In the United States the demand for clean water, biological diversity of plants and animals, and other environmental values affected by agricultural production is growing faster than the demand for food and fiber. Yet for technical and institutional reasons the supply response of environmental values is more sluggish than the response of commodity values. The emerging challenge is to recognize this situation and to take action to correct it.
We generally think of agriculture as the set of activities through which societies combine land, labor, fertilizers, pesticides, farm machinery, and other resources to supply demands for food and fiber—the commodity values of agriculture. Only within the past couple of decades have we begun to recognize that the way we manage these resources to produce food and fiber inevitably affects the supply of environmental values that societies also hold important. Such a value is river water—water in which farmers dump sediment and pesticides that must be removed before the water can be used for household consumption. Other environmental values affected by agricultural production are the flood-moderating services of agricultural wetlands and the biological diversity of wild plants and animals found on farmland. Drainage of wetlands and clearing of wooded land reduce the supply of environmental values, just as soil erosion may decrease the supply of commodity values by reducing the productivity of the land.
Throughout most of human history, the main task of agriculture has been to increase food and fiber production enough to stave off famine and hardship. Even in the United States, where agricultural surpluses are common, concern is still expressed about the country's capacity to meet long-term domestic and foreign demands for food and fiber.
It now seems clear that this concern is misplaced. Instead, the main challenge to American agriculture in coming decades is likely to be meeting a rising demand for the environmental values of agriculture. By comparison, meeting the demand for commodity values should be a relatively easy task.
This assertion rests on two propositions. First, the demand for the commodity values of U.S. agriculture will grow much more slowly than the demand for environmental values. And second, the supply of environmental values rises less rapidly in response to increased demand than the supply of commodity values. Thus conditions on both the demand and supply sides of commodity and environmental markets suggest that American agriculture will have more difficulty meeting future demands for environmental values than for commodity values.
Commodity values
The demand for food and fiber grows primarily in response to population and per-capita income growth, as well as to changes in consumer preferences among various kinds of food and fiber. In the United States most people already consume at the biologic limit, so future demand for food will grow at about the same rate as population—0.6 percent annually from 1990 to 2025, according to recent United Nations projections. For the last couple of decades most of the increased demand for U.S. food production has come from abroad, particularly from the developing countries of Latin America, Africa, and Asia. In these countries demand for food grows not only with population but also with per-capita income, because many people still are malnourished. United Nations population projections for these countries and plausible assumptions about their rates of per-capita income growth suggest that demand for food in these countries could increase 2.8 percent annually over the next several decades.
Developing countries have boosted food production with the help of research to increase the yield of grain crops such as wheat
What does this scenario of future demand for food in the developing countries imply for agriculture in the United States? There is no certain answer, but some useful speculation is possible. If the developing countries continue to increase food production at the rate of the last few decades—slightly more than 3 percent annually, according to U.S. Department of Agriculture figures—by the 2020s they not only will be producing enough to satisfy their own demand, they likely will have substantial surpluses for export. In this scenario, U.S. exports of food probably would fall sharply. Indeed, it could be to the economic advantage of the United States to become a net food importer, although for political reasons the country might choose not to do this. Even so, pressure on American agriculture to produce food would be less than it is now, and the country would have the option of using the resources released to respond to rising demands for the environmental values of agriculture.
Resources released from food production might be used to meet rising demand for the environmental values of agriculture.
In another scenario, the developing countries would fail to maintain the relatively high rate of food production that they have over the last couple of decades, perhaps because of increasing stress on their land and water resources. Assuming that their per-capita income growth is not adversely affected by this—admittedly a strong assumption—their demand for food would increase more rapidly than production and their demand for food imports would increase substantially. The United States would not likely be the sole supplier of this increase (Canada, Australia, and Western Europe are also important food exporters), but demand for U.S. food exports would almost surely rise significantly from present levels. With domestic demand also growing because of population growth, U.S. food production would rise from present levels. However, even if production growth in the developing countries lagged well behind recent performance—say 2.5 percent per year instead of the 3 percent plus of the last two decades—demand for U.S. food production likely would increase considerably less than the roughly 2 percent annually achieved since the end of World War II. Given the strength of the U.S. agricultural research establishment and a policy environment favoring adoption of new technology by American farmers, the country could readily meet the increased domestic and foreign demand for food suggested in this scenario.
Environmental values
Unlike the commodity values of agriculture, environmental values are not typically reflected in market transactions. Therefore we have little, if any, price information about these values or about the quantities of them produced and consumed. However, scattered evidence strongly suggests that in the United States and other developed countries the demand for environmental values, unlike that for food and fiber, rises as per-capita income increases. Although comprehensive estimates of the relationship between the growth of per-capita income and the growth of demand for environmental values are not available, indirect evidence suggests that the relationship may be proportional. In this case, or even if the relationship is less than proportional, the demand for the environmental values of agriculture in the United States could grow 100 to 150 percent more than the demand for commodity values over the next several decades. The relatively higher growth of demand for environmental values would occur even if food production growth in the developing countries lags, as in the scenario sketched above.
The supply response of environmental values, however, is likely to be more sluggish than the supply response of commodity values. This sluggishness results from the focus of U.S. agricultural research institutions on increasing agricultural commodity production (rather than on producing environmental values) and from the difficulty of establishing property rights in environmental values.
The success of agricultural research in the United States is measured by rapidly increasing production of food and fiber—the commodity values of agriculture. Scientists engaged in agricultural research are by training, experience, and professional interest oriented toward increasing agricultural productivity. And the leadership of these institutions, up to and including secretaries of agriculture, have a similar orientation. Therefore the agricultural research establishment will not find it easy to shift its emphasis from increasing production of commodity values to increasing production of environmental values.
Increasing the supply of environmental values is even more problematic because the absence of property rights in these values gives farmers little incentive to protect the values against actions that would diminish their supply or to take actions that would increase their supply in response to rising demand for them. For example, if people who value the biological diversity of agricultural wetlands had a secure property right in diversity they could charge farmers for draining wetlands or for otherwise diminishing diversity. The unit amount of the charge would be the price of diversity and the total amount would reflect the social value of the diversity lost by drainage. In making decisions about whether to drain the wetlands, farmers would have to balance the value of the increased commodity production after drainage against the cost to them that the loss of biological diversity drainage would entail. If, over time, the demand for biological diversity were to rise relative to the demand for farm commodities, as seems likely, the price of diversity would rise relative to commodity prices, and farmers would have increased incentive to protect diversity or even to invest in management practices that would enhance it.
Demand for environmental values in developed countries is likely to rise with increases in per-capita income.
So why are property rights in environmental values so poorly developed or not developed at all? One reason is the lack of control of access to the thing valued—in the present context, an environmental "thing." Another is that in some situations the value of the thing is less than the cost of controlling access to it.
Control of access to the thing valued is an essential condition for development of a property right to the thing valued. Control of access means that the person or institution holding the property right determines the terms under which the thing valued can be used. But control of access to environmental resources is often difficult. For example, water in rivers may move over hundreds or thousands of miles. Many people along a river may use and reuse the same water as it flows down the channel. All of these people may have a right to use the water, but no single right is exclusive of all other rights. Thus a supplier of municipal water does not have an exclusive right to all the water upstream from a treatment plant and so cannot deny upstream farmers access to the river as a dump for sediment and agricultural chemicals.
The Nature Conservancy's purchase of 900 acres of Illinois grasslands will protect the downy yellow painted cup (Castilleja sessiflora) from agricultural development
Even if access can be controlled, the cost of exercising control may be higher than the value of the thing to which access is desired. For example, hun-dreds of thousands, perhaps even millions of people in the United States may be willing to pay something to protect the biological diversity of agricultural wetlands. The nature of biological diversity is such, however, that there is no easy—that is to say, inexpensive—way for those people to express their demand for diversity in ways to which farmers can readily respond. Biological diversity is not something farmers can produce and send to market where those who value it can buy it.
To be sure, people who value diversity can form organizations to buy agricultural land rich in biological diversity or otherwise pay farmers not to use such land for commodity production. Organizations such as The Nature Conservancy do just this. They acquire a property right in biological diversity, the price of acquisition providing a measure of the social value of diversity. However, such organizations are few, and the amount of land rich in biological diversity acquired by them is small. A main reason for their modest success must be the high cost of organizing the many people who would be willing to pay something to protect biological diversity and of identifying the farmers, numbering perhaps in the hundreds of thousands, who own land rich in biological diversity. Unless these costs can be brought down, property rights in biological diversity will be difficult to establish, and farmers will continue to underestimate the social value of diversity relative to the social value of additional commodity production.
Science and policy challenges
Those responsible for agricultural research and policy in the United States should recognize that, over the next several decades, increasing the supply of environmental values in step with rising demand is likely to be a greater challenge than increasing the supply of commodities. This is not to say that increased capacity to produce commodities will not be needed; it will be, especially if the increase in food production in the developing countries lags much behind the performance of the last couple of decades. It is to say, however, that a redirection in agricultural research and a reexamination of current agricultural policies are essential if the United States is to meet the challenge of supplying increased demands for environmental values.
That research can enhance these values is not in serious doubt. For example, over the last fifty years programs undertaken by the federal government and by state governments have greatly increased the productivity of wildlife habitats, as measured by the number of animals supported per unit area. A major element of these programs has been research to augment knowledge of wildlife management. The success of these programs suggests that increased research along this line could have a high pay-off in habitat improvement.
Pesticides and nitrates in ground and surface water are a significant threat to the environmental values of agriculture. Research to develop technologies and management practices less dependent on these materials would reduce the threat. Integrated Pest Management (IPM) systems offer much promise. The goal of these systems is to achieve pest control by substituting increased knowledge—for example, about the life cycles of pests and their predators—for increased use of chemicals. Research on how to make these systems economically attractive to farmers deserves high priority.
Policymakers should also recognize that the country's ability to adequately supply increasing demands for environmental values of agriculture will be strongly affected by the developing countries' success in increasing food production. To recapitulate, should these countries continue to increase production at the rate of the last several decades, the United states likely would have the option of letting its production of food fall, supplying the population-induced increase in demand with imports from the developing countries. For political reasons the United States may not decide to exercise this option; but if it did, the reduced commitment of resources to food production would create highly favorable conditions for meeting rising demands for environmental values. Consequently, the United States has a strong interest in the success of the developing countries in increasing their production of food. Development of policies that support increased international agricultural research in institutions such as those comprising the Consultative Group for International Agricultural Research, and that further research in national agricultural institutions in the developing countries, would serve this U.S. interest.
Developing new technologies and management practices may be more politically palatable than applying regulatory policies.
The United States should also reconsider its current support of agricultural commodity prices above market clearing levels. Whatever their merits on other grounds, these policies induce farmers to use more agricultural chemicals and to farm more environmentally fragile land than they would otherwise. Consequently, the policies are an important part of the increasingly inappropriate bias against environmental values of agriculture relative to commodity values.
The United States now has in place policies to regulate the use of environmentally damaging materials such as pesticides and animal wastes. There is clearly a place for regulatory policies in situations in which the environmental costs of unregulated practices are high and in which farmers lack economical alternatives to the practices. However, the costs of regulatory policies may also be high. By definition, regulatory policies require farmers to act against their perceived economic interests. This results in political conflict, which drains social resources, and in the need for a public bureaucracy to enforce the regulations, an additional social cost.
Over the long run, a policy to develop less environmentally threatening and more economically attractive technologies and management practices such as those employed in IPM systems may well be both economically more efficient and politically more palatable than a regulatory policy. Such a technology-based policy would reduce, if not eliminate, the need for regulations by reducing, if not eliminating, the difference between the farmer's economic interest in commodity values and society's interest in environmental values. This is not to say that we can dispense with regulations. It is to say that, wherever they are needed, attention should be given to developing technologies and practices that eventually would make regulations unnecessary.
Development of policies that overcome the difficulty of establishing property rights in environmental values could also help to increase the supply of environmental values. Policies to acquire farmland of high habitat value are an example. Such policies already exist in North America. The United States and Canada have agreed to acquire several million acres of wetlands in the northern plains of the United States and the adjacent prairie region of Canada. Wetlands in these areas are of major importance as habitat for waterfowl and numerous other animals. The land is being lost at a disturbing pace as farmers drain and convert it to crop production. The objective of the Canadian-American plan is to preserve some of the habitat values of these lands against further conversion of them to production of commodity values.
So far the use of public and private institutions to acquire property rights in environmentally valuable land is on a small scale relative to the total amount of land under the threat of conversion to commodity values. The Canadian-American plan, for example, calls for acquisition of only five or six million acres of wetlands in an area where the total acreage is in the tens of millions. Over the next few decades policies aimed at greatly expanding these activities by both public and private agencies could go far toward overcoming the property rights obstacle to increasing the supply of habitat values in agriculture.
To meet the demand for environmental values, more research on wildlife management and pest control is needed.
The battle to increase food production in step with domestic and foreign demand has been won in the United States. Those responsible for advancing agricultural science and formulating agricultural policy in the country now face a fundamentally different challenge from that which has preoccupied them up to the present. The new challenge is to develop the technologies and institutions that will permit the supply of environmental values of agriculture to increase in step with demand. How well they respond will have an important bearing on the future welfare of the people of the United States.
Pierre R. Crosson is a senior fellow in the Energy and Natural Resources Division at RFF.
A version of this article appeared in print in the Winter 1990 issue of Resources magazine.
A version of this article appeared in print in the January 1990 issue of Resources magazine.
