Multifunctionality and Sustainability of Agriculture and Rural Areas: A Welfare Economics Perspective

Abstract

Despite accord about the existence of multiple benefits of agriculture to society, there is a diversity of views when it comes to actual policy implications. This can be explained by differences in agricultural and rural economic structures, different positions in agricultural trade and different stages of societal and socio-economic development. In addition, it can be attributed to differences in epistemological foundations in libertarian and utilitarian moral philosophy. Differences in the interpretation of the roles and functions of agriculture in society between OECD, WTO and FAO also reflect the fact that these organizations have different objectives and value positions. Common to all three is recognition of the fact that a sustainable development of agriculture must reflect the ethical principle of integrating multiple societal objectives and system requirements. From a welfare economics perspective, this results in a more comprehensive approach than the traditional Paretean one, which is exclusively based on individual value judgements. In the central part of the paper, we elaborate a welfare economic approach that is based on a differentiated concept of economic, natural and social capital and that integrates a set of minimum system requirements of sustainability into a ‘sustainability-based social value function’. In the concluding section, we argue that the welfare economics perspective presented in this paper allows us to integrate the concepts of multifunctionality and sustainability. The integration of the two concepts in turn implies a paradigm shift from sectoral policy and agricultural support to a more integrated approach of territorial development. In line with that we stipulate that the elimination of market failures is necessary but not sufficient, and that an adequate compensation of the non-market benefits of a multifunctional agriculture and promotion of efficient resource allocation is a prerequisite for sustainable development.