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IPM and
Agricultural
Economics
Outline
1. Decision Makers - This is Economics
2. Context for Making Decisions
3. What is Profit? How is it Calculated?
4. What are Externalities?
5. IPM and Pest Control Decisions:
Damping off Example
6. Risk & Technology Adoption
Outline
1. Decision Makers - This is Economics
2. Context for Making Decisions
3. What is Profit? How is it Calculated?
4. What are Externalities?
5. IPM and Pest Control Decisions:
Damping off Example
6. Risk & Technology Adoption
What are we talking about here?
Economics is about making decisions: The actions taken
(or not taken) have an impact from the farm scale to
global markets and on the local to global environment
- Who are these decision makers?
- On what information do they base their decisions?
- ** For Later: How
is RISK different for
these decision
makers? How does
risk affect their
decisions? Consider
both scale and the
type of risk
Decision
Makers
1.
2.
3.
4.
5.
6.
7.
Farmers
Policy Makers
Consumers
Agribusiness
Processing
Industry
Distributors
Insurance
Information Source
•
•
•
•
•
•
•
•
•
•
•
•
•
Experience
Education
Actual/Projected Prices
Local Community
Extension Agents
Chemical Reps
Scientific Advisors
Agribusiness (esp. donors)
International Trade Partners
Constituents
Marketing
Nutrition & Taste
Availibility
Making Decisions: Utilitarianism



Economic theory is often based upon the
philosophy of creating the greatest good for the
greatest number of people
Utilitarian philosophy suggests that decisions be
made with the ultimate objective of maximizing
societal welfare. ->Simple only in theory
“The most political act we do on a daily basis is to
eat, as our actions affect farms, landscapes, and food
businesses," (Jules Pretty)
Outline
1. Decision Makers - This is Economics
2. Context for Making Decisions
3. What is Profit? How is it Calculated?
4. What are Externalities?
5. IPM and Pest Control Decisions:
Damping off Example
6. Risk & Technology Adoption
Let’s Start at the Beginning: We have at any given time the
economic and ecological conditions for a given farm, city, region,
country, or global network
-Productive Soil
-Water Resources
-Pollination
-Energy (Solar; Fossil
Fuel)
Ecosystem
Services:
What the
ecosystem
offers us
CONDITIONS
FOR FARMING:
QUESTION:
What influences
the Economic and
Ecological
‘Conditions’ for
farming?
“Economic
Services:”
What the
economy
offers us
-Infrastructure
-Markets
-Lending
Institutions
-Subsidies
IPM: An Ecologically Complex
Approach

IPM tries to manage the
agroecosystem to
enhance
→resilience
→biodiversity
→sustainability
In
this context successful IPM is inextricably tied to the
continued, long-term health of the agroecosystem.
What are Ecosystem Services?

Anthropocentric perspective: These are the services
humans derive from ecosystems. In agriculture:







Energy Processes – Consider external and internal E inputs
Hydrological functions (e.g. H2O purification, runoff, )
Biogeochemical Processes – Nutrient Cycling, N fixation
Soil Protection
Crop Pollination
Biotic Regulation: IPM Pest Control, disease regulation
Recreation & Ecotourism
The Big Picture: Ecology and Economics
Ecosystem
Services:
What the
ecosystem
offers us
Ecosystem
Health
Information
Knowledge
Education
Environmental
Policy
Ecosystem
Services
Valuation
Our Farm’s
Finances &
Profitability
Our Farm
Management
Our Farm’s
Ecosystem
“Economic
Services”
Valuation
Economic
Policy
Information
Knowledge
Education
“Economic
Services:”
What the
economy
offers us
Economic
Health
The Big Picture: Ecology and Economics
Ecosystem
Services:
What the
ecosystem
offers us
Ecosystem
Health
Information
Knowledge
Education
Environmental
Policy
Ecosystem
Services
Valuation
Our Farm’s
Finances &
Profitability
Our Farm
Management
Our Farm’s
Ecosystem
“Economic
Services”
Valuation
Economic
Policy
Information
Knowledge
Education
“Economic
Services:”
What the
economy
offers us
Economic
Health
A Little Reality
• Most farms and ranches have only limited
flexibility to respond to changing factors
in their environment because of narrow
profit margins and due to their fixed
geographical locations.
• Every farm is a complex system of
interacting components in a natural and
socioeconomic environment. A high
degree of management skill is required of
modern producers.
How does IPM fit in here?

One of the goals of IPM is to translate
ecological considerations into economic
ones for growers.

Understanding inherent externalized costs
in many agricultural practices.
Externalized Costs

What are externalized costs?

In order to really understand externalized
costs, one must first understand the
components of profit
Outline
1. Decision Makers - This is Economics
2. Context for Making Decisions
3. What is Profit? How is it Calculated?
4. What are Externalities?
5. IPM and Pest Control Decisions: Damping
off Example
6. Risk and Technology Adoption
The Bottom Line: Profit
• How would you define Profit?
– If you were growing a hothouse of tomatoes and
selling them all to Wegman’s, how would you
calculate your profit?
•
•
•
•
•
What dictates revenues?
Where do costs come from?
Which costs are flexible?
Which are fixed?
Are there any real costs that are not considered
in a profit analysis?
Costs and Benefits
• Since resources in any given scenario are often fixed, there
•
•
are limitations to production. The concept of opportunity
cost reminds us that every time we make a choice,
something else must be given up. Economists would call
this weighing the marginal benefits against the marginal
costs.
These concepts are useful in constructing
– Cost Benefit Analysis
– Maximizing Profit/Utility
– Evaluating Economic Efficiency
**How do we define what constitutes a cost or a benefit?
Marginal Costs


Marginal Costs are the additional costs imposed when one
more unit of a given product is produced. If a baker’s cost
of making 10 carrot cakes is $15 and the cost of making 11
is $17, the marginal cost of producing the tenth is $2.
Marginal costs tend to rise as production increases. When
trying to clean up the air, for example, the first efforts are
relatively inexpensive. A law can mandate, for example, that
the dirtiest cars be taken off the road. But as one tries to make
the air cleaner and cleaner, more expensive technology is
needed. Therefore, marginal costs rise.
Marginal Benefits



Marginal Benefits are the additional benefits received when
one more unit is produced.
Marginal Benefits tend to fall as consumption of a good or
service increases. This is because the first few pieces of cake
are very appetizing when one is hungry. But with each
additional piece, the added benefits to the person diminish.
Then you get sick and can’t even finish your coffee.
Generally speaking, the marginal benefits curve slopes
downward. For example, if we are used to breathing filthy air
and that air has been cleaned for the first time, the health
benefits are large. But when one breathes relatively clean air
already and that air is made even cleaner, the health benefits
are not as dramatic.
Efficiency:
Supply, Demand, and Price
Beyond Profit
• What goals might
growers have besides
profit?
• What about
Agribusiness?
-Policy Makers?
-Consumers?
Outline
1. Decision Makers - This is Economics
2. Context for Making Decisions
3. What is Profit? How is it Calculated?
4. What are Externalities?
5. IPM and Pest Control Decisions:
Damping off Example
6. Risk & Technology Adoption
Back to Externalities
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Externalized Costs: It is well acknowledged many
unsustainable practices are possible only because society
bears these costs rather than the individuals making
agricultural decisions. Examples?
> Costs to Society: Agricultural activities are some of the
most serious and widespread sources of pollution, soil
erosion, loss of biodiversity, and overall destruction of
environmental quality worldwide.
> Costs to farmers: Degradation of soil and overall
agroecological health leads to increased external/purchased
inputs
Externalities and Economic Inefficiency
Economic Growth – Some Issues



What we conventionally call “economic growth” in the sense of
“growth of the economy” has ironically become “uneconomic
growth” in the literal sense of growth that increases costs by more
than it increases benefits.
As the scale of the economy expands relative to the fixed dimensions
of an ecosystem, we necessarily encroach upon that system and must
pay the opportunity cost of lost ecosystem services as we enjoy the
extra benefit of increased human scale.
We see that increasing marginal costs and decreasing marginal
benefits will accompany increasing human scale. The optimum scale,
from the human perspective, occurs when marginal cost equals
marginal benefit— this is the point of greatest efficiency. Beyond that
point growth becomes uneconomic in the literal sense of costing more
than it is worth.
Faulty Assumptions Behind Some of
Our Cost Benefit Analysis
1. Markets exist for all goods and services exchanged
2. This implies that all goods and services are ‘private’ not ‘public’ goods.
3. A system of property rights exists.
4. All markets are perfectly competitive
5. No ‘externalities’ exist - all the benefits and costs of producing goods are
reflected in the market price of goods
6. Both producers and consumers have perfect information regarding
available goods and their prices.
7. All producers aim to maximise their profits while all households attempt to
maximise their welfare or utility.
8. There are no costs associated with trading goods other than their prices
and production costs (i.e. transaction costs are zero).
Part II: IPM and
Agricultural
Economics
Outline
1. Decision Makers - This is Economics
2. Context for Making Decisions
3. What is Profit? How is it Calculated?
4. What are Externalities?
5. IPM & Pest Control Decisions:
Damping off Example
6. Risk & Technology Adoption
The Big Picture: Ecology and Economics
Ecosystem
Services:
What the
ecosystem
offers us
Ecosystem
Health
Information
Knowledge
Education
Environmental
Policy
Ecosystem
Services
Valuation
Our Farm’s
Finances &
Profitability
Our Farm
Management
Our Farm’s
Ecosystem
“Economic
Services”
Valuation
Economic
Policy
Information
Knowledge
Education
“Economic
Services:”
What the
economy
offers us
Economic
Health
Outline
1. Decision Makers - This is Economics
2. Context for Making Decisions
3. What is Profit? How is it Calculated?
4. What are Externalities?
5. IPM & Pest Control Decisions:
Damping off Example
6. Risk & Technology Adoption
Pest Control Decisions
• Partial Budget Analysis
• The Production Function – Often control is not a discrete
event, but a treatment with various levels of intensities.
The partial cost
(C) generally
increases linearly
with the intensity
of control effort.
Partial revenue
(R) generally
increases at a
diminishing rate
Optimization
Real management
situations usually
involve several
variables, all of which
simultaneously affect
crop yield. We may
also have to make
decisions at several
times throughout the
season.
Figure 1. Each data point in this example
represents the output from one simulation.
Optimization of Ecological Processes





Management to enhance recycling of biomass,
nutrient availability, (soil aeration, cover crops,
etc..)
Provide favorable soil conditions
Minimize energy loss
Diversify species & intraspecific genetic
diversity
Enhance beneficial biological interactions and
synergies (e.g. IPM, alley cropping)
Damping Off
• What is Damping Off?
-Underground, soil line, or
crown rot, especially of
seedlings, due to various
causes
-Covers several soil borne
diseases & includes rotting
caused by Rhizoctonia,
Pythium, Miscellaneous
Fungi…
Fungicides to Control Damping Off
A greenhouse experiment showed
that less damping off of bedding
plants could be achieved with
increasing doses of a fungicide
drench.
DOSE
g fung./L
PLANTS
Per Tray
0
10
2
41
4
65
6
83
8
92
10
98
12
100
14
97
16
90
• Case 1 : We grow our plants in trays, with 100 plants/tray. If we
have 90-100 healthy plants per tray, we can get a price of
$10.00 per tray. If there are fewer than 90 plants but at least 60,
the price drops to $7.00 per tray. Between 60 and 40 plants per
tray, the price is $4.00, and if there are fewer than 40 plants per
tray, the customers will not buy them, and we have to throw the
plants away. Our fungicide costs $.50 per gram, and our
production costs exclusive of the fungicide are $3.00 per tray.
• Case 2: Instead of growing our plants in large trays, we
produce them in cell trays with 100 cells per tray that can be
broken apart so that the plants can be sold individually. These
trays cost $.50 more per tray than the conventional trays, and
sorting out the cells in which the plants have died adds to the
labor cost, averaging $.05 for each cell that has to be removed.
However, being able to sell plants individually adds a small
premium to the price, and we can charge $.12 per plant.
The questions that we want to answer are: Should we apply the
fungicide, and if so, at what dose? Should we change to the cell
trays, despite their greater cost, and if we do, how does that
affect our fungicide decision?
Hypothetical Example: Case 2
Marketable
Partial
Fixed
Sorting
Total
Total
Cost
($0.05
per dead
cell)
Cost
Revenue
($0.12
per plant)
Profit
per
Tray
Fungicide
Dose
Plants
Cost
Cost
of
Tray
(grams/
liter)
per Tray
($)
($)
($)
($)
($)
($)
0
10
0.00
3.50
4.50
8.00
1.20
-6.80
2
41
1.00
3.50
2.95
7.45
4.92
-2.53
4
65
2.00
3.50
1.75
7.25
7.80
0.55
6
83
3.00
3.50
0.85
7.35
9.96
2.61
8
92
4.00
3.50
0.40
7.90
11.04
3.14
10
98
5.00
3.50
0.10
8.60
11.76
3.16
12
100
6.00
3.50
0.00
9.50
12.00
2.50
14
97
7.00
3.50
0.15
10.65
11.64
0.99
16
90
8.00
3.50
0.50
12.00
10.80
-1.20
How would an IPM Approach Change
our Approach & Cost Benefit Analysis?
1. What else prevents damping off besides
fungicides??
2. Consider a systems approach - is there anything we
can do to create an environment inhospitable to the
establishment of these diseases?
3. Investigate biocontrol options : In this case there
are some microbial fungicides that are a possibility
depending on your target disease and system
4. If using fungicides, (especially the targeted
varieties like DMI’s & Benzimidazoles) manage
application to avoid resistance
Many Other Options in Our Case:
1. Purchase disease free plants and seeds. Consider fungicidal
2.
3.
4.
5.
6.
7.
8.
9.
coatings on seeds which will be direct sown out doors in cold
soils, such as corn and peas.
Seed borne disease can also be avoided by soaking the seeds for
15 minutes in a bleach solution
Use sterile well drained soil mediums. Try to maintain a soil mix
pH at the low end of the average scale (tap water will increase
pH)
Keep plant crowns above soil line; don’t bury seeds too deeply
Avoid overcrowding and overfeeding (maintain consistent
growth)
Avoid taking cuttings or transplanting when the soil is wet.
Disinfect tools and containers
Rotate plantings on a 2 to 3 year schedule using plants from
different families in order to starve out existing pathogens.
**Provide constant air movement not tied in with the light
timer. This helps the seedlings to aspirate, and excess soil
moisture to wick.
Outline
1. Decision Makers - This is Economics
2. Context for Making Decisions
3. What is Profit? How is it Calculated?
4. What are Externalities?
5. IPM & Pest Control Decisions:
Damping off Example
6. Risk & Technology Adoption
Risk & Technology Adoption
• So why don’t all farmers move toward IPM in an attempt to
conserve ecosystem services?
– They aren’t aware of the financial loss
– They lack the appropriate technology/management to conserve the
service
or
– Choosing a management practice that leads to unpredictable yields
presents unacceptable risk for most farmers. These technologies
often incorporate the unpredictability of ecological systems.
– There are often economically difficult transition periods in
adopting these technologies
– Many technologies, including expensive ones, are often adopted
precisely because they make yields reliable (irrespective of longterm sustainability).
Risk & Valuation Problems
• Unfortunately non-target effects of
farm management are rarely easy
to quantify on a local scale.
• The fact that soil fertility in the US
is worth an estimated $45 billion
annually is important for macroeconomic policy, but is useless in
specific land-use or pollutionpermitting decisions
• Most policy decisions are
incremental. Local decision makers
need to know where and by how
much ecosystem services are
degraded by development or land
management
Valuation: Replacement Costs
• Using the cost to replace a given ecological service is often
•
•
the best measure to pin a dollar value on ecosystem
services.
Example: NY City drinking water in the early 90s failed
EPA quality standards - Instead of investing $6-8 billion in a
treatment plant, $1-1.5 billion was spent in the restoration of
the Catskills Mountains watershed.
This investment in natural rather than physical capital
provides an excellent example of incorporating ecosystem
services into policy.
Issues for Scientists
• How an ecosystem works is not the same as the services it
provides
• Relatively few ecosystem services have been the focus of research
and monitoring – information is generally related to either the
characteristics of the ecological system or the characteristics of the
social system, not to the all-important interactions between the two
• This focus has even been reinforced by policy: for example, federal
and state wetland mitigation is assessed largely on the basis of the
site’s physical characteristics (e.g. as measured by vegitation) and
not at all on the services it provides to humans.
Information Markets
Current environmental law could actually help resolve our inability to
value ecosystem services through the creation of information
markets.
• Clean Water Act regulations and the Superfund law (CERCLA) have
established the need for information on wetlands vegetation and
increasingly sophisticated hydrological models. Successful ecological
consulting businesses have arisen to fill this economic niche.
• Information markets could be used to generate the appropriate
knowledge of key ecosystem services. Were data required by
governmental officials in permit and damage assessments or for
agricultural management practices then this market would certainly
arise.
• **The role of Scientists in developing and changing
environmental law should not be underestimated
Some Conclusions: Role for IPM
• Realistically growers are motivated by personal,
local goals, especially profit rather than large-scale
sustainability goals.
To get farmers to use IPM the uncertainty
must be turned into measurable and
manageable risk.
It must be cost effective
The public policy environment must be one
that encourages integrated technologies
Technology adoption in agriculture is
very word-of-mouth and community based