How important are Agricultural externalities? A framework for analysis and application to Dutch agriculture

Abstract

In this paper, we develop a theoretical model for identifying the appropriate welfare measures associated with the positive and negative externalities of Agricultural production. Implications of methodological assumptions are discussed, and the model is then used to estimate the costs and benefits associated with the negative and positive externalities of the Dutch Agricultural sector. Efforts are made to cross-validate cost estimates empirically, and we also estimate the value of the non-commodity outputs that Dutch farmers provide. The non-market costs and benefits attributable to farming are then set against the value-added of the agricultural sector as a whole. Total value-added benefits are estimated to be € 10,604 million a year. The external annual costs are calculated to be € 1,868 million, significantly greater than estimated external gross benefits of € 263 million, buth much less than value added. Using all available information, total average annual net benefits from agriculture in the Netherlands are estimated to be € 8,736 million per year for the period 2005 to 2012. Nonetheless, net external costs are equivalent to € 849 per ha of arable, horticultural and pasture land, and are high relative to estimates found for other countries.