Bernhard Osterburg
Johann Heinrich von Thünen-Institut, Braunschweig
Conservation Tenders in Developed and Developing
Countries - Status Quo, Challenges and Prospects
September 11-14, 2013, Boppard, Germany
Name des Wissenschaftlers

Structure
1. Agri-environmental policies in Germany
2. Auctions as a tool to improve cost-effectiveness
3. Experiences with pilot projects
4. Conclusions
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Agriculture in Germany
• 81,7 million inhabitants federal structure (16 Laender)
• 16,7 million hectare farm land
(70% crop land, 6% organic)
• Intensive farming: 7 t wheat/hectare
0,8 livestock units/hectare
Environmental problems of farming:
• Water pollution (nutrients, pesticides)
Gas emissions (green house gases, NH
3
)
• Soil erosion
Loss of biodiversity & landscape quality
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Environmental objectives and property rights
Environmental objective
Reference level
Economic optimum
(for farmers)
Environmental quality
Agri-environment measures mandatory standards
Cross
Compliance
Page 4 Source: OECD (2001, 2010)
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Cost to be born by the public / by beneficiaries
Cost to be born by farmer (polluter pays principle)

Mandatory and voluntary environmental policy instruments in German agriculture
Mandatory
Standards
Fertilizer and pesticide application, soil protection ...
Cross
Compliance
EU legislation &
‚good conditions‘
Farm support
Direct payments, agrienvironment measures, investment aid, ...
Support of renewable energy:
EEG, biofuel quota
Audit
„sustainable biomass production“
Technical advice
& training
Biomass conversion
(renewable energy)
Contractual Protected
water and
nature con-
servation
≈
AE measures
areas
Standards in protected areas
(water sheds, nature reserves)
Habitat protection
Nature conservation
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Waste and water legislation
Storage facilities, use of water polluting substances
Building standards
Permissions, immission standards

Agric. policy support in Euro/hectare UAA (2012) *
500
450
400 other rural development measures
Rural heritage investments
350
Agri-environmental measures
300
Natura 2000 compensation
250
Less favoured areas allowances
200
Investment aid
150
Direct payments (Pillar 1)
100
50
0
*) average for Germany, including national co-funding of rural development measures
(for AE measures max. 50%)
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Source: Reg. (EG) 73/2009; Tietz, 2010
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Area-related payments: design and delivery
• Direct payments : income support, flat-rate with yearly application, subject to Cross Compliance, for all farms
• Less favoured areas : flat-rate payments, target areas
• Natura 2000 : Compensation payments for mandatory restrictions in designated nature reserves, flat-rate
• Agri-environmental payments : voluntary 5 year commitments, flat rate payments (cost incurred and income foregone), in few cases payment according to soil fertility index, for all farms or within target areas or habitats, high variety of measures with different environmental objectives
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Other support measures: design and delivery
• Investment aid: support as a share of farm investment, selection criteria and requirements
• Rural heritage : project support, e.g. wetland restoration, selection criteria and requirements, specific services (construction, landscape works) are put to tender (according to EU law*)
• Technical advice : support to farm advisory services, in some cases service is put to tender
*) EU law requires specific kinds of public spending to be tendered, e.g. construction, services
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Function of auctions in agri-environment policy
• Determining cost / payment level (lack of information)
• Reducing rents from public aid through competition
• Improving cost-effectiveness by
• reducing rents (‚windfall profits‘)
• improving effects, e.g. by better spatial allocation
• Assumptions:
• Variance of cost-effectiveness between bidders
• Asymmetric information: cost awareness of bidders
• Substitutability of environmental effects (time/space)
• Bids exceeding available budget
• Challenge: How to consider env. effectiveness?
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Problems of “hidden information” and
“adverse selection” (I)
graded payment
auction
Flat-rate payment
Rent / windfall profit
Increasing marginal adaptation cost
Environmental benefit with scheme
Environmental benefit without scheme
Crucial assumptions on marginal cost distribution and environmental benefits
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Agri-environmental measures:
Cost-effectiveness and overall impacts (catch crops)
Secure effect
Relevant potential area
High acceptance
Effect Payment Efficiency
[kg N/ha] [€/ha] [€/kg N]
30 120 4
Potential area
[ha]
Summer crops with early harvest in previous year
Acceptance
[%]
40 variability
of effects?
variability of cost?
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Problems of “hidden information” and
“adverse selection” (II)
Flat-rate payment rent
Increasing marginal adaptation cost
Environmental benefit with scheme
Environmental benefit without scheme
Modest variation of marginal cost and environmental benefits: flat rate payments might be appropriate (e.g. for catch crops)
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“Hidden impact” as the central problem
Flat-rate payment
Information rent
Increasing marginal adaptation cost
Environmental benefit with scheme
Environmental benefit without scheme
High variation of env. benefits, often hidden to both farmes and public authorities:
Output-orientation and env. targeting needed. This is a ‚learning process‘!
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Pilot projects testing auction systems for AE measures
• Sieben Berge / Sackwald (1995): In this small region in
Lower Saxony, strategic behaviour undermined the auction (all bids at the allowed maximum)
• 2 counties of North Rhine-Westfalia (early 2000ies):
Auction tested by the University of Bonn for grassland extensification in more intensive farms, participation low, bidding not as competitive and rationale as expected, competing programmes
• Northeim, Lower Saxony (early 2000ies): Auction tested by the University of Göttingen for species-rich grassland, some payment savings (first round), successful selection of target areas (output-orientation)
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Conclusions
• Farm income support (high rents), mandatory standards
• Agri-environmental payments standardized according to EU requirements
• Flat-rate payments and “equal treatment” mentality
• Public transaction cost and risk to change the system
• Substitutability of environmental benefits limited:
• Site- and species-specifity and continuity of management contribute to oligopolic supply structures
• Potential benefits (lower rents) and applicability of auctions limited, pilot projects were not convincing
• Improving env. benefits possible without auctions
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