Agri-environmental policies in the EU and United States: A comparison

Abstract

Agri-environmental policies (AEPs) in the United States and the European Union are examples of payments for environmental services that pay farmers to reduce the negative externalities of agricultural production, while serving as a means to transfer public funds to farmers. We show that despite similar origins, AEPs in the two regions differ both in their specific objectives and in their implementation. For example, AEPs in most member states of the EU-15 have the additional objective of using agriculture as a driver for rural development. This objective is achieved by compensating farmers for the private delivery of positive public goods, such as attractive landscapes, produced by agriculture. The rationale is market failure, and there is empirical evidence that Europeans are willing to pay for such positive externalities. No comparable provision exists in U.S. policy. By contrast, U.S. AEPs focus almost entirely on reducing agriculture's negative externalities, such as soil erosion. Second, we find that U.S. programs are more targeted than their EU counterparts, and take opportunity cost into account. The EU programs, on the other hand, address a wider range of externalities, and are focused more on the paying for a particular farming process than reducing specific negative externalities. The EU takes a broader view of AEPs than does the United States, both in terms of type of activity that can be funded, and by using less targeting by land characteristics, and so the European program could be more easily used as a mechanism for transferring income to producers. Despite this, we find evidence that many of the amenities targeted by the programs are demanded by the population.