricultural sector, and providing specific recommendations to
federal and provincial governments that would assist in the design
and implementation of such initiatives.
- Federal departments, led by Agriculture and Agri-Food
Canada, should develop a plan for "green branding" of
Canadian agriculture nationally and internationally that fully
incorporates EFR, including voluntary initiatives that can be
implemented through farmer stewardship.
- The June 2001 ministerial commitment to accelerate
the pace of improving environmental practices on-farm should be
met by expanding programs based on, among other things, the three
EFR examples provided here.
- High-priority conservation cover and environmental
initiatives should be developed, based on the watershed ecological-economic
analysis presented here, for example, by designing a program for
improving water quality associated with farm runoff.
- There should be an increased federal and provincial
commitment to the gathering and sharing of information on the
effectiveness of EFR initiatives and indicators of success, and
to the development of mechanisms for using this information in
the design of complementary EFR initiatives employing suites of
instruments.
- Farmer organizations should become more involved
in the design, promotion, and implementation of EFR initiatives,
with a view to becoming active partners in the development of
regionally and sectorally focused approaches.
|