Bundling Public and Private Goods: The Market for Sustainable Organics
38 Pages Posted: 10 Aug 2014
Date Written: 2010
Modern agriculture has vast environmental externalities. The pesticides, fertilizers, and sediments in irrigation runoff pollute surface and groundwater; single-crop farms destroy biodiversity; and massive amounts of fossil fuels are burned in agricultural production, post-harvest processing, and shipping. Nevertheless, farming operations have largely escaped the post-1970 expansion of federal environmental regulation. Compounding the problem, federal farm policy has encouraged the very farming practices that most cause this degradation.
In 1990, Congress passed the Organic Foods Production Act (OFPA), which created an organic food certification and labeling system. While OFPA’s primary purposes are to facilitate the growth of the organic sector and to protect consumers, this Note suggests that the Act’s secondary purpose, underimplemented by the United States Department of Agriculture (USDA), is to foster sustainable farming practices. This Note explores whether the OFPA’s organic labeling system does or could fill the regulatory gap described above.
This Note finds that under current standards the labeling program does not foster sustainable farming, not only because of shortfalls with the standards themselves but also because the market suffers from a freerider problem: Organic foods cost more, but consumers do not want to pay more for dispersed public benefits. Strengthening the standards would drive up production costs and exacerbate the freerider problem, but this Note argues that the USDA could mitigate the resulting decline in demand by taking advantage of the fact that organic products bundle sustainability, a public good for which people are not willing to pay much, with health, a private good for which many people are willing to pay more.
Keywords: Sustainable Agriculture, Information Regulation, Organic
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