Ecological-economic impact assessment of Swiss Direct Payments on sector level: A quantitative approach for the evaluation of the cost-effectiveness of policy measures

The request for quantitative tools for ecological-economic impact assessment of agricultural policies has increased in recent years, due to i) improved impact assessment and policy evaluation standards of the new agricultural support schemes (European Commission, 2004) and ii) the improved methodological and technical potentials in the field of sector modelling (Heckelei, 2002). Switzerland, as a non-EU member, has introduced cross-compliance rules already in 1998 and linked a bulk of further ecological direct payments to specific farm management restrictions. While the whole direct payment system has been subject to an official evaluation process (Flury, 2005), especially the question for the cost-effectiveness of extensification policies has not been addressed in sufficient depth. In this context organic farming is of particular interest because in Switzerland as in most other countries, organic farms receive additional support payments for providing public goods, particularly of ecological nature (Stolze et al., 2000). As this support has made it economically more attractive for farmers to convert to organic agriculture (Lampkin et al., 1999), the question for cost-effectiveness of the organic area payments is particularly relevant. So far, agricultural economists have two differing views on the cost-effectiveness of organic farming: One the one hand, von Alvensleben (1998) argues that the organic area payments are not cost-effective because the policy objectives could be achieved by flexible combinations of various agri-environmental measures more efficiently. The theoretical basis for this was laid by Tinbergen, who theorised that efficient policy requires as many specific instruments as there are specific objectives (Tinbergen, 1956). On the other hand, the applicability of the Tinbergen rule might not be given fully in this case, due to interactions between and a limited determinability of different kinds of objectives. Furthermore, the multi-purpose character of organic agriculture could increase its cost-effectiveness by lowering transaction costs as compared to specific, targeted agri-environmental measures (Dabbert et al., 2004). This dissent has not been addressed in a quantitative way on sector level so far. A quantitative model for such an assessment is lacking in Switzerland and represents a significant methodological challenge; this thesis addresses the outlined problem and fills this methodological gap.