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Assigning Economic Value to Natural Resources
The wildlife habitat values of farm woodlands and wetlands are another example of typically off-farm benefits. That is, habitat values are enjoyed by hunters, birdwatchers, and even by people who get pleasure from the mere knowledge that wildlife are provided habitat for their continued existence. But the values are not reflected in farm commodity prices, and only partially captured in agricultural land prices.2 Symmetrically, the costs of losing habitat values when the land is cleared and drained for crop production are not reflected in commodity prices.
The off-farm benefits and costs of agriculture are not always symmetrically balanced, as in these examples. The benefits of resources which increase the productivity of farm operations, such as pesticides and fertilizers, are reflected in lower prices of food and fiber. But use of these resources may also impose a variety of off-farm costs, for example, damages to human health from ingestion of contaminated groundwater, to wildlife (from pesticides) and to aquatic ecosystems (from pesticides and fertilizers). Similarly, sediment eroded from farmland and deposited in floodplains and river deltas can increase soil productivity, and hence may generate benefits reflected in lower farm commodity prices. But sediment may also impose off-farm costs in the form of losses of recreational values because of murky water in streams, lakes and reservoirs, damages to fish spawning areas covered by silt, and higher costs of cleaning the water for residential and industrial uses.
Clearly, a full assessment of the performance of U.S. agriculture must take account not only of on-farm economic costs and benefits but the off-farm costs and benefits as well. In such an assessment, Crosson (1992) concluded that the off-farm costs of U.S. agriculture rose relative to the off-farm benefits from the end of World War II to the early 1990s. The implication is that off-farm costs rose also relative to on-farm economic costs (since the latter, reflected in farm commodity prices, declined). But because of the lack of reliable data for off-farm costs and benefits, Crosson (1992) made no judgment of whether these costs rose enough to offset the decline in on-farm economic costs.
Consideration of the on-farm and off-farm costs of U.S. agricultural production raises the issue of the sustainability of the production system. Sustainable agriculture is the subject of intense discussion and increasing research in the agricultural and environmental communities, not only in the U.S. but also in other countries and in international agencies such as the World Bank. Definitions of sustainable agriculture vary widely, but the key element in all of them, implicit if not explicit, is concern about the long-term social costs of agricultural production. The most hard-bitten environmentalist would join with the most hard-nosed agriculturalist in agreement that the U.S. agricultural system is sustainable if each were satisfied that the system could indefinitely accommodate demands for food and fiber at satisfactory social costs.
Many farmers charge fees to hunters and bird watchers for access to their land, and the resulting net income must be reflected in land values, at least to some extent. But not all farmers do this, and they have no way of capturing the existence value of habitat on their land.