8.2 Why Do Some Farms Spend More Per Unit of Output On Environmental Mitigation?

Chapter 7 showed that differences in practices between large and small farms have led to differences across the size distribution of farms in the efforts expended to mitigate negative environmental externalities per unit of output. Across countries and commodities, small-scale farms have higher environmental mitigation "expenditures" per unit of output than large-scale farms. The exceptions are poultry farmers in Thailand, where large-scale operations in the densely settled export-certified zone spend more per unit than smaller farms, and dairy farmers in Thailand, where the larger scale ones had more crop land than the smaller farms in the sample. It will be recalled that our measure of mitigation is composed not just of money payments to manage environmental problems such as manure and dead animal disposal, but also includes credits for the value of manure spread on fields or sold for spreading on other people's fields.

Why do smaller farms tend to have a higher money value of environmental mitigation activity than larger scale farms? To investigate the determinants of differential behavior more formally, we regress environmental mitigation expenditures per unit of output on a series of exogenous household and farm characteristics that are likely to be associated with higher effort, other things equal. The resulting estimated equations also permits predicting environmental mitigation based on the characteristics of a given farm household (see Chapter 4). The predicted values may be substituted for actual values in latter econometric work where two-way causality is expected for environmental mitigation and per unit profits.

The regressions show clear patterns across countries and commodities. A sample of the estimated relationships is reproduced in Tables 8.1 through 8.4. The following emerges from these results and those for the other commodities and countries not reported here for space reasons, but reported in the Annexes. Higher "expenditures" per unit of output on the mitigation of environmental externalities are typically positively associated with being a smaller farm (except Thailand), being a mixed livestock-crop farmer as opposed to a specialized livestock enterprise, being relatively far from the nearest population cluster (except for small farms in the Philippines), being in a zone where there is active market demand for manure for use on crops (no surprise), and being more highly educated (Thai dairy only). Greater concentrations of animals per farm area were negatively associated with environmental mitigation effort per unit of output in both Thailand and Brazil, where intensive operations are prevalent within the sample areas for this study.

The results for small size of farm and mixed livestock-crop farming are largely driven by the fact that smaller-scale operators are more likely to be less specialized than large-scale farms. They also make a proportionately greater effort than large-scale operators to spread manure as fertilizer. The ratio of animals kept on smallholder farms to area of crops cultivated is smaller, and the marginal utility of income from manure sales is undoubtedly higher. In Tables 8.1 and 8.4, for example, having access to cropland for spreading manure distinguishes environmental mitigation behavior among sample farms belonging to the small farm sub-stratum, but does not explain differences in mitigation behavior among large farms. These results are also consistent with the mass balance calculations in Chapter 7, which emphasize the more sustainable behavior of smallholders who are mixed farmers.

Table 8.1 Determinants of environmental mitigation expenditures on sampled Philippines broiler farms, 2002

Note: "ns" means statistically insignificant at 10 percent.

Source: Costales, A., et.al., Annex I.

Table 8.2 Determinants of environmental mitigation expenditures on sampled Indian broiler farms, 2002

Note: "n.s." means statistically insignificant at 10 percent.

Source: Mehta, R., et. al., Annex II.

Table 8.3 Determinants of environmental mitigation expenditures on sampled Thai broiler farms, 2002

Note: "n.s." means statistically insignificant at 10 percent.

Source: Poapongsakorn, N., et. al., Annex IV.

Table 8.4 Determinants of farm expenditure on mitigation of environmental externalities in hog production, Philippines, 2002

Note: "ns" means statistically insignificant at 10 percent.

Source: Costales, A., et. al., Annex I.

Tables 8.1 and 8.4, both of which are drawn from the Philippines sample, also suggest an interesting scale difference with respect to location: small farms closer to population centers make less of an effort for environmental mitigation, but large farms make more of an effort. This is probably due to the fact that small farms in the Philippines sample were largely concentrated in peri-urban areas where there is little potential for spreading manure on one's own farm, and little enforcement of environmental regulations for backyard operations, even if there was for larger farms.

Another determinant of environmental mitigation that seems to matter is contract farming. Where contract farming is significant, scale differences in environmental mitigation behavior tend to disappear, as both large and small contractors tend to have higher measured environmental mitigation per unit of output than independent farmers, and not very different on a per kg of output basis across different sizes of contract farm. In most of the cases of contract farming studied, the conditions for manure and dead animal disposal were stipulated in the contract, adding some uniformity to procedures, and a degree of environmental friendliness.