MAINTAINING HARMONY: EQUITABLE AND EFFICIENT MEANS TO MINIMISE ADVERSE IMPACTS OF LIVESTOCK ON THE ENVIRONMENT

Michael D. Young, CSIRO Division of Wildlife and Ecology, PO Box 84, Lyneham, Canberra, Australia 2602

Introduction

Livestock's impact on the environment is both positive and negative. Leaving ways to enhance positive effects to others, this paper focuses on reduction of adverse effects - the environmental costs of livestock production. Usefully, these adverse effects can be classified into on-site effects and off-site effects. Usually, the initial impact of on-site effects is on the productivity and quality of resources owned, controlled or used by livestock managers. The linkage between action and individual welfare is direct. In the case of off-site effects, however, the dominant adverse affect is on the welfare of other people, future generations and the environment in general.

Causes

A second typology - useful in unpacking the theme of this paper - is to identity the nature of the causes of the pressures that livestock can place on environmental processes and, though this, environmental values (Table 1). Some causes are fundamental to the structure of society and, because of this characteristic, involve many factors that require considerations that extend well beyond the traditional domain of livestock policy. Human population policies clearly fall into this domain. Limited by their status in the institutional arrangements that drive socio-economic activity, it can be difficult for livestock and resource policy makers to involve themselves in debates about the fundamental causes of actions that cause livestock to have adverse impacts on the environment. Hence, whilst not denying that, in theory, the most cost-effective way to reduce any adverse effect of livestock on the environment is to remove fundamental causes, this paper focuses on mechanisms to reduce underlying causes of the direct pressures that livestock place on the environment.

Design Principles

At the most general level direct pressures can be reduced by prohibiting them or alternatively by reducing the underlying cause of the problem. The advantage of addressing the underlying cause of a problem is that when an underlying cause can be removed the incentive for managers to cause the problem to occur is removed and, little monitoring or enforcement is required. AS a general guideline, mechanisms that address underlying causes of problems are likely to be more cost-effective than those that address the symptom of the problem. Thus, economists often recommend the introduction of policies like the Polluter Pays and User Pays Principles that make the costs of environmental damage transparent to livestock managers and the people who consume their products.

Less commonly discussed is the need to mix instruments, mechanisms and policies. In practice, the effectiveness of and need for each element will change through time as feedbacks occur and circumstances change.

One characteristic, not always acknowledged but of critical importance, is the degree of heterogeneity in mixed crop-livestock and extensive grazing systems. The responsiveness of people to each instrument varies according to factors like relative wealth, age, family needs and status. Moreover, the landscapes in which they operate are very heterogeneous and respond differently to changes in seasonal conditions. In aggregate, this means that, in any region, a suite of instruments will be needed that will operate in concert with one another. Those seriously concerned about the costs that livestock place on the environment will mix institutional, motivational, voluntary, price-based, regulatory and property-right mechanisms to account for different social, economic and physical circumstances at each location. As a general rule, recommendations about the superiority of one instrument over another are naive. In most circumstances, instruments complement each other and enhance the effectiveness of most other instruments.

In addition to the above considerations, it is critical to realise that livestock production potential is dependant upon the combination of resources found at each location and that the nature of the ecological processes that produce this potential often is poorly understood. This means that surprises will be expected. A wise policy mix will expect the unexpected and recognise that elements of the optimal policy mix will vary across space and with each season. In an environment, for example, where financial instruments are used extensively, for example, regulatory instruments may still be necessary to deal with recalcitrant operators motivated by non-economic considerations. Similarly, surprises - like sudden changes in prices that would make a pollution charge ineffective - would be anticipated.

In addition to the above. it is common for economists to recommend the replacement of policies and programs whose effects have perverse (unintended) effects on environment quality with those that can be more precisely targeted to the prime policy objective. Thus, for example, it is argued that tariff barriers as a means to maintain farmer welfare and landscape quality inside the European Community should be replaced with direct payment schemes that do not cause nitrate pollution of groundwater in the Netherlands, soil erosion in Thailand and rangeland degradation in Botswana.

Finally, any discussion about environmental problems associated with livestock must recognise that many of the causal links and cumulative consequences of adverse environmental impacts are poorly, understood. Moreover, beyond poorly understood thresholds, the consequences of an undesired action may - at reasonable cost- be irreversible. In such cases, there is a need for precaution and adoption of adaptive management techniques that facilitate periodic adjustment as new information and new understanding becomes available.

Table 1 Examples of Fundamental Causes, Underlying Causes and Direct Pressures of Livestock on the Environment

Fundamental ® Underlying ® Direct Pressures ® Outcome Causes Causes
Population density | Market returns are highest to those who degrade environment | Inadequate waste treatment | On-site - Nutrient loss Off-site - Water and air pollution
Population growth | Property-rights are not enforced | Overgrazing | On-site - Lost productivity Off-site - Water turbidity
Inequality | Institutions are corrupt | Pasture development | Off-site - Lost biodiversity
Desire for economic growth | Information about environmental costs are not known by livestock managers | Methane emissions | Off-site - Increased risk of climate change
Poverty | Development policies have unintended effects on the environment |  |
Knowledge deficiency |  |  |

Mechanisms for reducing environmental costs

Essentially, the challenge in improving any natural resource management system is to get the mix of policies that affect land-use practice right in a social sense. Recognising that the role of each instrument will change as changes occur, we can now explore the principles and guidelines that influence instrument choice when the search is for a suite of programs that encourage livestock keepers to minimise adverse effects on the environment. Essentially and at the risk of being too simplistic, this requires attention in

• Extensive systems to the interface between livestock numbers and available forage;

• Mixed crop-livestock systems to nutrient pools; and

• Industrial and landless systems to the disposal of waste.

As illustrated in figure 1, essentially the range of instruments available to assist those livestock managers can be classified into 6 classes.

1 Motivation, information and educational instruments;

2 Financial instruments;

3 Property-right instruments;

4 Regulatory instruments;

5 Voluntary instruments; and

6 Institutional instruments.

In concert with one another, the collective role of all instruments that aim to reduce environmental problems associated with livestock is to get the feedbacks working so that the aggregate outcome is one that keeps livestock use consistent with social objectives (see Figure 2). The essential question is one of which combination of instruments is likely to be most effective and most equitable in delivering environmental objectives.

> Figure 1. Major Types of Policy Instruments and Institutional Arrangements

> Figure 2 Essentially whenever a suite of instruments is used to influence livestock management the aim is to create feed backs so that environment costs are minimised and benefits are maximised.

One of the first observations to be made is that in a significant number of circumstances the underlying cause of many environmental problems associated with livestock are the unintended (or perverse effects) of production policies used to achieve social objectives like the maintenance of income. The unintended effects of these perverse incentives as they are often called can be dramatic. In a significant number of cases, if the policy was not in place the problem would not exist.

One classic example of the perverse environmental effects of income support policies reveals itself in the extent of water and air pollution problems in the Netherlands associated with intensive production of pigs. This, essentially, landless production system exists because of the complex interplay of tariff barriers to the import of livestock and grain into the European Community and a special agreement that allows cassava to be imported duty free. Tariff barriers are used to encourage cereal production within the European Community rather than in other parts of the world but tariff free imports of cassava are permitted into the European Community as a means to encourage agricultural development in countries like Thailand. The result has been the development of this industry close to Western Europe's largest port and, because production is well beyond assimilative capacity, widespread water and air pollution. Environmental pollution from livestock is a by-product of a suite of regimes designed to achieve a range of social objectives. Unfortunately, perverse incentives, like these mask the feedback loops necessary to protect the environment. De Haen et al (1990), for example, have estimated that a nitrogen tax of more than 200% would be necessary to bring the concentration of nitrates in groundwater in one part of Germany to half the European Community's maximum allowable concentration of nitrates in drinking water.

At the more, global level Panayotou (1996) has estimated that 90 cents in every dollar of the effects of environmental instruments are absorbed in the amelioration of the adverse effects on the environment of price support, price control and input subsidies. Thus the first and the most obvious guideline is to recommend the removal of mechanisms that mask feed backs from the environment to the market place. In essence, this means that, wherever possible, mechanisms designed to achieve social objectives like the maintenance of income should be decoupled from the processes that determine market prices.

Having made this general observation, we can now turn to the issues that underlie the development of policies necessary to make livestock users incur the costs that livestock impose on the environment.

Motivation, information and educational instruments

While often slow to act, motivational, information and educational instruments are essential to any package. In the case of water pollution, for example, community pressures for change are dependent upon recognition that water pollution from nitrates, for example, can be dangerous for human health. Similarly, if farmers are not aware of the techniques necessary to apply manure to soil or of the relationship between livestock numbers and soil erosion they can not be expected to make decisions in a way that account for such considerations. Adequate information about the adverse effects of livestock on any element of the environment is a necessary precondition for firms to begin the search for innovative ways to reduce the impact of livestock production on environmental quality. Examples of the types of innovation that have emerged from such information include the use of animal manure for fish farming in Asia and the use of animal manure to produce gases that can be used for heating, etc.

Once the information becomes available one low-cost strategy is to raise the profile of the people who best demonstrate how such problems can be solved. This is done using motivational instruments that give prestige to these innovators and demonstrators of best environmental practice. The instruments used to increase motivation are many but include awards and prizes and selection of locations for field days. Whilst not yet well developed for livestock, labelling schemes also have potential in enabling consumers to demonstrate a market preference for products produced using best environmental practice. As a general rule., it should be noted however. that motivational and educational instruments are most effective in dealing with on-site costs that, if not managed, will ultimately reduce the welfare of the livestock producer.

Compulsory financial instruments

When the issue is one, as economists say, of internalising the externalities or reducing the impact of costs external to the production system, motivational and informational instruments are less effective. Consistent with the User-Pays and the Polluter-Pays Principles, these instruments bring such costs into the production system. Producers are then forced to pass these costs onto consumers and are given an incentive to avoid them.

Input prices

The first general recommendation that can be made is that, as far as possible, those who use publicly provided goods and services, should be made to pay the full costs of supplying these goods and services to them. Subsidies for the use of inorganic fertilisers, for example, discourage the use of livestock manure with the consequence that less effort maximising the contribution it can make to the maintenance of soil fertility. Similarly, in many parts of Africa, there is no or little charge for access to public watering points. Essentially, the recommendation is for full cost recovery of the provision of all goods and services offered to livestock producers and, also, those sectors that complete with the livestock sector.

Interestingly, there is evidence that, in certain circumstances, full cost recovery for scarce government services can shift access to resources in favour of poorer producers less able to play the political processes necessary to obtain access to subsidised resources. As far as I am aware, there have been no studies of the environmental consequences of doing this. If, however, full-cost recovery for veterinary services., for example, leads to increases herd productivity and, through this, improved resource management then such practices might result in environmental improvement. Similar arguments could also be made for access to publicly-owned watering points but, again, the factors that influence water-use decisions are complex and environmental improvement in all cases can not be guaranteed.

Environmental levies

When the environmental costs of livestock production impact primarily on other people, there is a strong case for the use of levies and charges to make these costs internal to the production system. This general approach is consistent with the Polluter-Pays Principle, which as defined by the OECD, requires polluters to pay for the costs of government programs used to prevent and control pollution. Thus, for example, if water pollution from livestock increases the cost of water treatment then the Principle requires that the costs of this treatment be recovered from livestock producers. Avocation of this principle requires preference for a distribution of property rights that do not allow pollution. In the United States, there are examples of water treatment utilities paying farmers to adopt low polluting management practices as this option is more cost-effective for them than an upgrade of their water treatment plant (EPA 1996).

As a general rule, however, producers tend to be opposed to the introduction of environmental levies and charges as they reduce their income and the value of their property. Moreover in the case of non-point sources of pollution, often it is argued that such arrangements are inequitable because they it is very difficult to identify which people are actually causing the problem. In an attempt to reduce this criticism, it is possible to hypothecate the resulting revenue and empower those who pay this money to decide how it may be spent to alleviate this. Such mechanisms encourage those to find ways to achieve the same outcome at less cost.

Theoretically, the use of environmental levies will be most efficient when the levy is paid in proportion to environmental damage caused. In practice, however, the cost of monitoring damage is prohibitive with the consequence that often levies are placed on surrogates like area of land, number of livestock or quantity of input used. Whilst pragmatic, all such mechanisms are less efficient as they provide less encouragement for livestock managers to develop production methods that whilst still using the input do not cause as much pollution. There is also a political problem with environmental levies. Politicians are often reluctant to increase levies as relative prices and technology change. In practice, however, unless this is done the levy soon becomes ineffective. Consequently, environmental levies have been used only rarely in the control of environmental pollution associated with livestock production.

Property-right instruments

Property-right instruments are well suited to attainment of environmental objectives because they grant resource users a tangible interest in the future consequences, including environmental consequences, of their actions. Property-rights are, however, artificial rights that exist only if governments are willing and able to enforce them. In recent times, this role has been largely reserved to governments. From the perspective of livestock and the environment two issues are important: Security of land tenure and tradeable emission rights.

Security of tenure

Lack of security of tenure - the right to exclude others from the benefits of using an area - has been argued by many people as one of the prime causes of land degradation. In the Amazonian region of Brazil, for example, security of tenure has been conditional upon land clearance with the result that significant areas of rainforest have been cleared solely as a means to obtain access to wealth. Title to this land was issued without consideration of its traditional value to local Indians and arguably, without consideration of its considerable biodiversity value. Similarly, in many parts of Africa, highly effective common property regimes have broken down because governments have seen fit to allocate key grazing areas to people who wish to crop them. In each of these cases, the underlying cause of environmental degradation was the lack of a tenure system enabling existing users to prevent others from encroaching onto and abusing resources that are fundamental to the sustainable exploitation of ecosystems under their control. Where security of tenure exists, land holders have a much stronger interest in minimising rates of land degradation and related environmental problems.¹ This, however, does not mean that the rights and conditions that apply to land can not be changed, only that such changes must be perceived by the land holders and the communities that they live in as being equitable.

Tradeable emission rights

Increasingly, economists are advocating the use of tradeable emission right systems for pollution control. From an environmental perspective, these tradeable-emission systems are more dependable than environmental levies because they use a political process to cap the extent of pollution allowed and then market mechanisms to find the most efficient way to do this (Young and McCay 1996). Once adopted, politicians become accountable for making the system work which, in turn, means that to retain credibility they must keep emissions within the cap. An added attraction of tradeable emission-right systems over other financial instruments is their tendency to increase rather than decrease the wealth of existing polluters. Generally, the windfall gains associated with implementation go to existing users (the polluters). As a result, polluters tend to perceive that such mechanisms are more equitable than environmental levies and other similar mechanisms.

As far as 1 am aware, there are no fully operational tradeable emission right schemes being used primarily to control livestock pollution problems anywhere in the world. There are, however. a number of bubble-licence-like schemes in operation. In the Netherlands, for example, farmers are required to prepare manure management plans that estimate how much manure they will produce and how it will be spread. Maximum amounts of manure per hectare can be spread and farmers can make arrangements to spread the manure over land owned by others. Such instruments build a strong feedback loop between the environmental problem and income. Introduction of these arrangements has made many more people economically interested in spreading manure so that environmental costs are minimised. As a result, there has been considerable innovation in the general area of manure management and the development of markets for manure.

Zoning instruments

One of the most commonly used instruments for alleviation of the potentially adverse impacts of livestock production and processing systems on the environment are zoning mechanisms that identify locations that are suitable for the location of livestock production systems. Industrial production systems, like a large piggery for example, are best not located near water courses and groundwater recharge areas. Zoning systems can also be used to limit the density of such systems in any one area so that emissions remain within a zone. Zoning regulations can also be used to specify the procedures that must be followed to obtain planning permission to establish a new establishment.

Regulatory instruments

Those opposed to the use of tradeable emission rights often make such criticisms on the basis that they imply that environmental objectives are tradeable. The alternative view is that any system should be constrained by a regulatory net that establishes the minimum standard that is acceptable m any area. Within such a framework the role of the trading system is to induce innovations that raise system performance above the minimum enshrined in legislation.

In addition to the above where the environmental consequences of inappropriate land use may be irreversible, there are strong arguments for setting minimum standards (regulations) at a precautionary level. Often the true safe minimum standard is unknown.

Voluntary Financial Instruments

Voluntary financial instruments are instruments that give each producer the opportunity to participate in a program. Classic examples include the provision of a subsidy for the instillation of pollution control equipment and payments for people to fence out streams so that cattle can not walk into them. If the logic behind the Polluter-Pays Principle is correct then there is little place for mechanisms of voluntary financial arrangements that seek to reduce or remove the adverse effects of livestock on the environment. The exceptions to this are twofold: First, when society wishes to cause a transition to a new scheme that is more speedy than that achievable by the mechanisms listed above. Second, when a group of people wishes to achieve a standard higher than that required by government.

Transitional subsidies

Transitional subsidies, because they are perceived as being equitable, are particularly useful in shifting public opinion. In Sweden for example, this mechanism has been used to increase acceptance of the need to manage animal manure more effectively. In this country landholders were offered a diminishing subsidy to help them upgrade manure storage facilities. Those who upgraded in the first year got the most assistance and those who delayed received a lesser payment. One consequence of this mechanism was widespread advertising by those who supplied the equipment necessary to improve storage facilities. Interestingly, such arrangements are consistent with the Polluter-Pays Principle as defined by the OECD. In essence, such mechanisms offer a powerful means to achieve change while maintaining community acceptance.

Payments for above-standard performance

The second case is where a firm or group of people wish to attain a standard above that mandated by government. Such arrangements are uncommon but do occur. In the United States, for example, a number of water utilities are financing programs that discourage farm practices that cause water pollution. In each case they have assessed that this approach is more cost-effective than one that requires them to remove pollutants from the water (EPA 1996).

Cross-compliance

Another mechanism used in a number of countries is the introduction of cross-compliance mechanisms. In Australia, for example., drought subsidies are becoming more and more restricted and the possibility of limiting drought-subsidies to farmers who have prepared property management plans is being seriously considered. The main reason for introduction of cross-compliance mechanisms has been recognition of the fact that drought subsidies encourage farmers to keep more livestock than would otherwise be the case and that, wherever this occurs, the probability of serious soil erosion and other forms of land degradation is increased. Cross-compliance limits access to the subsidy (called drought assistance) to those livestock producers who have shown that they are aware of this risk and have planned to avoid it.

Institutional arrangements

The last issue to consider is the use of institutional mechanisms to reduce the adverse effects of livestock on the environment. The main mechanisms used to do this are: the already discussed mechanism of allocating property rights to resource users; the devolution of decision-making powers to lower levels of administration; the empowerment of these institutions by giving them access to the full array of instruments available to those at higher levels in the administrative hierarchy; and, finally, the hypothecation of money collected through input levies, charges on animal numbers and other surrogates for the level of pollution likely to result from the adoption of various practices.

Devolution

General recognition of the difficulty in enforcing land-use controls from a central bureaucracy has led to the development of the recognition of the benefits of subsidiarity in decision making. Essentially, subsidiarity is the transfer of authority and responsibility for aspects of any strategy to the lowest level at which it can be exercised effectively (Young et al 1996). This implies consultation and often the direct participation of the community and industry in decision making and implementation at local or regional level. This is essential, not only because ultimately all land use decision-making occurs at local level, but also because the success of pollution control programs depends to a substantial extent on the attitudes of local people, on the capacity to harness local knowledge, and on local ownership of solutions locally devised. In Australia, recognition of the benefits of such processes has resulted in a shift from state-wide to local catchment management planning as the prime means to maintain water quality. It has also led to the introduction of land care programs that assist farmers in any local area to identify, and find solutions to problems in their own area. Experience is revealing that, well administered by people appointed as facilitators to encourage such activity, institutional mechanisms of this form have considerable capacity to induce innovation.

Empowerment

A problem with many centralised systems is the reservation of enforcement mechanisms to centralised bureaucracy. The power to levy livestock production, for example, is often restricted to central government. Moreover, whenever such mechanisms are used central government often prefers to return the money to consolidated revenue and then allocate through a central budgetary process. The alternative approach is to collect the money for a specific purpose such as the reduction of water pollution from intensive animal production and then allocate the money so collected to a fund controlled by those who cause the pollution problem.

Concluding comments

Leaving the identification of instruments and mechanisms for the enhancement of the positive contribution that livestock can make to the environment, the focus of this paper has been on ways to reduce adverse effects. These range from on-site effects like land degradation induced by lack of security of tenure and incomplete institutional arrangements through to off-site effects like the pollution of groundwater supplies used to supply drinking water to urban centres. The general impression that emerges from this generic survey is that, with government support and willingness to act, there are sufficient mechanisms to keep any adverse effects within tolerable limits and, through their use, make the net contribution of livestock production to human welfare positive.

References

EPA (1996) Draft Framework for Watershed-Based Trading. United States Environmental Protection Authority, Washington DC.

de Haen, H.; Fink, H.F. Thoroe, W. and Wahmhoff, W. (199 1) 1mpact of German intensive crop production and agricultural chemicals in Hildesheimer Börde and Rhein-Pfalz." In Young, M.D. (ed.) Towards sustainable agricultural development. Belhaven Press, London.

Panayatou, Theodore. - Instruments of change: motivating and financing sustainable development/T.-London: Earthscan, 1998

Young, M.D. and McCay, B.J. (1995) Building equity, stewardship and resilience into market based property-right systems. In Hanna, S. and Munasinghe, M. (eds) "Property-rights and the environment: Social and ecological issues." The Beijer Institute of Ecological Economics, Stockholm and the World Bank, Washington.

Young, M.D. Young, M.D., Gunningham, N., Elix, J., Lambert. J., Howard. B.. Grabosky, P. and McCrone, E. (1996) Reimbursing the Future: An evaluation of motivational, voluntary, price-based, property-right, and regulatory incentives for the conservation of biodiversity. Department of the Environment, Sport and Territories Biodiversity Unit Biodiversity Series Paper No. 9.

Brief Resume

Mike Young is a Senior Principal Research Scientist with the CSIRO Division of Wildlife and Ecology and a member of the Board of Trustees of the International Livestock Research Institute. A practicing ecological economist, he is Founding President of the Australia New Zealand Society for Ecological Economics and Secretary/Treasurer of the International Society for Ecological Economics.

Mike Young specialises in the development of guidelines for the use and assessment of alternative policy instruments for natural resource use. Internationally, he is well known for his work on rangeland and savanna management, biodiversity policy, the design of tradeable property- right systems and his ability to operationalise sustainability objectives. For three years, he managed the OECD Environment Directorate's research on the integration of agricultural and environmental policies.

¹ It is interesting to note that similar observations are often made about wildlife conservation. In many parts of Southern and East Africa. landholders are being granted rights to wildlife residing- on their land. Where this has occurred, the frequency of poaching has declined and the density of many wildlife species has increased as landholders find innovative ways to make money from wildlife conservation.

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