ACM: Consumers’ willingness-to-pay is currently still the main obstacle to the transition to a sustainable agricultural sector
The main obstacle to making the agricultural sector more sustainable is the higher prices of sustainable products, which many consumers are currently not willing to pay if a cheaper, regularly produced alternative is available. This has been the main conclusion of a study that the Netherlands Authority for Consumers and Markets (ACM) has had carried out among Dutch consumers. It poses an obstacle to the transition to a sustainable agricultural sector since the production costs of, for example, organic products are higher than those of regular products. Another relevant aspect is the fact that the Dutch agricultural sector predominantly relies on export. That is why the willingness-to-pay of consumers should not just increase in the Netherlands but also in the rest of the world in order to be able to switch from existing regular production methods in the Netherlands to sustainable production methods.
At the request of the Dutch Minister of Agriculture, Nature and Food Quality (LNV), the Netherlands Authority for Consumers and Markets (ACM) had a study carried out into the price-formation process in the food chain for regular and sustainable products, as well as into obstacles to the transition to a more sustainable agricultural sector. The study was carried out in part by Wageningen Economic Research (WR), commissioned by ACM. The report is a follow-up to the study for the Agro-Nutri Monitor 2020.
The results of the Agro-Nutri Monitor 2021 confirm the results of the first monitor, which were that the higher costs of organic production for most products are covered by the higher prices that producers receive. Martijn Snoep, Chairman of the Board of ACM, explains: “In the monitor, WR looked into the costs that farmers have to incur in order to switch to producing organic products. At the moment, farmers are able to recoup the additional costs that they incur, since a group of consumers is willing to pay a higher price for these products. However, if the supply of organic products increases, more consumers must be willing to pay a higher price. And that is currently the main obstacle.”
In its letter to the Minister of LNV, ACM presents possible solutions for making the Dutch agricultural sector more sustainable. For stimulating demand in the Netherlands, possible solutions are subsidies for farmers that use sustainable production methods, or lowering VAT in order to make sustainably produced products cheaper for consumers. Increased cooperation between certification labels regarding sustainability at the EU level may increase the willingness-to-pay of consumers outside the Netherlands, too. However, it is unlikely that demand-boosting measures alone will be sufficient. Production-restriction measures may also be necessary. Examples include arrangements between farmers and within production chains in order to meet higher sustainability standards, raising statutory minimal sustainability requirements in the Netherlands and the rest of the European Union, voluntary buyouts of farmers that use regular production methods and are not able to switch, or even land expropriation of farmers. In reality, a certain mix will be chosen, consisting of measures that fall within these solutions. Many of these measures have far-reaching consequences for the agricultural sector, and can only be realized if government and the market find solutions together.
ACM and the agricultural sector
ACM keeps a close watch on agricultural markets in order to ensure that they work well for people and businesses, now and in the future. Over the next few years, this price monitor will offer a clear picture of how these markets function, and what obstacles to a more sustainable future exist. ACM recently published its Guidelines regarding sustainability agreements, which can also be used in the agricultural sector, in order to promote sustainability. In addition, ACM drew up Guidelines on sustainability claims aimed at protecting consumers against misleading claims with regard to sustainability and to promote fair competition in this area. And finally, from November 2021, farmers, growers, fishermen, and food processors will be able to file reports about unfair commercial practices with ACM. Starting in November 2021, ACM will enforce the new Act on unfair commercial practices in the agricultural and food supply chains (In Dutch: Wet oneerlijke handelspraktijken landbouw- en voedselvoorzieningsketen).