Identification and Analysis of Agricultural Externalities (A Valuation Methodology on Examples)

The agriculture and rural areas perform a new function which requires the delivery of public goods to the society. In turn, a comprehensive identification and analysis of agricultural externalities (external economies) involves a need for developing a dedicated valuation methodology. This paper presents the assumptions of the public goods theory and puts them in the context of agriculture. The study focuses on analyzing the valuation methods for external economies, and proposes a methodology for the valuation of some illustrative positive externalities of agricultural production and of natural environment resources regarded as public goods (the agri-tourist value of a farm and the value of a natural waterhole).

Agricultural trade liberalization and positive externalities

Changes in the perception of economic growth within the context of sustainable development lead to the broadly defined concept of further development of all industries, while agriculture plays qualitatively new role in this concept. Agriculture is not any more viewed only as an industry ensuring nutrition of population, but also its non-production benefit has growing importance. There is growing importance of the concept of multifunctionality of agriculture both in the Czech Republic and in the whole European Union, where agriculture historically played an important role in landscape formation and determined the development of social structures, while these aspects have growing importance for formulating of agricultural policies. Multifunctionality reflects the fact, that agriculture produces many food and non-food commodities, while some of them have the character of externalities and public goods.One of important conditions of efficient conception of agricultural policy is the answer on the question, what is the impact of growing trade liberalization on social welfare, respectively welfare of producers and consumers, if there are positive agricultural externalities. The analysis brings comparison in welfare development when externalities are internalized and when they are not. There are important consequences for social welfare, if state does not evaluate extra-production benefit of agriculture in a proper way.For the distribution analysis of benefits and costs of agricultural trade liberalization in presence of positive externalities connected with agricultural production, e.g. the analysis of impacts on consumers, producers and social welfare, is used traditional international trade model.Under the present tendency to liberalization of world agricultural markets there should be an effort of policy makers to internalise agricultural externalities. If there are agricultural industries, which are net exporters and at the same time produce positive agricultural externalities, trade liberalization brings additional increase of social welfare, connected with increased production of given agricultural commodity and at the same time increased production of positive agricultural externality. Growth of social welfare will be higher if positive agricultural externality will be internalised.For agricultural industries with positive externalities which are net importers, the change of social welfare brought by trade liberalization is not obvious. It depends on concrete character of cost and demand curves. However in any case, the social welfare will be higher with internalised externality that without internalization.