How to Cope with Largely Dysfunctional Market Signals for Soil Stewardship?

December 18, 2018

Farming is the most significant human management system of the planet (i.e. farmed landscapes account for more than half of the terrestrial area of our planet and even a bigger share of its biological production). In other words, human existence on the planet largely rests upon how we manage our farmland and soils. This has important implications for agricultural policy, because it means that managing farmland, soils and ecosystems is almost as important as producing agri-food products. But farmers are not encouraged by market signals and mechanisms to be land stewards. On the contrary, modern day farming has removed much of the land husbandry and stewardship that was previously an integral part of a regenerative farming system. Market forces encourage an industrial, almost factory-like agriculture system with a mechanistic view of nature and a linear external-input-intensive production approach largely removed from its ecological context. Globalization has reinforced the importance of profit-seeking and competition and has globally turned the role of the food system into a mechanism that transforms nitrogen, phosphate, and potassium into nutrients for people in the most efficient, which means cheapest, way. But this perspective neglects the immense life in our soils, the millions of organisms living there and all their interactions.[1]

There is also the need to redefine productivity. But it is not sufficient to theoretically redefine productivity, we also need to redesign the economic system that has created a distorted view of what is productive and what is not. Today, productivity is measured by how many trees one person can cut down with a chainsaw or how much fish a fisherman can scoop up from the sea. But as natural resources dwindle, the real productivity lies in how these resources re-generate. One is productive if there is more forest next year than today, if there are more fish and if the soil becomes more fertile by the years instead of being exhausted and eroded. In a similar way we are efficient if the food we produce and consume is healthy rather than if it is cheap.

While many observers recognize and deplore that dilemma, too much hope is pinned on the potential of modern techno-fixes to mitigate the effects of resource-mining agriculture. There is no doubt that some of the new technological developments such as soil-data availability and processing, the use of agri-robots and drones that allow a more efficient use of external inputs can reduce environmental impact of industrial agriculture. But this does not necessarily mean that there is a systemic change towards reproductive agriculture. Rather, this will require a change of the incentive structure and the thus related market signals. Soil and resource regenerative agriculture cannot use the shortcuts of industrial agriculture that, by and large, are all fossil-fuel-driven.

There are almost no market mechanisms in place for undertaking the important task of managing the agriculture landscape and the resource base for farming, and there is a limited potential for them to emerge. Even if they did they will never reach the extent required, considering that the value of agricultural ecosystem services might well be as high as the total value of agricultural production. At present the market is still driving farmers the other way; into more and more specialization and monocultures and less stewardship of nature resources, including the soil.[2] Already today massive government interventions are directed to compensating for market failure. We need to look in other directions if we wish to sustainably manage the agriculture landscape.

Against this very background, for decades many scholars have pointed to the need for internalization of social and environmental costs and compensation for ecosystem services as the silver bullet for overcoming market failure and thus ill-conceived economic incentives for farmers. Yet, there are enormous challenges involved in internalizing costs and rewarding farmers for providing environmental services, because that would require very extensive and complex regulation (e.g. the EU’s agri-environmental program is but a small step in this direction). Such mechanisms have been proposed for more than half a century and very little progress has been made so far. Such systems would probably still be neither fair, nor efficient, and would, in many ways, represent a control of farms more severe than under Soviet-style command and control. Moreover, the payments to farmers for providing public goods will not reflect the value of the public good but the compensation the farmer needs to obtain to make the required effort – which may be considerably higher or lower than the value of the goods or services themselves (e.g. if the farmers are compensated for not or sparsely applying fertilizers and other agro-chemicals to protect groundwater or a watershed, the level of payment will compensate the farmer for actual or perceived yield losses). The WTO agreement on agriculture also explicitly prohibits any compensation above the actual cost of providing the service rendered.

There are a number of examples of national programs for compensating farmers for generating environmental services, but their results are mixed and potential systemic problems underestimated.

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By way of illustration, as early as 1996, Costa Rica introduced a system which compensated landowners for carbon sequestration, biodiversity protection, water regulation and conserving landscapes. In 2001, the payments under this program had reached US$ 30 million and covered a total of 280,000 hectares (around 6% of the country’s land mass). The payments thus amounted to about US$ 107 per ha per year. [3] Farmers in the Scoltel Té project in Chiapas in Mexico also sell carbon sequestration in the soil and in vegetation for between US$ 300 and 1,800 per farm, big sums for households where the average income is about US$ 1,000.[4]

In 2003 more than 10% of England’s agricultural land was enrolled in long-term contracts between the government and farmers to provide environmental services. There was a high uptake of the elements of the programs that didn’t require fundamental changes to farming practices. But, in intensively farmed areas the uptake was low, as the incentives were not sufficient to persuade farmers to make more demanding changes. In a sense the program was just ‘greening the edges’.[5]

There are many other potential problems with, and unintended side effects of payments for ecosystem services, some of which are not initially seen. It also means that more ecosystems are integrated in the global economy. These payments can also be seen as a new frontier of exploitation, where the rich countries use the land in developing countries as a ‘dumping’ ground for their waste, e.g. by paying for climate compensation to allow continued emissions.

One can also question the benefits of valuing ecosystem services in monetary terms, especially as the most valuable of these services have unlimited value and no known alternative. But there is also the question of how we perceive nature. It seems that we increasingly confuse ‘value’ and monetary assets, and there is a case for us avoiding underwriting this confusion by assigning prices for natural and social capital.

In the light of the conceptual considerations above and the level of urgency for action it seems more fruitful and stimulating to farmers at the present juncture to think of one or two powerful building blocks that change their incentive structure rather than conceiving a fully different system. The most powerful measure one should consider in this regard is the removal of energy subsidies.

Higher costs for energy will cascade through the system and make things that today seem ‘efficient’ and ‘rational’ appear like lunacy. In this way, many of the fallacies of today’s system will ‘automatically’ disappear, in particular production systems based on external-input-dependent, highly specialized production, mass transport of food and cold chains for fresh convenience foods. The thus ‘freed’ financial means from reduced energy subsidies can be redirected towards compensating (or rather rewarding) farmers for providing environmental goods and services. Incentives for carbon sequestration in soils may have the triple purpose of mitigating climate change, arresting soil erosion and encouraging farmers to implement other regenerative agriculture practices.

Another opportunity that farmers may autonomously seize is to sever completely or to a large extent the links with the classical market. Producer groups or cooperatives may develop various forms of community-supported agriculture, where, on the one hand, producers market their produce directly without trade or retail intermediaries, thus profiting from higher prices and lower costs,[6] and, on the other hand, consumers take a stake or invest in farming. While monetary transactions may still be important in such systems they are in fact built on relationships rather than an anonymous market. Such approach allows farmers to put much more emphasis on the qualitative and reproductive aspects of production, including soil fertility and largely isolate themselves from the treadmill pressure of mass commodity production. In addition it may offer consumers – or citizens – a much needed way of reconnecting with food production. That will motivate them to support local production and relationship as well as policies which are directed towards regenerative agriculture.

Policy makers can also facilitate such a development by a host of policy measures, such as changes in hygiene, tax and employment rules (which nowadays can create problems for community-based enterprises), planning (e.g, by reserving land in city perimeters for farming purposes, such as the Agriculture Park in Barcelona), public procurement (a Swedish municipality has become a member of such a community-supported farm and gets the vegetables to the schools from that farm) and through other kinds of incentives (e.g. free space for farmers’ markets, making public land available on favourable terms).

Without such measures and approaches, prevailing soil erosion is unlikely to be slowed down, let alone stopped and reversed. In fact, the situation will rather resemble that of the fight for climate change mitigation: A spate of positive practical examples on GHG reduction opportunities and a large body of knowledge on the catastrophic consequences of likely temperature increases of 3-4 degrees and more will not be sufficient to alter the current GHG-intensive, GDP-growth-fetishizing development paradigm. It seems as if change can only be triggered as a result of recurrent natural catastrophes and related human and development crisis situations.


  1. For a more comprehensive analysis see: Rundgren, G. 2015. Global Eating Disorder, Regeneration, Uppsala, p. 121 ff.
  2. Low interest rates in quite a number of developed countries have boosted investment in acquisition of farmland in expectation of speculative gains. This has contributed to significant increases in farmland prices. One would expect that higher land prices would encourage land/resource stewardship, but actually they increased the pressure on productivity and profitability improvements further expanding, for instance, the production of flexi-monocrops such as maize for feed, food and fuel.
  3. FAO 2007. The State of Food and Agriculture 2007.
  4. World Bank 2007. World Development Report 2007.
  5. Dobbs, T.L. and J. Pretty 2008. Case study of agri-environmental payments: The United Kingdom. Ecological Economics 65, pp. 765-775.
  6. It is estimated that buying from independent shops generates about 2.5 times as much local income as buying from supermarkets, because local shops also tend to buy local services (Transition Town Totnes, 2012. Economic Blueprint for Totnes & District: Our local food economy. Transition Town Totnes).

This article is an extract from an article written jointly by Gunnar Rundgren andUlrich Hoffmann in Agriculture Transformation Review, Biennial Assessment of Sustainability & Agricultural Development, Vol.1 (2018). 

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Gunnar Rundgren

Gunnar Rundgren has worked with most parts of the organic farmer sector – from farming to policy - since 1977, starting on the pioneer organic farm, Torfolk. Founder and Senior Consultant of Grolink AB, he worked for several United Nations agencies and development cooperation organizations including the World Bank. He was a World Board member of the International Federation of Organic Agriculture Movements 1998 and the president 2000-2005. He has written several books, the latest being Global Eating Disorder. Currently, he runs a small farm with vegetables, fruits and nuts as well as a handful of cows.

Tags: Building resilient food and farming systems, regenerative agriculture