Multifunctionality : Towards an Analytical Framework

The term multifunctionality is increasingly used, but is prone to different interpretations concerning its definition, its utility and its implications for policy at domestic and international level. The OECD undertook this analysis to clarify the concept of multifunctionality and to try to establish a common analytical framework and terminology. Examining production, externality and public good aspects of multifunctionality, the analysis contained in this report leads to a series of questions, the answers to which determine if and when policy intervention is warranted and what the nature of that intervention should be. The framework encompasses both negative and positive externalities of agriculture. The first question relates to the degree of jointness in production between the multiple outputs. The second question identifies the circumstances in which market failure arises. A third question leads to an investigation of the public good characteristics of the outputs in question and helps to define the optimal type of intervention. These may range from market creation, to the imposition of user fees, the formation of clubs or public provision financed at local, regional or national level. The most efficient policy option is defined by the nature of jointness on the supply side and by the characteristics of the output on the demand side, all costs and benefits being taken into account.