Journal of Environmental Planning and Management, 44(2), 263–283, 2001 POLICY AND PRACTICE Policy Challenges and Priorities for Internalizing the Externalities of Modern Agriculture

ABSTRACT Agriculture is inherently multifunctional. It jointly produces more than food, bre or oil, having a profound impact on many elements of economies and ecosystems. A comprehensive framework is used to present new data on annual external costs in Germany (£1.2 billion; US$2 billion), in the UK (£2.3 billion; US$3.8 billion) and in the USA (£21 billion; US$34.7 billion). These costs are equivalent to £49–208/ha (US$81–343/ha) of arable and grassland. Agriculture also produces positive externali-ties, and though there is no comprehensive valuation framework, the public benets in the UK appear to be in the range of £10–30 (US$16–49) per household, or some £20–60/ha (US$32–100/ha) of arable and pasture land. These external costs and benets raise important policy questions. In particular, should farmers receive public support for the multiple public benets they produce? Should those that pollute have to pay for restoring the environment and human health? Policy options available for encouraging behavioural changes are of three types: advisory and institutional measures; regulatory and legal measures; and economic instruments. Three of the most promising options for discouraging negative externalities and encouraging positive ones are: (1) environmenta