Can markets for nature conservation be successful? An integrated assessment of a product label for biodiversity practices in Germany

Abstract

Biodiversity is declining in many ecosystems, particularly in agricultural landscapes. So far, instruments such as the Common Agricultural Policy (CAP) have not been able to halt this trend. Stricter legal regulations tend to be poorly received by farmers and this leads to conflicts. However, their acceptance is crucial as agriculture is a major stakeholder in biodiversity conservation. In this context, market-based approaches are alternative or complementary instruments for biodiversity conservation. However, there are few examples in Germany and the potential economic feasibility on a larger scale has hardly been investigated. We, therefore, analyzed the economic and agronomic impacts of a potential new market label for biodiversity-friendly products on conventional arable farms in two German case study regions – Brandenburg and North Rhine-Westphalia (NRW) – with different agricultural frameworks. The label requirements were defined in advance by a group of experts in the field of nature conservation. In terms of methodology, we combined a survey of nine companies in the food sector, for instance food retailers, that looked at potential price premium scenarios for products with the label and economic land use modelling. The participation of farms led to an average reduction of gross margins per hectare of arable land of approximately 64 € in Brandenburg and about 96 € in NRW. This revealed spatial disparities. Regarding biodiversity impacts, pesticide use was reduced by about 50 % in both regions. This indicated a high level of effectiveness coupled with comparably moderate farm adaptation costs. Price premiums under the market label for potatoes, wheat, and rye averaging 10 % could almost compensate for the loss of farm income in both regions. Premiums between 5 % and 10 % were also the order of magnitude estimated by the companies that took part in the survey. At the same time, the survey did show that potential transaction costs could be quite high. We, therefore, concluded that the market alone was unlikely to finance the introduction of the label in the case study regions. There was a need for accompanying instruments such as the CAP or private business investment. However, given the case study character, the results should be interpreted with caution and cannot be considered representative of all German or European agricultural conditions. They require further research. Nevertheless, our results are highly relevant for policy makers, as they show that biodiversity conservation, at least in the study regions considered, cannot be tackled with one single instrument, but requires a mix of different ones. For instance, a combination of policies and private initiatives, such as the CAP and a private market label like the one considered in the study.