For years, environmentalists like Birdlife and WWF have been talking about the role of environmentally-friendly farming in securing clean water, healthy soil, wildlife and the like. These are outputs of farming that tend not to be traded in the way that beef, wheat and milk are traded. Environmentalists referred to these things as ‘public goods’, drawing on a economic concept that was first developed by Paul Samuelson in The Pure Theory of Public Expenditure (1954) and that will be familiar to anyone who has taken an undergraduate course in microeconomics. Their argument is that public money should be targeted at farmers who provide ‘public goods’, and that this would require root and branch reform of the CAP. As it stands, the CAP is aimed at a distinctly ‘private good’ in the form of a social welfare policy for farmers.

With everyone jumping on the public goods bandwagon, and the Commission announcing its own work plan looking at public goods in farming, and seeing as it’s a Friday afternoon, I thought I’d brighten things up with a little quiz to test your knowledge of what is, and what is not a public good.

Should your first year undergraduate microeconomics be a little shaky, there’s a nice definition over here. But I recommend taking the test without first reading the definition. Come back for the answers and discussion next week.

1. Which of the following is a public good?

a. A lighthouse that warns ships of underwater reefs
b. A harbour wall that protects ships from storms
c. A lifeboat that saves shipwrecked sailors
d. All of them
e. None of them

Answer: a. The light from a lighthouse is definitely non-rival and probably non-excludable, although it could be that vessels are charged a ‘license fee’ for going to sea and this could be used to finance lighthouses etc.

2 (i) In July 2008, who wrote that “food is a global public good”?

a. Mariann Fischer Boel – European Commissioner – Agriculture & Rural Development
b. Michel Barnier – French Agriculture Minister
c. Gordon Brown – Prime Minister of the UK
d. Louis Michel, European Commissioner – International Development.
e. Pascal Lamy, Director General of the WTO.

Answer: Louis Michel and Mariann Fischer Boel.

2 (ii) Do you think he/she has a good command of basic microeconomics, or not?

Answer: It would appear as though both Commissioners have a shaky understanding of public goods. Food is clearly rival and excludable, and definitely not a public good.

3. The English Lake District is widely regarded as a beautiful pastoral landscape, worth preserving from the ravages of intensive agriculture and saved from land abandonment. It is one of the UK’s top tourist destinations. Taking into account the theory of public goods, which is the most appropriate policy response?

a. Farmers in the Lake District should be paid to practise environmentally-friendly farming, with the money coming from general taxation.
b. Farmers in the Lake District should be paid to practise environmentally-friendly farming, with the money coming from a new Lake District tourism tax (e.g. tax on hotel beds and/or a national park entry fee).
c. Introduce laws that require farmers to practise environmentally-friendly farming without any payment.
d. Leave it to local farmers and local businesses and environmentalists to come to a voluntary agreement.

Answer: The principal benefits of a beautiful Lake District landscape accrue to those who live there and those who visit on holidays, though there may be some people who think they gain benefit from the very existence of the Lake District, even though they’ll never visit (they might like to know that the land that gave us Wordsworth’s poems is still as it was in his time, they may enjoy looking at photographs or paintings of the Lake District).

Option a. involves the largest redistribution as most of the people who pay will not directly benefit from the policy. It involves a transfer from the national population to the farmers who manage the land. Option b. makes a closer link between those who benefit and those who pay and represents a transfer from those who visit the Lake District and the farmers managing the land. Option c. involves a transfer from farmers to those who live and visit the Lake District although it has a lot in common with conservation requirements in towns and cities where the burden of compliance falls on the property owner. Since it is hard to exclude people from enjoyment of the landscape, option d. presents free-rider problems is likely to result in less conservation than is socially optimal.

4. If they get out of control, animal diseases (such as BSE and foot and mouth disease) can wreak economic havoc and even cost human lives. Taking into account the theory of public goods, measures to prevent animal disease outbreaks, tackle them when they occur and safeguard the safety of food should…

a. Be run by government and paid for by general taxation.
b. Be run by government but paid for by a sales tax on meat and livestock products.
c. Be run by government but paid for by a tax on livestock farmers.
d. Be run and paid for by farmers and producer organisations.

Answer: Due to problems of collective action and free-riding, Option d. is likely to result in insufficient safeguards and insufficient contingency funds for managing a serious outbreak. Options b and c are equivalent, although option b. may differ by also involving a tax on imported meat, which may be considered discriminatory and an unfair barrier to trade. Option a. involves the largest redistribution and does not create any additional incentives for farmers to take measures to contain the costs of animal disease. Option c is probably preferable from the perspective of economic theory as it operates rather like a private insurance policy, where the tax is the policy premium and the government is the insurer.

5. Economics jargon-busting bonus question: Which of the following economic concepts is NOT usually relevant in the analysis of public goods:

a. Free rider
b. Moral hazard
c. Tragedy of the commons
d. Externality
e. Market failure

Answer: Moral hazard.

Our differences aside, I’ll admit that TA has produced an amusing viral video to publicise its new report on the economics and the politics of the CAP, featuring a spoof of Jamie Oliver, the TV chef. Be warned, the report itself doesn’t have much greater analytical depth than the video. But that shouldn’t be much of a surprise as it was written by a former researcher to loony tunes MEP and YouTube sensation Daniel Hannan who, only a few years ago, was waxing lyrical about the economic miracle of, erm, Iceland. Anyway, check out Jamie Oliveoil after the jump.

The UK Tenant Farmers Association recently held its annual jamboree and, fresh back from his half term holiday in Egypt, National Chairman Greg Bliss gave a speech. He used the occasion to share some observations about agriculture policy that I thought might be of interest to readers of this blog. For those who are not familiar with a dialect known as ‘farm union leaderese’ (which is rare, though it can be found all over Europe and North America) I have provided translations of the key passages.

“One of the Common Agricultural Policy’s aims and benefits was the stabilisation of markets which, when we moved to decoupling, was deliberately undermined. The slavish adherence by some, particularly within our own Government, to the ideology of the free market does, I’m afraid, produce negative consequences.”

Translation: “Back in the good old days, the Common Agricultural Policy was a racket that meant we farmers got high prices all the time, and consumers picked up the tab. These days prices are set by something I don’t quite understand but I’m told is called supply and demand.”

“I see part of the TFA’s role as to ensure a greater degree of pragmatism in policy development which answers the needs at the time according to the factors on display rather than forcing a predetermined ideology to fit the current circumstances.”

Translation: “The TFA will lobby agriculture ministers here in the UK and in Brussels to remind them that their job is a simple one: to keep shoveling as much taxpayers’ money to our members and maintain as many restrictive practices as possible.”

“The TFA understands the desire to maintain the wildlife habitats that have been created by set-aside. Our argument is that the best way to achieve that goal is to incorporate it as a voluntary element into the Environmental Stewardship Schemes already in place.”

Translation: “I don’t give a damn if the RSPB has got a million members. It’s my land and if I want to plough it up the ickle birdies, the squirrels and the fluffy bunnies can all go to hell. Get a life, get a tractor.”

“The TFA’s belief is that we should be doing as much as we can domestically to fulfil our existing and future food needs and this will require a revolution in Government thinking which has seen agriculture as part of the problem and not part of the solution.”

Translation: “It’s high time this country grew more of its own food. Let’s start by covering the countryside with plantations growing coffee and tea. I want to see our hedgerows bursting with bananas and mangoes and tenant farmers raising new harvests of cocoa, cotton and palm oil. It’s all about innovation and seizing new opportunities. All we need a new and fully-funded EU Tropical Products Development Scheme!”

Your guide on this recreational adventure will be a character called Bérénice, a charming young farmgirl (pictured, left), who I must say bears an uncanny resemblance to the young Mariann Fischer Boel (herself from farming stock). If you share your workspace with others you may wish to take the precaution of plugging in your headphones as the game features some very realistic animal noises and a rather disturbing New Age soundtrack. But then again, why not turn your speakers up to maximum and share the zany farmyard ambiance with all your co-workers?

With most of Wednesday’s all-night session of the Agriculture Council spent in trilaterals between the Commission, the Presidency and individual member states, I gather there was a lot of down-time for national delegations. Could it be that they wiled the night away playing Farmland: The Game? I think we should be told.

Play Farmland: The Game

In a cool put-down of the UK Chancellor of the Exchequer Alistair Darling and his recent proposals for dismantling the income support and market intervention measures that still form the core of the CAP, the Commissioner aired a suspicion that member state finance ministers might be genetically modified organisms,

“When I saw my Darling, my new Darling’s advice for the CAP, it reminded me quite a lot of something I had seen before. I don’t know if it’s a special gene in finance ministers that they want to cut all payments as low as possible. It’s a nice paper, a really nice statement, but it’s completely politically impossible to achieve this.”

Separately, The Scotsman reports that the Commissioner proposed a new way of evaluating the €53 billion that the EU spends on the CAP each year:

“Regardless of what protection we offer to farmers, it is paramount to me that the measures act like a safety net and not a comfortable chair.”

Henceforth this shall be known as the Fischer Boel Comfortable Chair Doctrine. Unlike her predecessors Ray MacSharry and Franz Fischler, Mariann Fischer Boel may never give her name to a round of CAP reforms, but the Comfortable Chair Doctrine will surely live on.

Senator Grassley knows full well that for the past few years, a full 30 per cent of maize grown in the US is grown not to feed people but to feed automobiles, for the very good reason that a good part of it is grown and refined in his very own home state of Iowa. The notion that withdrawing such a huge volume of land from food production could have any impact on the availability and affordability of food is clearly beyond the Senator’s grasp of basic economic theory. But then again, we are talking about a longstanding member of the Senate Agriculture Committee, the folks that only last year dreamed up a new $5 billion ‘permanent disaster aid program’ to give handouts to farmers in parts of the US where it never rains.

When he was Chair of the Senate Finance Committee, Grassley authored the massive tax breaks that began the ethanol boom. For those who are interested in economic analysis, biofuels are thought to be responsible for between 10 and 25 per cent of recent increases in food prices. The other drivers of price rices include a high oil price, bad harvests in several parts of the world, speculation in commodity markets by investors, decreasing government strategic food reserves and the increased consumption of livestock products in the growing middle classes of Asia and Latin America.

But back to the press briefing. As a performance, it’s a cross between the self-consciously folksy shtick of vintage era Donald Rumsfeld and the cringe-making, rabbit-in-the-headlights inanity of President Bush. In the video I’ve cut in a few choice passages from a rather different speech Grassley made at a New Baptist Covenant meeting at the Carter Center in Atlanta, Georgia, earlier in the year.

Listen to Senator Grassley’s infamous ‘Let them eat rice’ declaration in full

[audio:grassley_audio.mp3]

“I read about the riots over the price of food. It’s bread in Egypt and it’s rice in China, er, I mean Thailand, and maybe other places where they have some riots, but… I don’t see any… I saw a little bit of concern in Mexico maybe three months ago on tortidos. Is that what you call them, tortidos? [Aide: "Tortillas"] Tortillas. And er, and er, but, but, y’know, we don’t make, er, ethanol, out of rice and out of wheat. So I’m not sure that I understand except ignorance on the part of people about the connection between making ethanol and making, and, er, food. Because I could set a bucketful of corn in front of those people from the IMF or we could go where they’re compaining. And they wouldn’t know what to do with it. Any more than I would know what to do if an eskimo set a pale full of blubber in front of me. So, er, so I’m not very sympathetic toward it at this point. When they start getting a connection between corn and food, then I’ll be glad to listen. Part of our problem is that Chinese are going, er, to eat meat. And you’ve got to have corn and soybeans to feed the Chinese, their meat, then why isn’t it just as legitimate for the Chinese to go back and eat rice as it is for us to change our policy on corn to ethanol.”

Can this be the same Chuck Grassley who opined that “turning a blind eye and a deaf ear to world hunger exposes the selfish side of human nature.” With US corn at record highs of $6 a bushel, the selfish side of Chuck Grassley is very much exposed!

Here in the EU, politicians are falling over themselves to recant on any earlier backing of food-for-fuel policies. But for as long as selfish, hypocritical, pork barrel merchants like Chuck Grassley are driving the policy, the US will continue marching down this most crooked of roads that is doing so much harm to world’s poorest people and to the environment.

Of the three remaining candidates to be the next US President, only one has a record of opposing ethanol boosterism: John McCain. The Washington Post recently reported on a physical altercation between Grassley and McCain, though this was NOT over ethanol subsidies. It did lead the pair to be on non-speaking terms for two years, though it is said that they have subsequently patched things up. I’m told that Democrat front-runner Barack Obama has well and truly drunk the biofuels kool aid while Hillary Clinton is just desperate to woo farm state super-delegates as she battles to stay in the race for the Democratic nomination.

If changing EU policy on biofuels feels like turning around a supertanker, changing US policy is more akin to pushing an avalanche back up the mountain.

As part of Agra Facts contribution to the forthcoming CAP Health Check, we would like to hold a survey about a new name for the Common Agriculture Policy (CAP). Finding a new name is consistent with bringing the old policy into the 21st Century (as with the various reforms of recent years). Given that in some parts of the EU the term “CAP” is synonymous with market-distorting price support and production surpluses (and dominating so much of the EU budget), a new name would presumably also help public perception that any budgetary commitments after 2013 would be for a modern, reformed policy, rather than the original priorities of the 1950s & 1960s. Our intention is to pass on a list with all suggestions to the Commission’s DG AGRI in early March in the hope that these suggestions can feed into the debate on the Health Check. We thought we would offer a prize for the best entry – in the view of the Agra Facts editorial team – and on a slightly lighter note, a 2nd prize for the “most original” acronym offered – as judged by Agra Facts. One obvious prize would be a copy of the Health Check legislative proposals personally signed by Commissioner Mariann Fischer Boel, but we are also open to original alternative ideas for prizes.

Please send all ideas for new names for the CAP (in any EU language) to info@agrafacts.com before the end of February mentioning your suggested policy name & acronym (and potential prize). Roger gives the assurance that all entrants also have the right to remain anonymous.

To help readers come up with some truly original and inspiring names for the CAP, I can present the exclusive CAPHealthCheck.eu interactive name generator tool. Just click the button to try again.