2 Mar 2017

Another unsustainable Dutch treasure found

Lee writes*

The Netherlands is well-known for various reasons, including the gas found in one of our northern provinces, the bad management of natural resources in the 1970's resulting in the phenomenon known as the Dutch Disease, the export of television programmes e.g. Big Brother and The Voice and of course our fantastic humour: "We understand America first, but can we just say The Netherlands second?" triggering a worldwide hype. All these themes affect our economy in one way or another, however this small country fosters another major commerce: the potato industry!

In 2014 the Dutch potato industry harvested 7 100 000 tonnes of potatoes and with that the Netherlands was the fourth largest potato producer of Europe. As we say in Dutch: "every advantage has its disadvantages," which is certainly true in this case. Next to the economic value the potato industry brings, this sector is also facing a number of problems, including environmental impacts such as water contamination caused by the use of chemical crop protection products and potato disease caused by Phytophthora infestans. The question remains, why is a transition to a sustainable production process so difficult?

Firstly the lack of demand for ecological potatoes (Smit et al., 2008), which can potentially be explained by the significantly higher price: the consumer pays 20 to 50% more for ecological potatoes. A second explanation could be the market structure: there are three types of selling structures, firstly free growing: the grower buys the potato seeds directly from the seller and decides on the way of growing (e.g. sustainable or not) (Smit et al., 2008). Growing through a cooperative organization: grower consults with the cooperation on the quantity and sells the potatoes to the cooperation. Being a member comes with rights and responsibilities (Smit et al., 2008). Growing under contract: contract between a grower and one other buying party. The way of producing has to be discussed with the buying party.

The transition to a sustainable production process can be seen as a collective action problem. The price of organic potatoes is not competitive enough (20 to 50% more expensive), therefore growers are more prone to the conventional way of growing. The producers who are not (willing to) making this transition can be seen as free-riders. Dolan argues that the free-rider problem can be solved if the rights or benefits are exclusive to free riders. This could be implemented by an organisation, which grants the benefits and or rights to members and makes sure that the collective interests are being secured (Dolan, 2011). Even though there are already existing organisations (e.g. NEDATO), which could potentially play a role in the transition to sustainability, in 2016 only 201 of the in total 9 548 potato companies in the Netherlands grow potatoes in a sustainable way. So this insignificant number, which accounts for only 2.1% of all companies illustrates that perhaps Dolan's solution is too simple or it perhaps shows that collective action problems are hard to solve.

Bottom Line The Dutch potato industry is sizeable, which is interesting in terms of economics. However, this industry is facing difficulties to transition to sustainable production due to (among other reasons) the lack of demand for organic potatoes and the current market structure. Lastly, the potato industry illustrates that collective action problems are difficult to solve.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

1 comment:

  1. Great introductory paragraph. A succinct summary and diagnosis of the issues. Maybe the best yet. Especially like that the writer did not suggest a prescriptive top-down solution.

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