Environmental Costs in Agriculture and Their Assessment
Methodological background of the research is based on the concept of social cost and social benefit coined by Arthur Cecil Pigou (1877-1959): social cost covers private operating costs incurred by enterprises and consumers and all external costs that are incurred by entities or persons not directly related to the respective activities; social benefit covers private benefit and entire external benefit of activities by enterprises and consumersand the entire external benefit provided by it to others.In the contemporary sustainable society, sustainable consumers are those who associate personal and social benefit closely with environmental protection. In their activities, they develop and consume products taking into account environmental criteria besides the conventional value-for-money assessment, thus incurring environmental costs. Environmental costs can be classified into two major groups: public costs (incurred on the European Union (EU) and national level) and individual costs – incurred by a business entity or natural person. Compensation costs intended for compensation of costs incurred by consumers or revenues not incurred due to compliance with environmental restrictions account for the major share of public environmental costs. These costs have been analysed extensively in the research literature, where the effect of environmental measures from the agricultural perspective is analysed.Micro-level analysis is required for analysis of individual environmental costs. Agricultural business – one of the businesses characterised by intensive use of environmental resources, at the same time creating benefit to the society by maintaining and enhancing the resources – has been chosen for this research. A share of agricultural business costs comprises environmental costs; on the other hand, agricultural business entities often need to abandon certain activities, resulting in loss of a share of revenues in order to maintain environment as the public good.
Potential causes behind formation of environmental costs at a farm are as follows: managerial – where conventional vs. sustainable farming practice is chosen; economic – rational behaviour, competitiveness, estimated returns; social – where environmentally friendly activity is conducted.Types and volumes of environmental costs incurred and revenues lost as a result of environmental protection at agricultural enterprises depend on the nature of operations. Intensive and non-intensive farming is conducted on territories that are, respectively, containing high-yield soilsand unfavourable for farming. Farms operating on high-yield soils incur relatively higher lost profit, in case they become engaged in organic farming (and environmental protection along with that), as farms engaged in organic farming incur approx. 25% increase in cost, while their crop yield drops by approx. 30 %. Farming type (crop production, livestock production, mixed farm) also determines environmental actions and their available range.
In micro-level analysis of environmental costs, maximum attention is cantered on environmental taxes. They are referred to as one of the most efficient measures for improvement of environmental condition and rational resource consumption. Nonetheless, agricultural business entities often incur environmental costs voluntarily or prompted by the causes mentioned above rather than under the polluter-pays principle. This is in line with the concept of sustainable farming implying links between social, economic, and environmental dimensions of farming. It is therefore very important to design a methodology enabling assessment of the environmental costs incurred from the perspective of their benefit.
Cost analysis primarily involves analysis of cost effectiveness. This requires the use of quantitative approaches(those that help identify they income – outcome relationship). The analysis involves calculation of financial indicators (received payments and costs incurred or lost revenues), the effect on product cost (e.g., use of less organic fertilizers, plastic materials leads to lower cost), business revenues (revenues decrease due to smaller product volumes resulting from use of less resources),profitability. Analysis of the analytical data, however, has prompted the need for integrated approach towards analysis of the costs. The key result of the research is the set of indicators of productivity, efficiency and effectiveness proposed for assessment of environmental costs at a farm. The productivity indicators reflect the returns on use of resources used in the process of production; efficiency indicators demonstrate the efficiency of management of own assets by business entities, while analysis of effectiveness is aimed as verifying presence of not only financial, but also, social benefit, if any, of the environmental costs. It is reasonable to assess the investments into environmental protection by calculating the payback period or the burden of other costs which has decreased as a result of the environmental costs incurred. In analysis of environmental costs, it is very important to identify whether the costs are mandatory or voluntary. In the end, environmental compliance is aimed at maintenance of environmental quality and preservation of renewable energy resources – the result, which is difficult to express by any economic indicators. The research could be continued by taking deeper insight into analysis of different types of environmental costs and selection of new approaches for the analysis.
Keywords – Environmental costs, assesment, efficiency.