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Making New Markets Work for Farming – Dominic Moran, SAC Innaugural Professorial Lecture

SAC News Release Ref. No: 10N102
Published: 19 Nov 2010

Speaking to an invited audience in Edinburgh, Dominic Moran, SAC Professor of Environmental Economics said, “environmental challenges facing the rural sector should be regarded as market opportunities rather than regulatory threats”.

In his lecture “Agriculture a Tale of Two Markets”. Professor Moran suggested that farmers  should acknowledge the new challenges inherent in meeting new non-market or environmental demands. They should be given prominence in discussions on the reform of agricultural support.  He explained that policy makers value clear guidance on how public good values can be estimated. It provides a better basis for evaluating the costs and benefits of policy.

Professor Moran’s research focuses on applying economics to environmental management and bringing together experts from different branches of the natural and social sciences to tackle resource allocation problems.  He and his colleagues work mainly on what are known as ‘public goods’ from agriculture and rural land use. This includes the demand for and supply of environmental amenity, clean air and water, biodiversity, and animal welfare.

Dominic Moran said:

“The emergence of environmental markets represents a challenge for many industries world wide and agriculture in particular, which is a man made adjunct to the environment. As such, production will have inevitable impacts and increasingly, it is how we deal with them that counts”.

The Professor’s early work on biodiversity valuation showed how public policy on conservation could be informed by the availability of economic information on both private and public costs and benefits. Previously decisions had relied on qualitative information or mere speculation. This new approach provides the basis for the creation of new markets that can emerge where suppliers (e.g. land owners) can potentially transact with private companies and public agencies demanding conservation goods for their shareholders or the wider public. 

Biodiversity markets (or payments for ecosystem services) are emerging in the wake of similar developments to tackle global climate change. Non-market valuation has been instrumental in developing a price for carbon dioxide (and other greenhouse gas) emissions that can be used as a market signal. More generally environmental economics has been the intellectual force behind the development and adoption of regional cap and trade carbon markets such as the European Union Emission Trading System. 

According to Professor Moran,

“The development of markets requires the clear definition and allocation of property rights over emissions or the protection of biodiversity. Such rights have traditionally been undefined or defined by default in favour of land owners. This is changing, and their clear definition provides the basis for compensatory transactions for the supply of public goods such as landscape, or punitive incentives to reduce negatives such as diffuse pollution to water or poor animal welfare. 

Dominic Moran believes the definition of these new property rights presents a distinct challenge for the land based sector.

“Markets in agriculture can operate in distinct ways, but the sector is often too concerned with the issue of market power (e.g. in retail concentration) and pays insufficient attention to the issue of market failure (to provide public goods) and what the public expects in return for continued sector support”. 

“Correcting market failure opens up a range of potential market opportunities for the sector; e.g. in terms of selling carbon credits, the provision of other ecosystem services including landscape or the exploitation of near-market niches such as welfare-friendly products”.

Professor Moran suggested that there is a clear direction of travel in terms of how support is increasingly allocated to public good cross-compliance. The challenge for researchers is to marry biophysical and economic data to provide the information for policy makers to understand the full costs and benefits of policy choices. This need is all the more pressing when public funds are being squeezed and where unpriced environmental goods can easily be omitted from consideration. 

Professor Moran paid tribute to current and former colleagues and to SAC for providing the space for applied interdisciplinary research. He suggested that the structure of the organisation placed it at the forefront of interdisciplinary research in applied environmental economics and this strength is increasingly recognised world wide. 

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News Release Issued By

Mr Ken Rundle
Senior Communications Officer
SAC (Scottish Agricultural College) Work SAC, King's Buildings, West Mains Road,
Edinburgh
EH9 3JG
TelWork 0131 535 4196

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