conservation or cultural heritage? cattle grazing in the victoria alpine national park

Ecological Economics 33 (2000) 63–75

ANALYSIS

Conservation or cultural heritage? Cattle grazing in theVictoria Alpine National Park

Iain Fraser *, Tony ChisholmDepartment of Economics and Finance, School of Business, La Trobe Uni6ersity, Bundoora Campus, Melbourne,

Victoria 3083, Australia

Received 18 June 1998; received in revised form 30 August 1999; accepted 2 September 1999

Abstract

The recent decision to continue cattle grazing in the VANP has not been uniformly welcomed. There existssignificant scientific evidence detailing the environmental impact of grazing. This paper examines whether anopportunity has been missed to resolve the ongoing conflict that accompanies the continuation of grazing in theVANP. The potential of economic instruments in resolving this unique land use conflict is examined. It is arguedunambiguously that the compensation of graziers for a change in existing institutional alpine grazing arrangement canhelp to facilitate a resolution of the conflict. © 2000 Elsevier Science B.V. All rights reserved.

Keywords: Cattle grazing; Cultural heritage; Compensation; Conflict resolution

www.elsevier.com/locate/ecolecon

1. Introduction

The Australian Alps National Park (AANP)links alpine and sub-alpine regions of Victoria,New South Wales, and the Australian CapitalTerritory. The Victorian Alpine National Park(VANP), established in 1983, is a significant partof the AANP with many unique attributes, espe-cially its flora. The Land Conservation Council(1979) identified over 1000 native flowering plant

and fern species plus numerous and varied inver-tebrate populations. However, the existence andintegrity of many of the natural features of theVANP are questioned by conservationists andecologists. They argue that cattle grazing reducesthe structural and floristic diversity of the vegeta-tion, impacting upon the summer display andluxuriance of the wildflowers, such a notable fea-ture of ungrazed high alpine plains. Indeed, theLand Conservation Council (1979) advocated theremoval of cattle from these areas, whilst Bennett(1995) observed, ‘‘Ecologists, while recognisingthe heritage of mountain grazing, say it is an

* Corresponding author. Tel.: +61-3-9479-2214; fax: +61-3-9479-1654.

E-mail address: [email protected] (I. Fraser)

0921-8009/00/$ - see front matter © 2000 Elsevier Science B.V. All rights reserved.

PII: S 0921 -8009 (99 )00127 -5

I. Fraser, T. Chisholm / Ecological Economics 33 (2000) 63–7564

inappropriate national park land use’’ (p. 33).But, the graziers claim that the cattle do little ifany environmental damage and that the continua-tion of grazing yields significant cultural and her-itage benefits for society.

The conflict between conservationists and gra-ziers came to a head in mid-1998 when mostexisting alpine grazing licences came up for re-newal. The outcome was that in August 1998, allalpine grazing licences were renewed for a further7 years. In this paper we consider whether thisdecision represents an opportunity lost to removethe cattle from the VANP once and for all or anappropriate land use decision given existingbenefits and costs of grazing.

Although there are numerous examples of re-source use conflict analysis in the literature(Rhodes and Wilson, 1995; Brown, 1998; Skon-hoft, 1998) there are particular features specific tothis problem that make it unique. First, the deci-sion to renew is important because the AANP hasbeen identified for nomination to the World Her-itage Convention. Conservationists argue that fora potential nomination to succeed land uses suchas cattle grazing need to stop. This point is madeby Mosley (1988), Kirkpatrick (1994) who arguethat the AANP is of outstanding internationalsignificance on the criteria used by the WorldHeritage Convention. But cattle grazing is anincompatible activity as it significantly harms theintegrity of the VANP. This land use conflict istherefore taking place over a tract of land that isconsidered by many as unique by global environ-mental criteria. Second, alpine grazing is linkedwith significant cultural and heritage traditions(non-Indigenous/European). Alpine grazing hasbeen practised for over 150 years and many of thegraziers have a long association with the area.This, in combination with the strong culturalidentity produced as a result of poetry and out-back imagery, places this land use firmly in themind of all Australians. Intrinsically linked to thisare the political realities that impinge on land usedecisions. Third, the precise details in the grazinglicence that allows a grazier to graze cattle in theVANP are interesting. To be able to operate alicence a grazier needs to be an approved person.What exactly constitutes an approved person isimportant in seeking a solution to this conflict.

The structure of the paper is as follows. Webegin by providing an overview of alpine grazingand the scientific evidence detailing the impact ofgrazing. In Section 3 we consider why the grazinglicences were renewed despite the scientific evi-dence. Section 4 provides an evaluation of alter-native management options that could have beenimplemented instead of the licence renewal. Fi-nally in Section 5 we provide conclusions.

2. An overview of alpine grazing

2.1. Grazing history and practice

The high alpine plains were discovered by Eu-ropeans in 1824, with grazing by domestic live-stock beginning in 1852. It became commonpractise to take livestock onto the alpine plainsduring the summer to feed. As Hancock (1972)explains, ‘‘graziers were looking to the high coun-try to save them from disaster in years ofdrought’’ (p. 134). By 1900 over-grazing was oc-curring and in combination with the extremeweather conditions, caused severe damage to thefragile alpine environment. By the 1940s environ-mental conditions gave cause for much concern,and in 1946 the Victorian government modifiedexisting land use practices. Sheep and horses werebanned from grazing and the burning of the up-land pasture curtailed. For cattle, the length ofthe grazing season was restricted; numbers re-duced and specific dates set for entry and exit. Inthe 1950s and 1960s grazing was further re-stricted, and more recently cattle have been re-moved from some of the most sensitive areas ofthe VANP, e.g. Mounts Hotham, Loch andFeathertop.1

In 1989 some 503 000 hectares of land in theVANP were leased for grazing (only 10% of thiscan be used). By 1995, 7800 free ranging cattlewere permitted on the VANP. The 100 existinggrazing licences were renewed annually until 1991/1992 when the licence period was extended to 7years. Licence renewal has generally been without

1 Interestingly, cattle grazing was terminated in all otherparts of the AANP apart from the VANP by 1972.

I. Fraser, T. Chisholm / Ecological Economics 33 (2000) 63–75 65

question and for this reason the graziers came toview the licence as private property; details can befound in the 1975 National Parks Act, GrazingLicence in the Alpine National Park, Section 32D,amended by the National Parks (Alpine NationalPark) Act of 1989. The licence details the numberof cattle, the access dates (December to April), whois entitled to operate a licence, the cost of operationand the restrictions placed upon the exchange andfuture entitlement. At present graziers pay a fee of$4.00 per cow each season.

To be eligible to own and operate a licence, agrazier needs to be deemed an approved person bythe Victorian Government who takes advice fromthe Alpine Advisory Committee.2 Historically gra-ziers belonged to the Mountain Cattlemen Associ-ation (MCA) and as such were automaticallyconsidered approved persons. In addition duringthe period over which a licence operates, ‘‘thelicensee may apply to transfer or assign to amember of a family of Mountain Cattleman or anyother approved person’’ (Clause 18, Grazing Li-cence). Transfer within the family can be defendedon the basis of farming skills that are necessary tooperate a grazing licence.

2.2. En6ironmental impact of grazing3

Scientific investigation of the alpine region beganin the 1850s. However, the work of Carr in the1940s and subsequent research forms the basis ofscientific evidence about the impact of cattle graz-ing today. Wahren et al. (1994) used 50 years ofsurvey data to argue that cattle do have a substan-tial and lasting impact, with grazing altering thestructure and composition of sub-alpine grasslandand heathland vegetation, as well as significantlyinfluencing the natural regeneration of the ecosys-tems.

An example of the effects of grazing identified byWahren et al. (1994) is the impact on the frequencyof wildflowers in Pretty Valley grassland plots.Between 1947 and 1994, the frequency of Celmisiaand Craspedia increased substantially on ungrazedplots. These findings were contrasted with grazedplots on which there was no change to the existingcover. Leptorhynchos, is abundant on grazed plotsas it vigorously colonises bare, inter-tussock spacesthat result from grazing, giving it an advantage overother species. If there were no grazing Celmisiawould replace Leptorhynchos. Ground cover ismuch poorer on grazed plots compared to ungrazedareas. Wahren et al. also found that cattle preferto graze where herbaceous plants predominate, inmossbeds along drainage lines and these areassubsequently become trampled and badly dam-aged. Apart from their ecological significance,mossbeds are important in catchment hydrologybecause of their retarding effect on the release ofwater to streams (this helps to prolong the springand summer flowers), their promotion of earlysnow melt, and their action in filtering silt. Anotherbiophysical hot spot is the snow patch herbfields,again prone to grazing-related damage such as bareground and poor quality cover. In the areas wheresnow patches remain for long periods of the year,the soils remain moist, the flora that grow arepalatable and as a result favoured by the cattle.

Wahren et al. (1994) also found that grazing doesnot reduce the likelihood of upland bush fires.Cattle mostly eat snowgrass and other herbs. Shrubcover has increased as a result, which does notreduce fire risk, but instead is more likely toenhance it. Fire prevention is spurious as a claimfor the continuation of grazing. Also, by producingbare ground, which provides an opportunity forweeds to establish and spread, grazing has also beenpartly responsible for spreading exotic weeds.

3. Why still grazing?

3.1. Culture and politics

Given the extensive scientific evidence about theimpact of cattle grazing on the alpine environ-ment, it is necessary that we examine why grazing

2 The importance of the phrase, ‘or any other approvedperson’, will be considered in detail subsequently.

3 We only cite Wahren et al. (1994) in this section for thesake of brevity. For more extensive evidence relating to theenvironmental impact of the cattle readers are directed to, forexample, Land Conservation Council (1979), Mosley (1988),Kirkpatrick (1994), Bennett (1995), Williams et al. (1997).


still continues. This is an important part of ouranalysis as it will be fundamental in relation tothe form of the potential resolution conflict strate-gies proposed.

The first important feature of alpine grazing isthat it is a long and well-established part of theAustralian rural tradition. The alpine grazinglifestyle acts to bind together the community (an-nual get-togethers, racing carnivals) and itgives the graziers a unique position in thealpine cultural mosaic. Allied to this, the histori-cal significance and general lifestyle of the cattle-men has been celebrated and made famous inpoems and songs by Banjo Paterson, and infilms like ‘The Man from Snowy River’, all con-tributing to the creation of a tradition. An excerptfrom Pioneers by Paterson provides a nice exam-ple;

They came of bold and roving stock thatwould not fixed abide;They were the sons of field and flock since e’erthey learned to ride,We may not hope to see such men in thesedegenerate yearsAs those explorers of the bush — the brave oldpioneers.

‘Twas they who rode the trackless bush inheat and storm and drought;‘Twas they that heard the master — word thatcalled them further out;‘Twas they that followed up the trail the moun-tain cattle made,And pressed across the mountain range wherenow their bones are laid.

The importance of cultural and heritage valuesfrom grazing cattle on the high country has beenidentified by several authors. For example, Taylor(1992) argues that, ‘‘without tradition, culturalartefacts become curios, static remains withoutmeaning.’’ (p. 58). As an example, Taylor analysesthe withdrawal of cattle from the mountain valleyof Gudgenby in the Namadgi National Park in1990. Taylor observes, ‘‘The result is a cultural

landscape separated from its historic traditionsand from its cultural and intellectual back-ground.’’ (p. 63).

The cultural and heritage benefits referred to inthis context are non-indigenous (European). Inrelation to Aboriginal occupation prior to Eu-ropean settlement, there are art sites at least21 000 years old. However, the lifestyle of Abo-rigines in the alpine areas meant that they lived atlower elevations during most of the year, onlyventuring onto the high alpine plains for a fewweeks each year to meet and feast on Bogongmoths — land use was communal. Interestingly,given the relatively minimal impact of Aboriginesin the Alps, this area represents a unique landtype in Australia. Even before European settle-ment Aborigines had significantly altered thelandscape throughout Australia. An exception tothis is the high country, which places the AANPin another category of significance not previouslynoted.

Bound up with the cultural and heritage aspectsof alpine grazing are the political realities of thesituation. In creating the VANP a political dealwas necessary and it was this that allowed for thecontinuation of cattle grazing in the VANP. In1989 the then Labor Victorian Governmentpassed the Alpine National Parks Bill introducingthe VANP, but only with the support of theLiberals. The Liberals have strong political tieswith the MCA. These ties have been publiclydemonstrated. In 1984 some 300 graziers rodetheir horses onto the steps of Parliament House inMelbourne to gain support for the Liberal Partyin the Nunawading bye-election.

Politics may also explain the attitude of theVictorian Government to continued grazing in theVANP given the possible World Heritage nomi-nation. The States frequently have diverging opin-ions compared to the CommonwealthGovernment. This has been clearly illustrated inrelation to previous World Heritage listings. Forexample, the Northern Territory Governmentcontested the listing of Kakadu National Park,the planned Franklin Dam in Tasmania, and theQueensland Government legally challenged theright of the Commonwealth to nominate the rain-forests of North Queensland as this would prevent


logging. The possible nomination of the VANP aspart of the AANP may therefore be being resistedby the Victorian Government as it might result ina major redistribution of resource managementpowers away from the State. Although this line ofreasoning is to a certain extent speculative, thecontinuation of grazing is a means by which theVictorian Government can diminish the likelihoodof a nomination being forthcoming.

3.2. Economic uncertainty: to graze or not tograze?

Given the scientific evidence it is reasonable toargue that cattle grazing on the alpine environ-ment yields negative externality (cost). This exter-nality exists because graziers, as private economicagents, do not take account of all of the socialcosts of production, such as, for example, the lossof floral diversity, which is valued by society.Although the loss of floral diversity does notaffect the private costs of graziers it does imposea cost on society. Other impacts of over-grazinghave been the exposure of fragile soils leading tosevere erosion and subsequent downstream silta-tion, the impact of the changing floral composi-tion on the timing of release of water from thehigh country for hydro-electricity power genera-tion and the introduction of aggressive weeds bythe cattle (Wahren et al., 1994).4

If the external effects of cattle grazing on theenvironment are not fully internalised by the gra-ziers then marginal social costs (MSC) will begreater than marginal private costs (MPC). How-ever, there are significant non-market benefits (useand non-use) from cattle grazing as a result ofculture and heritage. We assume thatmarginal social benefits (MSB) of grazing aregreater than marginal private benefits (MPB) ofgrazing because the cultural and heritage valuesderived by society from continued grazing arehigher than the private benefits derived by thegraziers.

The way in which we characterise benefits andcosts here means that MSB measures gross cul-tural and heritage benefits, and MSC measuresgross ecological/environmental damages. The rea-son for describing the benefits and costs associ-ated with cattle grazing in this way is that if weemployed a simple net benefit rule; as long asMSB\MSC we would keep cattle in theAlps. There is a problem here, however; we haveno clear guide as to the relative size of thecosts and benefits. Despite all of the availablescientific evidence, which is far greater thanfor most natural resource problems, the trueposition of the cost and benefit functions is uncer-tain.

There have been efforts to evaluate the costsand benefits for the alpine grazing question. Lock-wood et al. (1996) employed a Contingent Valua-tion survey to evaluate the non-market benefitsthat accrue from either continued cattle grazingand the associated cultural and heritage values, orthe environmental benefits from the terminationof cattle so as to preserve the flora and fauna.They split their sample and used two surveys, onein favour of continued grazing, and the other infavour of the removal of the cattle. In generalLockwood et al. found that ‘‘respondents gener-ally approve of High Plains grazing’’ (p. 365).They estimated that willingness to pay each yearfor each household for five years for culturaland heritage preservation ranged between $81and $106, whereas for stopping grazing estimatesof willingness to pay ranged between $33 and$37.5

As Lockwood et al. (1996) note, the willingnessto pay estimates for the two scenarios con-sidered provide a benefit cost framework withwhich to judge the continuation of grazing or not(p. 364). By comparing the benefit estimates to seewhich is larger it would appear that Lockwood etal. are justified in arriving at the following conclu-sion.

4 Although most of the external effects of grazing can bereversed, as Williams et al. (1997) note, degraded flora hastaken decades to recover and frequently requires activerestoration that is time consuming and expensive. 5 All monetary values are in terms of Australian dollars.


‘‘These results provide support for the Victo-rian Government’s management policies forgrazing on the Bogong High Plains.’’ (p. 370)

However, these estimates are suspect; somefraction of the heritage value identified and asso-ciated with grazing and the mountain cattlemencould exist even if grazing was to stop. It is notobvious that cattle need to be grazed in theVANP for many practices and traditions associ-ated with grazing to continue. If it is the accom-panying activities (e.g. the annual horse race andcarnival) that generate most of the non-marketvalue derived, then it is not possible to argue infavour of the continuation of grazing. Until weare clear about the relationship between the num-ber of cattle grazing and the resulting cultural andheritage values the optimal land use solution willremain unclear — we cannot be certain whetheror not the cattle should remain or be removedfrom the alps.

4. Resolving the conflict

To resolve the conflict we now examine poten-tial economic solutions to implement either theremoval of all cattle or the continued existence ofcattle grazing. Interestingly, in both cases a rolefor the use of compensation payments to graziersis found as a means by which to achieve a resolu-tion of the conflict. The alternative institutionalarrangements considered here raise questionsabout the renewal of existing licences in 1998.

4.1. The continuation of grazing

With the existing restrictive institutional ar-rangements in operation the available policy in-struments to facilitate efficient land use appear tobe restricted — adjust the number of cattle orchange the cost of the licence.6 However, theprevailing quasi-political nature of the grazingproblem policy has made these two options

difficult to implement. But, with the continuationof grazing it is desirable that the allocation andoperation of the grazing licences is economicallyefficient. An institutional arrangement that maybe able to deliver efficient land use turns on beingable to introduce more flexibility with respect tolicence exchange. A more flexible interpretation ofwhat constitutes an approved person may wellfacilitate this outcome. By employing a flexibleinterpretation it is plausible to argue that thelikelihood of exchange (previously very limited)could be increased, with the result that the indi-vidual or individuals who value the grazing li-cence most highly gain the right to graze.

Under existing licence arrangements grazingpractices are kept to a minimum; there is as littledisruption of the alpine environment as possible.Reference in the grazing licence to the protectionof significant conservation values (I 20 — Protec-tion of Significant Conservation Values) relatesonly to the removal of cattle when necessary;there is no mention of environmentally positiveland management. Also, there is nothing in thelicence that requires that cattle is grazed; owner-ship is not dependent on use. Therefore, a licenceholder who did not run any cattle would notcontravene land management requirements. Fi-nally, the licence makes no reference to the li-censee being a grazier or owning a farm; they onlyhave to be an approved person.

There already exist precedents for broadeningthe definition of what constitutes an approvedperson. In 1990 the Tom Groggin cattle stationwas granted a licence to graze cattle on the DaviesPlains. In July of 1990, the cattle station was sold,licences included, to Colour Plate Pty Ltd. InOctober of 1990 Colour Plate was recognised asan approved person by the minister. A morerecent example is the sale of Cobungra Station inDecember 1997. This station has the largest allo-cation of grazing licences anywhere in Alps and ithas been purchased by BCR Management As-sets.7 The grazing licences allocated to this station

7 The Chairman of BCR Assets also owns Falls Creek skivillage. The reason for purchasing the cattle station is tofacilitate skiing development, which is quickly becoming an-other contentious land use in the Australian Alps.

6 Various management solutions have been proposed (vanRees, 1984); fencing off fragile areas, the development ofwatering points, and the strategic placement of salt.


are still being used. The exchange of licenceshappened when the cattle station was sold. Therewould appear to be no a priori reason, however,why exchanges could not simply be in relation tothe grazing licences specifically. To ensure thatexchange arrangements are efficient it is necessaryto consider alternative reallocation arrangements.

The important decision in following this ap-proach to introducing a greater role for marketforces in the allocation of grazing licences relatesto the extent to which the definition of approvedperson is broadened. It is assumed that individu-als or groups would need to seek and be givenapproval for operating a grazing licence. It is notenvisaged that a free market come into being, butrather a less restricted group of interested eco-nomic agents (graziers, conservationists and cul-tural and heritage supporters) be able to gain theright to operate alpine grazing licences.

4.1.1. Exchange or reallocation of grazing leases?

4.1.1.1. Negotiation and bargaining. The role ofnegotiation and bargaining as a means to resolvean existing environmental conflict or dispute haslong been recognised (Coase, 1960; Porter, 1988;Kazmierczak and Hughes, 1997). FollowingCoase, if historical and legal processes associatedwith the grazing licence imply a property right,one means of exchange would be to allow negoti-ation and bargaining between interested parties,allowing the individual or group who place thehighest value on the licence to purchase it.

There are several reasons to be cautious aboutrecommending exchange based upon negotiationand bargaining. First it is unlikely that two indi-viduals will be able to negotiate an efficient out-come all of the time. As a result of inefficiencies inthe bargaining process, such as anticipatorystrategic behaviour (Richer and Stranlund, 1997)or informational asymmetries (Fraser, 1995), (al-though the participating parties may wish toachieve a mutually advantageous agreement) thepursuit of individual objectives can prevent anefficient exchange from taking place.

Furthermore, differences in willingness to buyand sell can influence the bargaining problem. Ifthe grazier initially owns the licence, in an effort

to derive as high a price as possible from sellingthe lease, the grazier might try to extract as muchconsumer surplus as possible from a buyer. Theprice paid in this exchange would be a reflectionof the willingness to buy the licence. Although thegrazier will have a reservation value for the li-cence, the desire to gain an economic rent willforce the realised price of the licence up. This canbe contrasted with the situation where a conserva-tionist owns the licence. If a grazier wanted topurchase the licence the price offered would nowbe a reflection of the willingness to buy, which istypically going to be less than the willingness tosell of the grazier. Also if the willingness of theconservationist to sell the licence is higher thanthe grazier’s willingness to buy then no exchangewill take place.8 Thus, as Samuelson (1985) notes,the degree of efficiency of a bargaining agreementdepends on the allocation of the property rightsover the good in question and the actual bargain-ing process that is employed. As Samuelsonrightly concludes, ‘‘private bargaining cannotguarantee efficient solutions’’ (p. 337).

A second reason why a bargaining approachmight not be used is that the licence will becomevaluable in its own right, a once-off creation ofwealth which cannot be defended on the basis ofequity or efficiency. There are two possibilitieshere depending upon the degree of flexibility in-troduced with the exchange of the licence. First,by making the grazing licence exchangeable onlywith the farm to which it is attached, the value ofthe licence will be capitalised into the value of thefarm. Second, if the licence itself, the bit of paper,is exchangeable, its value is transferred into thepaper entitlement.

4.1.1.2. Auctioning grazing licences. The right toexchange a grazing licence implies that propertyrights in the licences are already allocated. Asnoted above, this produces several undesirableeffects. In response to this problem Samuelson(1985) proposes that the initial allocation of theproperty right be determined via a bidding pro-cess such as an auction (sealed bid or open cry).

8 Bromley and Hodge (1990) examine this issue in relationto European agri-environmental policy.


The benefit of using an auction is that the individ-ual or individuals who value the licence most willsubmit the highest bid. The government wouldreceive a level of payment for the licence, whichreflected the true private value of the winningbidder (McAfee and McMillan, 1987). This wouldremove the need to bargain and negotiate overgrazing fees. The selection criteria used to assessbids for the licences could include price and gen-eral land management plans.9

The frequency of auctions needs to be consid-ered. A single allocation of the licences via anauction may well lead to short-run efficiencygains, but over the longer run inefficient operationof the leases may occur. It is therefore desirableon the grounds of dynamic efficiency that licencesare assigned for a limited period only, allowinginterested parties to bid at subsequent rounds.There is also no reason not to allow the exchangeof leases between interested parties between theauction periods.

If an auction is to be used to allocate grazinglicences, the existing right to the licence assumedby graziers will need to change. A change to thestatus quo of this kind will probably requirefinancial compensation (incentives) as a means toachieve the desired outcome, because a new sys-tem of lease allocation is unlikely to be readilyaccepted by graziers.

4.2. The cessation of grazing and compensation

If grazing is stopped in the VANP, it is likelythat the issue of compensation for the graziers, forthe restriction of existing farming practices, willarise. This is because the change is a significantalteration to the status quo that has served thegraziers so well. Without compensation it ishighly unlikely that the graziers will agree to anychange to existing arrangements. The importanceof financial incentives in influencing and motivat-ing environmental behaviour in Australia hasbeen established by Carey and Wilkinson (1997).

4.2.1. Why pay compensation?Although compensation might facilitate the re-

moval of cattle it is unclear if compensation isjustified. It is possible to rationalise why compen-sation might be paid in this context. First let usintroduce the idea of the reference point (Hodge,1989). This idea involves the determination of anappropriate point or benchmark by which togauge the action of the economic agents, likegraziers, and the resulting restrictions imposedupon them. In terms of alpine land use, cattlegrazing has been a form of sanctioned economicbehaviour over a long period of time.

The removal (sudden or phased) of grazinglicences represents a significant change in the op-erational environment of graziers. The referencepoint can be thought of as defining the level ofoperational responsibility that graziers are ex-pected to satisfy, in this case with respect to thealpine environment. In cases where there is achange in the desired actions of economic agentsfrom those deemed acceptable over a long periodtime, some sort of payment or compensation isjustifiable. The idea of the reference point helps toconceptualise the imposition of the restriction inrelation to socially acceptable policy decisions. InAustralia this argument has recently been givenstrong support in the context of ecologically sus-tainable land management by the Industry Com-mission (1998).

Another argument used to justify compensationis fairness. Kahneman et al. (1986) link fairnessinto the idea of the reference point. Assume thatthe cattlemen have an entitlement (either implicitor explicit) to some level of grazing. Reducing orremoving this entitlement is not fair given thereference point. The entitlement can arise fromthe long-term implementation of policy, and it isthe removal of this right that requires a fairresponse from policy makers. Hence, the imposi-tion of further grazing restrictions are beyondthose deemed fair under the reference point. Thisline of reasoning provides a justification for thepayment of compensation that is in keeping withUsher (1992). Usher distinguished between takingby government that should be compensated andthe exercise of police power where no compensa-tion is required. From an operational point of

9 Auction-type mechanisms have been employed in the UKand US to implement agri-environmental policy. See Smith(1995), Wu and Babcock (1996), Latacz-Lohman and Van derHamsvoort (1998).


view the distinction between these two is theavoidance of victimisation of individuals in soci-ety by the government and rent seeking by indi-viduals. Miceli and Segerson (1998) provide analternative, but similar rationale for why compen-sation needs to be paid.

However, the reference point is not immutable.Over a period of time there will arise disagree-ments about its position. The changing perceptionof the public to agricultural practice is an exampleof this. There is now much more concern aboutagricultural externalities resulting from intensifi-cation (Braden, 1982). There is also a desire toprotect those remaining areas of environmentalvalue, all of which means that the way the generalpublic perceives agriculture has changed.

The role of the reference point can also belinked to expected returns from grazing and howthis is reflected in property values. In a well-func-tioning land market, current land value is deter-mined primarily by the present value of theexpected future revenue stream, net of all pay-ments to other factors of production associatedwith a land-based investment. Typically, land val-ues will change through time as the flow of newinformation causes changes in expectations. Ex-pectations may change as a result of unantici-pated changes in product and factor marketsand/or government policies such as the removal ofgrazing licences.

A key feature of the compensation issue is theextent to which the past and current rights tograzing have been capitalised into the farmlandvalues of a grazer’s property. The degree of capi-talisation of alpine grazing rights into farmlandvalues, will depend on: the probabilities that gra-ziers attach to their grazing licences being re-newed; the expected prices (fees) of future grazinglicences; the expected time span before renewal ofgrazing licences cease, if ever; and graziers’ expec-tations about what compensation, if any, they willreceive in the event of the government not renew-ing grazing licences. If the graziers’ expectationsare that government is certain (probability one) torenew grazing licences in perpetuity at a constantreal price, or that full compensation will be paidto graziers if licences are not renewed, it is reason-able to assume that the benefits of the rights to

summer alpine grazing in perpetuity are fully cap-italised into farmland values. In this case there isclearly a strong case for full compensation ifgrazing licences are withdrawn.10

Usually, graziers will not know with certaintywhether or not a government will maintain orchange a policy influencing their utility/wealth atsome time in the future. That is to say, probabili-ties less than unity, but greater than zero, will beassociated with a given government policy re-maining unchanged. The difficulty for determin-ing fair compensation when government changespolicy is that the above probabilities are unob-servable. Given that a myriad of government poli-cies change over time in unanticipated ways thatinfluence the well-being and wealth of people andfirms, the case for compensation would appear tobe weak except in the most clear cut of cases. It isimportant that policy makers recognise that theinformation they communicate to graziers (andother investors) about a policy influences expecta-tions. For policies relating to such things as farmsubsidies and alpine grazing licences, it is impor-tant from the perspective of both efficiency andequity that policy making is consistent, transpar-ent and predictable. Changes in policy that areunanticipated result in socially inefficient resourceallocation even when the affected parties expectfull compensation. For instance, graziers who ex-pect their grazing licences to continue indefinitelyare likely to make long-lived investment decisionsthat depend on the continuation of grazing rights.Unanticipated withdrawal of grazing rights willresult in farm operations that have unproductivesunk costs.

4.2.2. How much compensation should be paid?This is not a straightforward question to an-

swer although there are some economic principlesthat can be used to help in the assessment ofcompensation. In the GATT, for example, agri-environmental policy allows for payments tofarmers equal to the profit foregone from under-

10 Obviously the grazier’s expectations need to be assumedto be reasonable. Reasonable expectations could be establishedby recourse to farm level financial records and agriculturalmarket forecasts.


taking the environmental actions or the additionalcosts to the farmer of implementation. There alsoexists a precedent for paying compensation inexisting Victorian government legislation that dealswith the environment. The Flora and Fauna Guar-antee Act (1988) (FFGA) was introduced to estab-lish a legal and administrative structure to enableand promote conservation. Native flora and faunain danger of extinction and of particular signifi-cance are identified in the act (schedules 1 and 2).To protect flora and fauna, the FFGA allows forthe introduction of interim conservation orders(ICO). If an ICO impinges upon existing activitiesof a landowner or operator then compensationpayments can be made. Thus, any curtailment ofexisting grazing licences might justifiably attractcompensation payments.

Interestingly the FFGA includes a schedule ofPotentially Threatening Processes (PTP) that in-cludes the following;

‘‘Soil erosion and vegetation damage anddisturbance in the alpine regions of Victoriacaused by cattle grazing.’’ (Schedule 3, p. 3)

The importance of this is that there exists a pieceof conservation legislation that allows for thecurtailment of grazing and the use of compensa-tion. In Section 38 of the FFGA it is made clearthat the FFGA overrides existing licence arrange-ments, such as the alpine grazing licences. TheFFGA also provides some guidance on the appro-priate amount of compensation. The profit-fore-gone criterion is implied in the legislation althoughthe Victorian Director-General has the right toaward as much as he or she sees fit (Section 43.8).

4.2.3. Profit foregoneProfit foregone is the extra difference in potential

income earned by a farmer had a restriction notbeen imposed on existing agricultural practices. Inrelation to alpine grazing profit foregone amountsto lost revenue and additional costs of feed. To beset against these losses are the gains from nothaving to pay for the grazing licence and the costsincurred in moving livestock to and from the highcountry.

The issue of whether the cessation of grazing isto be long lived or short term also needs to bedecided. This can have implications for the formand size of the payment. In terms of ICO, theFFAG specifies a period of up to 2 years induration. But what happens after 2 years is up?Should a further ICO be introduced or should thelandowner be able to pursue their preferred landuse activity? If the ICO produces a once-off loss ofproduction possibilities should the compensationpayment cover this? Over and above lost revenue,grazing licences in and of themselves have alsobecome valuable to the graziers so there will alsobe a loss of capital value.

The above difficulties aside, a simple measure ofprofit foregone can be estimated for the cessationof grazing. As the costs of running cattle on thehigh country are unclear we will only estimaterevenue foregone and view this as an upper boundestimate of reasonable compensation. In practice,to avoid error in the calculation of profit foregone,historical financial records should be used toprovide guidance especially on costs incurred. Theuse of a broadly accepted principle to guide mea-surement should help to reduce the possibility ofextraction by the graziers of excessive levels ofcompensation.

For current farm level survey data for beefspecialists in the markets used by the high countrygraziers, the average price realised on a cow soldat market is $325 in Victoria and $356 in NewSouth Wales in 1997/98 (Australian Bureau ofAgricultural and Resource Economics, 1999). Wewill assume that high country cattle attract a smallprice premium and as such realise $400 per cow. Ifall 7800 cattle are removed from the VANP thenthe profit foregone in 1997/1998 prices is$3 120 000. As the graziers would expect to earn astream of income into the future it is necessary tobase any profit-foregone payments on a discountedstream of income. For illustrative purposes weassume a 10- and 20-year planning horizon. Assum-ing a rate of discount of 10% then over a 10-yeartime horizon total revenue foregone amounts to$8 092 476. Over a 20-year time horizon this in-creases to $20 989 799. With a 5% rate of thediscount revenue-foregone estimates are $5 082 151and $8 278 288, respectively.


To place the compensation estimates in contextwe can use the willingness to pay estimates toremove the cattle from the high country of Lock-wood et al. (1996). Assuming one million house-holds in Victoria, then even for the lower boundestimate of Lockwood et al, $33 per annum for 5years, this yields for the first year alone paymentsof $33 million which are significantly greater thanany of the compensation estimates. These resultswould appear to provide at least cursory evidencethat expected reasonable compensation paymentsbe significantly less than the estimates of willing-ness to pay to remove the cattle from the VANP.

4.3. Compensation by another name

In both the scenarios we have analysed, theallocation of grazing licences and the cessation ofgrazing, the need exists for compensation pay-ments as a means to resolve the existing land useconflict. However, although compensation maywell be able to bring about a change in alpineland use, there seems to be little political convic-tion in following this approach. Governments aredissuaded from this course of action by fear of theprecedent set in employing compensation and theresulting budgetary implications.

An alternative means by which to bring aboutthe same result and to avoid the negative conno-tation of compensation is to consider payments assomething provided for a good produced, notcompensation for a right removed. The politicalimperative is to couch the financial incentive interms of proactive rather than reactive land usemanagement. In this context the introduction of aLandcare group might provide a means by whichto resolve the conflict. Australia has initiated anational Landcare program that encouragesgroups of local land users via financial incentivesto cooperatively manage their land in an agricul-turally sustainable manner (Curtis and De Lacy,1996). Landcare is a self-help approach to sustain-able farming that encourages groups of farmersand landowners to manage their land in a waythat ensures sustainability. If the graziers couldform a Landcare group, maybe this could providethe means by which to protect the most environ-mentally sensitive areas of the high country, e.g.

fencing. Although there has been some interestshown in forming a Landcare group, on the wholethe concept the graziers have shown little inclina-tion to follow this potential avenue as a means ofcompromise.

5. Conclusions

The continued grazing of cattle in the VANPand the impassioned criticism of this activity byecologists provides us with a classic example of aland use conflict albeit with several unique fea-tures. The decision to renew grazing licences in1998 was therefore controversial. In this paper wehave shown how economic principles can bebrought to bear in an effort to resolve suchconflict.

Unlike many land use conflicts there exists ex-tensive scientific evidence detailing the precise im-pact of the cattle on the high country. However,even with all the available scientific evidence wecannot unambiguously state that cattle should beremoved from the VANP. This is because thereare significant cultural and heritage benefits asso-ciated with the high country grazing. Lockwoodet al. (1996), do provide estimates of these eco-nomic values, but their results need to be treatedcautiously and as such we are still unable todefinitely provide an answer one way or the other.There is clearly the need for more research likethat of Lockwood et al., but with far more em-phasis placed upon the delineation of cultural andheritage benefits, and how they relate to land use.Although this recommendation for further re-search will focuses on survey design techniquesthere are clear public policy benefits from itsundertaking.

Given our inability to definitively answerwhether cattle should be removed or not from theVANP we have analysed alternative institutionalarrangements that would help to resolve the cur-rent conflict. First, if grazing is to continue amore flexible interpretation of approved personsis necessary. A broader definition provides a vehi-cle for conservationists to express their prefer-ences for the cessation of grazing — they can buygrazing licences. It is assumed that a more com-


petitive market for grazing licences wouldyield a more efficient pattern of ownership, re-flecting willingness to pay. An auction isthe preferred means of allocating the grazing li-cences.

Second, with the cessation of grazing the pay-ment of compensation both in relation to fairnessand simple political expediency has been exam-ined. Importantly, a precedent for compensationand the cessation of grazing exists within theFFGA. To illustrate the expected magnitude ofthe necessary compensation payments to bringabout a resolution to the grazing conflict we haveincluded some illustrative calculations. The esti-mates of compensation, calculated as profit (rev-enue) foregone, are found to be significantly lessthan society’s willingness to pay to stop highcountry grazing as estimated by Lockwood et al.To place these findings on a more robustfooting, it is recommended that the VictorianGovernment undertake a thorough examinationof several of the grazing enterprises so that preciseestimates of reasonable compensation can bederived.

It remains to be seen whether or not the esti-mates of compensation calculated here wouldbear any relationship to those required by thegraziers in practice. Existing evidence of theuse of compensation as a means to facilitate aresolution to a land use conflict is mixed(Fraser, 1995). That aside, the estimates presentedhere do provide support for the need tofurther investigate this approach to resolving theconflict.

For the time being cattle will continue to begrazed in the VANP. Whether the Victorian gov-ernment would be prepared to consider either ofthe alternative institutional arrangementsanalysed here remains to be seen. As has previ-ously been suggested there is conceivablyan important implicit political agenda relating tothe proposed World Heritage nominationof the AANP motivating the decision to con-tinue grazing for the time being. It will beinteresting to see if and when the proposedWorld Heritage nomination fails to materialisewhether or not cattle grazing continues in theVANP.

Acknowledgements

The authors thank Warwick Papst, DickWilliams, Henrik Warren, Brent Swallow, PeterVictor, Geoff Edwards and participants at the1997 DNRE Economics Conference, The RoyalSociety of Victoria’s alpine ecology symposium,and the 42nd Annual AARES Conference, forcomments on earlier versions of this paper.

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