Extra-Market Considerations in Farmland and Agricultural Policy

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Traditional approaches to evaluating farmland and agricultural policies have focused on commodity prices, input costs, and other factors affecting farm profitability and land use. However, there is a widespread recognition at the policy level that on-farm activities have social implications far beyond the fence posts of individual farms and that market factors simply do not account for the off-farm and social impacts of on-farm practices. Extra-market costs (e.g., ground and surface water contamination) and benefits (e.g., open space and rural landscapes) are increasingly becoming a principal consideration in farmland and agricultural policy. In New York, for example, land use regulations and whole farm planning programs are being considered in order to protect water supplies. At the same time, zoning and tax incentives are being used to protect New York farmland, in part because farmland is thought to provide public benefits as a scenic and community resource. This bulletin discusses some concepts fundamental to economic analyses of extra-market values, and provides an overview of recent studies that have attempted to quantify the amenity benefits of farmland and the social environmental costs associated with agriculture. Importantly, the focus here is to build a foundation for understanding the economic motivation for trying to quantify these values, and for suggesting how they might be relevant to public policy decisions. All too often, it seems that discussions regarding extra-market values get bogged down in debates over the values themselves without a clear understanding as to why these values are relevant to policy decisions in the first place. For this reason, the next section provides an introduction to the economic concepts used in public policy. Subsequent sections apply these concepts to measuring amenity benefits of agriculture, the costs of soil erosion, and the costs of groundwater contamination. Although manure management and other agroenvironmental concerns such as wetlands conversion are at the forefront of current policy, these issues have yet to be adequately addressed in the valuation literature and thus are not discussed explicitly in this bulletin. Still, the economic logic presented here is equally applicable to these and other policy issues that involve extra-market values.

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E.B. 94-16


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Charles H. Dyson School of Applied Economics and Management, Cornell University



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