Advisory report
RLG 02/7a: Green Services: From Direct Support to Rural Enterprise
Advice on Green Services in Rural Areas - June 2002
In what way may agricultural entrepreneurs contribute to managing the rural area within the framework of an economic sustainable management? This was the key question in the request for advice that the Council for the Rural Area received from the State Secretary for Agriculture, Nature Management and Fisheries on 10 December 2001. The management goals for the rural area were not explicitly specified, but designated as nature, water, landscape, cultural heritage and accessibility for recreation. Special attention was asked for the implementation issues.
In this advice, the Council gives answer to the following questions:
• What quality does society demand from the rural area with regard
to nature, water, landscape, cultural heritage and accessibility for recreation;
• What contribution may and could be expected from the agricultural
sector being the large land managers within their compass of responsibility;
• What role could the agricultural sector play in taking (health)
care of this quality in the form of 'green services';
• In what way could green services be organised.
In this advisory report, attention is focussed on enterprises that combine food production with the management of nature, landscape and cultural heritage, the accessibility for recreation and water storage. The integrated land use can take place at different scales: on the scale of parcels (a plot of land with flowery borders: multifunctional fields) and on the scale of the enterprise as a whole (a nature area next to farm land: mono-functional fields). This advisory report focuses on areas designated for agricultural use according to the legal communicipality plan. But others may also offer green services: non-agrarian enterprises (such as recreational enterprises) and individuals, companies or organisations that are exclusively involved in nature, landscape and/or water management.
In addition to the dimension of the physical living environment, the role of the agricultural sector as manager of the rural area has also a social dimension: the economy and the liveability of the rural area. These aspects fall outside the scope of this request for advice, but are nevertheless important. The Council will touch upon this subject in its advisory report called 'Farmers, Townspeople and Countryfolk, Advice on the Meaning of Socio-cultural Developments for the Rural Area'.
Do Green Services Require a New Approach
To design these green services, the same lines of the present schemes
can be continued, with Programma Beheer [Management Programme] based on
the European Agricultural Policy as its main example. However, there are
several reasons for not indiscriminately adopting this line and it would
be preferred to consciously decide whether to continue along the same
line or to adopt another approach.
These direct reasons were problems with the implementation of the Management
Programme, the wish to cut back the income support through subsidies,
the expected contributions to the quality of the rural area from parties
other than the government, and the increasing interest shown by non-agricultural
companies in the quality of the rural area. More generally, there is indeed
a broad wish from the society to offer room for creative entrepreneurship
instead of the dependency on subsidies.
Some reasons in favour of, and considerations about, another approach
will be explained below.
Flaws in the Management Programme
Management Programme supplies mainly structural funding of management
measures that are focussed on nature, landscape and (partly) recreation.
There are no structural arrangements for areas with a cultural heritage
or water retention. As Management Programme has already been operational
for years, the structural pressure points have emerged likewise.
Management Programme showed flaws in the design of the regulation and
in the implementation. As to the design:
• It often showed that the packages did not fit in with the situation
in concrete areas. No package was available for the intended quality,
or the available packages could not be applied in certain areas;
• Compensations were based on loss of earnings, meaning that compensations
proportionally decrease when prices are down;
• Compensations were calculated on the basis of index numbers whereby
interim (and unexpected) adaptations in the amount of the compensation
were brought into force;
• Not all aspects of Management Programme have been fully accepted
in Brussels (including the role of environmental co-operatives, payment
for not carrying out activities);
• The system of "first come, first served" lead to discouragement.
As to the implementation:
• The implementation organisation was measured too skimpily which
resulted in a rigid, slow and detached implementation;
• Without consultations, the government included small readjustments
to the implementation rules in the arrangement;
• Information about Management Programme was limited, particularly
with regard to the interim adjustments.
Points of interest if the approach is changed
The Council concentrates on rural enterprises
The request for advice seems to be implicitly concentrated on agricultural
enterprises in the classical sense: enterprises that are for 100% focused
on food production/agricultural production. However, the Dutch rural area
also has agricultural enterprises that supply other products, such as
(health) care providers and recreational facilities and has non-agricultural
enterprises that use land as production factor, such as recreational enterprises
and forestry. The term 'rural enterprises' is meant to contain this whole
spectre of enterprises (from agricultural companies with only food production
and the combination of e.g. food production and recreational facilities
('camping on the farm') up to purely recreational enterprises (or enterprises
with another land use).
With a 'rural enterprise', the Council means an enterprise that uses
land as a production factor. Activities by rural enterprises - whether
combined or not - could be with food production, recreation, (health)
care provision, forestry, water retention, landscape maintenance. The
'agricultural enterprise' is a rural enterprise where biomass production
(food, energy crops) takes place as sole activity or in combination with
other activities. Rural entrepreneurs derive their income from rural enterprises,
but can - as any other entrepreneur - generate income from other economic
activities as well.
The request for advice on 'agriculture as manager of the rural area' can
be interpreted as the request for a possible combination of food production
and land management. Can we expect economically profitable enterprises
in future to carry out the combination of food production, nature and
landscape management, and water services (whether or not together with
other products, such as (health) care)?
However, all rural enterprises, and not solely 'agricultural enterprises',
can contribute to the quality of the rural area via the provision of green
services. The approach to be followed must give room to this aspect.
Additional income, no support
Subcontracting management tasks to farmers is not aimed at casting the
existing income support in a different mould. To be sure, green services
may result in an additional income for farmers, but supplementing their
income is not the purpose of green services. The aim of green services
is to satisfy societal needs.
This means that the situation of business economics does not play a role
if it concerns, for instance, the selection of areas where managerial
tasks are needed. Attention is focussed on the social question: if this
is spatially differentiated, the spatial differentiation is also seen
in the remuneration of the supply of green services. That is why more
green services could be acquired around, say, large cities and nature
areas than in agricultural areas in the northernmost part of the Netherlands.
Green services are no compensation for differences in production
circumstances
The Council is of the opinion that the funding of loss of income is not
a sustainable social basis for management that is aimed at maintaining
qualities. The stand that every entrepreneur is entitled to the same physical
production circumstances is thought by the Council to be superseded: the
government is not responsible for creating same production circumstances,
or for the lack of them. However, the government is responsible for creating
the same conditions for entrepreneurship in the economic and social domains
(such as competitiveness, working conditions) but does not have the duty
to create physically equal conditions. With the Council's standpoint there
is no basis for a compensation that is based on compensation of potentials,
as is presently the case.
The Council doesn't see the valuable landscape of The Achterhoek in eastern
Netherlands, or Waterland in the west, as a compensative handicap because
of better circumstances for food production in the Flevo Polders, but
as a characteristic of the area that the entrepreneur must take into account
in his management (of course preferably in the form of exploiting this
characteristic), perhaps even in the form of providing green services
which are paid for by the government. One may draw a parallel with, say,
transport companies: not all of them are favourably located near arterial
roads but the location of the company is one of the factors in management.
The need for security
Lack of transparency creates insecurity, and may result (also mentally)
in ever decreasing investments in development. Land use claims (like new
urban areas and infrastructure) cast their shadows as well.
New policy incentives will often lead to new policy instruments in the
form of rules, policy categories and categorisation of areas. These new
instruments supplement the present instruments, or even replace them.
This hampers the implementation of policies, which are helped by continuity.
That is why new policy instruments must dovetail with existing policy
instruments, especially when policy categories are involved. This may
be done by using the existing instruments better and/or by extending their
possibilities in such a way that the new purposes may be served (for example,
extending the aims or the criteria of a regulation). Transparency and
stability must be offered as far as possible.
Experiments are necessary, but a definitive approach is needed at
the same time
The discussion about quality and green services has already been going on for some years without the land managers having any clarity about the approach to be pursued. Experiments were set up to gain experience in laying the foundation for a permanent approach. However, in actual practice it proved that experiments failed, not only because of unrealistic expectations on the part of the countryside but also as a result of the government's harmonisation problems between specific, experimental policy on the one hand, and generic policy on the other. Flexibility was lacking because of the legal discourse on the policy. The failure of experiments left deep marks on the local level: the confidence in local initiators and other parties that do pioneering work will get lost whereby the potentials for innovation will be exhausted. The tension between the need for a permanent approach as well as the necessity for experimenting demands special attention.
Creating another approach to Green Services
'Green services' is a new concept for activities that have traditionally
taken place in the rural area. For carving out a policy and further detailing
of 'green services', the Council deems it wise not to develop a 'ready-made'
approach and to implement it, but to think in terms of a gradual changeover
from already existing methods of working with which 'green services' are
shaped (such as Management Programme). Based on the acquired experiences,
an optimum method must be developed. The gradual changeover must go in
the direction of a market-oriented system, the market of supply and demand.
In this model, intermediaries (not necessarily tied up with suppliers
or clients) bring the supply-side, demand-side and financiers of green
services together to form optimum combinations. Collective and individual
demands for green services are specified according to areas and combined
by intermediary agents on the basis of which collectives of suppliers
can make an offer, perhaps even with entering into a competition with
each other. The customised agreement is then concluded on the basis of
a business contract. The maintenance contracts for green services are
modelled after the maintenance contracts for other 'public' spaces, such
as roads. This is a transition from a subsidy relationship (such as in
Management Programme) to a progressive supply-demand relationship with
room for suppliers other than the government.
The relationship between green services and Good Agricultural Practice
The Council defines 'Green services' as activities in the field of nature,
water, landscape, cultural heritage and accessibility for recreation that
improve the quality of the rural and urban areas and that go further than
to what people are statutorily required to do. Green services are not
obligatory and may or may not carry a financial reward. For reasons of
their own, agricultural enterprises appear to go even further than Good
Agricultural Practice without explicit and rewarded social demands. From
the Council's point of view, we can speak in this case of unpaid green
services.
The Council holds the opinion that 'Good Agricultural Practice' must be
the translation of the statutory obligation to manage agricultural enterprises.
Good Agricultural Practice ties in with green services. The Council is
of the opinion that non-obligatory activities to improve the quality must
not be part of Good Agricultural Practice. For reasons of principle, the
Council asserts that the law must govern the activities that are considered
to be all-important. From a practical point of view, this means that any
contributions of agricultural enterprises in the form of non-obligatory
activities, in terms of money, will be relatively small in comparison
with the paid green services. The margins in management are limited. The
discussions about including non-mandatory activities in Good Agricultural
Practice will be mainly discouraging. There is no financial compensation
for mandatory Good Agricultural Practice.
However, society may associate the term 'good' with 'better than legally
required'. Society has adopted a critical attitude towards the agricultural
sector and there may be disappointment if it unexpectedly shows that Good
Agricultural Practice cannot live up to these expectations and this will
tarnish the reputation of the agricultural sector. This will make heavy
demands on the communication about this subject.
Payment for green services is not exclusively bound to the (local) authorities:
even the business community and private persons can 'purchase' green services.
Green services can be supplied by agricultural enterprises, by other enterprises
that have land as a production factor (such as private country estates,
recreation companies and holiday resorts) and by individuals.
The demand sets the price for green services, not the supply
The government, companies or individuals will only pay for green services if the need for them is proven. Supply of green services without demand will not lead to (continuity in) funding. When it involves government funding, the legitimacy of the expenditure will come up for discussion, especially in the long term.
Society's demand for green services is not yet clear
In terms of quality, the demand for green services is not univocal formulated
in policies and plans of the government, the province and the local authorities,
and they should make their point more concretely. The consumers of the
landscape must formulate part of the societal demands on the local level.
In order to do so, demand must be organised whereby intermediary agents
can play a role. Intermediary agents may also play a part in concretising
the specific needs of the business community and individuals.
In terms of quantity, the potential demand on behalf of the government
in the presently designated areas in the National Ecological Network (in
national landscapes, national parks and green areas around cities) is
estimated at 0.45m hectares. Other valuable areas (now designated as provincial
parks, regional parks and other areas of natural beauty) cover approximately
the same area. This makes the total area that is required by the Government
for green services for nature, landscape, cultural heritage and recreation
to be about 1million hectares.
On behalf of society, the government will be the largest client for green
services, but not the only one. The business community and individuals
have their own needs (e.g. for their direct living and working environment)
and this may result in a separate demand for green services.
The demand for paid green services will be concentrated in certain
areas
Some areas in the Netherlands will demand more green services than other areas. So when the budget is limited, the paid services will be possible and relevant for a limited part of the Netherlands. Moreover, the potential supply of green services will not be the same everywhere. Based on research, the Council estimated that half of the present agricultural enterprises are able and willing to supply paid green services.
Agriculture and other land managers are potential suppliers of green
services
It appears that the agricultural sector can survive in those areas that
demand green services, also because of parallel income from broadened
agriculture (home delivery, agro-tourism, and combining the (health) care
sector in rural areas). Consumers that wish (to experience) the quality
of the landscape will visit the area and spend both money and means on
local services. Nonetheless, paying for green services will only offer
compensation for the autonomous loss of profit in farming and stock breeding
in specific areas (close to town, in areas with valuable landscapes, etc.).
However, green services will only be functional if agricultural land use
and, with it, the basis of specific landscape qualities, are safeguarded
by spatial planning and land price control.
Other land manager (private country estates, recreational enterprises)
can offer green services as well. Locally, the share of these 'rural enterprises'
can be substantial.
A market-oriented model for green services is both necessary and
feasible
In principle, the method of working of Management Programme can also
be applied to green services. However, the method of Management Programme
is very complicated and does not encourage people or companies to commission
green services, nor does it take sufficient advantage of the existing
enthusiasm and entrepreneurship. There is the need for a transparent and
inspiring planning that challenges creativity and self-awareness and that
fits in with the standards and values of entrepreneurs, the maximum involvement
of all relevant parties and the effective transfer of means. The market-oriented
model is the best model to carry our green services effectively. With
the market-oriented model, the parties of the demand-side (authorities,
companies and private persons) and the contractors (agricultural enterprises
and other land managers in the rural area) find each other and can enter
into an mature demand-supply relationship with the help of intermediary
agents. The intermediary agents may work independently, or be called in
by important parties from the demand-side or contractors in an area. This
will mean that the subsidy relationship (Management Programme) is changed
into a more progressive principal-client relationship in which other parties
than the government can also take the part of the demand-side. There is
no longer a government subsidy for individual landowners, but a private
contract between various parties and a group of landowners.
Competition may occur between areas, parts of areas and among intermediary
agents themselves. The scale level at which the demand formulation takes
place determines the extent of the competition. This competition may result
in more quality for the same value. It is obvious that green services
will not be acquired if the price is too high. With benchmarking, the
demanding parties may find out whether the price-quality ratio is (socially)
acceptable.
Working with a market-oriented model imposes terms and conditions
To implement a successful market-oriented model, the following terms
and conditions must be satisfied:
• the formulation of the demand must be concrete, area-specific and
translatable into management;
• the system of spending and accounting of the EU funding must be
adjusted, especially the basis for financing (no compensation for loss
of income but paying for a product) and the requirement of a one-to-one
relationship between the EU and the individual recipient of the funds;
• guarantees for continuity of management, continuity of income and
safeguarding of quality;
• differences in income between areas must be socially accepted;
• the transition from the present (subsidy-based) system into a new
system requires a careful planning.
So far, these requirements for successful functioning have not been realised.
Three ways for the government to encourage green services
The role the government plays in green services is threefold. Firstly,
authorities may directly commission the improvement in nature and landscape
management, cultural heritage, water retention and accessibility for recreation
(formulating, prioritising and articulating the demand). If the average
price for green services demands € 300 per hectare, an estimated
€ 300m is needed if the central and provincial governments demand
green services.
Secondly, the national government can create conditions to make the market-oriented
model of supply and demand and the related role of intermediary agents
work well (e.g. by adapting EU regulations, facilitating intermediary
agents).
And thirdly, the central and provincial government may help develop the
sector of providers of green services through e.g. innovation subsidies
and research, as is also done for other sectors.
Recommendations for the Government
Management Programme is not necessarily the basis for green services
Green services is a new concept for activities of which a part has traditionally
taken place in the rural area, especially agricultural nature management.
The method of providing and acquiring green services can be modelled after
present regulations, with Management Programme as the most important example.
There are, however, several reasons why this method should not be copied
indiscriminately but consciously chosen. These reasons are the following:
• The Management Programme is so complicated that using the system
and awarding the subsidies may lead to bigger problems;
• Awarding subsidies confirms the existing image of income support
to the agricultural sector;
• Farmers and many other landowners are entrepreneurs. Granting subsidies
on strict conditions is not consistent with their standards and values,
and will restrain innovation and effective operation;
• The present approach does not encourage enterprises and individuals
to act as commissioners of green services;
• Land-managers other than those of the agricultural sector have
an increasing interest in the rural area.
Take care of continuity in the implementation of the policies
For policy design and implementation of green services, the Council deems it not advisable to develop a ready-made approach in advance, as this will take the practice by surprise. The Council advises a gradual transition from the existing methods (like Management Programme) which are optimised on the basis of the experiences in this field.
Switch from individual government subsidies to area-specific provincial
contracts
The requirements for designing green services are:
• a transparent and inspiring set-up that challenges creativity and
self-awareness;
• a maximum involvement of all relevant parties from both the demand-side
and the supply-side;
• an effective transfer of means;
• certainty of reaching the desired quality.
The market-oriented model described in this advisory report by the Council
fulfills these requirements. The demanding parties (not only the authorities
but also companies and individuals) and the supplying parties (not only
farmers but also country estate owners, individuals and other landowners)
will be competitively brought together by intermediary agents (working
independently or commissioned by important requesting parties and supplying
parties) to form optimum combinations. There may be competition between
areas, between parts of areas and between intermediary agents amongst
themselves. This competition may result in better quality with the same
means. Private contracts are concluded via a principal-client relationship.
This means a transition from a subsidy relationship (Management Programme)
to a more progressive principal-client relationship whereby the principal
can be institutions other than the government. There is no longer a government
subsidy for individual landowners but a private contract between (a group
of) principals and a group of landowners.
The conclusion of maintenance contracts for other 'public' spaces, such
as roads, may serve as a frame of reference. This method is very different
from the present subsidy system applied by e.g. Management Programme,
which means that the market-oriented model requires further studies and
a test phase.
Accept differences in income between areas, with government subsidies
for 'government areas'
A demand-oriented approach has the consequence that the demand in one area will be different from the demand in another area. Government subsidies must be granted in the areas where societal demands are greatest. The differences in income between these areas must be accepted by society.
Use the evaluation of Management Programme to evaluate the market-oriented
model (beforehand)
The Council recommends that the alternative of the market-oriented model
with the relevant parties should take place before the evaluation of the
Management Programme is evaluated:
• Test the acceptance degree of the market-oriented model with the
relevant parties;
• Test the model for feasibility and required conditions to make
it work;
• Test the model for its social consequences;
• Decide what requirements the model must satisfy to make an optimum
transition from old to new possible;
• Adjust the market-oriented model (or replace it by another model
on the basis of experiences).
Create the conditions for a new approach
The market-oriented model can only function if a number of conditions
are met:
• The formulation of the demand must be concrete and area-specific
and must be translatable in management;
• The method of granting and justifying the EU funds must be adapted,
especially the basis of funding (not compensating the loss of income but
paying for a product) and the requirement of a one-to-one relationship
between the EU and the recipient;
• Continuity of management, continuity of income and the safeguarding
of quality must be guaranteed.
These conditions are not yet met at present, which means that a transition
to another approach is not advisable. However, the Council does advise
to investigate to what extent the necessary requirements can be satisfied.
In addition, the market-oriented model can be tested experimentally.
Implement the market-oriented model in rapport with the review of
the Common Agricultural Policy
Using the evaluation, the following steps are possible after creating
the necessary conditions:
• start with the experiments,
• test the model for area-specific policy and
• include the model in a generic policy.
The model (perhaps even in an adapted form) can be implemented as a generic
policy after having been experimentally applied in certain areas. Some
room for experimenting and area-specific application (perhaps financed
by the government) can be created at the mid-term review of the Common
Agricultural Policy in 2003.
This may also anticipate pro-actively the WTO negotiations. See to it
that Brussels is involved in this matter so that acquired experiences
have their effects on the discussions on the mid-term review and the review
of CAP in 2006. When in 2006 the CAP is reformed, full implementation
of the policy on 'Green services' may take place.
Set aside funds for green services in time
The Council estimates the ultimate costs of 'Green services' at €
300 per year for nature, landscape, cultural heritage and recreation.
Based on the designation of valuable areas and water retention areas in
the National Ecological Network, an area of one million hectare would
qualify for green services (requested by the government on behalf of society).
The costs of the green service of 'water retention' cannot be estimated,
as there is not enough insight into the demand and the possibilities for
water storage in agricultural areas. It is paramount that these funds
be approved visibly and in time so that the present interest in green
services can be maintained. Earmark € 25m for experiments in 2003,
€ 200m for area-specific policy in 2004-2005, and € 300m for
green services from the year 2006.
Pay much attention to communication
Green services raise much expectation. The meaning of the concepts of Good Agricultural Practices and green services must be explained by providing solid information to farmers, townspeople and countryfolk alike. Myth-forming and avoidable disappointments about the concept of green services can be avoided by providing a clear picture of the nature and the extent of government efforts for green services.