2 Viewpoints and definitions

When speaking about multifunctionality we need first to define the concept. The socio-economic literature on multifunctionality provides several definitions for this concept, and uses different terms to describe the same phenomenon. Since this multitude of definitions hampers the research on the topic, impeding for example the search for appropriate literature, we give an overview of the existing definitions and finally express an own viewpoint.

In the broadest sense, multifunctionality of agriculture includes four kinds of functions provided by agricultural enterprises. The green functions consist, amongst others, of landscape management and the upkeep of landscape amenities, wildlife management, the creation of wildlife habitat and animal welfare, the maintenance of biodiversity, improvement of nutrient recycling and limitation of carbon sinks. Other public benefits that can be created by agriculture are the blue services and contain water management, improvement of water quality, flood control, water harvesting and creation of (wind-) energy. A third kind are called yellow services and refer to the role of farming for rural cohesion and vitality, ambience and development, exploiting cultural and historical heritages, creating a regional identity and offering hunting, agro-tourism and agro-entertainment. Finally, many authors acknowledge the white functions produced by agriculture, such as food security and safety (Aldington, 1998; Dobbs and Pretty, 2001*; Harwood, 2003; Moyer and Josling, 2002*; Jongeneel and Slangen, 2004).

Including all these aspects makes it difficult to build a workable definition even more because many authors give a different interpretation to multifunctional agriculture. Following Hediger (2004*), the concept accounts for the fact that agriculture is an economic activity that, beyond its primary function of supplying food and fibre, provides various non-market outputs to society. A key reference with respect to the analytical concepts is (Maier and Shobayashi, 2001*) who made a study on behalf of OECD. They state that these non-market outputs constitute potential sources of market failure and create theoretical arguments for public intervention because they are often joint products, externalities or public goods. ‘Jointness’ of production means that the production of one good or service is interrelated with another. ‘Externalities’ means that the one who produces the outputs is not remunerated for it (in case of positive externalities) or does not pay for it (in case of negative externalities). ‘Public goods’ refers to the fact that there is no or low excludability (meaning that the property holder (if any) can not exclude other people from the benefits) and no or insufficient rivalry (meaning that the good is not destroyed when others use it and is thus available for more than one beneficiary). For an extensive definition of these concepts in relation to multifunctionality see, inter alias, Maier and Shobayashi (2001*) or Fahlbeck (2004a,b) and for a more formal derivation of their properties we refer inter alias to Vanslembrouck and Van Huylenbroeck (2005*).

In general, two main schools or approaches on multifunctionality of agriculture can be distinguished (Aumand et al., 2006): the first one is focusing on the supply side issue (positive approach), while the second is focusing on the demand side issue (normative approach) (Maier and Shobayashi, 2001*). Besides these two analytical approaches, there is also a third more holistic interpretation of the concept of multifunctionality, rooted mainly in rural sociology and rural geography, referring to multifunctionality as a new kind of locally embedded model of agriculture. Multifunctionality is in this third view a way to describe a different farming system that is more territorially embedded, making use of local resources and trying to build a new link between consumers and producers (Wilson, 2001*; Renting et al., 2003; van der Ploeg and Roep, 2003*). In a sense, this view links both the supply and demand side by relating it to the rural space and the whole agro-food system in which agricultural activities take place. Wilson (2004*) speaks in this context of multifunctionality as a regime as it reflects a further transition after the shift from productivism to post-productivism in agriculture.

Although we agree that multifunctionality can be a unifying principle to construct a new agri-food model, we deliberately focus in this section on the first two approaches because analytically the term multifunctionality should not be mixed with other related but clearly different terms such as diversification and pluri-activity. As analytical concept, multifunctionality refers to the fact that one activity can have different outputs. It is thus related to an economic activity (either a single activity like the cultivation of wheat or a group of activities like food production), while diversification means that different economic activities (e.g. food production and tourism) are combined within the same management unit (in casu the farm or the agricultural sector). Pluri-activity refers to the fact that one person or a group of persons (farmers or rural entrepreneurs) are involved in different activities (e.g. farming and non-farming). On the one end we can thus have a specialised farm with workers only involved in food production, but being multifunctional because the food production activity results in different benefits for society, and at the other end a diversified enterprise with persons involved in different activities and thus pluri-active, but where every activity in itself could be theoretically mono-functional. Once we accept that multifunctionality of activities is a useful normative concept we can look what it means for agricultural policy or our agri-food production model (Section 5).

2.1 Supply vision

First we look at the supply side approach of multifunctionality. The supply side viewpoint defines multifunctionality mainly in terms of multiple joint outputs of an activity or of a combination of activities (Doornbos and Pastoor, 2001). Romstad et al. (2000*) speak about linked outputs, that can be private or public, main or secondary and that can be intentionally produced or not (by-product) (Romstad et al., 2000; Vatn, 2000, 2002*; Romstad, 2004).

This definition of multifunctionality restores the traditional economists’ concern about joint products in agriculture (Freshwater and Jia, 2004*). Where, initially, the jointness concept referred purely to a technical link between two outputs in fixed proportions, with multifunctionality it becomes a more general concept with the possibility of variable proportions. Multifunctionality is thus understood as the production of more than one output through the use of inputs (Figure 2*). These outputs may be complementary (this means if there is more production of one output, there is also more of the other), or competing (being substitutes) (see also Havlik et al., 2005*).

Figure 2: Relationship between joint outputs (Havlik et al., 2005*).

According to OECD (Maier and Shobayashi, 2001*) three reasons for jointness are frequently distinguished.

• Technical interdependencies in the production process occur in situations where increases or decreases in the level of one output influence the supply of other outputs, without any change in input allocation to these outputs. A consequence is that the marginal productivities of the input used in the production of one output depend on how much is produced of the others. Two outputs are technically complementary if an increase in the supply of one raises the marginal input productivities in producing the other. They are technically competing if the reverse holds (Doll and Orazem, 1978). Therefore technical interdependencies are at the origin of many of the negative non-commodity outputs of agriculture, including soil erosion, chemical residuals, nutrient leaching, etc. Positive effects due to technical interdependencies include, for instance, the impacts of crop rotation on nutrient balances and soil productivity.
• Non-allocable inputs can create jointness in production, where multiple outputs are obtained from the same input (Casavant et al., 1999). A classical example is the production of mutton and wool, which are jointly obtained from raising sheep. The production of meat and manure, or the association of landscape with particular production systems are other examples of joint products caused by non-allocable inputs. Very often specific farming systems create a certain landscape as non-commodity output through their commodity production. However, while these outputs are joint, they are rarely produced in fixed proportions and using different production methods can modify those proportions.
• Allocable inputs are fixed at farm level, but can be allocated to various outputs in the production process. An increase or decrease in the production of one output changes the amount of the fixed factor available for the supply of others. For farmers this is especially important according to land and self-employed labour. In the short run these production factors are allocable fixed factors.

It is clear that this distinction in categories does not always correspond to the situation in reality. The overall jointness effect is often due to a combination of different sources, the relative importance of which can be difficult to assess. For more formal representations of jointness see among others Vatn (2002*) and Havlik et al. (2005).

Buysse et al. (2007*) indicate that jointness is a mere technical concept but that the real choice question is related to whether the production of the non-commodities is free or only weakly disposable. In case of free (or strong) disposability, joint production is no problem as it means that the by-products can be disposed without costs or in other words negative effects can be absorbed by the environment or positive effects can be produced without additional costs or reduction of profits. However, joint products can often not be freely disposed (also called weak disposability) or have in other words a price. In the case of undesirable outputs, weak disposability means that the reduction of the by-product can only be achieved by simultaneously reducing some desirable outputs and/or resource-using abatement (Färe et al., 1993). In the case of positive functions it means that extra costs have to be made to produce the joint product or that it affects the profitability of the main output. Varian (2002) links the property of free disposal to monotonicity. Weak disposability, on the other hand, is linked to congestion and has to be placed in the context of early environmental theoretical insights (Ayres and Kneese, 1969). This link to congestion implicitly refers to the notion of ambivalent joint production, which is the possibility that an output may have a positive value in one circumstance and a negative value in another (Freshwater and Jia, 2004). Joint production is analytically also linked to the concept of non-separability (Wossink et al., 2001) that states that abatement of negative externalities or provision of positive externalities can be achieved by changing the production technology or system. As we shall see in Section 3, multifunctionality depends indeed on the activity level. The same activity (e.g. wheat production) will result in another output bundle when produced intensively or more extensively (like e.g. in organic production). In other words multifunctionality will be linked to farming practices, production technologies and farming systems.

2.2 Demand vision

In the supply vision, multifunctionality is merely a characteristic of the agricultural production process rather than a societal objective. This is opposite to the second view on multifunctionality which looks at the demand side with respect to the multiple functions agriculture can provide. This viewpoint is demand oriented and departures from the social expectations on agriculture. In this sense, Casini et al. (2004*) define the functions of agriculture as: the factual or potential provision of material or immaterial goods and services that satisfy social expectations, meeting societal demand/needs through the structure of the agricultural sector, agricultural production processes and the spatial extent of agriculture.

This definition is more territorially embedded and is linked to the concept of rural areas as consumptive space. The multifunctionality of agriculture covers indeed a wide range of potential attributes which relate primarily to land use such as protection of wildlife habitat, biodiversity, landscape amenities (Figure 3*), and to social attributes such as the viability of rural communities and food security (Blandford and Boisvert, 2004). The unit of analysis in this approach is therefore the land. de Groot et al. (2002) speak from an ecosystem point of view about regulation, habitat, production and information functions. To these functions they assign three categories of values. Ecological values are connected to the importance of an ecosystem that is determined by the integrity of regulation and habitat functions and by ecosystem parameters. Social values are related to education, cultural diversity and heritage, and are mainly linked with information functions. Economic values are benefits that somebody can have from either market goods (for which the market price corresponds with the economic value) or non-market goods (that can indirectly lead to economic benefits because they may give extra value to economic activities). In a wider concept they also encompass non-use values such as existence, bequest or option values (Randall, 2002*). Bastian and Schreiber (1999) classify landscape functions hierarchically in about the same three function groups: (1) production functions (economic function) (2) regulation functions (ecological function) (3) social/human habitat functions (social function). Vatn (2002) explains that in the appreciation of functions both qualitative aspects and quantitative aspects play a role. Indeed not only the presence (quantity) of a good is important, but also the level of output (quality). The aesthetic value of a landscape may depend both on the level of biodiversity and the variety of the ecosystems present, as on the amount of the different ecosystems. Mollard (2003) further suggests a distinction between two types of externalities. The “direct” externalities rise from the existence of technical or economic jointure with the agricultural production. It is the case of biological diversity or water quality. On the other hand, there are the “indirect” externalities whose link with the agricultural production is less clear because it’s not easy to ascribe their supply to a specific agent. This is the case for the cultural value of the landscapes, or the ecological functions of agro-ecosystems for which the participation of other actors than farmers may not be negligible.

In our view, a major difference between the positive and normative viewpoint lies in the implicit treatment of externalities. Where the supply definition considers negative and positive externalities as good and bad outputs respectively and treats them equal, the second definition privileges the positive contributions of agriculture and speaks rather of a potential reduction in the provision of functions when agricultural practices threaten the delivery of potential benefits. This view on the multifunctionality concept has therefore in our view the merit to emphasize the positive contributions or benefits (see also the definition of Hediger, 2004) that agriculture may have to society. In this sense the concept becomes normative as it can be used as something that needs to be maximized or achieved. The contributions are not exclusive (only negative or positive) but may be interlinked (complementary or substitutes) as illustrated with the example of fertilisation that may be positive for landscape quality but reduces biodiversity or water quality (Casini et al., 2004).

Figure 3: View on a Tuscan landscape with an agricultural character.

As indicated above, the concept of externality refers to market failure (Maier and Shobayashi, 2001*) and in this sense the distinction between an increase in benefits or a reduction of benefits makes sense. For positive externalities (which affect in a positive way social welfare), the absence of a market involves a sub-optimal offer. As positive externalities are consumed by their beneficiaries without paying a price, farmers do not have incentives to take into account in their decision-making process the impact of their actions on the social welfare. It is a matter of incongruence between private and public interests. There is then a need for arrangements (public or private) to correct this failure of the market to coordinate the offer of positive externalities. By contrast, for negative externalities, an overproduction of another output is probable because the private producer is interested in maximising his private profit whereas a lower level of production would be necessary to respect the socially acceptable level of the non-commodity output. Here, public intervention can be necessary to avoid a skewed output bundle.