09
JOURN ISH
APHY 20 GR
OF GEO AL
WTO agreement on agriculture: Potential consequences for agricultural production and landuse patterns in the Swiss lowlands
DAN
Robert Huber & Bernard Lehmann Robert Huber (Corresponding author) Bernard Lehmann Agri-food and Agri-environmental Economics Group, Institute for Environmental Decisions, ETH Zurich, Switzerland E-mail:
[email protected]
Abstract A strong link exists between agricultural production and landscape. Globalisation (more open agricultural markets) will change agricultural production and thus landscape will change as well. In this paper, we address the following questions: (a) what economic effects can be expected with respect to agricultural production structures in a high cost production region such as the Swiss lowlands given a substantial development in the WTO; and (b) how does this structural change influence land-use patterns? We discuss the expected economic effects from a theo-retical point of view and implement these findings in a spatially explicit normative programming model
Introduction The long-term objective of the WTO members is “to establish a fair and market-oriented agriculture trading system”. In the final act of the Uruguay Round of Multilateral Trade Negotiations, the Agreement on Agriculture (AoA) constituted a first step in this reform process (Mosoti & Gobena, 2007). The AoA distinguishes three main pillars in the negotiation process: export subsidies, agricultural market access, and domestic support. In the long run, all export subsidies must be eliminated, significant reductions in tariffs and expansion in tariff rate quotas should increase access to agricultural markets and domestic support must be reduced to green box measures with a minimal impact on trade. For high cost production regions with an elevated level of support such as Switzerland or Norway, the outcome of this process and the associated change in agricultural policies will alter agricultural production structures significantly. In Switzerland, farmers manage more than a third of the
for a case study region in the Swiss lowlands. The results show a wide range of possible economically efficient outcomes depending on production costs and farmers’ preferences. Our results imply that, if production costs were to sink sufficiently, income maximizing farmers would focus on grassland based milk production. This would only lead to a modest change in the existing land-use patterns since our case study region is currently dominated by dairy farms. If production costs remain high, agricultural production would shift to more extensive production activities in order to maximize the sectoral income. In this case, the local landscape would change noticeably.
Keywords WTO, land-use change, mathematical programming model, GIS modelling. Geografisk Tidsskrift-Danish Journal of Geography 109(2): 131145, 2009
country’s surface area. Consequently, changes in the agricultural production system as a result of WTO negotiations will also have an impact on agricultural landscapes and thus the landscape as a whole. This long-term perspective raises a lot of scepticism. Agriculture in these high income countries is perceived to be more than just a provider of food and fibre while more open markets are associated with an undermining of the environmental and social functions of agriculture. Consequently, questions arise regarding the economic, ecological and social consequences which can be expected from the implementation of world market prices and WTO compatible domestic support in high cost / high support regions. The construction of such a (counterfactual) WTO scenario represents a reference point for the evaluation of new agricultural policies (Hodge, 2008). Without such a hypothetical (but nevertheless realistic) scenario, the discussion of the possible outcome of freer trade will always be biased by the status quo and lend strength to protectionist and conservative forces. Geografisk Tidsskrift-Danish Journal of Geography 109(2) 131
The goal of this article is to discuss the expected outcome of such a scenario in a high cost production region. More specifically, we look at expected economic, ecological and social effects for a local landscape in the Swiss lowlands given a green box compatible direct payment system and world market prices. Our approach consists of: a) Discussion of the expected effects from a (theoretical) economic point of view; b) An application of these effects to a case study region in the Swiss lowlands. This entails a modelling approach since no data for such a scenario is available. Thereby, we use a normative mathematical programming model; c) Discussion of the outcome in a broader (ecological and social) context. It is important to note that the result of our normative modelling approach is not a precise prediction of what the local landscape will look like in the future. However, we are able to identify economic driving forces, resource limitations and relevant decision variables in a specific scenario. The advantage of this approach is that it allows us to ‘think outside of the box’ and to discuss, in complete freedom, the consequences of such a scenario (Happe & Balmann, 2006). As a result, transparency in the discussion on the effects of freer trade on local landscapes can be enhanced. The article is organized as follows. The next section will focus on expected outcomes of WTO negotiations and the existing adaption strategies of Swiss agricultural policy. Then, a general overview of the linkages between agricultural production and agricultural landscape is given. Thereafter, we discuss the economic consequences of world market prices for agricultural production and the corresponding landscape. Our methodology is presented and a model application to the Swiss lowlands is provided. In the last two sections, we discuss results and present conclusions.
Swiss national policy and the WTO In the 1990’s, high public spending, overproduction and environmental problems led to a change in Swiss agricultural policy. In line with the AoA, Switzerland changed its Federal Constitution in 1996 (BLW, 2004). Since then, there has been an ongoing reduction of market support and agricultural markets have been liberalized. Domestic support shifted to decoupled direct payments. At the same 132 Geografisk Tidsskrift-Danish Journal of Geography 109(2)
time, a cross compliance approach was introduced in order to guarantee a certain level of environmental goods and services (Joerin et al., 2006). However, overall support remained high. In the last twenty years, the Producer Support Estimate (PSE), an indicator for agricultural support, only sank from 78 to 66% (OECD, 2007). In the WTO negotiations, Switzerland leads the G-10 group, which represents net food importing countries. These countries oppose the idea of completely free agricultural markets and refer to the multifunctional role of agriculture. From a purely economic perspective, multifunctionality describes the fact that agriculture produces both commodity and non-commodity outputs (OECD, 2001). If the latter involves some kind of market failure, social welfare may be enhanced by supporting agriculture to provide these non-commodity outputs (e.g. landscape). The idea of multifunctional agriculture meets criticism. For instance, Anderson (2000) argues that only a minor trade-off is required to meet domestic policy objectives on the one hand and agricultural protection reform objectives as envisaged in the WTO rules on the other. In this respect, the OECD argues that support should pursue the different objectives with a minimum of economic distortion both domestically and internationally (OECD, 2003). In a broader perspective, however, queries do arise concerning this rather neoliberal point of view. (For a discussion of multifunctionality in the context of WTO negotiations see: Dibden et al., 2009; Potter & Tilzey, 2007; Potter & Burney, 2002). As a final agreement in the multilateral WTO Doha round has been rescheduled (2009), Switzerland aims for a bilateral agreement in the agri-food sector with its largest trading partner, the European Union. In either case, the producer prices received by farmers would sink considerably. In conclusion, Swiss farmers will face substantial producer price reductions in the medium term. This applies even without a concluding agreement in the Doha round. The green box compatible direct payment system, however, will remain the central pillar in Swiss agricultural policy. Upcoming modifications will even reinforce the green box compatibility of this direct payment system (Vogel et al., 2008).
Agricultural production and agricultural landscape Historical perspective In the last centuries, landscape rarely was a designed good but most frequently the result of different production systems. Historically speaking, changing agricultural production processes have always left their mark on the landscape. Thus, these transformations in agricultural landscapes reflect the changing needs for food, fibre and energy and the associated policy measures. Until 1850, for instance, Swiss agriculture was dominated by subsistence farming, which mainly involved crop production. With the emergence of the steam engine and the corresponding transport facilities, wheat and other crops were imported to Switzerland. Price relationships between crops and livestock changed significantly. Agricultural production switched from crops to milk and meat production and thus grassland became the dominant land-use. Economic crises and two world wars led to the emergence of a highly regulated agricultural sector. Crop production was supported in order to secure food availability in times of need. This led to a re-emergence of the production of a wide variety of crops in Switzerland. Definitions Landscape is an amalgam of natural, economic and cultural aspects and can be defined in different ways. Hence it is important to delimit the use of the term landscape for this article. We will focus on agricultural land-use e.g., the extent of crop production, grassland and agricultural nature conservation areas. Since we concentrate on the effects on agricultural land-use, we do not consider agricultural landscape elements (trees, hedgerows), other forms of land cover (forest, building areas) or invisible landscape functions such as biodiversity conservation and the preservation of natural resources (nutrient runoff and soil conservation). The link between agricultural production and agricultural landscape is straightforward (Vanslembrouck & Van Huylenbroeck, 2005). Farmers use natural resources (e.g. land) in their production process which leads inevitably to a change in the natural state of these resources. However, the analysis of the interactions between agricultural production and the provision of landscape is complex. On the one hand, farmers’ choices are influenced by a complex set of factors such as input and output prices, technological innovations and policy measures to name but a few. On the other hand, the link between different production activities and the natural resources is often a non-linear and complex process which can exhibit threshold effects. The level of
intensity, for instance, can have a significant impact on the provision of landscape and its functions. This twofold complexity is the source of a wide range of literature on the interactions between agriculture and landscape (Ferrari & Rambonilaza, 2008; Mander et al., 2007; Brouwer, 2004). Microeconomic perspective Given our research goal, we focus on a microeconomic interpretation of the connection between agriculture and agricultural landscape. According to Boisvert (2001), jointness can originate from three causes: technological interdependencies, non-allocable inputs or fixed inputs on farm level. Abler (2004) summarises non-allocable inputs and fixed inputs as economic interdependencies. • Technological interdependencies refer to the fact that the agricultural production process, such as the use of fertilizer or pesticide, can have inseparable (typically negative) effects on landscape amenities. • In the case of non-allocable inputs, the outputs of two products depend on each other. The provision of open space, for instance, is related to some form of agriculture which produces a certain output (e.g. milk, meat or fibre). The input factor land cannot be allocated solely to either the production of the commodity or to the provision of open space. • Fixed inputs on farm level lead to a competitive relationship between the commodity and non-commodity outputs. For example, if the amount of land belonging to a single farm is fixed, the allocation of a certain amount of land to biodiversity conservation will lead to a reduction in the amount of land available for milk production. The causes of jointness vary widely when it comes to landscape provision. Obviously, both technical and economic interdependencies contribute to the provision of landscapes. On an aggregate level, a combination of these causes contributes to the provision of landscape benefits. Consequently, changes in the agricultural production process (e.g. the variation in inputs) will alter the landscape.
Expected economic effects of world market prices for the agricultural sector in Switzerland The theoretical economic aspects which could be expected from our scenario are manifold and vary on different scales (farms, regions, countries). It would be impossible to inGeografisk Tidsskrift-Danish Journal of Geography 109(2) 133
clude all effects in a model approach. Therefore, we focus on three central aspects of the discussion on free trade and their consequences for agricultural production: • Specialisation of the agricultural sector on activities with a comparative cost advantage; • Structural change in order to realize economies of scale; and • Importance of natural conditions due to the sinking value of the marginal product. The concept of comparative (cost) advantages refers to the fact that one country (or person / farm) can produce a certain product at lower opportunity costs. Given free trade markets, this increases the incomes, and thus welfare, in the trading countries. The idea of comparative advantage goes back to David Ricardo (1821) who showed that if two countries produce two goods, a country can benefit by specialising in one good and trading the other, even if it has lower productivity for both goods. This model is clearly a simplification compared to the real world. Nevertheless, it illustrates an economic driving force if market access (and thus trade) is increased. Economies of scale represent lower production costs through an expansion of production. This refers to structural change in the agricultural sector. Structural change, however, has become a catchword in the economic assessment of the agricultural sector all over the world. Irrespective of the actual size of a farm in any country, structural change always has the potential to increase the competitiveness of the sector. Switzerland, however, has small structures compared to other industrialized countries. Therefore, the potential for improvement is large even within the concept of family based / smallholder farms. The gain in the importance of natural conditions can be inferred from the lower value of the marginal product due to lower output prices. The corresponding economic rule states that the factor price must correspond to the value of the marginal product. If the output price decreases (and the factor price remains constant), the marginal product must increase. This can have two effects: if the agronomic production suitability of farmland is high, production becomes more intensive. If this suitability is low, however, farmland is abandoned. The abolition of price support increases the relevance of natural production conditions. This effect is not unique to high cost regions. The same processes can also be observed in different countries (Primdahl, 2010). However, we are aware that the direct payment system will reduce this effect. 134 Geografisk Tidsskrift-Danish Journal of Geography 109(2)
As a result of the combination of these three effects, our scenario (world market prices and the existing green box compatible direct payment system) would imply that in the long-term, there will be larger farms practicing intensive agricultural production on good soils while marginal land is abandoned. This qualitative interpretation also reveals the limits of our approach. Given these economic tendencies, it is obvious that a diversification strategy could also ensure economic viability. Added value products (geographical indications e.g. AOC), product differentiation (organic agriculture, tourist services) and vertical integration (products processed directly on the farm) are important issues in the context of decreasing producer prices. However, our model approach is not suitable for the illustration of such effects. In the next section, we apply the three above-mentioned economic concepts to a case study region in the Swiss lowlands using a normative programming model.
Model application to the Swiss lowlands Methodology Mathematical programming models (MPM) are based on the principles of neoclassical economics. Thus, economic agents are profit optimizers and in combination with limited resources represented by model restrictions, these models incorporate the fundamental economic problem: making the most of limited resources (Buysse et al., 2007). MPMs are meaningful when analysing the environmental impacts of agriculture because the basic linkage between agricultural production and environmental indicators can conveniently be modelled. Differences in agricultural production technologies can be attributed with different coefficients for environmental outcomes (Buysse et al., 2007). This basic approach applies also to the implementation of the microeconomic causes of jointness between agricultural production and landscape. Technical interdependencies are implemented through coefficients. Different amounts of nitrogen loss, for instance, are associated with different levels of bovine grazing intensity. More importantly, economic interdependencies can be represented through model results. Given a specific economic environment, a farmer’s decisions lead to a certain land-use pattern and its associated ecological effects. Thus, our approach allows a quantification of joint economic and ecological effects on a landscape level. However, we are aware that the representation of rural landscapes in MPMs is a difficult task (Janssen & van Ittersum, 2007). There is a lack of knowledge on the interaction between agricultural practices and the ecological outcomes
on a landscape level (Rossing et al., 2007; Tscharntke et al., 2005). Moreover, the implementation of agri-environmental schemes as an activity in our model does not necessarily mean that the intended environmental outcome is attained since there is a difference between the performance and the outcome effect of an agri-environmental scheme (Primdahl et al., 2003; Oñate et al., 2000). We use a spatially explicit sector supply model to assess the effects of world market prices on the land-use patterns in the Swiss lowlands. This is a linear optimization model which maximizes the aggregate annual income (labour income plus land rents) of a specific region giving consideration to cropping constraints, plant nutrient requirements, manure production, forage and fertilizer balances, as well as structural constraints and the natural production conditions (Peter, 2008; Huber, 2009a; Hartmann et al., 2009). The specification of the policy environment in the model depicts Swiss agricultural policies in detail. This entails the regulations of the cross compliance approach in the Swiss agricultural law (balanced use of fertilizers, appropriate proportion of ecological compensation areas, crop rotation, suitable soil protection measures, selection and specific application of plant treatment products, animalfriendly conditions for livestock). However, we integrated only WTO compatible forms of direct payments, i.e., only payments based on acreage and no payments based on the number of animals.
The model includes all important activities relating to income generation, land-use, livestock as well as ecological indicators. In addition, extensive agricultural activities such as sheep or goat husbandry as well as nature conservation activities (without the production of food or feed) are explicitly part of the model (Table 1). Economic concepts are implemented in the programming model in various ways. The implementation of the comparative cost advantage and the corresponding specialisation is inherent to a normative programming model. It is the purpose of such a model to choose the best option under a given set of resource constraints. In fact, these models even tend towards ‘overspecialization’. Linear mathematical programming solutions have a tendency to produce extremely specialised solutions since the number of production possibilities employed is influenced by the amplitude of the constraint set and the associated production possibilities (Wiborg et al., 2005). Economies of scale are implemented through the introduction of benchmark farms and full working load of the machinery. With respect to benchmark farms, German construction data is used instead of Swiss. This is necessary because existing production structures in Switzerland are very small and thus production costs are very high. The implementation of such a benchmark farm reduces the construction costs (amortisation, interest) per cow by 35%. Without such a reduction in production costs, the imple-
Table 1: Model activities and specification.
Production
Model activities
Specifications
Plant
Root crops (sugar beet, potatoes) Cereals (wheat, barley, triticale) Oil seeds (sunflowers, rape) Maize Grassland (permanent, rotational)
Yields per parcel (soil and climatic suitability); intensity levels (intensive, mid-intensive, extensive); size of the parcel
Livestock
Milk (dairy cattle, rearing cattle, goats) Beef cattle (sucklers, calves, bulls) Meat (pigs, lamb, broilers) Eggs (pullets, laying hens)
Animal type; housing system and size; livestock efficiency; feeding system; free range management
Nature conservation
Extensive grassland
Meadows with minimum size of 0.05 ha, no fertilizer or phytosanitary measures allowed, restrictions on mowing (late cut – after June 15)
Rotational fallows
Areas sown with indigenous wildflowers, forbs and legumes, integrated in the crop rotation (at the same location for one to three vegetation periods), fertilization and treatment with insecticides are not allowed
Geografisk Tidsskrift-Danish Journal of Geography 109(2) 135
mentation of our chosen scenario with world market prices would result in a complete abandonment of agriculture. In fact, this is just what interest groups in favour of border protection claim. However, the purpose of our article is to bypass such foregone conclusions and to discuss a possible scenario with agriculture still in place. The basic idea is that if there is no border protection, Swiss production costs (analogous to the producer prices) approach those of its closest neighbours. In order to represent the increased importance of natural conditions, our normative programming model is linked to a Geographical Information System (GIS) model. The latter provides detailed information on soil and climatic suitability for agricultural production. Based on the existing land characteristics, the GIS model forms continuous land units which are homogenous in their agricultural production suitability. In addition, these land units contain information on the climatic suitability, average slope and the suitability for biodiversity conservation. The latter assesses the proximity to natural habitats and represents a better accessibility from nature conservation activities to bodies of water (lakes, streams) or woods (forests, trees, hedgerows) The assumption is that agricultural land units with a direct connection to natural habits are more suitable for biodiversity conservation than those which are separated or isolated. This information enters into the optimization model. Production and climatic suitability influence yields, while size and average slope influence production costs on each specific parcel. The information on the suitability for biodiversity conservation determines the allocation of the nature conservation activities in the model (Huber, 2009a). Methodological limitations of our MPM have some well-known limitations. Firstly, the one-dimensional objective function (income maximisation) does not represent diverging preferences, values and risk behaviour. Secondly, its linearity and the lack of feedback effects which would be expected, for instance, from input and output markets. Thirdly, a calibration to real world data is not possible due to the integration of German construction data and the fact that existing structural conditions are intentionally not taken into consideration. However, the original model fits to real world data in an appropriate manner (Hartmann et al., 2009). Thus, we assume that the model specification represents the agricultural production process quite adequately. Furthermore, the GIS model disregards property rights. In reality, landscape fragmentation would be higher than in our modelling approach. Nevertheless, our model is suitable for the purpose of this article since we do not make 136 Geografisk Tidsskrift-Danish Journal of Geography 109(2)
any predictions about the future but try to identify driving forces, resource limitations and relevant decision variables in a specific scenario. However, the above-mentioned disadvantages must be taken into account if the scenario is discussed in the broader context. Case study region The case study region (District Muri) is situated in the central part of the Swiss lowlands and has an area of approximately 10,000 ha. The region can be characterized as a peri-urban rural area. This means, it is neither part of an agglomeration nor a city. The distance to agglomerations (Zurich), however, is small. Agricultural structures are dominated by mixed farms (50%). 304 out of 536 farmers are milk producers. The number of cows amounts to slightly more than 7,000 (13 cows per farmer). In addition, there is considerable pig and poultry production. Livestock units per ha (all animals) amounts to 1.9. 20% of the farms have an agricultural area of less than 10 ha, 46% have 10-20 ha available for production and 34% cultivate an area bigger than 20 ha, whereby only 3% of these have over 40 ha of land. Average farm size is approximately 18 ha which is slightly above the Swiss average of 16.7 ha per farm. Still, average farm size must be characterised as very small. Land-use is dominated by grassland (57% of total area), cereals (21%) and maize production (16%). The district lies in a valley in the bottom of which climatic and soil conditions are good. The hillsides are less suitable for agricultural production. Scenario Producer prices for agricultural commodities in Switzerland are significantly higher than the EU or world market level. On average (2003 to 2006), wheat prices in France and Germany, for instance, were 70% lower than in Switzerland. With regard to the price of milk, differences in Europe were smaller (70% of Swiss prices). However, the milk price in New Zealand amounted to only 40% of the Swiss price. When constructing the scenario, we assume that Swiss producer prices approximate world market prices. As a proxy for world market prices, we apply US producer price averages from 2003 to 2006 (Table 2). In order to avoid the problem of exchange rate fluctuations, we multiplied existing model parameters (in Swiss francs CHF) by the price level in the US (percentage). Furthermore, we assume that production costs also decrease. Lower fixed costs are modelled by introducing benchmark farms and full working load of the machinery.
Table 2: Implemented producer price reduction.
Unit: USD
Switzerland
US
03-06
03-06
Wheat
401
132
33%
Barley
303
122
40%
Rapeseed
585
283
48%
Sunflowers
605
286
47%
Potatoes
334
144
43%
89
46
51%
304
88
29%
02-05
02-05
Milk price
566
313
55%
Beef cattle
5,843
3,415
58%
Pig
3,272
1,333
41%
Sheep
6,938
4,466
64%
Years
Sugar beet Maize Years
Resulting price reduction in the model parameter
Source: FAO (2009)
Benchmark farms have lower investment costs because they are at least three times bigger than the average Swiss farm today. We introduce German data in order to represent these scale effects. Small production units also lead to high machinery costs since farmers do not utilize their machines to the full. Again, the assumption that bigger farms will make more use of their machinery leads to the assumption of lower fixed cost in the production process (Table 3). Table 3: Fixed cost reductions.
In addition, we introduced a cost level parameter. This allows us to show changes in the production pattern if production costs (fixed and variable) are further decreased. The idea behind reduced production costs is that open markets will also influence factor markets. This is certainly valid for the cost of pesticides since these products are indirectly protected by the existing policy environment. However, the cost of services (e.g. for the veterinarian) is influenced more strongly by local economic conditions (purchasing power, salary etc.) than by global markets. Thus, it is difficult to assess the overall dimension of this cost reduction. In the model calculations, we apply a sensitivity analysis in order to assess the different cost levels. In addition to the different cost levels, we calculate the optimal solutions for different levels of opportunity costs for labour. In our model, opportunity costs represent a minimal factor compensation for labour. If the farmer earns less than the level of opportunity costs, the corresponding economic activity does not enter the optimal solution. As a result, the income per hour and farmer has a lower limit and thus represents an exit threshold. Low opportunity costs imply that farmers have preferences to stay in the agricultural sector that are not solely dictated by financial motives. High opportunity costs, on the other hand, imply that the farmers have the possibility to work outside the sector and earn at least these opportunity costs. Opportunity costs can certainly also be seen as production costs. The difference is that the production cost level is an exogenous variable for the individual farmer whereas the level of opportunity costs can vary significantly between the farmers due to, for example, differences in preferences. In reality, it can be observed that farmers tend to produce even with very low hourly wages. Thus, results from our two calculation setups (decreasing production costs and decreasing level of opportunity costs) differ with respect to their interpretation.
(selected) Machinery Plough
70%
Seed drill
80%
Mower
75%
Trailer (grass)
80%
Baler
85%
Barn Cows
65%
Sheep
30%
Source: KTBL (2006); ART (2006)
Results Our results show long-term, static effects on land-use and farm characteristics. Figure 1 illustrates the results with a decreasing production cost level (1A) and a reduction in the opportunity cost for labour (1B). In 1A, opportunity costs are set at CHF 10; in 1B, the cost level is set at 85%. Thus, the vertical line in each figure indicates the identical solution in the two calculation sets. If production costs remain high in our scenario, extensive forms of agricultural activities dominate the solutions. Geografisk Tidsskrift-Danish Journal of Geography 109(2) 137
1. A) Decreasing production cost level (Opportunity cost for labour: 10 CHF) Land-use
Animal production 16000
8000
Grassland Extensive grassland Crops Rotational fallows
4000 2000
12000
Number
Hectares
6000
Milking cows Sheep
8000 4000 0
0 1.00 0.95 0.90 0.85 0.80 0.75 0.70 0.65
1.00 0.95 0.90 0.85 0.80 0.75 0.70 0.65
Production cost level (%)
Production cost level (% )
1. B) Decreasing opportunity costs for labour (Production cost level 0.85) Land-use
Animal production 16000
8000
Grassland Extensive grassland Crops Rotational fallows
4000 2000 0
12000
Number
Hectares
6000
Milking cows Sheep
8000 4000 0
28
24
20
16
12
8
4
0
Opportunity cost for labour (CHF)
28
24
20
16
12
8
4
0
Opportunity cost for labour (CHF)
Figure 1: Land-use and livestock production with decreasing production costs and opportunity costs for labour.
Sheep grazing (production of lamb) would dominate landuse. As a result, most of the agricultural area is used for nature conservation activities. Almost two thirds of the agricultural area is used as extensive permanent grassland (64%). Rotational fallows account for 11% of the total area. Cash crops, maize, rape (oil) and sugar beet are cultivated on 14% of the area. The rest of the area (11%) is used as more intensive grassland in order to produce fodder stocks for the winter and to feed the small number of cows in the optimal solution. This number, however, increases gradually with a decreasing production cost level. If the production cost level is lower than 85% of the existing level, grassland based milk production emerges as the dominant 138 Geografisk Tidsskrift-Danish Journal of Geography 109(2)
production activity in the case study region. The amount of extensive grass dairy cows may consume is restricted due to dietary reasons. Thus, land-use changes with a switch from extensive to more intensive forms. Extensive grassland dwindles to a level of 1,900 ha, corresponding to 20% of the total area. Rotational fallows make way for more productive activities. Cash and fodder crops increase to a level of 2,000 ha, which corresponds to 22% of the total area. The production of lamb disappears completely in the optimal solution if the cost level sinks below the 80% level (right figure in 1A). The same effects can be observed if the opportunity costs for labour, representing a minimal factor compen-
Table 4: Existing land-use compared to model output for different levels of agricultural production.
Land-use 2005 (ha)
Model output Nature conservation ha
Opportunity cost
% of 2005 level
28
Extensive agriculture ha
% of 2005 level
Intensive agriculture ha
20
% of 2005 level 0
Grassland
4,818
1,392
29%
5,357
111%
7,911
164%
Maize
1,536
181
12%
590
38%
752
49%
308
48
16%
51
17%
531
173%
1,965
0
0%
0
0%
0
0%
Oil seeds
144
77
54%
925
644%
0
0%
Nature conservation schemes
559
7,227
1,293%
2,271
406%
0
0%
9,329
8,925
95.7%
9,194
98.5%
9,194
98.5%
Root crops Cereals
Total Production cost level
1
0.7
Grassland
4,818
6,832
142%
7,322
152%
Maize
1,536
801
52%
714
46%
308
98
32%
304
99%
1,965
97
5%
0
0%
Oil seeds
144
345
240%
855
595%
Nature conservation schemes
559
1,021
183%
0
0%
9,329
9,194
98.5%
9,194
98.5%
Root crops Cereals
Total
sation for the farmer, are varied between 28 and 0 CHF (Figure 1B). With high opportunity costs, agricultural production would be virtually non-existent. Due to the high direct payments for cultivated land, however, nature conservation schemes continue to be pursued in the optimal solution (rotational fallows 80%, extensive grassland 10% of the total area). Practically speaking, the region would be a flowering field. If opportunity costs are decreased, a two step process can be observed. Firstly, nature conservation schemes are replaced by extensive agricultural production activities. In our model approach this is represented by grazing sheep. In analogy to the situation with high production costs, the amount of extensive permanent grassland increases. Secondly, if opportunity costs sink even further, more intensive agricultural activities enter the optimal solution. Again, grassland based milk production emerges as the dominant agricultural activity. However, with decreasing production costs, there is a further decline in the amount of crops compared to the calculations. This can be deduced from the fact that lower opportunity costs
favour labour-intensive activities such as milk production. Apart from this difference, the results of the two calculation setups show the same effects. If production costs remain high, there would be a shift in agricultural production and land-use would be dominated by nature conservation. If production costs sink, either through lower production costs or lower opportunity costs, extensive agricultural activities such as sheep grazing are the most profitable. A further decline in costs implies that intensive grassland based milk production would become the most profitable agricultural activity in the case study region. To sum up, there are three possible stages of agricultural production that can be deduced from our scenario: (a) nature conservation with little agricultural production, (b) extensive agriculture, and (c) intensive agriculture. Tables 4 and 5 compare the model output associated with these three stages to the existing agricultural structures in 2005. Table 4 focuses on land-use, whereas Table 5 shows differences in the number of farmers, income per farmer, animal production and livestock intensity. Geografisk Tidsskrift-Danish Journal of Geography 109(2) 139
Table 5: Existing number of farms, income per farmer, animals and livestock intensity compared to model output for different levels of agricultural production.
Data 2005
Model output Nature conservation Numbers
Opportunity cost Number of farms
% of 2005 level
28
Extensive agriculture Numbers
% of 2005 level
Intensive agriculture Numbers
20
% of 2005 level 0
536
55
10%
144
27%
463
86%
61,534
206,809
336%
118,267
192%
59,249
96%
Dairy cows
6,646
497
7%
0
0%
9,281
140%
Sheep
1,175
1,635
139%
11,671
993%
0
0%
1.85
0.10
6%
1.29
70%
1.37
74%
Income per farmer (CHF)
Livestock intensity per ha Production cost level Number of farms
1
0.7
536
183
34%
441
82%
61,534
97,161
158%
73,215
119%
Dairy cows
6,646
385
6%
9,457
142%
Sheep
1,175
14,042
1,195%
0
0%
1.85
0.32
17%
1.30
70%
Income per farmer (CHF)
Livestock intensity per ha
Overall, the comparison shows large differences between existing agricultural production and the model results. This is hardly surprising since our assumptions are somewhat extreme and no consideration is given to any adjustment process. Nevertheless, results reveal the economic driving forces and the consequences for land-use under our world market scenario. As was to be expected, the greatest differences are to be found between existing agriculture and the nature conservation state, while intensive agriculture exhibits the smallest differences. Table 4 and 5 also illustrate clearly the main conclusions of Figure 1: low production costs favour a grassland based milk production; high production costs encourage extensive sheep production; high opportunity costs make a nature conservation state more profitable. With respect to land-use, our results show that the share of abandoned land is very low. Even without productive agriculture, the share of abandoned land in the model is less than 5%. On the one hand, this reflects rather small differences in the agricultural production suitability in our case study region. On the other hand, it emphasizes the role of high direct area payments in Swiss agricultural policy as a main economic driving force. Obviously, direct payments can compensate the reduction in price support with respect 140 Geografisk Tidsskrift-Danish Journal of Geography 109(2)
to the input of land. Agricultural land would be cultivated even without the production of a commodity. Moreover, our model results imply that crop production declines and grassland increases (except for the nature conservation state in which there is only a small share of productive agriculture). In the case of crop production, we can observe a shift from cereals to oil seeds due to the changes in relative output prices. The area dedicated to crop production in absolute terms, however, is clearly less than the existing share. In the case of zero opportunity costs, farmers would focus on the production of sugar beet on land units with high production suitability and stop cultivating cereals and oil seeds. In the case of reduced costs, however, oil seeds (rape) remain in the optimal solution. The reduction in the area for cash crops is due to the comparative cost advantage of lamb and milk production in the case of an extensive and intensive agricultural production respectively. The differences shown in Table 5 underline this conclusion. Livestock numbers change drastically depending on the state of agricultural production. Extensive agricultural production would lead to a tenfold increase in the number of sheep. However, the number of sheep currently in the region is rather low. Intensive agricultural production would lead to a 40% increase the number of dairy cows. Nevertheless,
livestock intensity would be lower than in the actual situation. This can be inferred from the fact that in any case, pig and poultry production does not enter the optimal solution. However, in reality, the production of pigs and poultry accounts for 36% of the livestock units. In addition to the unfavourable production parameters, the drop out of these model activities can be ascribed to the animal protection law in Switzerland which sets a maximum stock level of 1,500 and 18,000 for pig and poultry stables respectively. Thus, economies of scale are limited. The number of farms also varies widely in the different states of production. In the case of intensive agriculture, over 80% of the farms will remain in business. In this case, the income per farmer would be comparable to the existing income. Given the structural development in our modelling approach, a reduction in production costs to the 70% level would even result in a 19% increase agricultural income. In contrast, nature conservation would be possible with 90% less farms. In this case, the income per farmer increases more than threefold. With extensive agricultural sheep production, the increase in income would almost be
twofold. Yet again, this is basically a consequence of high direct payments in the Swiss policy scheme. The results of our modelling approach can be represented in a GIS map (Figure 2). The graphical representation of the model solution illustrates the consequences for the land-use patterns under the three states of agricultural production. Given high opportunity costs, nature conservation schemes dominate the landscape (a). If the level of opportunity costs sinks, extensive grassland emerges as the dominant form of land-use (b). The same land-use can be observed if opportunity costs are moderate (CHF 10) but production costs remain high (d). If costs sink even further, grassland emerges as the dominant land-use (e). Extensive land-use shifts to the less productive land units on the hillsides of the case study region. If opportunity costs are assumed to be 0, sugar beet is the only crop cultivated and the rest of the area would be used as grassland for milk production (c). In conclusion, our model shows that the economic outcome of our WTO scenario has different potential outcomes for the land-use patterns. The structural change and spe-
Extensive agriculture
Intensive agriculture
Opportunity cost CHF 20 (b)
Opportunity cost CHF 0 (c)
Cost level 100% (d)
Cost level 70% (e)
4.5 km
Nature conservation Opportunity cost CHF 28 (a)
Figure 2: Selected GIS representation of model results.
Geografisk Tidsskrift-Danish Journal of Geography 109(2) 141
cialisation implemented in our model approach, together with the WTO compatible direct payment system, lead to a more productive agricultural sector which is able to produce food even with world market prices. However, if farmers are unable to further reduce their production costs or if they claim a high wage for their working hours, the outcome may be completely different. From a productive perspective, grassland based milk production is the most likely agricultural activity to be pursued in our case study region. This outcome would have the lowest effect on landuse patterns because land-use would be comparable to the current state. In contrast, the existing direct payment system with high area payments and additional green payments can be seen as an economic driving force which favours a more extensive agricultural production. Thus, the emergence of a ‘nature conservation agriculture’ must be considered as an equally plausible outcome of our scenario.
Discussion From a historical point of view, agricultural landscapes have always reflected the need for food and, to a lesser extent, fibre and energy. Since the change in agricultural production structures is an inevitable process, local agricultural landscapes in Switzerland are going to change irrespectively of more globalized markets (El Benni & Lehmann, 2010). However, a new agreement in the WTO negotiations would change the market system for food considerably and thus the characteristics of land-use patterns will undergo even more distinctive changes. The results of our calculations show that, under world market prices, agriculture in the Swiss lowlands would, to a certain extent, be economically viable. However, an increase in productivity and an adequate reduction in production costs is a prerequisite for a productive agricultural sector. In this case, farmers would focus on milk production. Since the existing landscape is already dominated by dairy farms, the change in land-use and thus landscape would be moderate. In contrast, high production costs or high opportunity costs for farmers’ labour would entail more extensive forms of agricultural land-use. This would change the land-use patterns significantly. Moreover, our model results show an improvement in ecological indicators. In the world market price scenario, farmers have to provide the same environmental services as they do today. In addition to model inherent environmental services, farmers increase extensive forms of land-use (extensive grassland) and cease intensive (independent of land-use) farming 142 Geografisk Tidsskrift-Danish Journal of Geography 109(2)
activities such as pig and poultry production in the optimal solution. As a result, livestock intensity in the case study region sinks irrespective of production and opportunity costs. This leads to a reduction in environmentally harmful emissions from agriculture. Moreover, our calculations show that the whole agricultural area is still cultivated. Thus, open space amenities would be provided in any case. This is due to high direct payments for any use of agricultural land. However, the level of agricultural income in the case of ‘nature conservation agriculture’ indicates that the direct payments must be adapted to sinking commodity prices otherwise the extent of the support may be disproportionate. Moreover, regional differences must be emphasised. In Switzerland, for example, the transfer of our results to a mountainous region would certainly lead to the wrong conclusions. In marginal areas (in terms of agricultural production suitability and geographical situation), the need for support is much more pronounced. Our model suggests that marginal areas are used as extensive grassland and that production intensity on good farmland remains high. This will be even more pronounced in regions with greater differences in natural conditions or with greater susceptibility to climate change. The question remains how more extensive land-use and the corresponding change in landscape would be perceived by the public and whether it would be accepted even if the associated ecological consequences were favourable. In this respect, Anderson (2000) argues that it is not possible to predict whether new uses of land (for different farm activities, or for golf courses, recreation parks or similar) would be any less aesthetically pleasing than the current uses. In addition, Bromley (2000) advocates the idea that if agriculture is not competitive, farmers should focus on the provision of landscape and habitat management. In this case, the production of food and fibre would be a secondary product of landscape and habitats. In support of such arguments, an economic valuation study in the Swiss lowlands shows that the public has a positive willingness to pay for more extensive farmland at the expense of high intensity grassland (Schmitt et al., 2005), and Schüpbach et al. (2009) as well as Junge et al. (2009) demonstrate that Swiss citizens perceive landscapes with a high share of extensive farmland as prettier than those with a lower level. As our results imply, lower commodity prices associated with high direct payments could push agriculture in this direction. However, the amount of extensive grassland in our scenario would be far greater than the demand reported in these studies. Moreover, a choice experiment involving politi-
cians from the case study region reveals that they would not accept such a scenario (Huber, 2009b). The conservative political right will not accept certain land-use scenarios if they impede agricultural production of food and fibre too much. This is in line with opinion surveys of Swiss citizens which report that food production is still perceived as one of the main functions of agriculture (e.g. Tutkun et al., 2007). Furthermore, this also reflects the image most farmers have of themselves. For example, a choice experiment carried out by Lips & Gazzarin (2008) shows that dairy farmers in the Swiss lowlands exhibit a strong preference for milk production even if they have lower salaries and poorer working conditions compared to other sectors. To sum up, more extensive forms of agricultural land-use would be opposed even if they were economically efficient. Food security is an important issue in the context of opposition to more extensive forms of land-use. Indeed, food security arguments served to justify most of the protectionist measures observed in the last century. Due to the food crisis in 2008, this issue has re-emerged as a topic for the attention of agricultural policy makers. Even though there are major reservations concerning such policies in industrialized countries (Mann, 2008), they are nevertheless a political reality. As a consequence, the change in perspective supported by Bromley and the corresponding radical new forms of agriculture would not meet with public or political acceptance in Switzerland. In this connection, Wilson (2007) argues that productivist and post-productivist action and thought will occur simultaneously anyway. This underlines the existence of other economic driving forces not implemented in our model, such as product differentiation or the possibility to work part-time on the farm. Thus, our results show the range of an economically efficient spectrum encompassing productivist to post-productivist activities rather than socially optimal solutions. While acknowledging the methodological limits of our approach, the overall advantage of our line of thought would be the possibility to break the vicious circle of the so-called ‘subsidy trap’ (Happe & Balmann, 2007): In Switzerland, small-scale agriculture is reliant on financial assistance in order to be able to produce at all. Yet it is precisely the agricultural policy of the past which has pushed farms into this situation. Certain compensation payments are certainly necessary and can be justified – but the reason for them must be made transparent. From an economic perspective, the most promising policy measures are the implementation of a direct payment system which distorts trade as little as possible (OECD, 2003) and the adoption of policy measures that support structural change by allowing
farmers to reduce their production costs. This would enable farmers to produce commodities in a competitive environment and to efficiently provide agricultural landscapes at the same time.
Conclusions We analysed the consequences of world market prices for agricultural production and the land-use patterns in the Swiss lowlands using a mathematical programming model. Given a sufficient reduction in production costs, our results imply that income maximizing farmers would focus on grassland based milk production. This would only lead to a modest change in the existing landscape since our case study region is currently dominated by dairy farms. If production costs remain high, agricultural production would shift to more extensive production activities in order to maximize the sectoral income. However, if a certain level is exceeded, farmers would merely cease production and cultivate their land in order to get direct payments. This would change the land-use patterns considerably. The main driving forces behind this development are the implementation of the direct payment system and the farmers’ possibility to reduce their production costs, in particular, by means of structural change which would result in more productive farms. Moreover, different preferences of the individual farmers influence the outcome of our scenario significantly. Low opportunity costs, representing noneconomic preferences to remain in the agricultural sector, reinforce the trend towards grassland based milk production in the Swiss lowlands. The results of our scenario show that freer trade and the corresponding lower prices for commodities do not necessarily mean that agricultural production vanishes in the Swiss lowlands and that the existing agricultural landscape disappears. In fact, the model showed a large range of possible, economically efficient outcomes. Whether or not these outcomes are sustainable and how they could be implemented remain open questions. The answers must be sought beyond the confines of a purely economic analysis.
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