1 The analysis concerns gross margin II, which covers building and land rent. Since building stock is not included in the analysis, the figure can be taken as the land rent. The change is measured in relation to the free scenario (model-calibrated present production).
² Extensive dairy farming
Source: Ørum (1998)

Sectoral economic analyses

… takes interaction with other sectors into account

The analyses of the economy of the agricultural sector are based on the general equilibrium model (AAGE), which can be used to illuminate the economic consequences for the sector as a whole and for different production sectors. Unlike the analyses at farm level, which, as mentioned, are based on fixed product and factor prices, the AAGE model includes the interaction with other sectors in the economy and foreign trade, which means that account is taken of changes in supply and demand in the product and factor markets and the consequent changes in prices.

A ban on the use of pesticides in farming would have a marked effect on production costs and thus on the Danish agricultural sector’s ability to compete internationally. As shown in Table 5.9, cereal production would fall by 70 per cent. The reason for this is considerable yield losses combined with poorer profitability in cereal production²³ because assumed intense international competition would not allow price rises without significant, negative consequences for export and import of cereals. Cereal exports would thus fall by almost 90 per cent, while cereal imports would rise by 275 per cent.

… and in rape production

In the case of rape, exports and production would fall by 100 per cent and 98 per cent, respectively, while the price ex farm would rise by 4 per cent. Rape production would thus largely disappear, and the industry would replace rape produced in Denmark with imported rape, which would rise by more than 500 per cent.

Production of potatoes would fall by 69 per cent, exports would disappear, and the price to the farmer would increase by 22 per cent. These effects cover complete discontinuation of production of industrial potatoes because of the assumed intense international competition for these varieties and a moderate reduction in supplies of ware potatoes for private consumption. The reason for the moderate reduction in private consumption of Danish potatoes is an assumption of less intense international competition (the consumers prefer Danish potatoes).

Note: The changes are measured in relation to present production.
Source: Jacobsen & Frandsen (1999, Tables 5.1 and 5.2)

… and sugar beet

Although sugar beet is the production that would suffer the biggest additional costs per produced unit in the event of a total ban on the use of pesticides, the fall in production would be smaller than in the case of cereals and rape. There are several reasons for this. Firstly, there is almost no import of sugar beet, i.e. the production of sugar beet is not affected by the international competition (prohibitive transport costs). Secondly, sugar beet accounts for a relatively small proportion of the sugar mills’ costs, which means that a rise in the price of the primary product would have only a limited effect on their unit costs.

Slight rise in livestock production

A pesticide ban would have relatively limited effects in the livestock sectors. The costs in the greenfeed sector would fall as a result of lower land prices, which it is estimated would reduce the price of greenfeed by around 8 per cent. The consequently lower costs in dairy farming would increase the competitiveness of milk production, but milk production (and beef production) would not change owing to the milk quota.

For both pork and poultry production, falling input prices would lead to lower unit costs, causing production to rise.

As mentioned earlier, the big fall in crop production must be seen in the light of the fact that this is a long-term restructuring, with an assumption of no barriers to restructuring of production, either at the individual farm or regionally. In the shorter term, requirements concerning harmony between number of animals and acreage could increase the cost of restructuring livestock production, which would impair greenfeed’s ability to compete for acreage. Such restrictions might therefore help to reduce the pressure of supply in the livestock sector while limiting the fall in the production of, for example, cereals and rape.

For the industries processing livestock products, there would be generally beneficial effects on production and foreign trade. The biggest effect would be found in the pork and poultry sectors, where production could be increased, while the better economy in milk production would mainly be reflected in a higher value of the milk quota.

In the +scenario, the possibility of limited use of pesticides means that the crop sectors’ costs would increase less, with a consequently smaller fall in production than in the case of a complete phase-out of pesticides. In this case, cereal production would be reduced by just

over 30 per cent, which would mean a 50 per cent reduction in cereal exports compared with present production and a considerable rise in cereal imports. In this case, too, rape production would largely disappear.

… and potatoes …

Potato production would fall by 54 per cent, while the price would rise by 2 per cent, compared with 22 per cent in the 0-scenario. The more limited effect on the price is due to a lower input, combined with falling factor prices, which would together lead to a limited increase in unit costs. In this scenario, too, production of industrial potatoes would be discontinued.

… but only small fall in production of sugar beet

Sugar beet is the production that would be least affected in the +scenario, falling by only 6 per cent. The explanation for this is that, as mentioned, sugar beet accounts for only a small part of the sugar mills’ costs, making it possible for the mills largely to maintain their international competitiveness despite paying slightly higher prices to the producers.

Livestock production unaffected

For the livestock sectors, the +scenario would have only a limited effect on prices and production, and for largely all processing sectors, exports would rise slightly and imports fall slightly.

0-scenario: big fall in gross factor income in farming

The result of the above-mentioned changes would be a real fall in gross factor income in primary agriculture of DKK 3.4 billion in the 0-scenario, corresponding to a 15 per cent fall (Table 5.10). Most of the fall would occur in crop production, with cereals alone accounting for a fall of DKK 3.0 billion. Apart from the sugar mills, the processing sectors would be relatively little affected by a pesticide ban. It is estimated that gross factor income at the sugar mills would fall by DKK 1.4 billion, mainly as a result of falling production of sugar beet in Denmark. In all, it is estimated that gross factor income in primary agriculture and the processing industry would fall by DKK 4.5 billion.

Note: All amounts are given in 1992-prices. A model-calculated fall in the GNP deflator of 1.63 per cent is used in the 0-scenario and 0.64 per cent in the +scenario as the basis for the conversion into fixed GNP-prices.
Source: Jacobsen & Frandsen (1999, Table 5.7)

+scenario: fall in gross factor income in agriculture halved

The corresponding analyses for the +scenario show a fall in gross factor income of DKK 1.8 billion (8 per cent), of which cereals alone account for DKK 1.5 billion. Gross factor income in the livestock sectors would rise and there would also be a small rise in the processing sectors because a fall in the sugar mills would be more than balanced by a rise in the processing of livestock products.

The above-mentioned changes in gross factor income reflect a reduction in the agricultural sector’s contribution to income formation in society (return on labour, capital and land). The fall is a result of the phasing-out of pesticides reducing productivity in the sector and thus impairing the sector’s possibility of competing for capital and manpower. Capital and manpower would migrate from agriculture and are assumed in the analyses to be employed in other sectors, although at lower real wages. For farming, that means that wages would fall in line with other sectors. In other words, the remaining manpower would suffer a loss of income. In addition, established farmers would suffer a capital loss in the form of falling land rent, and there could also be changes in the value of, for example, the milk quota.

Land rent falls while value of milk quota rises

In Table 5.11, the fall in gross factor income in agriculture is broken down between land, capital, manpower and milk quota. As a consequence of lower production costs in the dairy sector, the milk quota would rise by DKK 702 million in the 0-scenario and by DKK 380 million in the +scenario, while land rent would fall by DKK 470 million (13 per cent) and just under DKK 295 million (8 per cent), respectively. These figures must be compared with the loss of income in agriculture as a consequence of the fall in real wages.

Note: All amounts are given in 1992-prices. A model-calculated fall in the GNP deflator of 1.63 per cent is used in the 0-scenario and 0.64 per cent in the +scenario as the basis for the conversion into fixed GNP-prices.
Source: Jacobsen & Frandsen (1999, Tables 5.8 and 5.9)

It will be seen directly from this that action against pesticide consumption would result in a redistribution of capital between arable farmers and dairy farmers.

Fixed factors increase the loss

As stated earlier, scaling up the changes in gross margin at farm level results in a loss for the sector, measured in 1992 kroner, of just under DKK 2.5 billion in the 0-scenario (33 per cent loss) and DKK 1.3 billion (17 per cent) in the +scenario, which can be taken as an expression of a fall in land rent. The economic loss at farm level would thus be five time the above-mentioned falls in land rent of DKK 480 million and DKK 295 million. Such a difference is only to be expected because the farm-level analyses are based on fixed product and factor prices and on unchanged livestock production, while the socioeconomic analyses take into account the possibility of savings in agriculture through restructuring of production and the industry’s price relations. The analyses thus underline the fact that agriculture’s loss would depend greatly on the assumptions used with respect to the mobility of the means of production and the length of the restructuring period.

Released manpower results in fall in real wages

The above-mentioned changes in agriculture would affect other sectors through a release of resources and a fall in the demand for capital goods. This would be felt most in the sectors associated with agriculture, such as agricultural service and production of commercial fertilisers, in which there would be a marked fall in home market production. Of greater importance, however, would be the indirect effects through the release of manpower, which, as mentioned, would directly reduce the general level of pay. With the above-mentioned conditions, it has been found that wages would have to fall by about 1 per cent in the 0-scenario and by 0.4 per cent in the +scenario for the released manpower to find employment in other sectors.

A fall in real wages would, on the one hand, improve competitiveness in sectors exposed to competition, resulting in increased net exports of goods and services. On the other hand, falling real wages would reduce domestic demand. That would hit particularly the home-market industries, which do not have the same possibility of selling for export. The interaction between the change in supply and demand would be reflected in falling product prices for most industries of the order of magnitude of 1-2 per cent in the 0-scenario and around 0.5 per cent in the +scenario. However, while the export-oriented industries would generally be able to increase production, production would fall in a number of home-market industries.

Table 5.12
Chance in gross factor income, fixed GNP prices

Note: All amounts are given in 1992-prices. A model-calculated fall in the GNP deflator of 1.63 per cent is used in the 0-scenario and 0.64 per cent in the +scenario as the basis for the conversion into fixed GNP-prices.
Source: Jacobsen & Frandsen (1999, Table 5.12)

For example, it has been found that gross factor income in the sectors building and construction, commerce, services and housing, taken together, would be reduced by DKK 3.7 billion in the 0-scenario and by DKK 1.5 billion in the +scenario (Table 5.12), while the total fall in gross factor income would amount to DKK 5.4 billion and DKK 2.4 billion, respectively.

Adjusted for charges and duties, this corresponds to a reduction in gross national product, measured in fixed GNP prices, of DKK 7.0 billion in the 0-scenario and DKK 3.1 billion in the +scenario.

Socioeconomic consequences

From a socioeconomic angle, it is the consequences for GNP, real consumption, capital and investments, and exports and imports, that are of interest. As stated earlier, it is assumed in the analyses that total employment would remain unchanged because of flexible pay formation. With the requirement of equilibrium in the balance of payments, this means that the consequences of phasing out pesticides would be changes in the above-mentioned variables. It is also assumed in the analyses that savings in society develop in line with total investments.

Considerable fall in consumption and investment

The main measure of the welfare-related economic consequences is changes in private consumption. As a consequence of lower real wages, disposable income would be reduced, with negative consequences for consumption. Assuming that public consumption was unaffected, real private consumption would fall by DKK 7.6 billion (1.7 per cent) in the 0-scenario compared with DKK 3 billion (0.7 per cent) in the +scenario (Table 5.13). This corresponds to DKK 1,500 and DKK 600 per capita, respectively, measured in 1992 prices²⁴. Investments would go down by just under DKK 2 billion in the 0-scenario and by DKK 950 million in the +scenario.

Measured in fixed prices, GNP would fall by DKK 7.3 billion (0.8 per cent) in the 0-scenario, compared with DKK 3.1 billion in the +scenario (0.4 per cent). When this is compared with the aforementioned changes in pesticide usage (Table 5.1), it will be seen that DKK 4.2 billion could be saved by going from a total phase-out to limited use of pesticides corresponding to an increased treatment frequency of 0.2-0.7 standard doses per ha.

Improved balance of trade …

As far as the consequences for foreign trade are concerned, total Danish real exports in the 0-scenario would increase by slightly less than DKK 6.4 billion, while real imports would increase by DKK 3.8 billion. The growth in exports of other goods and services as a consequence of improved competitiveness in other sectors than agriculture would thus fully make up for the smaller Danish agricultural exports. On the import side, rising agricultural imports would make up for lower imports of other products.

Table 5.13
Change in gross national product, quantities

Note: Gross national product is equal to the sum of private and public consumption plus investments, stock changes and exports less imports. Gross national product is expressed in quantities, which means that the figures do not sum to the total and that the total figures differ from the gross national product in fixed gross national prices in Table 5.12. All amounts are given in 1992 prices.
Source: Jacobsen & Frandsen (1999, Table 5.13).

… despite impaired terms of trade

The terms of trade (calculated as the ratio between the development of export and import prices) would fall by 1 per cent due to falling export prices, in that it is assumed that import prices would remain unchanged. The picture in the +scenario is the same except for a far smaller increase in the volume of exports and imports.

Global phase-out of pesticides

As mentioned, the analyses here are based on unilateral Danish regulation of pesticide usage, with the assumption that Danish consumers and manufacturers have free access to purchase conventional foreign products and capital goods at internationally determined market prices, and that consumers do not prefer pesticide-free products. As shown above, this means that cereals produced in Denmark would be replaced by imported, conventional, foreign cereals, which would make it possible to maintain Danish livestock production at a largely unchanged level.

If similar regulation of pesticide usage were implemented in and outside the EU, the same trend could be expected in other countries, i.e. the supply of cereals would be reduced globally. Such a development would result in an increase in the price of cereals and thus improve the competitiveness of non-pesticide cereals produced in Denmark. However, it would also increase production costs in livestock production – especially pork and poultry production – which would thus be less able to compete. In a global context, such a development would increase food prices with consequent financial loss for the consumers and restructuring of production within and outside agriculture, as described above.

It is not possible to estimate the economic consequences of a global restriction of pesticide usage with the present analytical tools. One could – as has been done in the organic scenarios – analyse a situation in which a ban is imposed on increased importation of traditionally produced cereals (the calculations in question indicate which results one would get). However, that is a very unsatisfactory way of modelling a global reduction of pesticide usage. A satisfactory model would require expansion of, for example, SJFI’s global trade model²⁵ in a number of areas, which is outside the scope of this study. However, a global ban on the use of pesticides in agriculture must be expected to result in substantial socioeconomic losses, while a partial phase-out could probably be absorbed more easily within the framework of a continuous economic adjustment of the structure of industry, where the development of new technology could help to facilitate the restructuring process.

Summary

The purpose of the analyses carried out is to determine the economic consequences and employment consequences of a total or partial phase-out of the use of pesticides. In this connection, importance has been attached to determining the consequences for both primary agriculture and for the agricultural sector and the national economy, taken together, with a view to clarifying the consequences for employment and earnings in different sectors and for consumption in society.

The analyses cover a total phase-out (0-scenario) and a partial phase-out (+scenario) of pesticides. The latter analyses are intended to show the situation in which limited use of pesticides is allowed for the production of crops that would otherwise result in big yield losses or be discontinued.

The analyses are based on assumptions concerning yield losses and cultivation practice in present production and in the event of a phase-out of pesticides. The yield losses thereby calculated are used as the basis for analysing land use and pesticide usage and the economic return at farm level, assuming partial optimisation of the return in crop production. The analyses have also been used as the basis for fixing the technological and biological assumptions for the analyses at sectoral and societal level. This linkage of the concept of analysis ensures a consistent description of the consequences at different levels of phasing out pesticides.

The assumptions for the socioeconomic analyses are: equilibrium in the national economy; development of savings in line with total investments; and unchanged total employment due to flexible pay formation. Together with the requirement of equilibrium on the balance of payments, this means that phasing out pesticides would lead to changes in total consumption, investments and foreign trade. Since the analyses are based on long-term restructuring, they do not say anything about the effects that could occur in the short or medium term, where there would be restructuring costs.

The analyses show that a total phase-out of pesticides would result in major costs to society and that, even in the case in which use of pesticides, would be permitted for crops that were heavily dependent on chemical control, limiting the use of pesticides would result in considerable losses. All in all, a total phase-out of pesticides (0-scenario), would result in a fall in gross national product of DKK 7.3 billion (0.8 per cent) in real terms, while limited use of pesticides (+scenario) would result in a real loss of DKK 3.1 billion (0.4 per cent) in relation to present production.

According to the analyses, the treatment frequency index in present production is 1.4-3.9 standard doses per hectare, depending on the main type of production and the type of soil. If limited use of pesticides were permitted, corresponding to the +scenario, the treatment frequency index would be reduced to 0.2-0.7 standard doses, compared with present production. By going from the 0-scenario to the +scenario, the costs would be more than halved even with a more than 80 per cent reduction of the treatment frequency index. The figures thus underline the fact that a limited reduction of pesticide usage would be relatively cheap, whereas a total phase-out would be very costly.

The aforementioned losses result from a real fall of DKK 3.4 billion in gross factor income in primary agriculture in the 0-scenario, to which must be added a fall of DKK 1.1 billion in the processing industries and of DKK 910 million in other manufacturing industries. The latter covers a real fall of DKK 3.7 billion in gross factor income in building and construction, commerce, services and housing, while gross factor income in other sectors would rise by DKK 2.8 billion. In all, there would be a real fall in gross factor income of DKK 5.4 billion, 63 per cent of which would be in primary agriculture. The fall must be seen in relation to a loss of more than 16,000 jobs in primary agriculture and to a release of manpower from a number of home-market industries. To maintain employment, real wages would have to fall by about 1 per cent in the 0-scenario.

A fall in real wages would, on the one hand, improve competitiveness in sectors exposed to competition, resulting in increased production and net exports of goods and services. On the other hand, falling real wages would reduce domestic demand, which would hit particularly the home-market industries. The results would be a (real) fall of DKK 7.6 billion in private consumption (1.7 per cent), a fall of DKK 2.0 billion in investments and rising net exports, since falling agricultural exports would be fully made up for by rising net exports in other industries.

In the +scenario, gross factor income in agriculture and associated processing industries would fall by DKK 1.8 billion. About 8,000 jobs would be lost in primary agriculture and the processing industry (i.e. about half the figure in the 0-scenario), fewer employees would be released from the home-market industries, and there would be a considerably smaller fall in real wages (0.4 per cent). The fall in private consumption would consequently be smaller (DKK 3.0 billion), and the fall in investments would also be smaller. Despite the reduction in agricultural exports, net exports, taken overall, would also rise in this case.

The fall in gross factor income in agriculture reflects a fall in the agricultural sector’s contribution to income formation in society (return on labour, capital and land). The real loss in agriculture comprises a fall in wages for the remaining manpower, falling land rent and changes in the value of production rights (the milk quota). Farm-level analyses, which are based on partial or short-term restructuring of crop production, indicate substantial losses in agriculture. The analyses underline the fact that the losses in agriculture depend on the assumptions used with respect to the mobility of the means of production and the length of the restructuring period. There would also be an effect in the form of a redistribution between arable farmers and dairy farmers as a consequence of a different effect on the return on land and production rights.

The above-mentioned changes are a result of a heavy fall in crop production in agriculture and derivative effects on the rest of the economy. In the 0-scenario, cereal production would fall by 70 per cent and rape production be largely discontinued. In addition, production of special crops (sugar beet and potatoes) would go down by 60-70 per cent. The big fall in production is due to the fact that Danish agriculture is exposed to outside competition, which means that prices can only rise slightly when production falls. Livestock production would be only slightly affected by the limitation of pesticide usage. There would, however, be a slight increase in the production of pigs and poultry, due in part to low wage costs. Milk production would remain unchanged because it is controlled by the EU’s milk quota, but the value of the quota would rise.

The picture is largely the same in the +scenario, but cereal production would fall considerably less (by just over 30 per cent) and the fall in production of sugar beet would be negligible (6 per cent). On the other hand, with the assumptions used in the analyses, rape production would be largely phased out, while production of potatoes would be halved. In this case, livestock production would be only slightly affected by the reduction in pesticide usage.

The model concept used has not been developed to describe the effect on the fertiliser balance in the industry, but the economic analyses at sectoral level take explicit account of the relationship between change in production and use of fertiliser as established in the agronomic assumptions used in the analyses. It is assumed here that the intensity of fertilisation would increase if pesticides were phased out. In the 0-scenario, consumption of nitrogenous artificial fertiliser would fall by 63 per cent, while the nitrogen supply with manure would remain largely constant. In all, the supply of nitrogen would fall by just over 40 per cent. In the +scenario, the changes would be about half those figures.

The effect on land use in agriculture has been thoroughly analysed at agronomic level and in the farm-level and sectoral economic analyses. The general picture is a switch from winter cereal to spring cereal and production of fodder beet replaced by a larger acreage with peas, wholecrop and grass in rotation. Agronomically, there should be a basis for increasing the acreage with rape, while it should be possible to maintain the acreage with sugar beet, seed and potatoes.

However, the economic analyses show that, owing to international competition, the acreage with potatoes would fall, while the acreage with sugar beet would fall in the 0-scenario but increase in the +scenario. The acreage with greenfeed would increase, and increased set-aside must be expected at arable farms.

The hectare payments for commercial crops have a marked effect on farmers’ land use. Despite a very big fall in cereal production, a corresponding reduction in cereal acreage is not expected, and – as mentioned – it is expected that some rape would still be grown. The explanation lies in the fact that the hectare payments to farmers would keep the acreage in question in production at a very low level of yield. In reality, this means that there would be a basis for a considerable increase in voluntary set-aside, especially at arable farms.

It should be noted that set-aside is treated differently at farm and sectoral level. In the farm-level economic analyses, optimum set-aside is calculated, taking account of restrictions on the extent of set-aside at the individual farm, while in the sectoral economic analyses, set-aside is included with the cultivated acreage. Therefore in the latter case, increased set-aside would result in less intensive cultivation on a largely unchanged acreage.

The analyses are based on an assumption that pesticide-free products compete on an equal footing with conventional products in the marketplace. If, through labelling schemes, for example, the consumers were willing to cover the producers for the loss of gross margin, some of the negative effects for producers could naturally be averted. However, too little is known about the demand for food products produced without pesticides or with only limited use of pesticides to be able to say anything certain about this. It is difficult to see the possibilities for a new labelling scheme parallel with the Ø-label, besides which, a considerable proportion of Danish agricultural production is sold on the export markets, where limited, although growing, attention is paid to the environmental aspects of food quality.

In the present analyses, unilateral Danish regulation of pesticide usage is assumed, although with freedom to import conventional products and means of production. This means, for instance, that Danish cereals would largely be replaced by imported cereals, which would help sustain Danish livestock production. If we assume the implementation of a corresponding regulation of pesticide usage in other countries, we could expect a drop in the global supply of cereals, with consequently increasing prices. Such a development would strengthen the competitiveness of Danish cereals, but at the cost of generally rising prices for food products and global economic loss for consumers.

5.2.3 Effect of different treatment frequency indices

Farm-level economic analyses of different treatment frequency indices

The purpose of bringing intermediate scenarios into the analyses is to determine the relationships between pesticide usage, production and economy with different treatment frequency indices in order to gain a clearer picture of the consequences of different levels of pesticide phase-out in agriculture. The analyses have been carried out only at farm level. The agronomic assumptions for the analyses are based on the technological and biological research and the farm-level economic research. As in the case of the main scenarios, the analyses are based on the Farm-level Pesticide Model (FPM).

The analyses are based on fixed assumptions concerning treatment frequency, and the resulting gross margin is shown in Table 5.14. The table includes present production, which is used as the basis for the analyses, while the Free scenario is the model-calibrated present production, with the use of pesticides and land optimised according to the FPM model. To obtain a uniform basis for comparison, the Free scenario has been used as the basis for the analyses. Basically, present production corresponds to the pesticide usage in 1994 and to the land use in 1995/96, while the ++scenario largely corresponds to the goal in the Pesticide Action Plan from 1986.

Model-calibrated present production

The difference between present production and model-calibrated present production (Free) could indicate that farmers’ present use of land and pesticides is not optimal from the point of view of production economy. However, it should rather be attributed to the fact that the FPM model is a normative model, in which full knowledge of prices and yields is assumed. In addition, optimisation based on gross margin II is assumed in crop production, whereas, in practice, farmers must be expected to take a more integrated approach in their planning. The important thing is for the comparison between present production and the other scenarios to be consistent, and that is best assured by basing the analyses on the model-calibrated present production.

It will be seen from the figures that with the use of best known technology and with optimum warning conditions (++scenario), it would be possible to maintain the gross margin, even if pesticide consumption were reduced, whereas the gross margin would fall with any further reduction of the treatment frequency index. In the design of the scenarios, efforts have been made to present optimal solutions in the sense that the production methods are adapted to the lower pesticide usage with a view to achieving the biggest possible yield, i.e. the different scenarios represent different technologies. The relationships thus calculated between pesticide usage and yield levels have been used as the basis for calculating the optimal land use in the FPM model.

The results of the analyses are summarised in Figures 5.2 and 5.3, which show gross margin II in different types of farm and with different treatment frequency indices for clayey and sandy soil. It will be seen clearly from these figures that there is a considerable difference in the average treatment frequency index in the different types of farm. The general picture is that, with optimum use of damage thresholds and warning systems, it would be possible to reduce pesticide usage to some extent without seriously reducing the economic return, but that earnings would soon fall if the treatment frequency index were reduced still further. Farms growing special crops (sugar beet, seed and potatoes) would be most exposed to loss, and farms on clayey soil would generally be worse affected than farms on sandy soil.

Considerable uncertainty concerning "best known technology"

The Sub-committee on Agriculture (1999) states in its report that it may be difficult in practice to meet the conditions for maintaining the economic return with reduced use of pesticides. For example, the necessary damage thresholds have not been developed in all cases and the weather systems require long-term weather forecasts, which are not available today. It is thus difficult to indicate with any certainty the treatment frequencies that would significantly reduce the losses. Besides that, a considerable additional cost must be expected for monitoring the crops. In the analyses, this additional cost has been put at DKK 150/ha. It is also stated that considerable breeding work would be needed to ensure varieties with good disease-resistance on the market.

Table 5.14 Look here!
Pesticide usage and gross margin in the different types of farm

Note: Set-aside is included in treated acreage
Source: Ørum (1999)

Figure 5.2
Gross margin with different levels of pesticide usage, clayey soil

Source: Ørum (1999)
(Figure text)
Lerjord = Clayey soil
DB = Gross margin
Planteavl med roer = Arable farms with beets
Planteavl med frø = Arable farms with seed
Planteavl = Arable farms
Svinebrug = Pig farms
Kvægbrug = Dairy farms

Figure 5.3
Gross margin with different levels of pesticide usage, sandy soil²⁶

Source: Ørum (1999)
(Figure text)
Sandjord = Sandy soil
Planteavl med kartofler = Arable farms with potatoes
Planteavl = Arable farms
Svinebrug = Pig farms
Kvægbrug = Dairy farms

Examples from practice of reduced pesticide usage

However, this does not mean that it would not be possible, with further research, the development of better monitoring systems and improved advice concerning their use, to get pesticide usage some way below the level for integrated production without impairing production economy. The Sub-committee on Agriculture (1999) thus states that there are examples of intensive advisory activities having led to a reduction of treatment frequency to around 1.3 standard doses per ha at ordinary arable farms without any reduction in the economic result.

5.2.4 Price sensitivity of the analyses

Analyses of price sensitivity

Product and factor prices from the 1995/96 accounting year have been used in the analyses of the economic consequences at farm level. The price of cereals, in particular, has fallen since then and taxes on pesticides have increased. In addition, in connection with the negotiations on enlargement of the EU, a further reduction of the level of subsidies in the EU’s agricultural policy is proposed.

Falling product prices result in …

To illustrate the effect of changes in agricultural prices, analyses have been carried out of arable farming on clayey soil. The basis for these analyses is the so-called Santer package's proposal to reduce the price of feed grain by 20 per cent. However, in the analyses, a reduction of 30 per cent in the price of wheat is assumed because the price has already fallen by 10 per cent since 1995/96. A hectare payment of DKK 2,601 for all reform crops except peas is also assumed (the hectare payment for peas has been put at DKK 2,857 per ha), in line with the assumptions in the "Santer package". It is also assumed that set-aside must be at least 10 per cent, that total set-aside must not exceed 33 per cent, and that the price of herbicides increases by 25 per cent and the price of insecticides by 50 per cent as a consequence of increased taxes.

It should be noted that the hectare payments are assumed to be paid as a non-production-related subsidy to farmers, i.e. the hectare payment is not affected by the farmer’s decisions with respect to production intensity.
However, the hectare payment is included in the gross margin and therefore affects land rent.

The results of the analyses are given in Table 5.15.

… considerable fall in treatment frequency index …

Owing to the big fall in the price of cereals, the gross margin – and thus the land rent in model-calibrated present production – falls from DKK 3,418 to DKK 1,967 per ha. At the same time, the intensity, measured by the treatment frequency index, falls from 2.32 to 1.39. In other words, the lower cereal price contributes to a considerable reduction in the use of pesticides.

… and reduced losses from phasing out pesticides

The table also shows that the losses from phasing out pesticides are halved when the analysis is based on the lower product prices. Or, conversely, it does not cost as much to phase out pesticides when the product price level is reduced.

The above analyses apply to clayey soil. For sandy soil, the phasing-out costs after a price fall would be even smaller.

Small costs …

According to Table 5.15, the intensity of pesticide usage would be reduced with the assumption of optimised production. However, the analyses show that the cost of maintaining a higher pesticide usage (than the calculated optimum) would be modest. This indicates that even with lower cereal prices and the current pesticide taxes, there would probably be a need for further intervention in order to ensure a reduction of pesticide usage.

… with precautionary spraying

It must be stressed that the analyses are encumbered with uncertainty, particularly with respect to the assumptions concerning the relationship between price fall and hectare payment. That said, the analyses show that the intensity of production must be expected to fall with lower product prices and that, through that, it would be possible to ensure a reduction of pesticide usage in farming. However, the total effect would depend on how farmers assessed the risk of reducing their use of pesticides. Here, the fact that precautionary spraying does not cost very much would play a role.

Note: The analyses are based on a 30 per cent reduction in the price of cereals compared with 1995/96 and an assumption that the hectare payments for cereals and silage corn are increased by 18 per cent, that the hectare payments for rape, peas, flax grown as oil-seed crop, and set-aside, are reduced by 32, 10, 39 and 6 per cent, respectively, and that the acreage with reform crops must include between 10 and 30 per cent set-aside. It is also assumed that the price of herbicides and fungicides rises by 25 per cent, and the price of insecticides by 50 per cent, as a result of taxes introduced.
Source: Ørum (1999)

5.2.5 Pesticide usage and cultivation risk

The yields from crop production fluctuate from year to year, depending on the weather. Since a number of diseases and growth of weeds are dependent on the weather, one might expect it to be possible to even out the fluctuations in yields by treating the crops with pesticides. In this connection, it must be remembered that the fluctuations vary from crop to crop, so the farmer can to some extent ensure himself against big fluctuations in earning through his choice of crop rotation. (The farmer has several strings to play on). In addition, the farmer does not necessarily aim for a constant level of yield, but wants to even out the economic yield, in which product prices also play a role. Since fluctuations in the yields for a number of crops often have a negative correlation with the price (e.g. potatoes), adjustment to the market would have an equalising effect that the farmer could include in his planning.

Pesticides affect the level of yield …

In order to trace the effect of pesticides on security of cultivation, the Sub-committee on Agriculture assessed the size of the losses without the use of pesticides. The results are shown in Table 5.16, where the crops are ranked in order of average yield in the case of a total phase-out of pesticides, with the yield in present production put at 100. From this it will be seen that the yield from spring cereal would fall less than the yield from winter cereal, that the yield from grass and winter rape would be only slightly affected, and that the yield from such crops as potatoes, seed grass and clover seed would fall sharply.

The Sub-committee on Agriculture also set a minimum yield with a phase-out of pesticides. Comparison with the average yield provides information about "how bad things could be" in the individual crops. It will be seen from the table that such crops as wholecrop and maize, fodder beet and peas would provide a high level of yield stability, while for the other crops the difference between average and minimum yield would tend to rise with falling yield level. However, covariation has not been found in years with large yield losses. It would therefore depend greatly on the crop composition whether the yield variation increased or decreased.

… but hardly the yield variation

Analyses based on trials with fungicides do not support the view that pesticides reduce the yield variation. On the contrary, it has been found (Ørum, 1999 p. 61) that the yield variations in winter wheat are slightly smaller in trial plots that are not treated with fungicides than in treated plots. On the other hand, there is a clear additional yield from use of fungicides. The analyses also show close covariation in the yields from year to year in treated and untreated plots. The main effect of the treatment is thus that pesticides offer the possibility of a significant additional yield.

Table 5.16 Look here!
Yields with a total phase-out of pesticides, present production = 100  

Yield variation the same in organic and conventional production

This is also supported by observations from all-year trials with conventional and organic production, in which no difference in yield variation has been found between the two forms of production. The reason why the yields are apparently just as certain in organic production as in conventional production could be that organic farmers use resistant varieties and eliminate the increased cultivation risk in return for lower yields by changing their crop-rotation and cultivation practice. The all-year trials cover mainly dairy farms, where the yield variations for winter cereal, spring cereal, grass and fodder beet have been investigated. The analyses therefore reveal nothing about the pattern of variation at arable farms, including farms with special crops, where, as mentioned above, there can be considerable fluctuations.

Ørum (1999 p. 64) states, for example, that the additional yields from use of fungicides are particularly big in some years but that phasing out pesticides would not necessarily increase the yield variations in the individual crops. The available material does not provide a basis for judging whether the same would be the case for herbicides and insecticides.

Phasing out of pesticides calls for good production management …

It is also stated in the analysis (Ørum, 1999 p. 69) that good production management would be more important if pesticides were phased out and that production would be more climate-dependent.

… to "control" weeds

It would not normally have irremediable consequences if pests or plant diseases were to result in big yield losses in a single year, but the situation with weeds would be entirely different. If weeds were allowed to spread for just a single year, it could have far-reaching consequences for field production. Extra mechanical weed control would be necessary for many years, and in the worst event some of the economically interesting crops, such as seed grass, beets and winter cereal, would have to be left out of the crop rotation. That means that, in the 0-scenario, weed control would have absolutely top priority in the planning of crop rotations.

Partial phasing out causes few problems …
…but would still make big demands on the production manager

The situation would be different in the case of the intermediate scenarios. An unfortunate development with increased weed problems could be remedied by means of herbicides, i.e. mechanical weed control would no longer have top priority in the planning of the crop rotation. On the other hand, effective use of pesticides in the intermediate scenarios would make very great demands on the production manager. He would have to constantly improve his knowledge of new pesticides and their use, and there would also be a need for new warning and monitoring systems etc. These technologies are under continuous development, and very few farmers today have any experience with them. Restructuring for reduced use of pesticides would therefore require technological development and continuous training of advisers and farmers.

 5.3 Market gardening and forestry

Market gardening and forestry affected differently

Reducing the use of pesticides would affect production in market gardening and forestry to a varying degree. Compared with farming, these are relatively small industries, but do, however, make a significant contribution to the national economy by supplying the home and export markets. The latter applies particularly to the production of pot plants, most of which is exported. As shown in Table 5.17, market garden production accounts for 8 per cent of gross factor income in agriculture, while forestry accounts for about 4 per cent. Within forestry, a substantial part of the production of ornamental greenery is exported. It is estimated that primary agriculture employs 84,100 full-time workers. Of these, 6,700 are employed in market gardening and 3,000 in forestry.

… depending on products and production methods

Phasing out pesticides in the above-mentioned sectors would affect the production to a varying extent, depending on the products and the production methods. The consequences in market gardening and forestry are described in brief below. For a more detailed description, readers are referred to the consultants’ reports on which this analysis is based and to the report from the Sub-committee on Agriculture (1999).