Transcript The adoptability of perennial-based farming systems for

Iowa Nutrient Reduction
Science Assessment
Cost Estimate and Outreach
John D. Lawrence
Associate Dean and Director
Ag and Natural Resources Extension
Iowa State University
Cost Estimates
• Acknowledgement
– N and P Teams
– Dr. Mike Duffy
– ISU Ag Decision Maker Farm Management
• What is not included
– Monetized environmental benefits
– Adoption time
Overview
• Economic process
– Direct estimates
– Indirect effects
• Challenges and remaining questions
• Outreach plans
Cost Estimation
• Focus on farm-level costs
• Price levels
–$5.00, $12.50, $0.50, $0.59
• No overhead costs
• No beyond-the-farm costs or benefits
• No reflection of a cost curve
Equal Annualized Cost
• Allows comparison across practices
– Combine recurring annual cost and initial investment
• Annualized initial investment
– Used design life of 50 years and discount rate of 4%
– Practices with shorter life were replaced to 50 years
• Reoccurring costs
– Operations
– Inputs
Equal Annualized Cost
• Cost estimates based on current information
– Structures based on recent experience
– Operations based on 2011 ISU Extension
budgets and surveys for custom rate
– Input prices based on 2011 actuals
• When appropriate, consider impact on corn
yield
• Land retirement use 2011 Cash Rental Rate
Survey
Positive EAC = Cost
Negative EAC = Benefit
• Examples of positive EAC
– Cover crops
– Installing bioreactors
– Installing wetlands
– Land use changes
Positive EAC = Cost
Negative EAC = Benefit
• Examples of negative EAC
– Moving anhydrous ammonia and liquid swine
manure from fall to spring
– Reduce fertilizer to recommended rate
– Use nitrification inhibitor on fall applied N
• Compared to baseline application rates.
• Crop cost associated with corn yield impact
• Doesn’t account for other costs or risks
Cost per Pound Removed
• It is possible to calculate the EAC per pound
removed.
• Why not start with lowest cost practice until it
is exhausted then move to next lowest cost?
• Costs differ by site and region
• Shape of cost curve
Cost per Pound Removed
N = Page 26, P = page 23
Practice/Scenario
Cover crops (rye) on ALL CS and CC acres
Reducing nitrogen application rate from
background to the MRTN 133 lb N/ac on CB and
to 190 lb N/ac on CC (in MLRAs where rates are
higher than this)
Cover crops (rye) on all no-till acres
Sidedress all spring applied N
Using a nitrification inhibitor with all fall applied
fertilizer
Move all liquid swine manure and anhydrous to
spring preplant
Moving fall anhydrous fertilizer application to
spring preplant
Nitrate-N
Cost of N
Reduction % Reduction $/lb
(from baseline) (from baseline)
28
5.96
State
Average
EAC **
($/acre)
49
9
-0.58
-2
6
4
5.97
0.00
45
0
1
-1.53
-3
0.3
-74.36
-20
0.1
-283.27
-20
Cost curves
Cost
MC
ATC
AVC
AFC
Q
Scenario Approach
• Requires a combination of practices
• Example not optimized
• Identify example scenarios that achieves
the targeted reduction
– Professional judgment
– Categories of practices
– Round number adoption targets
• Model reductions and farm level costs
Example Combination Scenarios that
Achieve N and P Goal From NPS
Total EAC* Statewide
Initial
Cost
Average
% Reduction Investment (million
EAC Costs
from baseline (million $)
$/year)
($/acre)
N
P
MRTN Rate, 60% Acreage with Cover Crop,
NCS1 27% of ag land treated with wetland and 60%
of drained land has bioreactor
42
30
3,218
756
36
MRTN Rate, 95% of acreage in all MLRAs with
Cover Crops, 34% of ag land in MLRA 103 and
NCS3
104 treated with wetland, and 5% land
retirement in all MLRAs
42
50
1,222
1,214
58
Name Combined Scenario
Example Combination Scenarios that
Achieve N and P Goal From NPS
Name Combined Scenario
MRTN Rate, Inhibitor with all Fall
Commercial N, Sidedress All Spring N, 70% of
all tile drained acres treated with bioreactor,
70% of all applicable land has controlled
drainage, 31.5% of ag land treated with a
wetland, and 70% of all agricultural streams
NCS8
have a buffer) - Phosphorus reduction
practices (phosphorus rate reduction on all
ag land, Convert 90% of Conventional Tillage
CS & CC acres to Conservation Till and
Convert 10% of Non-No-till CS & CC ground
to No-Till
N
P
Total EAC* Statewide
Initial
Cost
Average
% Reduction Investment (million EAC Costs
from baseline (million $)
$/year)
($/acre)
42
29
4,041
77
4
Summary of Example Scenarios
Name
Initial
Investment
(million $)
Statewide
Total EAC* Cost Average EAC
(million $/year) Costs ($/acre)
NCS1
3,218
756
36
NCS3
1,222
1,214
58
NCS8
4,041
77
4
Cost Comparison
• EAC includes annualized initial investment
– Comparing apples to apple slices
• Initial investment addresses feasibility
– Cost share and incentives not included
• Annual operating costs tests enforcement
– Cost of enforcement and verification not included
• Negative EAC a key issue
Other Economic Considerations
• These are farm level average cost estimates
– Cost curve and high adoption rates
• No overhead costs
– Implementation
– Enforcement
• Infrastructure costs
– Agribusiness
– Construction
Other Economic Considerations
• From individual to market
– Cover crops, 312,000 acres of rye for seed
production, more than was harvested in 2011
– Bioreactors, 111,000 acres of trees
– Fall to spring application, $194 million/year for
infrastructure costs
• Yield impact of delayed planting from more
spring work
Other Economic Considerations
• Impact of supply changes on price
– Corn $0.00136/bu
– Soybeans $0.00625/bu
– Alfalfa 0.8% / 1.0%
• Higher prices for sellers but higher costs for
buyers
– NFI change is about half GFI change
– Price gain doesn’t offset production lost
Net Farm Income
• For a 2.3 bbu Iowa corn crop, GFI increases
$230 million per dime.
• A dime price change in corn impacts Iowa NFI
by $110 million in the same direction.
• Beyond farm consumers also impacted
– Processors
– Export customers
Challenges and Remaining Issues
• Benefits
– Environmental benefits discussed, not monetized
– Non-yield benefits of SOM not captured
– Investments and practices will generate economic
activity
• Costs
– Some practices have downsides
– P surplus producers have higher application cost
Challenges and Remaining Issues
• Changes will lead to winners and losers
• Unintended consequences, positive and
negative, not fully explored
• High adoption rates
– Will have market implications
– Markets implications change cost estimates
– Will require time for logistics and costs
Challenges and Remaining Issues
•
•
•
•
•
One state v. regional or national policy
Global response to change in US prices
Food price implications
Value of cleaner water locally and in the Gulf
Cost – benefit may differ by practice and
location
Outreach Plan
•
•
•
•
•
Announcement at PAT
Overview and detail at CAS
Overview at MAC
Dedicated website
Opportunity for comment
– Website
– At meetings with detail
– Public meetings
– Formal comments