The impact of environmental regulations on farmland market and farm structures: a based-agent model applied to the Bretagne region. Seminar EAAE, October 2015, Edinburgh, Scotland Elodie Letort, Pierre Dupraz, Laurent Piet INRA – UMR SMART, Rennes, France

Introduction: Objective Nitrate pollution of water remains a major problem in some parts of France, especially in the Bretagne region characterized by intensive livestock production systems. Although farmers are not allowed to spread more than a regulatory limit of animal nitrogen per hectare (170 kgN/ha imposed by the Nitrate Directive), many of farmers in this region have a higher nitrogen load. Therefore they have to find additional farmland to spread their effluent in complying with the regulation, that induces a fiercer competition on land market. This paper aims to explore how environmental regulations can influence land market and farm structures, and affect welfare and environment quality measures.

Introduction: Contribution Land market model with an agent-based model: – PAMPAS (Bert et al. 2011), MASE (Ralha et al. 2013), ALMA (Filatova et al. 2011), RegMAS (Lobianco and Espositi 2010), AgriPoliS (Balmann 1997, Happe 2004, Happe et al. 2004, 2006). – Coupled with a production choice model. – Do not simulate environmental regulations on nitrogen emissions. Impacts of environmental regulations on animal nitrogen emissions : – Econometric model to study the impacts on location of dairy production (Isik 2004) or pig production (Gaigné et al. 2012). – Do not analyse the overall impacts across all agricultural sectors. Focus on the impacts of environnemental regulations on competition between agricultural sectors (dairy, pig and poultry).

Farmland market model: Agent-Based Model Model for simulating the actions and interactions of agents who are autonomous decision-makers and who make decisions that can alter their environment. – The aggregate result interactions can bring out solutions that are beyond the analysis of individual behaviour. – To account many dimensions (space, regional variations of agriculture, heterogeneity of farmers and plots) easier than analytical model. – Few validation methods such as analytical and statistical methods. For this reason, we decided to make the model as simple as possible. – No imperfection in the farmland market – No optimization of farmers’ production choices. Focus on economic mechanisms on farmland market.

Environment : farmland market 20x20 pixels with 1 pixel = 10 ha Pixel: heterogenous plots (owner, location, land use) Crops Fodder crops Grassland A group of plots form a farm. Agents : heterogenous farmers (production, profit, location, age) Farmland market model: Framework Regulator : sets policies and prices (inputs and output).

Economic mechanisms: Farmers are willing to pay for each plots at each iteration. Each plot is assigned to the farmer with highest bid at each iteration. Equilibrium at a given period when no more land exchange or when the number of farmers no longer varies during 20 iterations. Farmers apply their specific technology on every plot they acquire. Baseline scenario: Farmers spread their manure until 170 kgN/ha (Nitrates Directive). Farmers who produce nitrogen in excess must treat the surplus, that induces an additionnal cost and reduces their profit. Treatment technologies are characterized by economies of scale. Farmland market model: Process

is the value (in €/ha) of the plot i by the farmer j at the period T. is the profit (in €/ha) expected by farmer j at the period T+t. is a weighting parameter for the farmer j at period T. It represents the managerial ability of the farmer j (quadratic function of the age) and it is the calibration parameter. is the transportation cost between the plot i and the farmer j. is the discount rate. Farmland market model: Willingness-to-pay

Represent the agricultural structures in Bretagne region in Model parameters: – Technological and economical characteristics of 8 types of farmers: FADN. – Treatment and transport costs: French literature and extension services. – Random parameters: farmer age, part of crops in each plot. Calibration parameter: – The weighting parameter for each type of farming: manually adjusted. – Assumption confirmed by the part of profit invested in land. Sensitivity analysis and replications: – Many combinations of parameters to analyze robustness of results. – Each equilibrium is replicated 300 times with different random draws. Farmland market model: Model initialization

Policy simulation: Environmental scenario Scenario 1: Treatment cost Increase the cost of manure treatment. From 5.5 to 8.5 €/kgN. Scenario 2: Nitrogen limitation Lowering the allowed organic nitrogen limitation. From 170 to 163 kgN/ha. Scenario 3: Environmental zoning Environmental zoning in which the nitrogen limitation is strengthened. From 170 to 125 kgN/ha in the half of the territory. Scenario 4: Grass payment Payment for farmers having a higher proprotion of grassland. Between 0 and 180 €/ha depending on the proportion of grassland. We simulated 4 different policies which lead to the same reduction of total organic nitrogen spread (-2%).

Although the reduction of spread organic nitrogen are equal, the different measures induce different changes in the land market and farm structures. The economic incentive leads to a sharp decline of specialized pig and poultry farms (the most intensive farms) in favor of dairy farms. The regulatory incentive generates a greater disparity between farms. Average treatment cost of mixed farms is higher than average treatment cost of more intensive farms who benefit from economies of scale. The environmental zoning leads to a strong spatial disparity. Grazing-based dairy farms become larger in the zoning, while intensive pig and poultry farms are maintained in the rest of the territory. The grass subsidies promote the grazing-based dairy farms which become more competitive and bigger. Policy simulation: Main results

Treatment cost Nitrogen limitation Environmental zoning Grass payment Environment Total nitrogen spread -2 % Total nitrogen treated Greenhouse gas Non renewable energy Grassland area Economic Average farms’ income Total farms’ income Increase in land prices Public cost Δtotal surplus / Δtotal N 11 €/kgN19.5€/kgN27.5 €/kgN11 €/kgN Impact ++ Impact + Impact - - Impact - No change Policy simulation: Comparison

The choice of an environmental policy: trade-off between economic or environmental priorities. These results allow to better understand the current environmental policy in France based on nitrogen limitation. French government gives priority to low changes in farm structures to maintain agricultural employment despite the slight improvement of the environmental quality. Our results confirm that this policy has no dispersive impact on animal production because it encourages farmers to adopt new technologies (e.g. effluent treatment) increasing the concentration of farms. Conclusion and discussion

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