Conservation or cultural heritage? Cattle grazing in the Victoria Alpine National Park

13 Pages·2000·0.1 MB·English

Ecological Economics 33 (2000) 63–75
www.elsevier.com:locate:ecolecon
ANALYSIS
Conservation or cultural heritage? Cattle grazing in the
Victoria Alpine National Park
Iain Fraser *, Tony Chisholm
DepartmentofEconomicsandFinance, SchoolofBusiness, LaTrobeUni6ersity, BundooraCampus, Melbourne,
Victoria3083,Australia
Received 18June1998; received in revised form 30August1999; accepted2September1999
Abstract
The recent decision to continue cattle grazing in the VANP has not been uniformly welcomed. There exists
significant scientific evidence detailing the environmental impact of grazing. This paper examines whether an
opportunity has been missed to resolve the ongoing conflict that accompanies the continuation of grazing in the
VANP. The potential of economic instruments in resolving this unique land use conflict is examined. It is argued
unambiguouslythatthecompensationofgraziersforachangeinexistinginstitutionalalpinegrazingarrangementcan
help to facilitate a resolution of the conflict. © 2000 Elsevier Science B.V. All rights reserved.
Keywords:Cattle grazing; Cultural heritage; Compensation; Conflict resolution
1. Introduction and fern species plus numerous and varied inver-
tebrate populations. However, the existence and
The Australian Alps National Park (AANP) integrity of many of the natural features of the
links alpine and sub-alpine regions of Victoria, VANP are questioned by conservationists and
New South Wales, and the Australian Capital
ecologists. They argue that cattle grazing reduces
Territory. The Victorian Alpine National Park
the structural and floristic diversity of the vegeta-
(VANP), established in 1983, is a significant part
tion, impacting upon the summer display and
of the AANP with many unique attributes, espe-
luxuriance of the wildflowers, such a notable fea-
cially its flora. The Land Conservation Council
ture of ungrazed high alpine plains. Indeed, the
(1979) identified over 1000 native flowering plant
Land Conservation Council (1979) advocated the
removal of cattle from these areas, whilst Bennett
*Correspondingauthor.Tel.: (cid:27)61-3-9479-2214;fax: (cid:27)61-
(1995) observed, ‘‘Ecologists, while recognising
3-9479-1654.
E-mail address:[email protected] (I. Fraser) the heritage of mountain grazing, say it is an
0921-8009:00:$ - see front matter © 2000 Elsevier Science B.V. All rights reserved.
PII: S0921-8009(99)00127-5
64 I. Fraser, T. Chisholm:Ecological Economics33(2000)63–75
inappropriate national park land use’’ (p. 33). The structure of the paper is as follows. We
But, the graziers claim that the cattle do little if begin by providing an overview of alpine grazing
any environmental damage and that the continua- and the scientific evidence detailing the impact of
tion of grazing yields significant cultural and her- grazing. In Section 3 we consider why the grazing
itage benefits for society. licences were renewed despite the scientific evi-
The conflict between conservationists and gra- dence. Section 4 provides an evaluation of alter-
ziers came to a head in mid-1998 when most native management options that could have been
existing alpine grazing licences came up for re- implemented instead of the licence renewal. Fi-
newal. The outcome was that in August 1998, all nally in Section 5 we provide conclusions.
alpine grazing licences were renewed for a further
7 years. In this paper we consider whether this
decision represents an opportunity lost to remove 2. An overview of alpine grazing
the cattle from the VANP once and for all or an
appropriate land use decision given existing
2.1. Grazing history and practice
benefits and costs of grazing.
Although there are numerous examples of re-
The high alpine plains were discovered by Eu-
source use conflict analysis in the literature
ropeans in 1824, with grazing by domestic live-
(Rhodes and Wilson, 1995; Brown, 1998; Skon-
stock beginning in 1852. It became common
hoft, 1998) there are particular features specific to
practise to take livestock onto the alpine plains
this problem that make it unique. First, the deci-
during the summer to feed. As Hancock (1972)
sion to renew is important because the AANP has
explains, ‘‘graziers were looking to the high coun-
been identified for nomination to the World Her-
try to save them from disaster in years of
itage Convention. Conservationists argue that for
drought’’ (p. 134). By 1900 over-grazing was oc-
a potential nomination to succeed land uses such
curring and in combination with the extreme
as cattle grazing need to stop. This point is made
weather conditions, caused severe damage to the
by Mosley (1988), Kirkpatrick (1994) who argue
fragile alpine environment. By the 1940s environ-
that the AANP is of outstanding international
mental conditions gave cause for much concern,
significance on the criteria used by the World
and in 1946 the Victorian government modified
Heritage Convention. But cattle grazing is an
existing land use practices. Sheep and horses were
incompatible activity as it significantly harms the
banned from grazing and the burning of the up-
integrity of the VANP. This land use conflict is
land pasture curtailed. For cattle, the length of
therefore taking place over a tract of land that is
the grazing season was restricted; numbers re-
considered by many as unique by global environ-
duced and specific dates set for entry and exit. In
mental criteria. Second, alpine grazing is linked
the 1950s and 1960s grazing was further re-
with significant cultural and heritage traditions
stricted, and more recently cattle have been re-
(non-Indigenous:European). Alpine grazing has
been practised for over 150 years and many of the moved from some of the most sensitive areas of
graziers have a long association with the area. the VANP, e.g. Mounts Hotham, Loch and
This, in combination with the strong cultural Feathertop.1
identity produced as a result of poetry and out- In 1989 some 503000 hectares of land in the
back imagery, places this land use firmly in the VANP were leased for grazing (only 10% of this
mind of all Australians. Intrinsically linked to this can be used). By 1995, 7800 free ranging cattle
are the political realities that impinge on land use were permitted on the VANP. The 100 existing
decisions. Third, the precise details in the grazing grazinglicenceswererenewedannuallyuntil1991:
licence that allows a grazier to graze cattle in the 1992 when the licence period was extended to 7
VANP are interesting. To be able to operate a years. Licence renewal has generally been without
licence a grazier needs to be an approved person.
What exactly constitutes an approved person is 1Interestingly, cattle grazing was terminated in all other
important in seeking a solution to this conflict. parts of the AANP apart from the VANP by 1972.
I. Fraser, T. Chisholm:Ecological Economics33(2000)63–75 65
question and for this reason the graziers came to Anexampleoftheeffectsofgrazingidentifiedby
view the licence as private property; details can be Wahrenetal.(1994)istheimpactonthefrequency
found in the 1975 National Parks Act, Grazing of wildflowers in Pretty Valley grassland plots.
LicenceintheAlpineNationalPark,Section32D, Between1947and1994,thefrequencyofCelmisia
amended by the National Parks (Alpine National andCraspediaincreasedsubstantiallyonungrazed
Park) Act of 1989. The licence details the number plots. These findings were contrasted with grazed
ofcattle,theaccessdates(DecembertoApril),who plotsonwhichtherewasnochangetotheexisting
isentitledtooperatealicence,thecostofoperation cover.Leptorhynchos,isabundantongrazedplots
and the restrictions placed upon the exchange and asitvigorouslycolonisesbare,inter-tussockspaces
futureentitlement.Atpresentgrazierspayafeeof thatresultfromgrazing,givingitanadvantageover
$4.00 per cow each season. other species. If there were no grazing Celmisia
To be eligible to own and operate a licence, a would replace Leptorhynchos. Ground cover is
grazierneedstobedeemedanapprovedpersonby muchpoorerongrazedplotscomparedtoungrazed
the Victorian Government who takes advice from areas. Wahren et al. also found that cattle prefer
theAlpineAdvisoryCommittee.2Historicallygra- to graze where herbaceous plants predominate, in
ziersbelongedtotheMountainCattlemenAssoci- mossbeds along drainage lines and these areas
ation (MCA) and as such were automatically subsequently become trampled and badly dam-
considered approved persons. In addition during aged. Apart from their ecological significance,
the period over which a licence operates, ‘‘the mossbeds are important in catchment hydrology
licensee may apply to transfer or assign to a because of their retarding effect on the release of
memberofafamilyofMountainCattlemanorany water to streams (this helps to prolong the spring
other approved person’’ (Clause 18, Grazing Li- and summer flowers), their promotion of early
cence).Transferwithinthefamilycanbedefended snowmelt,andtheiractioninfilteringsilt.Another
on the basis of farming skills that are necessary to biophysical hot spot is the snow patch herbfields,
operate a grazing licence. againpronetograzing-relateddamagesuchasbare
groundandpoorqualitycover.Intheareaswhere
snow patches remain for long periods of the year,
2.2. En6ironmental impact of grazing3 the soils remain moist, the flora that grow are
palatable and as a result favoured by the cattle.
Scientificinvestigationofthealpineregionbegan Wahrenetal.(1994)alsofoundthatgrazingdoes
in the 1850s. However, the work of Carr in the not reduce the likelihood of upland bush fires.
1940s and subsequent research forms the basis of Cattlemostlyeatsnowgrassandotherherbs.Shrub
scientific evidence about the impact of cattle graz- cover has increased as a result, which does not
ing today. Wahren et al. (1994) used 50 years of reduce fire risk, but instead is more likely to
surveydatatoarguethatcattledohaveasubstan- enhance it. Fire prevention is spurious as a claim
tial and lasting impact, with grazing altering the forthecontinuationofgrazing.Also,byproducing
structure and composition of sub-alpine grassland bare ground, which provides an opportunity for
and heathland vegetation, as well as significantly weedstoestablishandspread,grazinghasalsobeen
influencing the natural regeneration of the ecosys- partly responsible for spreading exotic weeds.
tems.
3. Why still grazing?
2The importance of the phrase, ‘or any other approved
person’, will be considered in detail subsequently. 3.1. Culture and politics
3We only cite Wahren et al. (1994) in this section for the
sake of brevity. For more extensive evidence relating to the
Giventheextensivescientificevidenceaboutthe
environmentalimpactofthecattlereadersaredirectedto,for
example, Land Conservation Council (1979), Mosley (1988), impact of cattle grazing on the alpine environ-
Kirkpatrick (1994), Bennett (1995), Williams et al. (1997). ment, it is necessary that we examine why grazing
66 I. Fraser, T. Chisholm:Ecological Economics33(2000)63–75
still continues. This is an important part of our landscape separated from its historic traditions
analysis as it will be fundamental in relation to and from its cultural and intellectual back-
theformofthepotentialresolutionconflictstrate- ground.’’ (p. 63).
gies proposed. The cultural and heritage benefits referred to in
The first important feature of alpine grazing is this context are non-indigenous (European). In
that it is a long and well-established part of the relation to Aboriginal occupation prior to Eu-
Australian rural tradition. The alpine grazing ropean settlement, there are art sites at least
lifestyle acts to bind together the community (an- 21000 years old. However, the lifestyle of Abo-
nual get-togethers, racing carnivals) and it rigines in the alpine areas meant that they lived at
gives the graziers a unique position in the lower elevations during most of the year, only
alpine cultural mosaic. Allied to this, the histori- venturing onto the high alpine plains for a few
cal significance and general lifestyle of the cattle- weeks each year to meet and feast on Bogong
men has been celebrated and made famous in moths — land use was communal. Interestingly,
poems and songs by Banjo Paterson, and in given the relatively minimal impact of Aborigines
films like ‘The Man from Snowy River’, all con- in the Alps, this area represents a unique land
tributingtothecreationofatradition.Anexcerpt type in Australia. Even before European settle-
from Pioneers by Paterson provides a nice exam- ment Aborigines had significantly altered the
ple; landscape throughout Australia. An exception to
this is the high country, which places the AANP
in another category of significance not previously
They came of bold and roving stock that noted.
would not fixed abide; Boundupwiththeculturalandheritageaspects
They were the sons of field and flock since e’er of alpine grazing are the political realities of the
they learned to ride, situation. In creating the VANP a political deal
We may not hope to see such men in these was necessary and it was this that allowed for the
degenerate years continuation of cattle grazing in the VANP. In
As those explorers of the bush — the brave old 1989 the then Labor Victorian Government
pioneers. passed the Alpine National Parks Bill introducing
the VANP, but only with the support of the
Liberals. The Liberals have strong political ties
‘Twas they who rode the trackless bush in with the MCA. These ties have been publicly
heat and storm and drought; demonstrated. In 1984 some 300 graziers rode
‘Twas they that heard the master — word that theirhorsesontothestepsofParliamentHousein
called them further out; Melbourne to gain support for the Liberal Party
‘Twas they that followed up the trail the moun- in the Nunawading bye-election.
tain cattle made, Politics may also explain the attitude of the
And pressed across the mountain range where VictorianGovernmenttocontinuedgrazinginthe
now their bones are laid. VANP given the possible World Heritage nomi-
nation.TheStatesfrequentlyhavedivergingopin-
The importance of cultural and heritage values ions compared to the Commonwealth
from grazing cattle on the high country has been Government. This has been clearly illustrated in
identified by several authors. For example, Taylor relation to previous World Heritage listings. For
(1992) argues that, ‘‘without tradition, cultural example, the Northern Territory Government
artefacts become curios, static remains without contested the listing of Kakadu National Park,
meaning.’’(p.58).Asanexample,Tayloranalyses the planned Franklin Dam in Tasmania, and the
the withdrawal of cattle from the mountain valley Queensland Government legally challenged the
of Gudgenby in the Namadgi National Park in right of the Commonwealth to nominate the rain-
1990. Taylor observes, ‘‘The result is a cultural forestsofNorthQueenslandasthiswouldprevent
I. Fraser, T. Chisholm:Ecological Economics33(2000)63–75 67
logging. The possible nomination of the VANP as The way in which we characterise benefits and
part of the AANP may therefore be being resisted costs here means that MSB measures gross cul-
by the Victorian Government as it might result in tural and heritage benefits, and MSC measures
a major redistribution of resource management gross ecological:environmental damages. The rea-
powers away from the State. Although this line of son for describing the benefits and costs associ-
reasoning is to a certain extent speculative, the ated with cattle grazing in this way is that if we
continuation of grazing is a means by which the
employed a simple net benefit rule; as long as
VictorianGovernmentcandiminishthelikelihood MSB\MSC we would keep cattle in the
of a nomination being forthcoming.
Alps. There is a problem here, however; we have
no clear guide as to the relative size of the
3.2. Economic uncertainty:to graze or not to costs and benefits. Despite all of the available
graze? scientific evidence, which is far greater than
for most natural resource problems, the true
Given the scientific evidence it is reasonable to position of the cost and benefit functions is uncer-
argue that cattle grazing on the alpine environ-
tain.
ment yields negative externality (cost). This exter-
There have been efforts to evaluate the costs
nality exists because graziers, as private economic
andbenefitsforthealpinegrazingquestion.Lock-
agents, do not take account of all of the social
wood et al. (1996) employed a Contingent Valua-
costs of production, such as, for example, the loss
tion survey to evaluate the non-market benefits
of floral diversity, which is valued by society.
that accrue from either continued cattle grazing
Although the loss of floral diversity does not
and the associated cultural and heritage values, or
affect the private costs of graziers it does impose
the environmental benefits from the termination
a cost on society. Other impacts of over-grazing
of cattle so as to preserve the flora and fauna.
have been the exposure of fragile soils leading to
They split their sample and used two surveys, one
severe erosion and subsequent downstream silta-
in favour of continued grazing, and the other in
tion, the impact of the changing floral composi-
tion on the timing of release of water from the favour of the removal of the cattle. In general
high country for hydro-electricity power genera- Lockwood et al. found that ‘‘respondents gener-
tion and the introduction of aggressive weeds by ally approve of High Plains grazing’’ (p. 365).
the cattle (Wahren et al., 1994).4 They estimated that willingness to pay each year
If the external effects of cattle grazing on the for each household for five years for cultural
environment are not fully internalised by the gra- and heritage preservation ranged between $81
ziers then marginal social costs (MSC) will be and $106, whereas for stopping grazing estimates
greater than marginal private costs (MPC). How- of willingness to pay ranged between $33 and
ever,therearesignificantnon-marketbenefits(use $37.5
and non-use) from cattle grazing as a result of As Lockwood et al. (1996) note, the willingness
culture and heritage. We assume that to pay estimates for the two scenarios con-
marginal social benefits (MSB) of grazing are sidered provide a benefit cost framework with
greater than marginal private benefits (MPB) of which to judge the continuation of grazing or not
grazing because the cultural and heritage values
(p.364).Bycomparingthebenefitestimatestosee
derived by society from continued grazing are
which is larger it would appear that Lockwood et
higher than the private benefits derived by the
al.arejustifiedinarrivingatthefollowingconclu-
graziers.
sion.
4Although most of the external effects of grazing can be
reversed, as Williams et al. (1997) note, degraded flora has
taken decades to recover and frequently requires active
restoration that is time consuming and expensive. 5All monetary values are in terms of Australian dollars.
68 I. Fraser, T. Chisholm:Ecological Economics33(2000)63–75
‘‘These results provide support for the Victo- difficult to implement. But, with the continuation
rian Government’s management policies for of grazing it is desirable that the allocation and
grazing on the Bogong High Plains.’’ (p. 370) operation of the grazing licences is economically
efficient. An institutional arrangement that may
However, these estimates are suspect; some be able to deliver efficient land use turns on being
fraction of the heritage value identified and asso- able to introduce more flexibility with respect to
ciated with grazing and the mountain cattlemen licenceexchange.Amoreflexibleinterpretationof
could exist even if grazing was to stop. It is not what constitutes an approved person may well
obvious that cattle need to be grazed in the facilitate this outcome. By employing a flexible
VANP for many practices and traditions associ- interpretation it is plausible to argue that the
ated with grazing to continue. If it is the accom- likelihood of exchange (previously very limited)
panying activities (e.g. the annual horse race and could be increased, with the result that the indi-
carnival) that generate most of the non-market vidual or individuals who value the grazing li-
value derived, then it is not possible to argue in cence most highly gain the right to graze.
favour of the continuation of grazing. Until we Under existing licence arrangements grazing
are clear about the relationship between the num- practices are kept to a minimum; there is as little
berofcattlegrazingandtheresultingculturaland disruption of the alpine environment as possible.
heritage values the optimal land use solution will Reference in the grazing licence to the protection
remain unclear — we cannot be certain whether of significant conservation values (I 20 — Protec-
or not the cattle should remain or be removed tion of Significant Conservation Values) relates
from the alps. only to the removal of cattle when necessary;
there is no mention of environmentally positive
land management. Also, there is nothing in the
4. Resolving the conflict licence that requires that cattle is grazed; owner-
ship is not dependent on use. Therefore, a licence
To resolve the conflict we now examine poten- holder who did not run any cattle would not
tial economic solutions to implement either the contravene land management requirements. Fi-
removal of all cattle or the continued existence of nally, the licence makes no reference to the li-
cattle grazing. Interestingly, in both cases a role censeebeingagrazierorowningafarm;theyonly
for the use of compensation payments to graziers have to be an approved person.
is found as a means by which to achieve a resolu- There already exist precedents for broadening
tion of the conflict. The alternative institutional the definition of what constitutes an approved
arrangements considered here raise questions person. In 1990 the Tom Groggin cattle station
about the renewal of existing licences in 1998. wasgrantedalicencetograzecattleontheDavies
Plains.InJulyof1990,thecattlestationwassold,
4.1. The continuation of grazing licences included, to Colour Plate Pty Ltd. In
October of 1990 Colour Plate was recognised as
With the existing restrictive institutional ar- an approved person by the minister. A more
rangements in operation the available policy in- recent example is the sale of Cobungra Station in
struments to facilitate efficient land use appear to December 1997. This station has the largest allo-
be restricted — adjust the number of cattle or cation of grazing licences anywhere in Alps and it
change the cost of the licence.6 However, the has been purchased by BCR Management As-
prevailing quasi-political nature of the grazing sets.7 The grazing licences allocated to this station
problem policy has made these two options
7The Chairman of BCR Assets also owns Falls Creek ski
6Various management solutions have been proposed (van village. The reason for purchasing the cattle station is to
Rees, 1984); fencing off fragile areas, the development of facilitate skiing development, which is quickly becoming an-
watering points, and the strategic placement of salt. other contentious land use in the Australian Alps.
I. Fraser, T. Chisholm:Ecological Economics33(2000)63–75 69
are still being used. The exchange of licences to derive as high a price as possible from selling
happened when the cattle station was sold. There the lease, the grazier might try to extract as much
would appear to be no a priori reason, however, consumer surplus as possible from a buyer. The
why exchanges could not simply be in relation to price paid in this exchange would be a reflection
the grazing licences specifically. To ensure that of the willingness to buy the licence. Although the
exchange arrangements are efficient it is necessary grazier will have a reservation value for the li-
to consider alternative reallocation arrangements. cence, the desire to gain an economic rent will
The important decision in following this ap- force the realised price of the licence up. This can
proach to introducing a greater role for market becontrastedwiththesituationwhereaconserva-
forces in the allocation of grazing licences relates tionist owns the licence. If a grazier wanted to
to the extent to which the definition of approved purchase the licence the price offered would now
person is broadened. It is assumed that individu- be a reflection of the willingness to buy, which is
als or groups would need to seek and be given typically going to be less than the willingness to
approval for operating a grazing licence. It is not sell of the grazier. Also if the willingness of the
envisaged that a free market come into being, but conservationist to sell the licence is higher than
rather a less restricted group of interested eco- the grazier’s willingness to buy then no exchange
nomic agents (graziers, conservationists and cul- will take place.8 Thus, as Samuelson (1985) notes,
tural and heritage supporters) be able to gain the the degree of efficiency of a bargaining agreement
right to operate alpine grazing licences. depends on the allocation of the property rights
over the good in question and the actual bargain-
4.1.1. Exchange or reallocation of grazing leases? ing process that is employed. As Samuelson
rightly concludes, ‘‘private bargaining cannot
4.1.1.1. Negotiation and bargaining. The role of guarantee efficient solutions’’ (p. 337).
negotiation and bargaining as a means to resolve A second reason why a bargaining approach
an existing environmental conflict or dispute has might not be used is that the licence will become
long been recognised (Coase, 1960; Porter, 1988; valuable in its own right, a once-off creation of
Kazmierczak and Hughes, 1997). Following wealth which cannot be defended on the basis of
Coase, if historical and legal processes associated equity or efficiency. There are two possibilities
with the grazing licence imply a property right, here depending upon the degree of flexibility in-
one means of exchange would be to allow negoti- troduced with the exchange of the licence. First,
ation and bargaining between interested parties, by making the grazing licence exchangeable only
allowing the individual or group who place the with the farm to which it is attached, the value of
highest value on the licence to purchase it. the licence will be capitalised into the value of the
There are several reasons to be cautious about farm. Second, if the licence itself, the bit of paper,
recommending exchange based upon negotiation is exchangeable, its value is transferred into the
and bargaining. First it is unlikely that two indi- paper entitlement.
viduals will be able to negotiate an efficient out-
comeallofthetime.Asaresultofinefficienciesin 4.1.1.2. Auctioning grazing licences. The right to
the bargaining process, such as anticipatory exchange a grazing licence implies that property
strategic behaviour (Richer and Stranlund, 1997) rights in the licences are already allocated. As
or informational asymmetries (Fraser, 1995), (al- noted above, this produces several undesirable
though the participating parties may wish to effects. In response to this problem Samuelson
achieve a mutually advantageous agreement) the (1985) proposes that the initial allocation of the
pursuit of individual objectives can prevent an property right be determined via a bidding pro-
efficient exchange from taking place. cess such as an auction (sealed bid or open cry).
Furthermore, differences in willingness to buy
and sell can influence the bargaining problem. If 8Bromley and Hodge (1990) examine this issue in relation
the grazier initially owns the licence, in an effort to European agri-environmental policy.
70 I. Fraser, T. Chisholm:Ecological Economics33(2000)63–75
Thebenefitofusinganauctionisthattheindivid- 4.2.1. Why pay compensation?
ual or individuals who value the licence most will Although compensation might facilitate the re-
submit the highest bid. The government would moval of cattle it is unclear if compensation is
receive a level of payment for the licence, which justified. It is possible to rationalise why compen-
reflected the true private value of the winning sation might be paid in this context. First let us
bidder (McAfee and McMillan, 1987). This would introduce the idea of the reference point (Hodge,
remove the need to bargain and negotiate over 1989). This idea involves the determination of an
grazing fees. The selection criteria used to assess appropriate point or benchmark by which to
bids for the licences could include price and gen- gauge the action of the economic agents, like
eral land management plans.9 graziers, and the resulting restrictions imposed
The frequency of auctions needs to be consid- upon them. In terms of alpine land use, cattle
ered. A single allocation of the licences via an grazing has been a form of sanctioned economic
auction may well lead to short-run efficiency behaviour over a long period of time.
gains,butoverthelongerruninefficientoperation The removal (sudden or phased) of grazing
of the leases may occur. It is therefore desirable licences represents a significant change in the op-
on the grounds of dynamic efficiency that licences erational environment of graziers. The reference
are assigned for a limited period only, allowing point can be thought of as defining the level of
interested parties to bid at subsequent rounds. operational responsibility that graziers are ex-
There is also no reason not to allow the exchange pected to satisfy, in this case with respect to the
of leases between interested parties between the alpine environment. In cases where there is a
auction periods. change in the desired actions of economic agents
If an auction is to be used to allocate grazing from those deemed acceptable over a long period
licences, the existing right to the licence assumed time, some sort of payment or compensation is
by graziers will need to change. A change to the justifiable.Theideaofthereferencepointhelpsto
status quo of this kind will probably require conceptualise the imposition of the restriction in
financial compensation (incentives) as a means to relation to socially acceptable policy decisions. In
achieve the desired outcome, because a new sys- Australia this argument has recently been given
tem of lease allocation is unlikely to be readily strong support in the context of ecologically sus-
accepted by graziers. tainable land management by the Industry Com-
mission (1998).
Another argument used to justify compensation
4.2. The cessation of grazing and compensation
is fairness. Kahneman et al. (1986) link fairness
into the idea of the reference point. Assume that
If grazing is stopped in the VANP, it is likely
the cattlemen have an entitlement (either implicit
thattheissueofcompensationforthegraziers,for
or explicit) to some level of grazing. Reducing or
the restriction of existing farming practices, will
removing this entitlement is not fair given the
arise. This is because the change is a significant
reference point. The entitlement can arise from
alteration to the status quo that has served the
the long-term implementation of policy, and it is
graziers so well. Without compensation it is
the removal of this right that requires a fair
highly unlikely that the graziers will agree to any
response from policy makers. Hence, the imposi-
change to existing arrangements. The importance
tion of further grazing restrictions are beyond
of financial incentives in influencing and motivat-
those deemed fair under the reference point. This
ing environmental behaviour in Australia has
line of reasoning provides a justification for the
been established by Carey and Wilkinson (1997).
payment of compensation that is in keeping with
Usher (1992). Usher distinguished between taking
9Auction-type mechanisms have been employed in the UK
by government that should be compensated and
and US to implement agri-environmental policy. See Smith
the exercise of police power where no compensa-
(1995),WuandBabcock(1996),Latacz-LohmanandVander
Hamsvoort (1998). tion is required. From an operational point of
I. Fraser, T. Chisholm:Ecological Economics33(2000)63–75 71
view the distinction between these two is the summer alpine grazing in perpetuity are fully cap-
avoidance of victimisation of individuals in soci- italised into farmland values. In this case there is
ety by the government and rent seeking by indi- clearly a strong case for full compensation if
viduals. Miceli and Segerson (1998) provide an grazing licences are withdrawn.10
alternative, but similar rationale for why compen- Usually, graziers will not know with certainty
sation needs to be paid. whether or not a government will maintain or
However, the reference point is not immutable. change a policy influencing their utility:wealth at
Over a period of time there will arise disagree- some time in the future. That is to say, probabili-
ments about its position. The changing perception ties less than unity, but greater than zero, will be
ofthepublictoagriculturalpracticeisanexample associated with a given government policy re-
of this. There is now much more concern about maining unchanged. The difficulty for determin-
agricultural externalities resulting from intensifi- ing fair compensation when government changes
cation (Braden, 1982). There is also a desire to policy is that the above probabilities are unob-
protect those remaining areas of environmental servable.Giventhatamyriadofgovernmentpoli-
value, all of which means that the way the general cies change over time in unanticipated ways that
public perceives agriculture has changed. influence the well-being and wealth of people and
The role of the reference point can also be firms, the case for compensation would appear to
linked to expected returns from grazing and how be weak except in the most clear cut of cases. It is
this is reflected in property values. In a well-func- important that policy makers recognise that the
tioning land market, current land value is deter- information they communicate to graziers (and
mined primarily by the present value of the other investors) about a policy influences expecta-
expected future revenue stream, net of all pay- tions. For policies relating to such things as farm
ments to other factors of production associated subsidies and alpine grazing licences, it is impor-
with a land-based investment. Typically, land val- tant from the perspective of both efficiency and
ues will change through time as the flow of new equity that policy making is consistent, transpar-
information causes changes in expectations. Ex- ent and predictable. Changes in policy that are
pectations may change as a result of unantici- unanticipated result in socially inefficient resource
pated changes in product and factor markets allocation even when the affected parties expect
and:orgovernmentpoliciessuchastheremovalof full compensation. For instance, graziers who ex-
grazing licences. pect their grazing licences to continue indefinitely
A key feature of the compensation issue is the are likely to make long-lived investment decisions
extent to which the past and current rights to that depend on the continuation of grazing rights.
grazing have been capitalised into the farmland Unanticipated withdrawal of grazing rights will
values of a grazer’s property. The degree of capi- result in farm operations that have unproductive
talisation of alpine grazing rights into farmland sunk costs.
values, will depend on: the probabilities that gra-
ziers attach to their grazing licences being re-
4.2.2. How much compensation should be paid?
newed; the expected prices (fees) of future grazing
This is not a straightforward question to an-
licences; the expected time span before renewal of
swer although there are some economic principles
grazing licences cease, if ever; and graziers’ expec-
that can be used to help in the assessment of
tationsaboutwhatcompensation,ifany,theywill
compensation. In the GATT, for example, agri-
receive in the event of the government not renew-
environmental policy allows for payments to
ing grazing licences. If the graziers’ expectations
farmers equal to the profit foregone from under-
arethatgovernmentiscertain(probabilityone)to
renew grazing licences in perpetuity at a constant
10Obviously the grazier’s expectations need to be assumed
real price, or that full compensation will be paid
tobereasonable.Reasonableexpectationscouldbeestablished
tograziersiflicencesarenotrenewed,itisreason-
by recourse to farm level financial records and agricultural
able to assume that the benefits of the rights to market forecasts.
72 I. Fraser, T. Chisholm:Ecological Economics33(2000)63–75
takingtheenvironmentalactionsortheadditional The issue of whether the cessation of grazing is
costs to the farmer of implementation. There also to be long lived or short term also needs to be
exists a precedent for paying compensation in decided. This can have implications for the form
existingVictoriangovernmentlegislationthatdeals and size of the payment. In terms of ICO, the
withtheenvironment.TheFloraandFaunaGuar- FFAG specifies a period of up to 2 years in
anteeAct(1988)(FFGA)wasintroducedtoestab- duration. But what happens after 2 years is up?
lish a legal and administrative structure to enable Should a further ICO be introduced or should the
andpromoteconservation.Nativefloraandfauna landowner be able to pursue their preferred land
in danger of extinction and of particular signifi- useactivity?IftheICOproducesaonce-offlossof
cance are identified in the act (schedules 1 and 2). production possibilities should the compensation
To protect flora and fauna, the FFGA allows for payment cover this? Over and above lost revenue,
the introduction of interim conservation orders grazing licences in and of themselves have also
(ICO). If an ICO impinges upon existing activities become valuable to the graziers so there will also
of a landowner or operator then compensation be a loss of capital value.
payments can be made. Thus, any curtailment of Theabovedifficultiesaside,asimplemeasureof
existing grazing licences might justifiably attract profit foregone can be estimated for the cessation
compensation payments. of grazing. As the costs of running cattle on the
Interestingly the FFGA includes a schedule of high country are unclear we will only estimate
Potentially Threatening Processes (PTP) that in- revenueforegoneandviewthisasanupperbound
cludes the following; estimate of reasonable compensation. In practice,
toavoiderrorinthecalculationofprofitforegone,
historical financial records should be used to
‘‘Soil erosion and vegetation damage and provideguidanceespeciallyoncostsincurred.The
disturbance in the alpine regions of Victoria use of a broadly accepted principle to guide mea-
caused by cattle grazing.’’ (Schedule 3, p. 3) surement should help to reduce the possibility of
extraction by the graziers of excessive levels of
Theimportanceofthisisthatthereexistsapiece compensation.
of conservation legislation that allows for the For current farm level survey data for beef
curtailment of grazing and the use of compensa- specialistsinthemarketsusedbythehighcountry
tion. In Section 38 of the FFGA it is made clear graziers, the average price realised on a cow sold
that the FFGA overrides existing licence arrange- at market is $325 in Victoria and $356 in New
ments, such as the alpine grazing licences. The South Wales in 1997:98 (Australian Bureau of
FFGAalsoprovidessomeguidanceontheappro- Agricultural and Resource Economics, 1999). We
priate amount of compensation. The profit-fore- willassumethathighcountrycattleattractasmall
gonecriterionisimpliedinthelegislationalthough pricepremiumandassuchrealise$400percow.If
the Victorian Director-General has the right to all 7800 cattle are removed from the VANP then
award as much as he or she sees fit (Section 43.8). the profit foregone in 1997:1998 prices is
$3120000. As the graziers would expect to earn a
4.2.3. Profit foregone stream of income into the future it is necessary to
Profitforegoneistheextradifferenceinpotential baseanyprofit-foregonepaymentsonadiscounted
income earned by a farmer had a restriction not stream of income. For illustrative purposes we
beenimposedonexistingagriculturalpractices.In assumea10-and20-yearplanninghorizon.Assum-
relation to alpine grazing profit foregone amounts ing a rate of discount of 10% then over a 10-year
tolostrevenueandadditionalcostsoffeed.Tobe time horizon total revenue foregone amounts to
set against these losses are the gains from not $8092476. Over a 20-year time horizon this in-
havingtopayforthegrazinglicenceandthecosts creases to $20989799. With a 5% rate of the
incurred in moving livestock to and from the high discountrevenue-foregoneestimatesare$5082151
country. and $8278288, respectively.