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Ecological Economics

Volume 69, Issue 4, 15 February 2010, Pages 680-689
Ecological Economics

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A conservation industry for sustaining natural capital and ecosystem services in agricultural landscapes

https://doi.org/10.1016/j.ecolecon.2009.11.028Get rights and content

Abstract

Conservation investment in agricultural landscapes has evolved to take a more market-based or business approach. However, current levels of conservation investment are not likely to mitigate degradation to natural capital and ecosystem services. We propose the further evolution of a conservation industry to generate substantially increased investment in conservation in agricultural landscapes, particularly from the private sector. A mature conservation industry is envisaged as comprising of investors, producers, and service providers who produce conservation products and services, exchanged via market transactions. A number of requirements for a viable and effective conservation industry are identified including institutional infrastructure (conservation market institutions and regulatory systems), information provision (quantifying benefits, business models, and accounting and auditing standards), and facilitation (entrepreneurship incubation and capacity building). A conservation industry requires careful design and planning in order to operate effectively. Whilst it is not without risk, a conservation industry has the potential to increase participation and investment in conservation actions and enhance the sustainability of agricultural landscapes.

Introduction

Ecosystems can be considered as a fund of natural capital stocks generating flows of intermediate and final ecosystem goods and services through time (Millennium Ecosystem Assessment, 2005, Fisher et al., 2008, Fisher et al., 2009, Lant et al., 2008). Natural capital stocks include renewable and non-renewable resources such as biotic, geologic, water, atmosphere, and land resources. Flows of ecosystem services are classified as supporting (e.g. nutrient cycling, primary production), regulating (e.g. natural hazard mitigation, water quality), cultural (e.g. spiritual values, recreation), and provisioning (e.g. food, fresh water) services (Millennium Ecosystem Assessment, 2005). Stocks and flows are highly interdependent. Depreciating stocks jeopardizes the future yields of flows, which, if beyond replacement rates, in turn degrade the viability of the natural capital stocks (Lant et al., 2008). In agricultural landscapes, development has generated significant economic and social benefits but these benefits have often come at high costs associated with deterioration of natural capital and ecosystem services through processes such as soil erosion, reduced quantity and quality of fresh water, salinity, and biodiversity depletion (Tilman, 1999). From one economic perspective, degradation of natural capital and ecosystem services in agricultural landscapes is primarily a result of missing markets (i.e. the presence of externalities). Hanley et al., 1997, Bromley, 1991 argue that missing ecosystem service markets are pervasive due to a lack of fully articulated property rights assigned to common pool resources, and costly or incomplete information.

As a corollary, environmental markets have not evolved to a scale sufficient to achieve levels of natural capital and production of ecosystem services in agricultural landscapes corresponding to prevailing social values (Kroeger and Casey, 2007). Efficient markets require the absence of public goods, low transactions costs relative to benefits, and adherence to the conditions of rationality, price taking, complete information, and a complete set of markets (Ciriacy-Wantrup, 1971, Ciriacy-Wantrup and Bishop, 1975, Common, 1995). Violation of these conditions may occur due to a range of legal, cultural, and institutional factors. Markets for many natural capital and ecosystem services have not fully evolved because they breach a number of the conditions described above.

In agricultural landscapes, many provisioning services are harvested or extracted as discrete goods, meeting the excludability and rival criteria of private goods (e.g. fish, timber, water, food crops). The values of these marketed services are revealed through the process of mercantile exchange and the price signals of market transfer. In contrast, flows of other non-market ecosystem services are generally non-excludable (or costly to exclude relative to benefits) and rival in consumption, which are attributes of common pool resources (Fisher et al., 2009). Due to the difficulty in assigning a private right to common pool resources, the price signals of markets do not accurately reveal the value of the management or production of these non-market goods and services. Ready access to market exchange results in managers of privately owned natural capital stocks preferentially producing marketed ecosystem services at the expense of non-market services. Over time, this results in the under-supply of the latter and the long term deterioration of the natural capital stocks and ecosystem service flows (Lant et al., 2008).

Widespread conservation measures are required to achieve socially optimal levels of natural capital and ecosystem services and hence, the sustainability of agricultural landscapes. In this study, we define conservation in agricultural landscapes as the stewardship and enhancement of privately owned natural capital stocks through management actions such as land management, weed removal, fire management, erosion control, restoration, and water quality management. Natural capital stocks enhanced through conservation can increase flows of ecosystem services. However, in many agricultural landscapes there has been an under-investment in conservation by owners of private natural capital stocks due to the high cost and loss of long term revenue from foregone extractive and production opportunities (Bryan et al., 2008). The private on-site benefits of conservation are generally regarded as insufficient compensation. The reality has been that, whilst the private owner generally incurs the costs of conservation, many of the benefits are often uncertain, realized over long time periods, and accrue predominately off site to the wider community who do not share the costs.

Measures to correct this imbalance have relied on investment by both government and non-government organizations (NGOs) as a source of compensation for private conservation actions and/or a change to property rights stipulating obligations of duty of care and stewardship. Existing conservation programs in agricultural landscapes remain largely an adjunct component of government, reliant on discriminatory administrative allocation as the dominant mechanism for conservation investment. Governments have established large-scale agricultural stewardship programs to provide financial incentives to farmers for implementing conservation practices (Heimlich and Claassen, 1998, Dobbs and Pretty, 2004, Baylis et al., 2008, Claassen et al., 2008, Hajkowicz, 2009). In parallel, NGOs have made considerable conservation investments in agricultural landscapes (Edwards and Sharp, 1990, Jepson, 2005). Market-based approaches such as auctions, tenders, taxes and subsidies, cap and trading schemes, and industry barrier removal have been increasingly used to enhance the cost-effectiveness of investment in conservation (Di Leva, 2002, Grafton, 2005, Connor et al., 2008). The primary motivation of market-based approaches is to encourage conservation through the price signals of markets rather than through explicit directives associated with regulatory control (Stavins, 2002). In theory, if environmentally appropriate behavior can be made more rewarding to land managers, then land management behavior will better align with more socially desirable alternatives.

In the absence of effective markets, achievement of socially optimal levels of natural capital and ecosystem services would require large investment of scarce public funds which are subject to competing demands. Despite advances in the design and implementation of conservation investment through market-based approaches, the scale and stability of public funding is not likely to be sufficient to achieve sustainability in agricultural landscapes (McNeely and Weatherly, 1996, Ellison and Daily, 2003, Martin, 2007). Hence, new thinking is required on the development of institutions with the potential to substantially increase investment in conservation of natural capital and ecosystem services in agricultural landscapes (Turner and Daily, 2008, Daily et al., 2009).

In this paper, we suggest an alternative approach to prime and facilitate the further development of markets and complementary institutions towards a conservation industry. A conservation industry relies on market institutions to both stimulate substantially increased and persistent conservation in agricultural landscapes and sufficiently compensate the owners of private natural capital (Dietz et al., 2003, Lant et al., 2008). Existing conservation markets are largely ad hoc, periodic, and of limited scale and participation. The next crucial step for decision makers in governments is to establish broad-based, ongoing market institutions for the large-scale production and exchange of conservation products for enhancing natural capital and ecosystem services in agricultural landscapes.

We review the evolution of conservation investment in agricultural landscapes and establish the need for an alternative approach. A conceptual framework describing the operational elements of a conservation industry is then developed. We envisage a mature conservation industry comprising many investors, producers, and service providers. These agents exchange conservation products (e.g. hectares of habitat restored, units of water quality improvement) and services (e.g. brokerage, information provision, contractors) produced in response to price signals that conserve the functional integrity of natural capital and the production of ecosystem services. A number of requirements for the evolution of a conservation industry are then outlined. Specifically, there will need to be, institutional infrastructure including market institutions and regulatory systems; information provision including the clear quantification of environmental and social benefits and costs, development of business models, and accounting and auditing standards; and stimuli to promote entrepreneurial incubation. The lack of a naturally evolved market implies that a conservation industry is likely to require careful design and planning in order to operate effectively to minimize perverse outcomes, market distortions and degrees of market failure (Edwards, 1995, Di Leva, 2002, Gatzweiler, 2006). Extending the co-development theories of Rosenstein-Rodan, 1943, Scitovsky, 1954 to missing conservation markets provides some insight into the role of governments in developing the rules of exchange, information provision and regulations to foster the development of a conservation industry. Finally, key challenges and cautions associated with a conservation industry are identified and discussed.

Section snippets

Government Investment

Government programs including agricultural stewardship schemes and payments for ecosystem services aim to motivate conservation actions on private land generating substantial public benefits, often occurring off-farm or downstream. In the United States, government conservation programs such as the Conservation Reserve Program focus on soil conservation, water and air quality improvement, and wildlife habitat management (Claassen et al., 2008). In the European Union, agri-environmental schemes

Elements of a Conservation Industry

A conservation industry (outside box in Fig. 1) would include corporate enterprises, private landholders, NGOs, government, and the general public. As shown in Fig. 1, these agents can take on different roles including investors, producers, and service providers (internal boxes in Fig. 1). Agents are connected through markets where exchanges of conservation products and services, information, and money occur (arrows in Fig. 1).

Market Institutions

Institutional rules need to be defined for conservation markets to operate effectively. This includes establishing trading rules, a regime of clearly defined property rights specific to natural capital and ecosystem services, and mechanisms to enforce contracts and settle ownership disputes (Di Leva, 2002, Jenkins et al., 2004). Institutional rules also determine the transaction costs of conservation (Boyd and Simpson, 1999). Past government conservation programs have been characterized by high

Cautionary Notes

Much existing conservation is voluntary and undertaken irrespective of economic incentives. Typically labor is the major volunteering contribution, compared to other potential inputs such as materials and equipment. Caution is required to ensure a conservation industry does not crowd out, discourage or jeopardize the voluntary conservation efforts of many private landholders in agricultural landscapes (Reeson and Tisdell, 2008). For example, over 4,000 community groups involving over 120,000

Conclusion

Government investment in conservation in agricultural landscapes has evolved to incorporate market-based approaches that when well designed and implemented, have the potential to increase scheme cost-effectiveness. The air of confrontation and conflict that characterized previous attitudes of environmental and non-government groups towards markets has begun to recede. In parallel with private enterprises, many involved in environmental activities have come to realize that markets can be

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