Approach to Natural Resource Economics

The new agricultural technologies are natural resource-intensive, and are increasingly dependent on natural resources for their adaptability and productivity. An estimation which showed that water resource, through irrigation contributed to 60 per cent of the increase in the new technology food productivity in India. This is one of the pointers to the significance of a vital natural resource in agriculture. The High Yielding Varieties compared with the then local varieties are more 'water intensive'. This, further leads to the relative importance of productivities of land and water resources and their impact on equity and sustainability. Accordingly, the emphasis of agricultural economics was more towards 'inputs' in agriculture rather than 'resources'. For instance, the research focus in economics has been on economics of seeds, economics of fertilizer use, economics of use of pesticides and so on, relegating the economics of natural resources such as land, water, organic manure, soil, forests, fishery and other resources. It takes a little time to appreciate that 'input economics' cannot be the same as 'resource economics'. The differences in approaches to Input and Resource Economics can be referred in the below Table.

Concepts Input Economics Resource Economics
1. Subject Inputs, factors of Product Natural Resources
2. Approach Use and throw Use, reuse, recycle and recharge.
3. Optimality Optimal dose of inputs Optimal rate of extraction, optimum rotation age etc
4. Optimum rule Marginal return = Marginal cost + Opportunity cost at present. Efficiency and productivity is unrelated to equity MR = MC + Opportunity cost at present + Opp cost in future + cost of externality + cost of sustainability (sustainability includes equity). Efficiency affected by inter and intra generational equity and access to resources
5. Features Mostly human made and hence (i) units of inputs are homogenous, (ii) supplies have some degree of certainty. (Eg. all units of a fertilizer are homogenous, and though land productivity varies, it is still treated homogenous, in analysis as required by LDMR) Mostly naturally available and hence (i) are unique and thus units of resources are heterogeneous; (ii) supplies are uncertain and (iii) processes are irreversible (Eg. all units of land are not the same)
6. Pricing Market pricing since production is an activity, property rights are well defined, goods are rival and exclusive and can hence be priced Markets cannot determine prices of NRs due to ambiguous property rights, goods are non rival and non exclusive at least for renewable NRs. And Agriculture deals mainly with renewable NRs, while industry uses most of Non renewable NRs
7. Schools of thought relevant Largely neo classical economics (marginal analysis for instance) A combination of institutional and neo classical economics since natural resource policy is crucial for NR management

Indian agriculture is largely dependent upon renewable natural resources (RNR) like surface water, groundwater, land, soils, organic manure. The availability of each of these RNRs is jointly determined by natural and human factors. For instance, availability of groundwater depends upon rainfall which is natural and soil conservation, land leveling, tank desiltation which are due to human efforts. Especially for RNRs, the 'flow' is more crucial than the 'stock', since the stock is the function of the flow. Moreover, the supply of RNRs follows the Hobson's choice, where the farmer must accept what is offered by the nature (example rainfall), because there is no alternative other than taking nothing at all.

Even though many of the natural resources required for agriculture are renewable, which is due to (i) the long time required for their renewability and (ii) the rate of extraction increasing faster than the rate of recuperation, there have been signs of Ricardian and Malthusian scarcities and poor management of the resource. These scarcities have resulted in equity issues in India, where small and marginal farmers are the mainstay of the agricultural economy. In addition to natural resources, natural resource services like biodiversity, indigenous knowledge, technology and institutions are also showing signs of degradation, distortion and scarcity. Policy instruments to correct these digressions call for resource use and agricultural policy, so as to reverse resource degradation and place the management of natural resources on a sustainable footing. Hence, resource management issues are vital. Many natural resource economic problems and solutions are highly location specific and context specific and generalizations are tough. Thus, there is a need for information on both resource availability, extraction, use and management; and for new institutional approaches for effective management of NRs. All these call for systematic efforts for developing an appropriate curricula in NRE both at the UG and PG levels, commissioning of relevant research programs and development of education package for decision making at different levels of natural resource use and management.

Population and economic growth induced overexploitation of natural resources, leading to degradation, depletion and scarcity, have compelled the need for a specialized treatment of the economics and management of natural resources and hence, the subject matter of Natural Resource Economics (NRE). For instance, per capita availability of water reduced from 5300 M3 in 1955 to 2500 M3 in 1990 in India, from 14900 M3 to 9900 M3 in USA and from 2300 M3 to 2100 M3 in UK. By 2025, the percapita water availability is expected to be only 1500 M3 in India. At present the water availability per hectare of arable land in India is 12600 M3 and almost equal to that in the USA being 13300 M3. Similarly, other renewable natural resources of linkages with agriculture are posing problems of scarcity in many areas of the world, especially in the developing countries.

Much before the oil shock of the seventies, the Hotelling's theorem to arrive at the optimum rate of depletion of nonrenewable natural resources was a significant contribution to the growth of NRE. Paradoxically, the real prices of nonrenewable resources is falling while those of renewable resources is rising creating interest in the why's and how's of the phenomena. The problems of negative externalities and their subsumption in the production costs are greater challenges to resource economists. However the concepts of Natural Resource Economics applicable to the problems of developing countries like India did not receive emphasis. For instance, while economics of multiple use forestry (how much of forests is to be devoted to timber, how much to recreation, etc.) developed in USA, the economics of multipurpose tree species did not develop, as the latter was more relevant to India. The key difference is, multiple use forestry refers to managing natural forests for timber, water and recreation, while managing multipurpose tree species refers to aspects of optimum mix of diverse species, where end use pricing (as a specie of tree has parts which has different uses), valuation of benefits and so on are relevant, rather than recreation or water or timber. Likewise, studies on marketing of non-timber forest products are of greater relevance to India than for other temperate countries since such medicinal plants / trees are responsible for the very survival of the Indian (Ayurvedic) system of medicine.

Resource economic studies on the optimal conjunctive use of surface and groundwater in tail end/command areas, groundwater markets and economics of low yielding irrigation wells are more pertinent to India at this stage, rather than the effect of groundwater quality, saline water intrusion etc. Resource scarcity, depletion, degradation, inter and intra generational equity, positive and negative externalities in extraction and use, choice of discount rates and equity implications of scarcity and negative externality are crucial in academic programs of teaching, research and extension of NRE in India. This will infuse natural resource concerns in users and as a consequence, a constituency which duly cares for natural resource economic problems at grass root levels as well as at the levels of teaching, research and extension, will evolve.