Total costs, environmental standards and international competitiveness – Case study results for selected agricultural products from Brazil, Germany and Indonesia

It is often supposed that the costs of higher environmental standards lead to unfair competitive disadvantages of countries. To test this hypothesis, a comparative study on the production and processing of vegetable oils, grain and chicken in Brazil, Germany and partly Indonesia was conducted. After identifying the relevant national environmental and social standards in these sectors, their cost implications were compared internationally. The study concludes that for the typical farms, the impacts of environmental standards on the production costs are relatively small. They can be relevant in the presence of small profit margins (e.g. in chicken production). However, total cost differences due to the wage level, prices for land, machines, buildings and equipment are more significant and weaken this assumption. In the processing industry, the results are ambiguous. Further, it needs to be stressed that country-specific differences in environmental standards are not only determined by climate, but also by the population density, national economic and social conditions as well as differences in the scarcity of environmental goods. Current environmental laws are neglected and not enforced in Brazil and Indonesia. These result in large cost savings with possibly significant adverse environmental externalities (such as overextended land use in Brazil and forest fires in Indonesia).