L&F analyzes the costs of agriculture for society as "value-laden" - professor calls it "thorough"

A new white paper from the new think tank Red-Vandet assesses that conventional agriculture is a loss-making business for Danish society and therefore should be transitioned to a more environmentally friendly form of operation with more organic farming and fewer livestock.

The think tank consists of several professors and experts, some with connections to green NGOs.

It doesn't take many internet searches to see that some of these voices are already active in the public debate about the impact of conventional farming on the Danish landscape, but the calculations are well-founded, assesses Lars Gårn Hansen, professor emeritus at the Department of Food and Resource Economics at the University of Copenhagen and former environmental economist advisor.

"The report is thorough and detailed, and the valuation of environmental damages from agriculture is largely based on recognized studies. They clearly document what they do, so the figures are transparent," he tells Organic Now.

According to the analysis, the costs amount to around 60-120 billion DKK annually.

However, there are uncertainties

This does not exclude the possibility that some elements of the analysis can be debated, he continues. The greatest uncertainty relates to valuation studies that attempt to assign a price to, for example, loss of biodiversity, and how much responsibility agriculture bears for it.

"Some economists are skeptical of this valuation method, and most will acknowledge that the estimates are fraught with great uncertainty. But for effects like loss of biodiversity, they are currently the only estimates available," says Lars Gårn Hansen.

He also points out that some figures are counted twice:

"For example, the value of internal waters is estimated based on a valuation study, and elsewhere an additional value for tourism is mentioned – but this is essentially already included in the valuation study."

L&F: Misleading and value-laden

However, Agriculture & Food believes the analysis is misleading.

"The report appears as a strongly value-laden and method-sensitive calculation, based on non-comparable figures and misjudgments of what the underlying data can support in terms of conclusions. Therefore, it provides a misleading picture of agriculture's importance to the economy," writes Bastian Emil Ellegaard, head of department, Society Economics & Business at Agriculture & Food, in an email.

He refers to the fact that there is no single standard method for calculating environmental, climate, and health costs, and that some calculations, according to the authors themselves, are fraught with "significant uncertainty."

Furthermore, he criticizes that the analysis on the income side uses Danish gross value added and Danish export figures, while the costs side includes effects both in Denmark and abroad, making the figure appear larger.

"When positive effects are calculated nationally, while negative effects are partly calculated globally, an inherent skewness in the calculation arises. It is not a neutral method, but a compilation that systematically pulls the result in one direction and thus provides a misleading picture of the relative sizes," writes Bastian Emil Ellegaard.

Lars Gårn Hansen agrees that in macroeconomic calculations, foreign impacts are usually not included; only what happens within Danish borders is considered.

"It is not wrong to include foreign costs – one can certainly argue for doing so."

Responding to the criticism

Faced with the criticism, Jens Christian Refsgaard, Dr. Scient. and professor emeritus in water resources and co-author of the white paper, responds that they have made national assessments when it comes to pollution within the country's borders, e.g., regarding groundwater and biodiversity loss, but that it was not possible for air pollution and greenhouse gases because they move across national borders.

"Therefore, we have included Danish agriculture's damages for air pollution also outside Denmark, but have not included foreign impacts within Denmark. Pollution does not disappear just because it crosses a border," he explains.

Regarding the lack of a single standard method for calculating costs, he replies:

"Indeed, there is no one method that is most suitable for all sectors. Where possible, we have discussed different methods and listed the results each provides, and then chosen an estimate that lies centrally among the various methods."

Even a conservative estimate shows a deficit

However, if one responds to the F&L critique by only looking at costs within the country's borders and completely ignoring damage assessments based on valuation studies, Lars Gårn Hansen estimates that the societal costs amount to nearly 20 billion DKK. This estimate completely ignores biodiversity damages and underestimates water environment damages.

"It is clear that the nearly 20 billion DKK is an underestimate, as some damages are not counted at all, and others are undervalued, but the estimate is robust against the methodological objections one might have to the report's calculation. Even with this conservative estimate, almost the entire gross value added of agriculture, 23 billion DKK, disappears. It is therefore likely that agriculture, as currently organized, constitutes a net burden on the economy due to the significant, poorly regulated environmental damages caused by production."

Some might think that the gross value added of agriculture at 23 billion DKK is still three billion higher than the costs, but the 23 billion DKK also includes wages and returns to capital beyond land. So, in a scenario where all agricultural production were to cease, it would not mean that all 23 billion DKK simply vanished; many agricultural workers would find employment in other sectors, so the value added would shift to other industries.

The monetary contribution of agriculture to the economy is therefore not the entire gross value added of 23 billion DKK, but only the part that is profit and land rent.

"The conclusion is that it is more likely that current agricultural production causes a net loss to society than a gain. This conclusion is quite robust, as it is based on a clear underestimation of environmental damages."

It has been free to pollute

This raises the question of how production, which results in a societal deficit, can continue and be a private economic gain for many farmers? According to Lars Gårn Hansen, the reason is that the significant environmental disturbances from agriculture have not been effectively regulated:

"Thus, farmers and individual landowners have not had to pay for the costs their production has imposed on other citizens and nature. Agricultural production has been subsidized in this way because it does not pay for environmental costs. It is indirect support, as avoiding paying for pollution means it becomes a private economic advantage to perform polluting production that harms society."

"But this assessment indicates that there is a significant need to go beyond the current state of regulation of agricultural environmental damages more effectively."

Lars Gårn Hansen emphasizes that calculations like these cannot be interpreted as meaning that there is good societal economics in closing down agriculture:

"It’s about the fact that there are very likely other ways to farm that provide societal benefits with fewer environmental disturbances and other products that can yield higher returns. Looking at our other industries, they have not been able to compete solely on price in the long run because of our relatively high wages. But we do have, for example, a significant metal industry because it has specialized in high-value production. Such development can also be envisioned in agriculture. And where would that lead? Would it be organic farming? Maybe. It could also be other forms of agriculture," he says, and adds:

"My advice as an economist is that politicians should refrain from micromanaging how good agriculture should look and how large it should be, and instead focus on effectively regulating and taxing the environmental damages that current agriculture causes. The idea is to make pollution costly and leave it to farmers and market mechanisms to develop the new, less polluting agriculture, which would also become an economic surplus for society. This would likely lead to less production and stronger specialization in high-value products."