Implementing innovative contract models – results from the Policy Delphi

Implementing innovative contract models – results from the Policy Delphi

The second round of our online Policy Delphi study – focusing on opportunities to implement innovative contract models in the current policy arena – was closed during the summer, and the first results are just fresh out of the oven.

A key characteristic of the Delphi method is that it runs in several consecutive rounds. This allows the researchers to use the findings from the preceding rounds to design questions in the forthcoming rounds. This allows to dig a little deeper into the most exciting (often controversial) topics, which is exactly what happened in Contracts2.0. The results of our first Delphi round were analysed to identify converging and contested topics, which were then turned into questions and statements to test in the second round of the survey. 32 experts from 15 European countries participated in the second round, with almost half of them indicated to have direct policy experience at national or subnational level.

Based on the answers from the first round on how the ideal contract would look like to incentivize farmers for more sustainable farming we could synthesize three prototypes: a) a mixed contract combining action-based and result-based elements, signed bi-laterally between farmers and funding agencies for a medium duration (5-7 years); b) a result-based contract, signed between a group of farmers (collective) and the funding agency, with flexible duration (from short to medium or long term); and c) a value-chain contract, signed between farmers and other actors of the value chain (e.g. food processors, retailers, certifiers), which builds on an existing AECM contract and provides a price premium for more sustainable products. As the figure (above) suggests, the majority of the respondents would choose a mixed, action- and results-based contract for an European level contract prototype, but still almost one-quarter of the respondents would suggest alternative contracts, mainly ones which offer more flexibility to choose collective (landscape-level) agreements or different contract lengths from shorter to longer term.

We also asked what the best way is to implement these novel contracts, and there seems to be an agreement about agri-environmental-and climate measures still being the main target area, where innovative contract characteristics can be implemented as top-ups or additional payments to more mainstream conventional (i.e. action-based) contracts. In terms of funding novel contracts through the Common Agricultural Policy, responding experts underlined the outstanding importance of the Pillar 2 payments. Within Pillar 2 policy instruments, almost 70% of the participants pointed to agri-environmental and climate measures, while voluntary interventions in Pillar 2 for investment, knowledge exchange and cooperation, as well as for ecological constraints were listed by 34.5%. Eco-schemes, which is a part of the new green architecture affiliated with the Pillar 1 payments, were also mentioned by 34.5% of the respondents – with this proportion, eco-schemes seem to be the most promising instrument within Pillar 1 with a considerable potential to integrate innovative contracts.

As we learned from the first round of the Delphi study, available budget is a strong constraint for implementing innovative contracts (beside others, like increased transaction costs or higher uncertainties). Financially supporting environmentally friendly farming through different instruments of the CAP, as suggested by the findings shared above, can be a strategy to alleviate the budget burden. However, it raises further questions such as additionality and potential double-payments received for the same result from different schemes. Fostering coherence within the CAP and between the CAP and other policy areas is a key step forward and will also be a focal topic of the third round of our Delphi study.

written by Eszter Kelemen & Boldizsár Megyesi (ESSRG)

 

For infos on tools and techniques for initiating a policy dialogue on innovative approaches check our Practice Abstracts no. 10

“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/

Practitioners picture desirable farming landscapes for 2040 and ideal agri-environmental contracts

Practitioners picture desirable farming landscapes for 2040 and ideal agri-environmental contracts

“How do agricultural practitioners envision desirable farming landscapes and ideal agri-environmental contracts?” In a detailed report, we collect and present answers to this question. We found that practitioners across Europe envision farming landscapes shaped by viable agricultural practices that strengthen and enhance ecosystem services. It is important that actors in the farming systems share the same values, cooperate and mutually recognise each other’s expertise to make the shared vision a reality. The social setting turned out the most critical change driver, followed by the legal and political framework and land use and environmental conditions. In this post, we share some of our key findings to illustrate what practitioners believe is necessary to unite the socio-economic viability of farming with the production of agri-environmental public goods in our farming landscapes.

Developing desired landscapes and dream contracts

To answer our initial question, we carried out 28 workshops and consultations in 13 Contract Innovation Labs (CILs) in nine countries across Europe, with a total of 354 participants over the past year. With farmers, environmental NGOs, nature associations, researchers, agricultural advisors and public administrations, we envisioned dream farming landscapes and ideal agri-environmental contracts to facilitate the sustainable transformation of the farming system (see Figure 1). This approach is based on the potential of positive future visions to stimulate sustainable change within the farming system in a participatory way.

 

Figure 1. Steps from dream contract development to implementation.

Based on key information provided by stakeholders from each CIL we analysed case-specific situations and problems using swot analysis. We then asked CIL participants to picture a desirable future dream landscape in the year 2040. We encouraged participants to prepare lists of enabling and limiting factors for realising the dream landscape. Finally, we asked them to envision agri-environmental contracts that would facilitate transformation toward the desired state. The participants reflected the contracts from different perspectives such as environmental effectiveness, socio-economic viability, duration and monitoring. Lastly, we developed dream contract trajectories – paths to reach the envisioned state.

Common dream landscape patterns

Based on short descriptions the CILs prepared of the dream landscape, we singled out 99 diverse dream landscape elements, which we clustered into eight landscape building blocks: viable and sustainable agriculture, regulating ecosystem services, social cohesion, biodiversity, multifunctionality, enabling landscape managers, health and wellbeing, and cultural ecosystem services. We ordered these building blocks into four almost-equally weighted categories: multifunctionality, agriculture-related topics, environmental-related topics and social context.

The category multifunctionality is relatively broad and refers to the simultaneous provision of different goods and services of the landscape or through agricultural activities. In the category of agriculture-related topics, the most common landscape element is viable and sustainable agriculture. Viable and sustainable agriculture should be profitable, provide opportunities for new generations of farmers, generate and process quality local produce, apply sustainable farming practices, use and produce renewable energy and optimise livestock production. The category of environmental-related topics includes the landscape elements regulating ecosystem services and biodiversity. Social context consists of the elements social cohesion, health and well-being and cultural ecosystem services. Social cohesion is an essential element indicating the importance of cooperation, shared values, the connection between communities and the landscape, and vibrant rural living (see Figure 2).

Figure 2. Representation of the dream farming landscape in CIL Oost-Gronningen. Several dream landscape patterns are illustrated.

Enabling and limiting drivers of change for the dream landscape

Change drivers are natural or human-induced factors that directly or indirectly trigger a change in an ecosystem. Direct drivers, such as habitat conversion and climate change, are pressures that directly affect ecosystem processed. Drivers that operate at a more diffuse level are indirect change drivers, such as socio-political, economic and technological factors.

In total, we identified 130 change drivers in our case studies that we assigned to five themes: social impact, legal policy and political context, land use and environmental impact, agro management viability and economic viability (see Figure 3). Across all cases enabling (N=62) and limiting (N=68) drivers are almost balanced. However, each case has a unique profile, which influences the likelihood of achieving the desired dream landscape. The most common them is social impact. It includes enabling drivers such as increased consumer demand, farmers’ intrinsic motivation and cooperation amongst farmers. The limiting drivers within this theme were a lack of trust and awareness.

 

 

Figure 3. Distribution of change drivers in five themes.

Unlike the three other themes, social impact as well as land use and environmental impact are described mainly by enabling drivers, meaning they are major building blocks for the dream farming landscapes. The limiting drivers are mostly related to economic viability (e.g., market fluctuations), the policy context (e.g., the uncertainty of current and future CAP developments) and agro management viability (e.g., uncertainty on the effects of farming practices) (Figure 4).

 

Figure 4. Limiting and enabling factors across themes.

Dream contracts for dream landscapes

Each CIL developed one or several dream contracts. These dream contracts are legal conduits to strike a balance between farmers’ or land managers’ economic interests and societies’ interests for the provision of environmental public goods and services. We analysed them for general characteristics, benefits, involved actors, payments and monitoring.

General contract characteristics include the targeted land use and contract length. Dream contracts targeted diverse land-use types such as grassland (N=12), arable crops (N=10) and permanent crops (N=7). Often, a contract combines several of these land-use types. The ideal contract length in most CILs ranges from five to ten years.

The dream contracts envision a wide range of benefits that go well beyond mere financial compensations for farmers (Figure 5). Overall, we identified 96 benefits that mostly help either society or farmers.

Figure 5. Envisioned dream contract benefits.

We split the financial benefits for farmers into indirect and direct monetary benefits. Direct monetary benefits include income support, cost savings and product added value.

All cases reported the involvement of one or more intermediary organisations. In eleven out of thirteen cases, a farmer group plays a crucial role to broker knowledge, manage payments, coordinate measures, carry out monitoring and build social cohesion.

In eight out of thirteen cases, funding is envisioned to come from the public sector, for example through agri-environment and climate schemes. Two cases aim for private funding and three cases envision a mix of private and public funding. Generally, we observe great interest for collective and results-based approaches, value-chain contracts and combinations thereof. Six out of thirteen cases like to experiment with combining contracts that include action-based and results-based features.

Almost all dream contracts envision that monitoring is carried out in results-based schemes and action-based schemes. We see a strong willingness from practitioners to be involved in monitoring.

Our results in the greater context

We do not claim that our results represent the whole farming community in Europe as they are entirely based on the perceptions of the participants in our 13 CILs, some of whom participated in several workshops. Furthermore, most participants are already engaged in contracts and are interested in reconciling farmer objectives with societal needs for agri-environmental public goods. Nevertheless, our results give interesting insights into practitioners’ perceptions about desirable changes in present agri-environmental contracts. Practitioners are keen to contribute to societal benefits, experiment with novel contract designs, and play a more active role in designing and monitoring agri-environmental contracts. These findings can support  the design of innovative Agri-environmental contracts and the corresonding policies and Strategic Plans within the New Delivery Model.

To learn more about our findings click HERE.

To learn more about each CIL’s dream landscape and dream contract 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

Written by Sven Defrijn (Boerennatuur Vlaanderen), Marina Garcia Llorente (Universidad Autónoma de Madrid), Edward Ott (Leibniz Centre for Agricultural Landscape Research), Photo Title: © Illiya Vjestica on Unsplash

Contracts2.0 at the EAERE conference

Contracts2.0 at the EAERE conference

Researchers from the Contracts2.0 project participated in the European Association of Environmental and Resource Economics Conference (EAERE), presenting the food industry’s preferences for environmentally-friendly practices in food production. The virtual congress took place in Berlin from 23–25 June 2021.

Contracts2.0 contributions to the conference

We presented work on developing value chain approaches for the increased provision of environmental public goods by farmers. Our work focused on the food industry’s preferences for product labelling for the provision of ecosystem services. We carried out qualitative interviews with experts in the food industry to explore different labelling options. Labels could signal to consumers the kinds of public goods farmers can provide and allow the industry to sell its products with a price premium. They would also add transparency to the purchasing process as consumers usually cannot observe farm work and fields. The study’s final results will be published later this year.

Further, Christoph Schulze introduced the Q-methodology approach, which he used to explore stakeholder preferences for agri-environmental contract design. Related to these findings, our latest Deliverable synthesises practitioners’ evaluations of innovative contract approaches and provides insight into ideal contracts.

Presentations given by Jens Rommel (SLU), Julian Sagebiel (SLU), Mikołaj Czajkowski (Universtiy of Warsaw), and Wiktor Budziński (University of Warsaw) focused on methodological aspects of stated preference methodology. We will use this methodology to inquire about farmers’ environmental preferences. In this line, early research results on the potential to introduce collaborative agri-environmental contracts are now available. Soon, we will launch an international study on farmers’ preferences for result-based contracts to protect biodiversity that we hope to present during the next EAERE conference!

Written by Katarzyna Zagórska (University of Warsaw) and Laszlo Beer (ZALF), Photo Title: ©Ingo Joseph on Pexels

Exploring feasibility of novel approaches  – A Delphi study

Exploring feasibility of novel approaches – A Delphi study

The team from ESSRG, overseeing the policy work package in Contracts2.0, conducted a Delphi-survey to highlight limitations of the current agri-environmental schemes as well as to gauge the perception of innovative approaches for the delivery of public goods amongst policy makers, farmers/advisors, researchers and NGO’s across Europe.

The Delphi method is based on structured expert surveys and draws on experiences and knowledge of the participants in form of empirical, predictive and normative aspects. Its core concept is to facilitate discussions and develop consensual ideas among participants via several correlated rounds allowing experts to reconsider their opinion in each round.

It is planned to run altogether three rounds of the Delphi survey, to assess the knowledge base and to stimulate a discussion regarding the adoption of innovative contractual solutions for a farmer- and eco -friendly agriculture. The first round of the survey, conducted in March/April 2021, was completed by 41 stakeholders form 17 European countries. The aim was to first depict the limitations of current agri-environmental schemes, followed by an assessment of the knowledge base and experiences regarding the four novel approaches being at the heart of contracts2.0: results-based payments, collective action as well as value chain and land tenure approaches. In the following some of the results are summarized:

Limitations of the current schemes are evident

Regarding the limitations the results suggest, that financial (e.g. transaction cost, compensation vs. reward) and institutional (e.g. bureaucracy, lack of flexibility) factors are the most relevant. But knowledge-related aspects (e.g. lack of robust scientific evidence, limited access to advisory services) as well as the need for improved monitoring and regional differentiation were also mentioned as hindering an effective implementation of agri-environmental measures.

Results- vs. action-based payments

Concerning the innovative approaches, results-based payments were perceived as potentially (highly) effective in achieving the ecological objectives (especially biodiversity related) due to the agreement of clear and measurable outcomes. Respondents highlighted that rewarding farmers for their environmental performance (instead of compensating for their lost income or increased costs) contributes to the attractiveness of this approach. While the increased flexibility and autonomy for farmers are additional advantages, issues like monitoring (e.g. definition of robust indicators, use of IT or farmers expertise to bring down cost) and risk mitigation (uncertainty due to external factors) still pose a challenge and need some further attention when refining/adapting this approach. Many respondents state that setting up such schemes would require initially large investments (management, monitoring, trainings), which might serve as a barrier for the adoption. As a potential middle ground some experts suggest a combination of results-based payment as a bonus on top of an action-based implementation to reward more ambitious efforts.

Collective Action

Many respondents agreed that the collective approach (or group contracts) can effectively deliver on the (mostly biodiversity related) objectives when adequate ecological expertise is involved. The main argument in favor of cooperation is the positive effect on the connectivity of habitats through a coordinated management of suitable measures on landscape scale. The decreased (real or perceived) transaction cost on the farmers’ side is another advantage. While some respondents argue a long-lived tradition with cooperation amongst farmers helps to succeed when collectively implementing measures, others highlight the importance of a feeling of trust within a collective and/or contractual elements for regulating individual behavior being the key factors for success. Regarding the transaction cost of the collective approach respondents acknowledge a shift from public transaction cost (administrations) to the private sector (mainly the collective itself or their management respectively).

Value chain approach

The value chain approach is well received by most respondents, since it seems well suited to reward farmers for their environmental performance, independently from public funding. The generation of income through an adequate market price is also more in line with farmers’ business logic (instead of relying on public funds). This approach seems to work well with shorter value chains and a more regionalized marketing, while large retailers do often not engage so easily in such programs. A key factor of this approach is the labeling of the extra effort to simplify the decision to purchase for the environmentally conscious customers. Given the already large variety of labels, special attention needs to be paid to a transparent and clear communication of the environmental performance throughout the value chain. Respondents recognize no significant (institutional, cultural or social) barriers to implement this approach, however it is perceived to require an extensive infrastructure and a broad knowledge base.

Land tenure contracts

The Land tenure approach is the one with the most uncertainty among the respondents, possibly due to a potential lack of experience with this type of contract. It could be a well-suited approach for large landowners, especially when intermediaries (National Parks, Church, NGO’s) are involved. The comparatively longer contract periods of land-tenure approaches not only contributes to the environmental effectiveness but also benefits the farmer by provided a sound and predictable financial base, where uncertainty and risks are comparatively low.

How does the ideal contract look like?

The last block of the survey addressed the question of the ideal contract. Interestingly the (assumed) most effective type of contracts across all respondents were by far the publicly funded agri-environmental scheme (AES). Regarding the characteristics of a contract the opinions differ a bit more. Bi-laterally agreed and publicly funded contracts with a flexible length and a mix of results- and action-based payments earned the highest approval rate. Although the results of this survey are far from being representative, the glimpse into the minds of different stakeholder groups involved with the discussion of agricultural policy issues, has provided us with some valuable insights. Especially the open-ended questions have generated a rich pool of ideas, to guide us on our path towards the development of contractual solutions that benefit farmers and nature. The third and last round of the Delphi will be completed in September 2021.

For a more detailed and comprehensive interpretation of the results check out this report.

Figure 2. Differences of the characteristics of the ideal contract according to the background of the respondents. Source: own compilation based on the 1st round of the Delphi survey.