Does organic farming achieve environmental goals efficiently?

Concerns about the impact of modern agriculture on the environment have in the past few decades resulted in strict legislation concerning the leaching of nitrogen from Danish farms and their use of pesticides. An often-heard argument in recent years is that conversion to organic farming is a solution to many environmental problems. Hence, in the late 1990s several initiatives to support the development of organic farming have been taken among others permanent direct support for producing organically. This was made possible by the 1992 reform of the common European Agricultural Policy that allowed for specific subsidy for environmental friendly production. This paper discusses the cost efficiency of two alternative policy measures for obtaining an overall reduction in the use of nitrogen and pesticides in Danish agriculture. The first policy measure is a subsidy for producers who produce organically and thus reduces the use of nitrogen and abandons the use of pesticides. The other policy measure is the use of taxes levied on fertilisers and pesticides. Using an Applied General Equilibrium (AGE) model the two policies measures are compared. The paper concludes that an overall reduction in the use of pesticides and fertilisers is most efficiently obtained by taxing those agents using these inputs. The size of the organic sectors should be determined by consumers’ willingness to pay for organic products

Is the promotion of organic farming the most cost efficient way of achieving environmental goals? A Danish Case story

This paper explores the development of an agricultural specific input-output table that explicitly includes organic farming. The table is used in an Applied General Equilibrium (AGE) model of the Danish economy to analyse four different scenarios for the development of organic agriculture and their effects on selected environmental indicators. One advantage of AGE models is that they explicitly allow for substitution between inputs in production. Introducing a tax on environmentally harmful inputs, for example, will initially increase the cost of production, although the producers to a certain extent can limit the burden of such taxes by substituting away from the taxed inputs into other inputs. The extent of substitution is determined by the exogenously given elasticity of substitution. The objective of this paper is to analyse the cost efficient ways of achieving given environmental goals and these instruments interaction with the possible role of organic farming in such environmental strategies. The first scenario explores the impacts of a consumer demand induced increase in organic farming (a market driven scenario) followed by three different policy scenarios in absence of this assumed consumer preference change. In the first two of the policy scenarios a subsidy to agricultural land in the organic sectors is introduced to promote a movement of land into organic production with a positive environmental effect being achieved. The first of these two subsidy experiments is designed to achieve the same hectares of land being employed by organic producers as achieved in the consumer preference scenario. This does not, however, lead to the same reduction in the use of environmental harmful inputs. Therefore, in the second of these two subsidy experiments, the subsidy to organic land is determined so as to achieve the same effects on the environmental indicators. Finally, the last policy experiment introduces environmental taxes on fertilizers and pesticides generally to achieve the same effects on the environmental indicators as in the consumer preference scenario. It is concluded that the most cost efficient way of achieving environmental protection is through polices that specifically target the “problem”, i.e. policies targeted at reducing the use of environmental harmful inputs. Policies that aim at increasing the share of organic farmland may increase the size of the organic sector and thereby reduce the overall use of environmental harmful input but does so at cost that is up to seven times higher measured by real GDP

Structural Forecasts for the Danish Economy Using the Dynamic-AAGE Model

We describe how an applied dynamic general equilibrium model of the Danish economy has been developed to generate structural forecasts. The forecasts provide a microeconomic picture that is consistent with a macroeconomic scenario and the other inputs. We provide an overview of the inputs required to generate the forecasts and of the forecast methodology. Finally, we present aspects of the forecasting results.Research and Development/Tech Change/Emerging Technologies,