Economic experiments for improving agricultural policy

Economic experiments for improving agricultural policy

The EU’s Common Agricultural Policy (CAP) is constantly evolving. Its evaluation tools must develop concurrently. Including economic experiments in the toolset would be a valuable complement to capture farmers’ behavior and policy acceptance. economic experiments are highly effective for policy evaluation. They allow testing new policies before implementation, provide evidence on their effects, and identify factors influencing policy outcomes. 

As part of the Research Network of Economics Experiments for CAP evaluation (REECAP), Contracts2.0-collegue Jens Rommel from the Swedish University of Agricultural Sciences contributed to a newly published article in the EuroChoices Journal. “Can Economic Experiments Contribute to a More Effective CAP?,” the authors ask. They examine experiments use in agricultural policy research and discuss their potential to help policy-makers understand farmer decision-making processes better.

 What are economic experiments?

Experiments are situations that allow for the study of decisions in controlled and reproducible environments. Like medical trials, where patients randomly receive medicine or a placebo, farmers are randomly assigned to different “treatments”. Treatments can, for example, simulate situations with and without CAP measures or include alternative measures’ designs. Comparing decisions in the treatments, researchers can isolate the causal impact of the policy and the relative performance of design alternatives.

 Advantages for policy evaluation

That way, experiments provide answers in a short amount of time and at much lower costs than, for example, trial and error in the “real world” would before the policy is implemented. As experiments are based on farmers’ preferences policy design and related incentives can flexibly be adjusted in advance. The use of control groups ensures to distinguish responses to different policy designs from policy effects and external factors.

Current agricultural policy simulators assume profit-maximizing behaviors only. economic experiments often include cultural and other factors, which can generate profound insights into farmers’ complex decision-making processes.

Including economic experiments in the policy evaluation toolbox

Experimental approaches still need to find their place within the policy evaluation cycle. Collaborations between stakeholders involved in agricultural policy-making and research will be vital to ensure that economic experiments will find their place in the CAP evaluation toolbox to support a more effective CAP development.

For more information, see the original article: https://onlinelibrary.wiley.com/doi/full/10.1111/1746-692X.12324

Policy Innovation Labs – The new age of policymaking?

Policy Innovation Labs – The new age of policymaking?

The development of innovative approaches to strengthen the provision of public goods is at the heart of Contracts2.0. The corresponding contractual solutions are co-designed by a diversity of stakeholders and practitioners in our regional Contract Innovation Labs (CIL).  To support the wider acceptance or the scaling up of these novel contracts, the Contracts2.0-Policy Innovation Labs (PIL) aim to lobby for the implementation of the innovative approaches into the respective policies on regional, national and EU-Level. The following article reveals how this is done in case of Contracts2.0 and what kind of general approaches are available to drive policy innovation.

The phrase “policy-making” can evoke a certain image in one’s mind. As something that is made by experts, technocrats and politicians, it is often associated with a rather hierarchical, strictly top-down process.

The remoteness of those who produce policies from those who will be affected by them is a major challenge for all levels of public policy — local, national and international.

So how does one bridge the gap between policy-makers and “policy-takers”, and make the process a bit less hierarchical? That’s where policy innovation comes in, as governments across the world try to experiment with the way in which policies are created, gradually moving away from the traditional ways of conjuring solutions behind closed ministerial doors. This novel approach to policy creation flips the entire process over, and the results have been quite promising.

 Types of policy innovation

The realm of policy innovation abounds in methods and tools that all seek to resolve the same policy problem in various ways. Although the list of such methods is indeed very long, some of them have been successfully applied in practice to generate new policy ideas:

Policy experimentation for developing and testing policies has gained traction in recent years with increasing support for Randomised Control Trials (RCTs) by organisations such as the World Bank, and various initiatives to improve public service delivery and institutional efficiency. Chances are, if you’ve recently read about a major policy breakthrough, especially in the developing world, its effectiveness was probably established through RCTs.

Although experimentation in policymaking is often conflated with ‘innovation’, out-of-the-box thinking and trying out new or different ideas, in essence, it is a systematic process requiring rigorous evidence collection/generation and evaluation. It allows policymakers to assess the impact of potential policies by employing techniques such as piloting and prototyping. This enables them to gauge the cost-effectiveness of policy interventions to see if they require adjustment or even termination before they are rolled out or scaled up.

Despite the potential benefits, governments are often reluctant to innovate or veer too far from the status quo, fearing loss of investment or policy failure. However, with experimentation and evidence, there is immense potential for learning from failure as well and examining what does not work at the same time as trying to figure out what does. That is the model at the heart of the UK Cabinet Office’s What Works Network that has been replicated, amongst others, in Canada, the US, Finland, Colombia and the UAE. The pilot Accelerator Labs at UNDP are also experimenting with local innovations to achieve the Sustainable Development Goals.

Behavioural insights provide an inductive approach to policymaking research, borrowing from economics, psychology and cognitive science, and are often used to create incentives and ‘nudge’ people to follow an established policy. The behavioural approach is underpinned by experimentation and use of evidence related to typical patterns of behaviour in a cost-benefit context. This approach enables policymakers to create the environments to induce public to make decisions working towards the desired outcomes without changing any costs or benefits that they are faced with. While this kind of policy design can have ethical issues, nevertheless, it can be a useful tool for more effective policies.

While experimentation and behaviour-inducing policies are driven by evidence, strategic foresight is applied in cases where the future policy context is unclear and can only be modelled through tools such as trend analysis, horizon scanning and scenario planning. This allows policymakers to map plausible “futures” and situations that could arise as well as the corresponding challenges and opportunities. The Covid-19 pandemic has reinforced the necessity for such anticipatory measures, and the need to prepare and innovate for crises. This approach enables policymakers to ‘stress-test’ existing or potential policies and systems to anticipate risks and evaluate whether they can sustain future shocks.

In contrast to the technocratic (or top-down) types of policy creation involving exclusively expert knowledge and political will, there are also approaches that attempts to come up with new policies in a less hierarchical and more bottom-up way. There are many variations within this approach, but the gist remains the same: policies are to be made together (or co-designed) with those whom they will affect. This goes far beyond a mere consultative function, since direct and meaningful involvement of all parties is key.

 Policy Innovation Labs (PIL)

One of such novel approaches to policymaking that uses co-design is the Policy Innovation Lab (PIL), which engages various stakeholders in an innovative co-creation of policies. Taking a holistic view of whatever problem is at hand, this approach brings together policymakers, scientists, community representatives and whoever is at least tangentially related to the particular context of the problem.

This multi-actor composition is designed to address the issues of ineffective policymaking and low levels of policy acceptance (i.e. popularity among those that it is designed to affect) by bringing stakeholder engagement to a new height and placing it at the heart of the policy formulation process.

The PIL-Approach in Contracts2.0

The PIL approach is also used in Contracts 2.0, an EU-funded project that aims to inform and improve policymaking with regards to the increased provision of environmental public goods in agriculture. In nine European countries (Hungary, Germany, France, Italy, Spain, Belgium, Netherlands, Denmark and United Kingdom) Contracts2.0 established Contract Innovation Labs (CILs), in order to co-design innovative contracts with regional farmers and other stakeholders. The resulting output of the CILs (“dream contracts”) is then fed into the Policy Innovation Labs (PILs). The PIls aim to facilitate the implementation of the novel approaches into the policy framework. They do so by taking a constant feedback from relevant stakeholders (e.g. regional/national policymakers, practitioners and public administrators, scientists, NGOs and associations) into account, to ensure that potential pitfalls are avoided.

The outlined mechanism of interactions within and between CILs and PILs represents an effective bottom-up approach to policymaking by placing stakeholder contributions at the most important stages of the policy cycle (e.g. agenda setting, policy formulation). The multi-stakeholder approach ensures that the different points of view are taking into account. The project framework envisages that the policy requirements formulated in the CILs and refined into policy recommendations by the PILs would be taken up or in some way implemented by policymakers, thus completing the policy cycle (from formulation to effectuation).

How to ensure success?

However, the mid-term evaluation of the Contracts 2.0 project and its PIL-approach identified some weak spots, which could prevent the PILs from exploiting their full potential. Some of the assessed PILs report problems regarding an active and consistent pattern of participation of relevant stakeholders in the PIL Workshops. Another risk to the success of the PILs is the potential intertia of administrative institutions and the clinging to the status quo. Features which stand in the way of a recognition let alone adoption of novel policies or recommendations.

While the PIL method is indeed well-designed and has the potential to generate great policy insights, it is important to motivate policymakers to commit to a more consistent support of the co-designing and the implementation of innovative policies. The success of this approach also depends very much on the personality of the involved stakeholders and policy makers, to go out of their way and try something new. The lab coordinators need to address this issue via a tailor-made flow of information and a well-structured discussion culture to facilitate the implementation.

A very important aspect of the PIL-approach in Contracts2.0 is the Cross-PIL-collaboration and integration of research (from the scientific work packages), which enables the exchange of experiences and knowledge across borders, setting off synergies and avoiding duplication of effort. This approach needs to be strengthened in the near future to help inform not only national policymaking but also support the development of a set of more holistic recommendations (e.g. #CAP-Refom) for the development of a conducive common framework while allowing enough flexibility for the individual Member states.

Perhaps in the future governments will rely more on this method of policy innovation, and establish their own autonomous Policy Labs (e.g. similar to that established in Northern Ireland). This way, the bottom-up approach would make its way to the top of national policy-making.

(Written by our guest authors: Ifrah Hassan & Daniel Borsos (School of Public Policy, Central European University)

Further Reading:

Experimentation: https://www.centreforpublicimpact.org/assets/documents/CPI-A-brief-intoduction-to-Policy-experimentation.pdf

Behavioural Insights: https://oecd-opsi.org/guide/behavioural-insights/

Northern Ireland’s government-backed Innovation lab: https://www.finance-ni.gov.uk/articles/evaluation-innovation-lab

“Food provision in the 21st century” – How Contracts2.0 contributes to the scientific discussion

“Food provision in the 21st century” – How Contracts2.0 contributes to the scientific discussion

Food provision under ever more challenging environmental conditions might soon become a central subject for decision-makers worldwide. In June 2020, Contracts2.0 researchers participated in the European Association of Environmental and Resource Economists (EAERE) conference. The session “Food provision in the 21st century”, organized by Prof. Mordechai Shechter, brought together researchers from different disciplines examining how to feed the world’s growing population sustainably. In Contracts2.0, we research value chain approaches to support the transformation of the agricultural production system.

Food provision challenges

By 2050 the world’s population is projected to reach a staggering 10 billion people. To keep pace with the growing population’s demand for food, supply must grow by 56 percent by 2050. At the same time, the farming system needs to reduce its impact on the environment.1 Currently, half of the world’s food is produced in an unsustainable way, which in the medium term will further deteriorate natural systems’ productive capacity. Declining biodiversity, water overexploitation and pollution, and the loss of fertile soils are symptoms of the current agricultural practices. Therefore, it is a pressing question whether it is possible to provide enough food for a growing global population while maintaining environmental goals?2

Food gap

Figure 1. By 2050 global food production needs to increase by 56 percent. Source:

wri.org/sustfoodfuture

Scenarios and solutions

The session presented solutions that included the consumption side (e.g., diet changes, reduced food waste) and the production side (e.g., water use, fertilizer use, land management changes, irrigation). Prof. Dieter Gerten (Potsdam Institute for Climate Impact Research) showed scenarios under which on-farm water management can simultaneously boost crop yields and decrease water use. Dr. Claudia Ringler (International Food Policy Institute) emphasized the critical functions of groundwater and presented possible scenarios for its conservation. Yael Pantzer (Slow Food Europe) focused on access to good, clean, and fair food, also highlighting cultural and political aspects. International social justice plays a critical role, as the needs and objectives of low-income countries might differ substantially from those of European countries. She stressed that food security is not only about the production of sufficient amounts of food but also about its quality and accessibility.2

The presented scenarios and solutions show that it is possible to halt environmental deterioration from agricultural activities and maintain food security for a growing population. However, the question remains how mankind will make the necessary changes to deal with the many challenges. Notably, biodiversity loss and climate change are the most burning topics and call for immediate radical changes in food production and consumption. If we continued business as usual, we will soon transgress planetary boundaries.3

Contracts2.0 research on eco-labels

In Contracts2.0, our research supports the necessary transformation towards a more sustainable food system. One example of our work is creating collaborative models to include the value of agri-environmental public goods in product prices. Accomplishing this requires understanding consumers’ demand for environmentally-friendly practices in food production. In 2020 we carried out qualitative interviews with experts in the food industry to explore their preferences and expectations for labeling products for ecosystem services and biodiversity. Labels could signal to consumers the types of public goods produced by farmers, whose work and fields they usually cannot observe, potentially increasing their willingness to pay a price premium. The results, presenting the food industry’s views of product labeling for the effective and efficient provision of ecosystem services, will be published in a paper under the lead of Christoph Schulze.

Currently, we are conducting a study assessing consumers’ willingness to pay a price premium on grocery products labeled as produced by farmers who engaged in nature protection activities. So-called eco-labeling can help to increase the market share of environmentally friendly products, create bottom-up pressure, and incentivize food producers to change their practices. We will assess the demand for eco-labeled products and how they relate to organic products.

Achieving change

The research on industries’ and consumers’ demand for eco-labels is only a snap shot of all of our efforts in Contracts2.0. Together with stakeholders across Europe we develop agri-environmental contracts that fit regional contexts and objectives. With our research we make a small contribution to the sustainable transformation of the agricultural production system in Europe. However, to achieve lasting global change much effort is needed from all of us to reduce the growth in food demand, increase food production without expanding agricultural land, reduce emissions from agricultural production and protect and restore natural ecosystems.

To learn more about the innovative contract designs in Contracts2.0 follow these links:

  1. Limburg – Netherlands
  2. Groningen – Netherlands
  3. Koolstofboeren – Belgium
  4. Gulpdal – Belgium
  5. Northwest England – UK
  6. Hautes Pyrenees – France
  7. Madrid Region – Spain
  8. Bornholm – Denmark
  9. Agora Natura – Germany
  10. Hipp – Germany
  11. North Rhine Westphalia – Germany
  12. Örseg National Park – Hungary
  13. Unione Comuni Garfagnana – Italy
References:

1 Searchinger, T., Waite, R., Hanson, C., Ranganathan, J. (2019). Creating a sustainable food future. A menue of solutions to feed nearly 10 billion people by 2050. World Resources Institute, Washington DC.

2 Policy Session: Food provision in the 21st century, Organizer and Chair: Prof. Mordechai (Moti) Shechter

3 Gerten, D., Heck, V., Jägermeyr, J., Bodirsky, B. L., Fetzer, I., Jalava, M., … & Schellnhuber, H. J. (2020). Feeding ten billion people is possible within four terrestrial planetary boundaries. Nature Sustainability, 3(3), 200-208.

Written by Katarzyna Zagórska from the Faculty of Economic Sciences at the University of Warsaw. This note was taken based on presentations given during selected sessions at the 26th Annual Conference of the European Association of Environmental and Resource Economists, which took place online on June 23 – June 25, 2021. The conference was organised by Technische Universität Berlin (TU Berlin) and Humboldt-Universität zu Berlin (HU Berlin). More information and the full programme available at the conference website: http://www.eaere-conferences.org/

The future of German agriculture – A task for society as a whole

The future of German agriculture – A task for society as a whole

“German Commission on the Future of Agriculture” (“Zukunftskommission Landwirtschaft”) presented its final report to Chancellor Angela Merkel on July 6, 2021. Various stakeholders unanimously state their commitment to strengthen efforts of environmental and climate action and to improve animal welfare. The Commission stipulates that for the successful transition to a more sustainable agricultural production, economic viability is an indispensable prerequisite. Farmers can only provide environmental services if the farms can secure a sufficient income. Stakeholders also agreed that the transition is a task for the whole of society and that politics needs to provide a conducive policy environment to enable change.

 

Germany as a trailblazer for future-oriented thinking?

Germany already has developed standards that are considerably higher than the EU average regarding various sectors, particularly in the field of animal welfare: It is the world’s first country to ban the culling of male chicks (offspring of laying hens) by the end of 2021. This follows the ban on castrating piglets without anesthesia at the start of 2021. Almost in passing, a leading discounter recently announced that it would only sell meat that was produced in line with higher animal welfare standards by 2023. These new trends ask for quite significant adjustments in livestock keeping. Therefore, they raise the question, if the legal requirements (e.g. construction law, clean air act) will be adjusted to support the modifications needed for higher animal welfare and if there will be enough incentive for livestock farmers in Germany to make it happen.

A diverse committee acknowledging various interests

The final report of the Commission on the Future of Agriculture, a toughly negotiated agreement, runs in a similar vein and summarizes pragmatic concessions from different interest groups for the sake of the greater good. Thirty-one committee members representing agriculture, trade, animal welfare, consumer organizations, environmental protection and science, were asked to develop a shared vision, recommendations and guidelines for a sustainable and future-oriented German agriculture. Established in September 2020 by Chancellor Angela Merkel the committee met regulary. Ideas how to reduce external costs and to preserve nature for future generations while at the same time maintaining food security in Germany were exchanged. The report presents pathways for sustainable agricultural production systems that consider economic, ecological, and social objectives as well as animal welfare.

Transformation needs support from the society as a whole

Traditionally, perspectives on controversial topics, such as animal welfare standards and the economic compensation for farmers who carry out additional conservation practices, differ widely between agriculture and nature conservation. Considering the partially hardened positions of the two professions, it is commendable that the Commission on the future of agriculture reached a consensus under a constructively supporting chairmanship. Guiding principle and starting point for the committee’s work was the notion that environmental efforts must translate into economic success and societal recognition. Support of the whole society is necessary for a successful transformation. Putting responsibility only on farmers will not do the job. More likely, it will lead to the exhaustion of families and abandonment of farms.

Key outcomes

The 190-page document combining the diverse expertise of the committee members is worth a read. It features familiar ideas as well as progressive thinking.

Most significant outcomes from a farmer’s perspective are the following:

  • The German agri-food sector continues to walk the path towards a more sustainable future.
  • Agriculture alone cannot bear the massive cost necessary for the transformation process.
  • Both, companies and society need to invest in German agriculture.
  • Only sufficient income will secure the future viability of farms and motivate new agricultural practitioners.
  • A shift of agricultural production abroad (leakage effects) through unbalanced (and underfinanced) regulations needs to be prevented.
  • The Common Agricultural Policy (CAP) should be further developed and (together with national funding) support the transformation while securing the urgently needed planning and investment certainty for farmers.
  • New breeding techniques should be used to develop plant varieties adapted to challenges posed by climate change and pests.
  • Requirements for animal welfare should be (financially) supported to secure the perspective for high-quality livestock farming in Germany.
  • Research and innovation should provide the knowledge base for resource-, animal-, and climate-friendly practices.
  • Digitalization offers the potential to reduce the use of fertilizer and plant protection products through precision agriculture.
A Common Agricultural Policy

CAP support will play a key role in financing and managing the transition to a sustainable food system in Germany. Provided that farms can operate sufficiently competitive, CAP support has to enable farmers to contribute to additional ecological and social achievements. The uphill struggle in the course of the EU trialogue negotiations on the CAP 2023-2027 has shown how hardened positions of different interest groups can endanger the necessary financial support for farmers. At the end of June 2021 a compromise was reached, just in time to not fail the millions of European farmers relying on the CAP’s financial income support.

Cooperation is the key to success

In the long term, the “Zukunftskommission Landwirtschaft” suggests for Germany that area-based direct payments should be gradually converted into payments supporting specific measures to reach societal goals (such as clean water or sustaining biodiversity) within the next two CAP funding periods. The committee emphasizes that during the transition process, farmers should not suffer a net loss to their income. Furthermore, instead of regulation, Cooperation should be fostered to motivate farmers to implement ecologically effective measures on their farms. To increase the effectiveness of agri-environment-climate measures (AECM) a collective implementation (e.g.  Dutch collective model) is specifically mentioned as being a promising solution due to its landscape scale approach. The report also emphasizes the necessity for consumers to accept fair prices for agricultural products. They should integrate the higher production costs, to maintain the profitability of agricultural enterprises.

A blueprint for a greener future?

Although not a legally binding document, policy makers will hardly be able to ignore the report. In the eyes of the committee members, the recommendations of the commission  should serve as a blueprint for policy innovation. The next German government is likely to be judged according to its efforts regarding the support of the transformation process. The recommendations have the potential to get politics moving and motivate society to live up to the commitment to make this ambitious vision come true.