Beyond its primary function of supplying food and fibre, agricultural activity can produce environmental services, or have negative effects such as creating pollution. Market forces alone are not able to ensure that the level of these positive and negative externalities of agriculture is acceptable to society. But government interventions can also be problematic, leading to costly and inefficient policies. This report sheds light on the potential of non-government solutions such as the development of market mechanisms, and the promotion of private transactions and voluntary approaches to provide the best alternative in some situations.  

A typology has been developed and fourteen specific cases are examined, illustrating a wide diversity of situations in a range of OECD countries. The examples analysed range from the use of market price premiums to environmental trusts, easements, and tradable credits or quotas, and cover both positive and negative externalities. Some of the examples identified relate to new and innovative approaches never tried before, while others have a relatively long history of operation. This report synthesises the findings of the case studies, focusing on the implications for government’s role, and assessing the relative efficiency, equity and stability of the approaches described compared to direct government intervention.