Nested markets with common pool resources in multifunctional
agriculture
Nico Polman, Krijn J. Poppe, Jan-Willem van der Schans and Jan Douwe van der Ploeg
LEI Wageningen UR and Wageningen University
Corresponding author: krijn.poppe@wur.nl
Abstract
Nested markets are segments of wider (more global) markets where the specificities of place
and networks provide room for specific products, extra trade and premium prices. Nested
markets imply boundaries (and often boundary organizations that actively deal with these
boundaries). These boundaries are permeable. Nonetheless, they define a space that allows for
premium prices, cost-reductions, specific connections, reduced transaction costs and
differential development trends. Nested markets can only be dealt with, if adequate concepts
and a proper analytical approach are being used. The common pool resource theory is such a
concept. This enriches the concept of multifunctional agriculture. Two empirical cases are
analysed with these concepts.
1. Introduction
Over the last twenty years the idea has gained ground that agriculture not only provides
private goods as food, feed, fibre and now also fuel. In addition agriculture provides public
goods like landscape, carbon sinks, resilience to flooding or fire, biodiversity, animal welfare
etc. The idea that agriculture produces public goods has been labelled as ‘multifunctional
agriculture’. The OECD (2001) has defined two key elements for multifunctionality: 1) the
existence of multiple commodity and non-commodity outputs produced jointly by agriculture;
and 2) the fact that some of the non-commodity outputs feature the characteristics of
externalities or public goods, with the result that markets for these goods do not exist or
function poorly. The concept of multifunctional agriculture has become a corner stone in the
thinking on the EU’s Common Agricultural Policy (CAP). The CAP has moved away from
price intervention in the markets for private goods like cereals and wheat, towards direct
payments. In many member states these direct payments are coupled to land areas (also
increasing their value), with multifunctionality as one of arguments. Countries like Australia,
Brazil or the US show less enthusiasm to implement such policies.
Governments in the EU member states and at the lower regional level try to promote
multifunctional agriculture in order to stimulate rural development. The CAP (especially its so
called Pillar 2) provides ample possibilities and money. However these projects often do not
produce public goods, but private ones. Jongeneel et al. (2008) and also in the the Dutch
policy context multifunctionality has been broadened to more activities like: regional branded
products, social care farming (providing care and health to e.g. kindergarten children or resocialising ex-drugs addicts), leisure farming (sports activities on the farm etc), education and
nature management. Only the last one of these deals with public goods in the sense of the
OECD definition. The others deal with niches for private goods. And in many cases the link
with the amenities of public goods seems to be weak.
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This leads us to the insight that the concepts of private and public goods to describe modern
agriculture are not enough to deal with reality of rural development. This paper investigates if
the concept of Common Pool Resources is useful in a policy context and analyses possible
consequences for governance of rural areas. The CPR in this paper focuses on the
interrelations between supply and demand in so called nested markets that have their
specificities of place and networks. Nested markets can be seen as a form of hybrid
governance as developed in New Institutional Economics in which specific combinations of
market incentives and modalities of co-ordination involving some form of hierarchical
relationship characterise hybrid forms (see Ménard, 1995: 175). We describe two cases in the
Netherlands that are regarded as multifunctional in the broad context used in this paper and
interpret them in a Common Pool Resource [CPR] framework. The cases on regional brands
and growers associations are selected respectively for specificities of place and specificities of
networks. We argue that this context is relevant for future EU policy design and that the link
between multifunctional agriculture and rural development could benefit from insights from
CPR theory.
Before we present the cases, the next sections review the concept of multifunctional
agriculture, the notion of nested markets (section 3) and the link between nested markets and
common pool resources (section 4). The paper finishes with discussion and policy
implications.
2. Multifunctional agriculture
The concept of multifunctionality in agriculture began to take shape in 1992, during the Earth
Summit in Rio, in a period involving profound changes in the position of the primary sector in
the world economy, and the approach to relative support policies (Van Huylenbroeck et al.,
2007; Salvioni et al, 2010). In Europe, the concept was legitimised with the debate regarding
Agenda 2000, mainly as a defence of the EU’s position in WTO negotiations. In fact,
multifunctionality was presented in that context as a specific element of the European
agricultural model, which gave legitimacy to public funding no longer linked to product
quantity, but to the provision of services together with agricultural products in the strict sense.
At the same time, the OECD, in the late ‘90s and early years of the new decade, undertook a
systematic definition of the concept of multifunctionality and an analysis of various countries’
positions about the use of the term, and its political valence internationally (OECD, 1998,
2001, 2005).
OECD provides an operating definition of multifunctionality, referring to the primary sector’s
capacity to produce agricultural commodities, coupled – in a certain measure inevitably –
with “non-commodity outputs”. In particular, according to the OECD, the key elements for
defining multifunctionality are: 1) the existence of multiple commodity and non-commodity
outputs produced jointly by agriculture; and 2) the fact that some of the non-commodity
outputs feature the characteristics of externalities or public goods, with the result that markets
for these goods do not exist or function poorly.
The Institute for European Environmental Policy recently identified the public goods in
agriculture (Cooper et al, 2009). They restrict their inventory to the public goods concept that
is well established in economic theory which defines public goods by the following
characteristics:
• Non-excludable – if the good is available to one person, others cannot be excluded
from the benefits it confers.
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• Non-rival – if the good is consumed by one person it does not reduce the amount
available to others.
They find a wide range of public goods associated with agriculture. The most significant of
these are environmental - such as agricultural landscapes, farmland biodiversity, water
quality, water availability, soil functionality, climate stability (greenhouse gas emissions),
climate stability (carbon storage), air quality, resilience to flooding and fire – as well as a
diverse suite of more social public goods, including food security, rural vitality and farm
animal welfare and health. They all share the characteristics of non-rivalry and nonexcludability to varying degrees. Many, Cooper et al (2009) note, are complex entities, with
both public and private characteristics.
Since the formulation of the OECD definition, the term has entered the common language of
those involved in various guises in agriculture and rural development, and has acquired
different definitions depending on the context. The literature refers to agricultural
multifunctionality, in its broadest accepted meaning, according to four types of function:
following the Van Huylenbroeck et al. (2007) categories, these can be grouped as follows:
“green” functions (landscape and bio-diversity management); “blue” functions (water
resource management and flood control); “yellow” functions (vitality of rural areas, historical
and cultural heritage, rural amenities); and “white” functions (food security and safety).
The definition of multifunctionality and the categories labelled by Van Huylenbroeck (2007)
suggest that multifunctionality is often a characteristic of the agricultural system in a certain
rural area or region, and not necessarily of an individual farm. This is most clear in public
goods like landscape, which are defined on the level of (certain parts of) Tuscany or the
Beemster (a Dutch polder on the Unesco Heritage list).
In less academic environments (including policy making) the term multifunctionality is often
used in a broader sense and also linked to farms and farmers involved in other activities than
producing the classical private goods food, flowers, feed and fibre. It is therefore useful to
clarify the distinction between this concept and those of diversification and pluriactivity. In
fact, though the literature often uses these three terms as synonyms, partly because of the
many ways their definitions overlap, they refer nonetheless to distinct phenomena, summed
up as follows (table 1).
Table 1: Definition of the phenomenon
Concept
Unit of
analysis
Multifunctionality Agriculture
/ Farm
Diversification
Pluriactivity
Definition
Use of the farm’s resources for agricultural production and
non-market outputs (e.g. landscape, organic products,
quality products, on-site conservation of bio-diversity,
etc.)
Rural
Use of the business’ resources for agricultural and nonbusiness
agricultural production (e.g. photovoltaic energy, rural
(agricultural tourism, etc.)
and non-)
Family
Use of family resources on and off the farm.
household
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There is more than pure private and pure public goods. Table 2 uses the concepts of nonrivalry and exclusion to show that there are two intermediate forms. Common goods where
rivalry exists but exclusion is not possible; CPR like common fish grounds or water systems
are classic examples. And quasi-public goods (club goods, toll goods), where exclusion is
possible, but rivalry does not exist. Landscape is a classic one: persons can be asked a fee to
enter a region, but as long as the area is not overcrowded, the visit of one person does not
reduce the possibilities of another to experience the landscape.
Table 2: A typology of goods
Non-rival goods and services
(indivisible)
Impossibility
of
exclusion
Possibility
of exclusion
(1) Pure public goods
Rival goods and services
(divisible)
(2) Common goods
(common pool resources)
open space / rest / biodiversity /
natural habitat / cultural heritage
(3) Quasi public goods (club
goods)
ground and surface water /
fish in the ocean, rivers and
canals / wildlife
(4) Pure individual goods
agricultural products /
agricultural tourism / health
care farms
nature / landscape
Source: Jongeneel et al. (2009)
The four types of goods as described in table 2 suggest that there are possibilities for
governments to ensure the production of public goods by private parties such as farmers. This
is the case for public goods, where governments can hand out contracts or pay subsidies to
promote the provision of such goods. But it is even more the case with common goods and
quasi public goods where also producers themselves have options to organise themselves.
Slangen and Polman (2002) for instance suggest on basis of the club theory that cooperatives
can play a role in landscape provision. A nature or landscape cooperative can reduce
transaction costs in a contract with the government and can improve the blending of pure
individual goods (e.g. milk production) with quasi-public goods (e.g. access to land for hikers
or cows in the meadow) at a regional level. Such farm groups might also create common
goods (from web sites to joint facilities) that help them to reap the benefits of
multifunctionality. These developments together imply a shift in rural governance and a shift
for market governance to hybrid governance structures.
An important characteristic of all this thinking and analysis is that it stresses the supply side
of agriculture. Recently Ladegard and Romstad (2009) argued that much more attention
should be given to the demand side. One of their arguments is that the demand side is much
more complex than most people think. It is not just the demand for landscape or meadow
birds. It is much more complex. They gave an intriguing example on the relation between
markets in agri-tourism, inspired on the wine route example by Getz and Brown (2004):
“Imagine a family of four consisting of two adults and two children on vacation by
car. For simplicity and without loss of generality let us call them Hansen. After having
been stuck together in the same car for three to four hours with the exception of some
short breaks, they start to be pretty fed up with each other, and now they are looking
for a good place to stop and have a break from each other. As many modern
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households the Hansens have diverse interests. They are therefore more likely to stop
at a place that offers activities that cater to their diverse demands. Mr. Hansen dreams
about two to three hours of peaceful fly fishing, while Mrs. Hansen is looking for a
place with art galleries and antique shops. The children, one boy and one girl, also
have different wants. The teenage son looks for a place where he could play some
sports, like a friendly pick-up game of soccer or basketball, while the daughter wants
to go horseback riding. Now suppose they found some place that in a credible way
offered these activities in a safe environment, i.e., it is possible to let the children
loose. It is far more likely that they would stop at such a place rather than at a place
that has less to offer. If the Hansens were well organized and structured, they would
most likely have sought such locations out on the web before starting on their journey.
After two to three hours of being apart the Hansens reconvene. Hopefully, all are
rested and ready to enjoy being together again. If they enjoyed their activities, it is not
unlikely that they would like to repeat the activities the morning after. They would
then be looking for a place to have a nice dinner, and maybe spend the night in the
vicinity. This is where “the big money” are spent, i.e., some local businesses are really
going to make a profit. However, the profits enjoyed by the restaurant and the lodging
providers are not only a result of their actions. After all, the Hansens may not have
stopped if it had not been for the fly fishing, the art galleries and antique shops, the
local sports facility where some other children were playing pick-up games, and the
riding center.
While too many regional and rural development strategies focus mainly on the supply
side, we think social welfare is further enhanced if one is able to see supply and
demand together. This holds for the local business benefits and consumer satisfaction.
In our tourism tale it is easy to see that it is the municipality’s ability to meet
consumer demands that determines the level of success in the business. This ability
increases if there is cooperation among the local businesses in terms of marketing, in
particular with increased use of the web for planning tourist activities. But marketing
is one thing, being able to meet the demand is another issue.
Some interesting and complicated issues quickly arise in our setting. Suppose that
some of the activities that made the Hansens stop, for example the art gallery, were not
profitable by themselves.”
Recently rural sociologists have introduced the term ‘Nested markets’ as a heuristic concept
to explore arrangements in the border zone between markets and hierarchal management (see
Polman et al, 2010). Also from the New Institutional Economics literature it is known that
markets require institutional supports to exist and develop (Menard, 2005). The nested market
concept follows Shanin (1973) by focusing on market places as specific places where specific
transactions take place between specific suppliers and specific consumers. These producers
and consumers are linked through specific networks. Their transactions are embedded in
specific frameworks and offer specific advantages to both groups. Together these specificities
of place and networks compose (especially when knit together into a coherent whole) a nested
market. It are the interrelations between supply and demand in such nested markets with their
specificities of place and networks that one tries to understand better and links with
multifunctional agriculture and rural development. It also implies that not all nested markets
are alike as Ménard (2005) argues for markets in general.
Nested markets can be seen as a form of hybrid governance as developed in New Institutional
Economics in which specific combinations of market incentives and modalities of co-
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ordination involving some form of hierarchical relationship characterise hybrid forms (see
Ménard, 1995: 175). Such situations are not unique to agriculture. In the urban domain
shopping malls, airports and business parks provide examples of complex nested markets due
to common pool resources in infrastructure and complementarities in supply to clients. A
famous case with special public-private institutions is the La Defense business park in Paris
(Emergent Urbanism, 2008).
Our insight is that this is also the case in agriculture and that making the nested markets as a
CPR concept more explicit, could throw new light on the relationship between multifunctional
agriculture and rural development. In this contribution we focus on new nested markets that
emerge in the context of rural development processes (although the empirical illustrations to
be discussed go beyond the framework of RD processes only). Our reasoning is grounded in
the empirical observation that these newly emerging nested markets are different, in several
respects, from the large commodity markets for agricultural and food products. This does not
imply, of course, that the later are not embedded1. They are as well ‘nested’ in institutional
frameworks, normative patterns and specific infrastructures (including specific technologies).
Neither the ‘new’ nor the ‘old’ rural markets can be equated to spot markets. The central
question, though, is about the specificity of embeddedness.
Why do we propose and use this concept of (new) nested market? What is its potential
relevance? We think that the usefulness of this concept resides, in the first place, in that it
does not accept markets as a given and unchangeable entity – as a part of the world that is
governed only by an ‘invisible hand’ that should not be disturbed. The concept of nested
markets stresses, instead, that markets are socially constructed and always embedded in a
specific set of institutions. More specifically, the concept reflects that during the last two
decades a range of new markets have been actively created. Several of these will be discussed
further on in this paper.
Secondly, the concept aims to bring the discussion on rural development beyond mere
subjectivism and voluntarism. Rural development is not simply a matter of changing the
attitudes of farmers. It is far more complex and difficult, especially because it occurs as
creating and governing new markets.
Thirdly the concept aims to move the debate on rural development policies beyond the limits
of the current project approach. It also aims to help to go beyond the asphyxiating
formalization that currently characterizes many rural development programs.
3. Nested Markets
Building on previous debates in economic sociology and anthropology, Shanin (1973) noted
that ‘the term market may mean two different things’. On the one hand the market is ‘the
place where people meet off-and-on at predefined times to exchange goods by bargaining’
(Shanin 1973, p. 73). These market places were and are loosely (and sometimes strongly)
embedded in villages and rural communities. Together they form an archipelago of dispersed
but interconnected markets that are sometimes hierarchically ordered through middlemen and
large traders. At the same time they are also articulating, through a variety of mechanisms,
with agro-export sectors that directly link parts of local production to international markets.
On the other hand, there are market relations, i.e. the ‘institutionalised system of organising
1
Throughout this text the terms ‘embedded’ and ‘nested’ are used as synonyms.
6
the economy by a more or less free interplay of supply, demand and prices of goods’ (p. 74).
Shanin observed that ‘these two [market places and market relations] represent not just two
distinctive concepts but also two social realities which more or less contradict each other’ (p.
74).
In this text we will follow Shanin by focusing on market places as specific places where
specific transactions take place between specific suppliers and specific consumers. These
producers and consumers are linked through specific networks. The social relations between
actors plus their governance structures are of economic value to them (see Furubotn and
Richter, 2005). The transactions are embedded in specific frameworks and offer specific
advantages to both groups. Transaction costs will come into play whenever a consumer or a
firm tries to advance its interests through exchange (Furubotn and Richter, 2005). Together
these specificities of place and networks compose (especially when knit together into a
coherent whole) a nested market2.
The term ‘nested’ suggests that the market (specified by place and networks) is embedded in
something. Some authors (Garcia Pozo, 2009 on housing; Costanigro et al., 2009 on nested
names in wine) use nested more or less as a synonym of a market segment. If such a market
segment is small it is called a niche market. Niche markets are normally understood as being
defined by a specific and often certified product; it is also understood as being a closed shop.
Such niche markets are, we think, one of the many possible expressions of a nested market.
But nested markets are defined by far more specificities than the one of the product only. It
equally applies that nested markets are only rarely closed, mostly they have permeable
boundaries. Nested markets are neither necessarily small nor limited to the local. They might
extend, among others through new information and communication technologies to spaces far
away.
In stead of a market for niche product being nested in a larger commodity market, a market
can also be nested in a quite different market. This has the effect that the market and
institutions that the nested market is embedded in, have an important role in the functioning of
the nested market. Simple examples of nested markets are derivatives: the rental market for
land and the mortgage market are both nested in the market for land (ownership); the option
market is nested in the stock market. Stock markets are nested in the market for stock
exchanges (Emergent Urbanism, 2008) and – as they are nowadays often organized as a
public company – in the stock market themselves. In all these cases the nested market is
governed by the institutions of the market it is imbedded in.
Nested markets necessarily involve some forms of planning and administrative decision, both
with and among the firms concerned (Ménard, 1996). Hybrid forms develop for dealing with
bi- or multilateral dependence, when this dependence is strong enough to require close coordination but not strong enough to induce full integration (or when integration is not
possible, e.g., when prohibited by regulations) (Ménard, 1998). However the hybrid form of
organisation is not a loose amalgam of market and hierarchy but possesses its own disciplined
rationale (Williamson, 1996). This arrangement is co-ordinated and conducted by active
forms of governance emanating from the partners and operating through authority. Authority
should be distinguished from hierarchy. With authority there is a continuously renewed
agreement on the transfer of capacities to make decisions, while in hierarchies the power to
make decisions is discretionary and rooted in rights that are exogenous to subordinates (cf.
2
Thus, nested market is a heuristic concept: it stimulates the inquiry into the specificities that compose such a
new nested market.
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Ménard, 1994). The literature on hybrid forms has emphasised features of the contractual
aspect, such arbitration clauses, take-or-pay procurement, reciprocity, and measures to create
hostage positions (Ménard, 1996). Hybrid governance structures will be advantageous in
particular in cases where either (1) different stakeholders possess specific assets which need
to be pooled in order to make the transaction possible or (2) when the public service requires
highly specific investments which are impossible for individual stakeholders and where only a
pooling of the available resources makes the investment, and thus the transaction of the public
good or service, possible (see Huylenbroeck et al., 2009). An example of the first category is,
e.g., the maintenance of a typical regional landscape for which it does not make sense to make
individual contracts with farmers, as the value of the measure lies in the combination of
different farm types, crops or practices. In such cases an intermediate structures are needed in
which the rules are negotiated and fixed. An example of the second category are investments
in special products which are too costly for individual farmers and where nested markets be
the ideal “intermediary”. Transaction Cost Economics (TCE) posits that a governance
structure will be chosen in order to economise on transaction costs.
Central to our reasoning is, firstly, the thesis that the nested markets that are emerging in the
context of rural development processes are grounded in, and delineated by, Common Pool
Resources (CPRs)3. On their turn nested markets are strategic for the reproduction of CPRs.
Secondly, CPRs and nested markets both assume boundaries and, consequently, some kind of
boundary organization. Thirdly, we suggest that the governance of these boundary
organizations assumes some form of self-regulation. This includes an active role of the
involved actors –stakeholders – in the making of the nested market and the organization of the
common pool resources. Common-pool resources generate finite quantities of resource units
so that one person’s use subtracts from the quantity of the resource available to others (see
Ostrom, 1999). The interrelations between these central concepts are summarized in Figure 1.
Figure 1 also indicates that if the different interrelations are stronger (better developed), the
nested markets will show a more distinctive performance.
Figure 1: Conceptual model
Nested market
Boundary
organization
Self regulation
CPR
Nested markets could potentially reduce transaction costs; they help consumers to avoid a
time-consuming search for quality and equally help to strongly reduce the risk that in the end
3
This concept, derived from the work of Ostrom (1990), will be discussed further on in this text.
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the only result is disappointment. Consumers can use the logo (and the underlying reputation)
as a shortcut to, and a guarantee for, the requested quality. Nested markets can equally reduce
transaction costs for producers: they help to avoid insecurity on sales since the product or
service is well positioned in its nested market. They equally help to avoid huge expenses for
marketing – the product ‘sells itself’. Of course, this only applies once the product and its
market are well-established. Their creation will often require very high transaction costs.
In order to sustain the needed reputation, nested markets avoid the emergence of free riders.
The governance mechanisms used for this goal may involve hierarchy, prescription,
formalized control and sanctioning; mostly, however, they are built on social control (and
vicinity).
4. Nested Markets and Common Pool Resources
Theoretically, the new nested markets that emerge in the context of Rural Development center
on different types of CPRs (Common Pool Resources). An attractive landscape is a CPR. It is
‘consumed’ as if it were a public good, but is ‘produced’ through the private activities of
many individual actors (who might be cooperating or not). A high quality product (a DOC
wine, PR cheese, or whatever) is a CPR. The ‘emblem’ (or logo / label) that makes a cheese
into a recognizable PR cheese, or a wine into a nice Chianti, etc. is not individually owned. It
is a CPR, a valuable common pool resource. Saying that the emblem or logo is a CPR is of
course shorthand for referring to the knowledge, skills, techniques and networks needed to
convert specific ecological conditions and specific natural resources into a valuable high
quality product and the benchmark and internal regulation that sustain and guarantee this
quality. The particular body of knowledge, the associated skills, techniques and networks are
not individual property. They are commonly owned. Together they compose a CPR.
The same applies to e.g. the notion of agro-tourism. This notion refers to a healthy, quiet,
friendly and rural type of tourism. This particular type of tourism is underpinned by thousands
of farms that have developed specific agro-touristic facilities, build networks and accumulated
the knowledge to use and manage these facilities and networks. The single actor networks
(farmers, farmers’ women, assistants, facilities, surroundings, internet sites, etc) might
reaffirm and strengthen this general notion – they might also damage it. The point though is
that this notion (and the extra value it attributes to specific agro-touristic locations) is not
individually owned. It is commonly shared (a commonly supported) notion, It is, in short, a
CPR. In synthesis: CPRs create and delineate nested markets. CPRs attract consumers and
sustain the premium prices. It equally applies that CPRs are valorised through nested markets;
they require nested markets just as they are reproduced through nested markets. A CPR
represents ‘capital’. It renders additional value to specific economic activities. This is
reflected in premium prices and/or in the inflow of many clients/consumers. A well cared for
CPR creates reputation. It might equally be sustained that a CPR creates synergy: a twofold
(or sometimes three- of fourfold) set of effects that are mutually strengthening each other and
thus create connections4.
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Just as in the classical cases described by Ostrom. Firstly, access to specific resources (land, water, fish, seeds)
is regulated in order to allow production for the market. Secondly, the reproduction of the specific set of
resources is secured (i.e. a ‘tragedy of the commons’ is avoided). See also Van der Schans (2001) on Governance
of marine resources.
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Common Pool Resources
In ‘Governing the Commons’ Elinor Ostrom developed a theory on common-pool resources
(CPRs)5. Such common-pool resources might be water (for irrigation), fishing grounds,
common land, jointly exploited forests, mainframe computers, parking garages, etc. These
resources (also referred to as ‘resource system’) are used by a specific group of users (called
‘appropriators’) in order to be converted in what Ostrom calls ‘resource-units’ (e.g. fish, rice,
wood, parking space or whatever). The ‘appropriators’ are “tied together in a lattice of
interdependence” (Ostrom, 1990:38). Their “efforts to self-organize” result in an effective set
of institutional rules for the governance and management of the common-pool resource. These
avoid the emergence of a ‘tragedy of the commons’ (i.e. overexploitation and degradation);
instead they create a continuous flow of joint benefits. This is summarized in Figure 2.
Figure 2: Common-pool resources
MARKET
Resource-units
(products/services)
Appropriators
Set of rules that governs the
use of the ‘resource system’
Common-pool resources
(CPRs) that together
constitute a ‘resource
system’
It is important here to signal that the resources as such are not to be equated, for any intrinsic
reason whatsoever, to common-pool resources. It is the set of shared rules (the grey box in
figure 2) that makes them emerge and function as common-pool resources. The presence of a
set of rules that regulate both governance and management is central.
There are intriguing similarities between the CPR model and the ‘nested markets’ we have
been discussing so far. The major similarity resides, of course, in the fact that (1) through a
In theoretical terms a CPR refers “to a natural or man-made resource system that is sufficiently large as to
make it costly (but not impossible) to exclude potential beneficiaries from obtaining benefits from its use”
(Ostrom, 1990:30). Beyond that a CPR is governed in such a way that its “long-term economic viability is
ensured” and that “joint welfare” is enlarged.
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commonly shared set of rules6 (2) joint benefits are produced. In this respect we could argue
that a distinctive product (as in Figure 3) represents, in a way, a common-pool resource. It is a
resource open for a potentially increasing number of producers. It is also accessible to a
potentially increasing number of consumers. It renders benefits (sometimes considerable
benefits) to both producers and consumers. It is a renewable resource. It is scarce. And there
is the potential danger that certain actors (free riders) might severely damage the joint
benefits. For the users or appropriators it applies that “one can harm another”. Hence, a more
or less institutionalized set of rules tends to govern (or effectively governs) the management
and further development of the common-pool resource.
There are main differences as well. In CPR “the resource units are not jointly used, but the
resource system is subject to joint use” (Ostrom, 1990:31). Beyond that “CPR appropriators
have no power in a final-goods markets, nor do their actions have significant impact on the
environments of others living outside the range of their CPR”(ibid.)7
In our case, on the contrary, (1) the ‘resource units’ (i.e. the final products) are at least jointly
defined and promoted, (2) CPR appropriators try to effectively establish power in the finalgoods market and (3) their actions have significant impact on the well-being of others living
outside the range of the CPR. We have tried to summarize this first difference in Figure 3.
Figure 3: common-pool resources that are central in rural development processes
Consumers with specific
preferences who constitute a
specific segment in the
market
Shared set of rules
that make the
product into a
common-pool
resource
Resource-unit: a
distinctive product
(having a specific
position in the market
Producers: a first set of
appropriators
Private resource bases of the
involved producers
These rules define specific behaviour, i.e. in the case of Ostrom’s CPRs a specific and jointly defined form of
resource-use and, in the case of nested markets, jointly shared specifications of products, trading channels,
frames of reference, etc.
7
Such differences do not exclude the application of CPR theory to our case. Ostrom herself indicated that her
findings could have a more general use and application. By doing so she explicitly referred to “collective action
related to providing small-scale collective goods [or..] local public goods” (Ostrom, 1990:27).
6
11
The accentuated oval in the previous figure represents the rules, expectations, specifications,
channels, product-characteristics, etc. that together make the specific products into a
common-pool resource. It is a resource because it allows to obtain additional benefits (a
higher price, improved marketing, access to specific groups of consumers) that could not be
obtained without this resource. It is a resource because it renders, in synthesis, additional
value. And it is common-pool because it is not completely private. It assumes not only a
producer but also a consumer, and normally it assumes many producers and many consumers.
And it is more or less accessible for new producers and new consumers. There is, as we
argued before, permeability. It is equally common-pool because it generates and sustains joint
benefits. And again it is the set of rules for governance and management (the grey oval) that
makes a specific product and the associated (or nested) market into a common-pool resource.
The comparison of figure 2 and figure 3 clearly indicates the first difference between the
classical situation analyzed by Ostrom and the one we discuss here. Ostrom’s analysis focuses
on the ‘resource system’ – ours on the ‘resource units’. In other words: Ostrom analyzes how
particular assets (mountain fields, water, forests, common lands) that are situated ‘upstream’
(seen from the farm and the farmer) are made into CPRs. In our analysis we focus on
“downstream” assets (specific products or services the rule systems in which they are
embedded) and how these are made into CPRs.
Figure 4 represents a subsequent step. It indicates that, in the end, it is not (or not only) the
specific product (or a specific service) that composes the essence of the CPR. It are, instead,
the (1) commonly shared set of rules8 that (2) links specific producers and specific
consumers9 and (3) specifies resource-use and which (4) allows for the transaction of a
specific product, that together compose the Common Pool Resource.
Figure 4: the unfolding of CPR management into a nested market
8
It is, of course, not only rules but also experiences, blocks of knowledge, organizational patterns, etc.
Here again, it are expectations, reputation, specific logistical frameworks, etc. that together compose the
linkages.
9
12
Shared normative framework (more or less
institutionalized) that (1) developed around a
CPR and (2) defines and sustains a nested market
Consumers with specific
preferences who constitute
a specific segment in the
market
Distinctive product
Specific
producers
Specific resources
required for the
making of the
distinctive product
On the symbolic and material dimensions of CPRs
CPRs time and again have a material as well as a symbolic dimension. The two interact and
are closely intertwined. Focusing on the symbolic dimension of CPRs that play a role in
current Rural Development Processes (and echoing Columela’s Arte dell’ Agricoltura) we
could describe these CPRs as:
- the art of maintaining a beautiful landscape
- the art of enlarging biodiversity
- the art of offering hospitality in the countryside
- the art of producing high quality products
- the art to create synergy (re. multifunctionality)
- the art of making attractive regions accessible (ref. e.g. wine routes), etc.
If these ‘arts’ (or CPRs) are effectively carried by farmers and recognized, positively valued
and actively sought for by consumers, then they are the frameworks that define and delineate
ever so many nested (and often interlinked) markets. Within these frameworks it are
connections that are central (connections between producers and consumers, between local
eco-systems and products, etc.)
Extending the argument to other rural regions
13
Is it possible to relate this discussion on the centrality of CPRs and nested markets within
Rural Development processes to other constellations, like e.g. the Brazilian and Chinese ones?
In Brazil the connection created between poverty alleviation on the one hand (Fome Zero and
school feeding programs) and the improvement of the livelihood of poor peasants on the
other, might very well be understood as a Common Pool Resource. Through this deliberately
constructed connection (the PAA: programma de aquisação alimentar) a twofold and
simultaneous set of effects is created (a synergy) that otherwise would not occur. Then the
needed food could very well be acquired at world market level (or benefit big producers and
big traders). Thus, the deliberately created connection constitutes a CPR.
In China the Hukou defines a set of rules that connect the urban labour market and the
countryside in a specific way. In this pattern circularity is central: both towns and the
countryside are enriched in a more or less balanced way. Here Hukou represents and functions
as a CPR (although many specific aspects of it are contested).
5. Empirical Cases
5.1 Regional brands as nested markets with specificities of place
Regional specificities like wineroutes in France, Germany and other countries (see Gatti and
Incerti, 1997), Parmigiano-Reggiano cheese in Italy (Roest, 2000), are examples of nested
markets. For this paper we will discuss an example from the Netherlands in which the
common property resource is contested by different parties. In 2003, the Wadden group
started with a region brand for producers, processors and traders from the Wadden region
including the Waddensea. The Waddensea is an intertidal zone of the south-eastern part of the
Northsea. It lies between the coast of north-western continental Europe and the range of
Frisian Islands, forming a shallow body of water with tidal flats and wetlands. It is rich in
biological diversity, it has an internationally recognized protected nature status, and it is a
favorite holiday destination for people all over the Netherlands as well as Germany and other
neighbouring countries.
The region brand Waddengoud (Wadden gold) provides sustainability and origin guarantees.
The Waddengoud criteria are based on the framework provided by a national organisation on
regional products (Regional products The Netherlands), and involves regional origin and
processing, sustainable production and independent control. Waddengoud is initiated by the
Stichting Wadden Groep, a non-profit foundation set up in 1996 with the goal to promote
sustainable rural development in the Wadden area. Waddengoud is a brand that appeals to the
‘’Wadden feeling’’ in the consumer market, it may stand on its own (as for not usually
branded products such as fresh fish), but may also add to existing or newly created
commercial brands such as the Wrâldfrucht brand (a regional brand in the Northeast of
Friesland, which tries to promote sustainable employment by setting up new food chains
producing, processing and selling special fruits such as seabuck thorn and blue berry). The
Waddengoud brand extends to region specific services as well (recreation, day trips, cycling
tours etc.). The Waddengoud brand creates a nested market because it tries to organize
transactions for a group of specified products. The underlying common pool is the specific
quality of the Wadden area region, it is a common pool because the effect of one particular
development could potentially spoil the character of all other rural activities and moreover the
character of the whole region. But it is also possible at least potentially to exclude unwanted
developments, first and foremost by the instruments that are available in the Dutch physical
14
planning framework and relevant nature conservation regulations. And secondly also through
the application of the specific criteria developed under the Waddengoud scheme. These
criteria include legal requirements but generally go beyond (www.waddengoud.nl).
It is interesting to note that the potential of the unique Wadden region characteristics to
generate a premium position in the consumer market has also been identified by more
conventional food chain companies such as FrieslandCampina. This large dairy processing
company developed a new cheese, called Deich–Gold, for the German market and it claims
that this cheese is made from milk produced in the Wadden area and under specific recipe.
http://deichgoldkaese.de/main.swf The cheese is supposed to be different because it is made
from milk produced by cows in juicy grassy meadows, etc. etc. Here we can see that regular
markets may respond to the emergence of nested markets by referring to similar qualities of
the region and appealing to similar experiences by consumers. The quality of a region is a
public good in the Netherland and everybody can refer to this, there is no obligation to
contribute to conserving and strengthening that regional quality. Only if we had very strict
rules of origin that could be forced upon all parties operating from a region this problem could
be solved.
5.2 Growers associations in horticulture; nested markets based on specificities of networks
From the mid eighties of last century market circumstances for fresh horticultural produce
changed because competition increased. Causes for this increased competition are the
globalizing vegetable and fruit chain, increased demands of consumers with respect to
convenience, quality and variation of products and increasing market power of retailers. In the
Netherlands, growers in greenhouse horticulture organised themselves in associations as a
reaction to these changing market circumstances. Above this, growers were not satisfied with
the traditional Dutch vegetable auctions and marketing co-operatives dealing with broad
ranges of products (see also Bijman en Hendrikse, 2001 and Hendrikse en Bijman, 2002 for
an extensive overview). Independent growers associations give opportunities for members to
follow a marketing strategy specially designed for their association and products. In this sense
boundary organizations have been developed.
Associations are expected to give incentives to product innovation specific for the products of
the association. Fort these innovation they can make use of the legal protection of plant
breeders’ rights. This incentive could even be stronger if the members of the association are
more homogenous. However, the advantage of innovations is often short term because
growers outside the organization can produce comparable products. Depending on the value
of the products developed, a small and homogenous association could be more effective than
large but heterogeneous organisations.
For the year 2008, Bunte (2009) estimates that about 25% of the growers associations directly
supplies to distribution points of supermarkets. The number of farmers organizing themselves
is still growing and the number of associations increases. Table 1 gives an overview of grower
associations with tomatoes and other products.
Table 1: Growers associations in the Netherlands with brands in 2008
Tomatoes
Total number of associations
Total number of members
19
443
15
Other
products
28
814
Average number of members
Market share four largest based on size (%)
Market share four largest based on members (%)
Source: adapted from Bunte, 2009
23
52
58
29
49
47
Developing brands allows the associations to distinguish themselves among competitors in the
chain and helps in building a reputation. Brand name capital is a form of asset specificity (see
Williamson, 1998) which gives rise to a condition of bilateral dependency between the
partners in the chain resulting in individuated governance structures. To a certain extend, the
associations develop common pool resources where the possible use of the common pool is
limited to the members. Associations operate in market niches and try to receive a better price
compared to other products outside this market (Bijman and Hendrikse, 2001). The
associations deal with the boundaries of their market by developing exclusive products and
brands. This is a dynamic process in which the growers’ associations have to innovate in
order to maintain their nested market (e.g. their brand, specific product and relations to
customers).
Roughly two types of grower associations can be distinguished (Splinter and Paassen, 2003):
(1) market oriented associations; and (2) countervailing power associations. Within the first
group of associations farmers mostly grow special products with better than average quality
including traceability and specific norms for food security. Besides a focus on the market,
entrepreneurship of participating firms, co-operation and financial resources are important
factors for the success of the market oriented associations. Countervailing power associations
focus more on improving the negotiation position of the members with respect to selling
outputs and buying inputs. Both types can achieve scale advantages through collectively
sorting, packaging and transporting.
If the associations become more heterogeneous in membership high quality growers could
become frustrated because of applying the equality principle between members (Hendrikse
and Bijman, 2002). However, at the same time more members imply a stronger organisation
in terms of countervailing power. Homogeneous organization may be chosen by high quality
growers to eliminate low quality growers from the market.
6. Discussion and policy implications
The foregoing points refer to CPRs created through goal-oriented interventions. Policy is
central here. This is not exceptional. Since nested markets are build on the creation of specific
connections – or more generally speaking: since nested markets are modes for patterning the
material and social world in a specific, internally consistent way – CPRs always assume
specific interventions. When successful these interventions crystallize over time into specific
institutional patterns: in specific modes of governance. Therefore this section of the paper
tries to connect our analysis with the policy arena. However, our main recommendation
should probably be that further research with the concept of CPRs in the context of rural
policies is needed.
For existing policies, we should start with the current thinking on multifunctional agriculture
that dominates the minds of European agricultural policy makers. That thinking can be
summarized with the OECD’s definition of multifunctional farming which refers to the
16
primary sector’s capacity to produce agricultural commodities, coupled – in a certain measure
inevitably – with “non-commodity outputs”.
It has already been observed in the Netherlands (see for instance Jongeneel et al., 2008) that
many outputs on multifunctional farms are private goods, like social care (Di Iacovo and
O’Connor, 2009), energy, agri-tourism etc. The CPR approach confirms this aspect. This
suggests that the OECD definition on multifunctional farming should perhaps give room for a
definition that is more close to CPR aspects of some types of farming.
The effect of such an approach would be that more attention is paid to the demand side (in
line with Ladegard & Romstad, 2009), to networks and to the building of institutions like
nested markets. This approach would bring the multi-functionality concept more in line with
the OECD’s New Rural Paradigm (OECD, 2006). This approach stresses the need to base
rural development on investing (e.g. in CPRs) in stead of subsidizing, on a regional approach
in stead of a farm approach and on exploitation of underused resources and amenities in a
competition between regions in stead of competition between farms.
The search for best practices from an institutional economic point of view should be further
pursued. More attention to Common Resource Pools with nested markets in this approach to
rural development might be beneficial. The Common Resource Pool approach stresses the
need to address a regional view. That is where demand and supply develop in the nested
markets with their specificities of place and networks.
The development of CPR raises governance issues between top down and bottom up. The
development of a regional CPR is probably a step by step rural transition (Van der Ploeg, in
Poppe et al. 2009), also in testing the demand in the market. A grand design is unlikely to
work as it needs a lot of information, especially on the demand side and the specificities of
networks in advance. This could imply that building a strong CPR is essentially – in the
multi-level perspective of transition research (Geels and Schot, 2007) – a mechanism to
stimulate transitions on the basis of innovations.
The concept of nested markets in CPR with their specificities of place and networks also
throws new light on the controversy created by the Worldbank’s 2009 World Development
Report (Worldbank, 2009). Based on a new economic geography approach it argued that in
the trend of urbanisation, regional development could benefit from connecting remote areas to
urban centres. Growth is always unbalanced, economic integration is key and do not try to
spread growth too much. Place based interventions are often overemphasized. Economic
integration – the World Bank argued- asks for institutions (that are spatially blind),
infrastructure (that is spatially connective) and incentives (that must be spatially targeted).
Some policy makers are afraid that this is just a plea for motorways and high speed internet
between city and country side, questioning rural development projects. The CPR approach
stresses the need to build spatially connective urban rural networks in addition to regional
incentives.
But the concept of nested markets in CPR stresses the importance of specificities of networks
where urban-rural networks are an important aspect of those networks. However not all
regions have the conditions for building successful CPRs. Randall (2009) noted that
especially regions in the US with amenities like mountains, lakes and sea shores are
successful in terms of rural development and population trends. Such amenities are not very
policy sensitive.
17
A further investigation into the dynamics of nested markets and the creation CPR might
render, in the future, further policy recommendations, especially for Rural Development
policies. All these policy recommendations are for the moment perhaps rather speculative.
However it is clear from our approach that some agricultural innovation policies are just too
simple, too much oriented at improving farmer’s income with some diversification of
activities, while the policy lacks a clear strategy in creation of strong regional CPRs.
To conclude: our analysis suggests that European agriculture is not so much a multifunctional
agriculture producing public goods, but a region-based common resource agriculture. This
does not ask for subsidising public goods that are produced anyway but for investing in
common pool resources with nested markets that are specific of place and networks.
We expect that further research on the dynamics of nested markets and the creation of
common pool resources might render, in the future, further policy recommendations,
especially for rural development.
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