Agriculture and Food in the 21 st Century

Economic, Environmental and Social Challenges- Festschrift on the Occasion of Prof. Dr. Dr. h.c. P. Michael Schmitz 65 th Birthday

by Monika Hartmann (Volume editor) Joachim Hesse (Volume editor)
©2014 Others 269 Pages


This Festschrift in honour of Professor Dr. Dr. h.c. P. Michael Schmitz covers theoretical as well as empirical works on challenges prevailing in the food and agricultural sector. Discussions of conflicts between social and ecological requests of citizens and market outcomes are provided. The contributors discuss options of policy interventions as well as their limitations. Empirical facts that can contribute to a more evidence based policy formation are also presented. The book itself consists of two parts: «agri-food markets and policies» and «agriculture, trade and development». Topics covered are moral, markets and policies, farm animal welfare, fat taxes, agricultural derivatives markets, future food value chains, free trade agreements, food security, food waste and climate change.

Table Of Contents

  • Cover
  • Title
  • Copyright
  • About the Book
  • This eBook can be cited
  • Table of contents
  • Preface of the Editors
  • Agri-food Markets and Policies
  • Morals, Markets and Policies: Views with a Focus on Food and Agricultural Markets: Ulrich Koester
  • Abstract
  • Acknowledgements
  • Introduction
  • Definition of Morality
  • The relationship between morality and the functioning of markets in general
  • Specifics of Agricultural Markets and Morality
  • The design of the institutional framework for constraining political agents
  • The importance of the institutional arrangement for constraining policy makers
  • Institutional constraints for the Council of Agricultural Ministers
  • Price support and morality
  • The impact of price support policy on incentive compatibility within an individual country
  • Price support and divergence of interest among member states
  • Selected major policy changes in the EU assessed from a morality point of view
  • The change in direct income support
  • Basic income payments
  • Summary
  • List of References
  • Farm Animal Welfare: A Challenge for Markets and Policy: Monika Hartmann, Johannes Simons and Kakuli Dutta
  • Abstract
  • Acknowledgements
  • Introduction
  • Ambiguities with respect to farm animal welfare
  • Ambiguity with respect to definition and assessment of FAW
  • Ambiguity with respect to the perception of FAW
  • FAW and Market Challenges
  • Producer perception of FAW and existing trade-offs
  • Consumers’ and citizens’ perception of FAW and their WTP
  • FAW and the Policy Challenge
  • Justification for Government Intervention
  • Limitations of governmental intervention
  • A new role of market participants
  • Conclusions
  • List of References
  • From Policy Analysis to Recommendations for Evidence-based Food Policy: Some Thoughts on „New“ Policy Instruments: Roland Herrmann, Rebecca Schröck and Matthias Staudigel
  • Abstract
  • Introduction
  • Policy Analysis: A Review of the Literature
  • Analysis of Traditional Agricultural and Food Policy
  • Evidence-based Policy Analysis and Recommendations
  • The Regulation of Geographically Differentiated Products: Thoughts on Effectiveness and Efficiency
  • Food Taxes as a Health-policy Instrument: Thoughts on Effectiveness and Efficiency
  • Does empirical evidence support the justification for fiscal measures?
  • Empirical evidence on the causal effects of taxes on unhealthy foods
  • A weak evidence base for fat taxes as health-policy instruments
  • Discussion and Conclusions
  • List of Referneces
  • Regulation of Agricultural Derivatives Markets: Michaela Kuhl
  • Abstract
  • Introduction
  • Studies on the effect of financial transactions on agricultural prices
  • Objectives and state of the EU regulatory proposals as of autumn 2013
  • European Market Infrastructure Regulation (EMIR) - EU Regulation on OTC derivatives, central counterparties and trade repositories
  • Markets in Financial Instruments Directive (MiFID II) – An update on the 2007 MiFID Regulation
  • Amendment of the Market Abuse Directive MAD (MAD II)
  • Regulation on the other side of the Atlantic
  • Perspective of a financial transaction tax
  • Conclusion
  • List of References
  • The Future Food Value Chain: Christian Fischer
  • Abstract
  • Introduction
  • A changing world
  • Value capturing and creation
  • Collaboration along the chain
  • The way ahead
  • List of References
  • Agriculture, Trade and Development
  • Impacts of an EU-USA-Free Trade Agreement on Developing Countries: Martina Brockmeier, Tanja Engelbert and Janine Pelikan
  • Abstract
  • Introduction
  • Analysis of Trade, Preference and WTO Agreements with CGE Models: Schmitz and his Scholars
  • The Transatlantic FTA between the EU und the US: An integrated Econometric-CGE Analysis
  • Estimation of Non-Tariff Barriers using the Gravity Model
  • Theoretical and Empirical Framework
  • Data and estimation strategy
  • Estimation Results
  • Simulations with the GTAP Model
  • GTAP Model and Data
  • Experiment Design
  • Simulation Results
  • Summary
  • List of References
  • Appendix
  • EU-South Korea Free Trade Agreement and Its Impacts on Agriculture in Consideration of a Different Level of Regional Aggregation: A Computable General Equilibrium Approach: Jong-Hwan Ko
  • Abstract
  • Acknowledgements
  • Introduction
  • The CGE Model and Data
  • The CGE Model
  • Data
  • Trade Relations between the EU and Korea
  • Scenarios of the EU-Korea FTA
  • Simulation Results
  • Impacts on Korea
  • Impacts on Germany
  • Conclusion
  • List of References
  • Appendix
  • Food Security and WTO Domestic Support Disciplines post-Bali: Alan Matthews
  • Abstract
  • Acknowledgements
  • Introduction
  • Public stock-holding for food security purposes
  • Towards a permanent solution on public stock-holding
  • Option 1 - Make the interim solution permanent
  • Option 2 - Adjusting for inflation
  • Option 3A - Raise the de minimis level
  • Option 3B - Review the basis for the external reference price
  • Option 3C - Change the definition of eligible production
  • Option 4 - Qualifying the administered price
  • Conclusion
  • List of References
  • Production and Wastage of Rice in Bangladesh: Khandaker M. M. Rahman, Mohammad I. A. Mia, Mohammad Z. Abedin and Mohammad Z. Rahman
  • Abstract
  • Introduction
  • Objectives
  • Methodology
  • Data and study area
  • Analytical technique
  • Results and Discussion
  • Productivity and profitability of producing rice
  • Technical efficiency of producing rice
  • Assessing losses of rice at stages of harvest and post-harvest operations
  • Rice type and farm category wise average harvest loss
  • Rice type and farm category wise transportation loss of harvested rice from field to threshing yard
  • Rice type and farm category wise average threshing, winnowing and drying loss
  • Rice type and farm category wise average storing preparatory loss
  • Rice type and farm category wise average in-store loss
  • Rice type and farm category wise average out-store loss
  • Rice type and farm category wise donation
  • Rice type and farm category wise non-human food usages
  • Estimating total wastage (harvest and post-harvest losses)
  • Farm category wise total wastage (harvest and post-harvest losses)
  • Overall average SFW and net production
  • Potential production losses and SFW
  • Conclusions, Policy Implications, Recommendations
  • Conclusions
  • Policy implications - Long term policy options
  • Policy implications - Short term policy options
  • Recommendations
  • Note
  • List of References
  • Climate Change Impacts on Agriculture and the Relevance of Adaptation: The Case of Pakistan: Mirza Nomman Ahmed
  • Abstract
  • Introduction
  • Climate Change Vulnerability and the importance of Adaptation
  • Methodological Approach
  • Discussion of Results
  • Ricardian Climate Sensitivities
  • Temperature Impacts
  • Precipitation Impacts
  • Spatial Impacts – Agro-Ecological Zones and Provinces
  • Control Variables
  • Simulations
  • Conclusion
  • List of References
  • Contributors
  • Bibliography of P. Michael Schmitz
  • Monographs
  • Contributions in books and series of publications
  • Articles in scientific journals and professional magazines
  • Discussion papers
  • Collaboration on scientific opinions of the „Wissenschaftlicher Beirat beim Bundesministerium für Ernährung, Landwirtschaft und Forsten“

Morals, Markets and Policies: Views with a Focus on Food and Agricultural Markets



Morality and markets are widely held to be two unrelated concepts or, if related, then their interaction is considered more negative than positive. This perception has contributed to the bad esteem of economists. This long-term tradition of neoclassical economics – which is still the mainstream in economics – posits that economic agents, although they may be highly selfish, nevertheless offer society significant benefits. Agricultural markets’ functionality is often in the centre of criticism and food scandals seem to support the view that economic agents do not serve the common interest.

The goal of this article is to clarify the relationship between morality and the outcome of market forces under specific conditions on the one hand and real world conditions on the other. It emphasizes that a clear definition of morality is essential to the accurate assessment of market functions from a moral point of view. Moreover, a positive relationship will prevail only under specific market functioning conditions which do not exist in most markets, and are particularly absent in agricultural markets. Based on these findings, we explain why agricultural markets are exceptional and not always in line with commonly held moral understanding.

Because agricultural markets require specific governmental interventions to provide for incentive compatibility of private agents, the government must create an environment in which selfish actions are considered acceptable from a society’s point of view. The second last section of the paper proposes a design for EU agricultural policy which might perform in harmony with the morality of a given society. It argues that policymakers who behave like private entrepreneurs must be forced by a specific institutional framework to make decisions that are best for the public at large. In the final section, we discuss selected EU agricultural policy changes introduced for fiscal years 2014 through 2020 from a morality point of view.


The author thanks M. HARTMANN, Bonn, W. BRANDES, Göttingen, B. SCHULZE, Kiel and A. PELLILLO, Tbilisi for valuable comments on an earlier draft of the paper. The article gained significantly from many fruitful discussions with R. MÜLLER, Kiel.


During the last decade, public trust in markets in general – and in financial and food markets in particular – seems to have deteriorated. Food scandals feed mistrust and strengthen the commonly held belief that markets support immoral behaviour, leading to an increased call for governmental intervention despite a widespread mistrust in politicians. Strangely enough, not long ago, at the time of the collapse of the socialist economies, the benefits of a market economy were ← 13 |14 →

praised. The reputation of economists has also deteriorated as mainstream economists continue to stick to their models, assuming that rational decision makers react to market prices while simultaneously contributing to the economy’s overall welfare. This article will clarify relationships between morality and the outcome of market forces under specific conditions on the one hand and under real world conditions on the other. Based on these findings, we will explain why agricultural markets are exceptional and not always in line with commonly held moral understandings. Its second last section is devoted to the design of an agricultural policy which might perform in harmony with the morality of a given society. It argues that policymakers who behave like private entrepreneurs must be forced by a specific institutional framework to make decisions that are best for the public at large. The final section discusses selected EU agricultural policy changes introduced for fiscal years 2014 through 2020. A summary will close the article. It has to be emphasised that the reasoning focuses mainly on private goods; the problem of public goods is only taken up in the last sections which deal with policies.

Definition of Morality

Unfortunately, no generally accepted and controversy free definition of morality is available. However, a clear definition of morality is essential to any investigation of the relationship between morality and markets. Therefore, it is quite clear that this definition must be based on personal judgment which will, of necessity include value judgments.

It is agreed that morality is a reflection of a given society’s norms which expresses its values based on a system of rules and moral guidelines broadly accepted by that society. Therefore, morality affects and may constrain people’s social behaviour (GRIFFITHS et al., 2001 and BARON, 1998).

Morals serve as the rules of the game which, whether formally laid down in legislation or evolved over time in the form of unwritten tradition. Based on acceptance of this definition, there is no “bad” or “good” morality; rather morality is merely a description of a society’s accepted norms (GERT, 2012). It is quite clear, then, that these norms differ across societies and will change over time as they are partly determined by culture.

Individual behaviours can be classified as morally “bad” or “good” depending on the norms of the society under consideration. Whether a person’s behaviour is considered morally acceptable or immoral depends on the judgment of the society of which that person is a part. As norms differ across societies and over time, a specific behaviour may be judged morally good by one society, yet bad by an ← 14 |15 → other. Furthermore, a given society may view the same action differently at different times, depending on how that specific society is defined. For example, it might be merely a group of people who share certain values which are not necessarily identical with those of the population in a specific country. The rural population may adhere to different values than those of the urban population. People belonging to different religious groups may favour still different values. In general, one person’s act can be morally good or bad only if other people are affected.

Even in cases of general agreement on moral standards within a given society, specific criteria which can be used to judge whether an individual has acted in a bad or good way from a moral point of view must be defined. In defining morality, philosophers seem to agree on two different and important elements by which morality may impact an individual’s action:

A person may be motivated to do good things in line with moral standards of a given society and may select, from among the possible alternatives, those which are compatible with his motive.

Moral people behave according to the expected consequences which are in line with the moral codes of the society where they live.

According to the school of deontology, motives are crucial for judging moral behaviour. Kant, one of the scholars of this school, postulates that an individual’s motives should act as a personal framework for her/his actions even if those consequences are not appreciated by other members of society. Of course, this definition includes a strong value judgment which may not be shared by many people. Hence, this criterion is somewhat modified by the school of moral relativism which, in principle, agrees on the dominance of motives, but also takes into account the action’s consequences. Finally, in contrast to the other schools, consequentialism (or teleological ethics) focuses only on an action’s consequences. Whether the individual actor must intend for others to judge her/his action as morally positive or whether only the consequences matter, regardless of his motive, may be open to discussion.

Economists may argue that today’s world is too complicated and, therefore, the individual cannot always anticipate consequences. Well-intended actions by do-gooders may lead to bad consequences, while very selfish actions may result in outcomes which are highly appreciated by society. As early as 1714, Mandeville was one of the first authors to emphasise that private vices form the basis of overall welfare (quoted by SEDLACEK, 2012). In fact, do-gooders may actually place hardship on the backs of others; hence, we must accept that well-intended actions may lead either to socially desired results or to undesired ones. In contrast, however, highly selfish actions may also lead to either good or bad results. ← 15 |16 →

Economists tend to be more practically oriented, and mainstream economists trend to emphasize the consequences of individual actions independently from the motives of the actor and the intended consequences. It does not matter why an individual acts in a specific way. Whether it may be self-interest or altruism, only the outcome is important. Whether the action is considered good or bad depends on how other members of the society value the outcome. If they rate the outcome as acceptable from their point of view, the individual’s actions are considered morally good.

It should be noted here that this definition of morality does not imply that any activity which leads to Pareto improvement – as defined by economists – is morally good. Pareto improvement is implicitly based on socially independent individual utility functions which include only material welfare. However, it might well be that although an individual’s income is not affected by other people’s actions, that individual may, nevertheless, disapprove of the specific actions of others if distribution has been affected. Hence, the definition of morality just put forward does not imply that individual welfare is socially independent. People may even be concerned about actions of others, even if their material welfare is not affected, because they consider the enrichment of specific people as unfair.

If we accept – in accordance with mainstream economics – that only the consequences of actions, and not their motivation, are important, it may well be that an individual who acts only in his own self-interest may inadvertently act in the interest of others. However, this coincidence will occur only in cases of incentive compatibility, meaning that incentives for individuals should lead to actions and consequences which are in line with the common interest. Hence, in the following, we must evaluate the conditions under which markets lead to incentive compatibility, whether these conditions hold true in the real world of markets in general, and of agricultural markets in particular.

Conflicts between morally-constrained and market-oriented behaviours may disappear, either partly or completely, if a) one agrees with the definition of morality as put forward by economists, and b) if it can be shown that the actions of those who serve only their own self-interest and react to market incentives may lead to positive consequences, even from a moral point of view.

This leads us to the first interim conclusion: Whether markets and morals can engage in a happy marriage depends, first of all, on the definition of morality. The consequentialist position must be accepted. Moreover, it must be assumed that whether the consequences were intended or unintended is irrelevant.

However, even if the economists’ definition of morality is accepted, it cannot be taken for granted that, from a morality point of view, markets can always be rated positively. This problem will be investigated in subsequent sections. But first, the relationship between morality and the effects of markets will be analysed. ← 16 |17 →

The relationship between morality and the functioning of markets in general

Mainstream economists like to refer to the father of modern economics, Adam Smith (SMITH, 1776), whose well-known example posited that society may even be better off if individuals act selfishly. However, he did not say that, under all market conditions, selfish actions would always lead to consequences which were appreciated by the society at large (see in particular SMITH, 1759). Modern economics have proved that, under certain conditions, selfish actions guided by market incentives will lead to a social optimum where nobody’s position can be improved without negatively influencing the welfare of others (DEBREU, 1952). It should be noted that the findings of so-called neoclassical economics are based on specific assumptions used in mathematical models. It is widely accepted that markets in the real world may not lead to the desired outcomes.

Neoliberal economists have defined certain tasks for the state so as to establish an enabling environment for possibly acceptable market outcomes from the point of view of the society at large. This school of economics accepts the possibility that the market may fail and, hence, that there is a role for the government in reducing the impact of such failure. However, the danger of policy failure is also highlighted.

The neoclassical school focuses implicitly on one specific element of morality – individual freedom – including selection of the best alternative among many choices. It is probably true that most people value individual freedom very highly, but some individuals may prefer a degree of paternalism in exchange for more job security, more equal distribution of income and less pressure to change. If one accepts the stated axiom, that individual actions are morally good only if they are good from the society’s point of view; one cannot assume that selfish actions can be accepted as morally good per se.

The following section discusses the interdependence between morality in a society and the functioning of markets. Figure 1 shows the importance of morality for the functioning of markets and the importance of functioning markets for morality within a society.

Markets are used to coordinate individual actions, facilitate cooperation and generate productive interactions. Hence, functioning markets have the same task as does the morality of people: both constrain individual behaviour and make it predictable. It is assumed that trust is the main element of morality which is of importance for the functioning of markets. Individuals may be trustworthy if they are honest, reliable, and punctual. Individuals may trust in the stability of the political and economic system if they trust policy makers. ← 17 |18 →

Figure 1 shows that morality contributes to the reduction of transaction costs, giving rise to the evolution of markets. Exchange of goods is generally based, either explicitly or implicitly, on a contract, even if not in a written form. Partners in an exchange trust in the honesty of the partner with respect to the quality of the product offered and in the behaviour of the partner of exchange. It is expected that the partner of exchange will fulfil his commitments completely and on time. This point is of special concern if the exchange involves agricultural product and factor markets.


ISBN (Hardcover)
Publication date
2014 (December)
Politikbewertung Klimawandel Modellierung Entwicklungsländer
Frankfurt am Main, Berlin, Bern, Bruxelles, New York, Oxford, Wien, 2014. 269 pp., 5 col. fig., 20 b/w fig., 46 tables

Biographical notes

Monika Hartmann (Volume editor) Joachim Hesse (Volume editor)


Title: Agriculture and Food in the 21 st  Century