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Economic Assessment of IPM Programs Scott M. Swinton Dept. of Agricultural Economics Michigan State University 4th National IPM Symposium, Indianapolis, Apr. 8-10, 2003 Purpose • Economic assessments aim to evaluate the net benefits of investments in IPM • Focus on valued outcomes – Outcomes may be monetary or not – Adoption per se is not an outcome; it is an intermediate step that affects outcomes • Scale: – Individual – Society User-level profitability assessment • Partial budget or partial enterprise budgets – Does average change in benefits from IPM exceed average change in costs? • Capital budget (investment analysis) – Does investment in IPM over time generate benefits that cover costs? • Risk analysis – Does adoption of IPM cause change in probability distribution of net returns? Illustrative partial budget: Intermediate IPM replaces Conventional PM in 10-ac tart cherry orchard, 1998 Reductions to Income ($) Added Cost Insect pest prediction model 2 Added scouting 111 Reduced Revenues (None) Total Reductions (A) 113 Net Change (B-A) 438 Source: M. Williams M.S., 2000 Gains To Income ($) Added Revenues (None) Decreased Cost Reduced sprays 551 Total Gains (B) 551 Potential discounted cumulative returns to investment in IPM Cumulative Net gain $ Discounted Cumulative Net gain @ 10% Discounted Annual Net gain @ 10% 1 2 3 4 5 6 7 8 9 Break-even In Year 7 Year Discounted Break-even In Year 9-10 Adding risk and environmental benefits to a profit analysis • Assign cash values & factor into money measure • Use non-money measures & evaluate trade-offs (multi-criteria analysis) – Mean profit vs. Variance – Profit vs. pesticide exposure Mean-risk profitability tradeoff in tart cherry groundcover management (NW Mich, 1995-2000) Standard Devation of Yearly Means 7000 6000 x Compost (Trt. 9) x Cover mix 2 + Fertigated N (Trt. 11) Std. Spring Nitrogen (Trt. 2) Metered, Fertigated N (Trt. 10) 5000 Cover mix 2 (Trt. 6) 4000 14000 15000 16000 17000 18000 Mean Gross Margin ($ / 10ac) 19000 20000 Profitability-nitrate leaching tradeoff in tart cherry groundcover systems (NW Mich, 1995-2000) Mean Nitrate leaching (kg/ha) 70 60 x Std. Spring Nitrogen (Trt. 2) 50 40 30 20 Cover mix 2 (Trt. 6) 10 0 11000 Metered fertigated Nitrogen (Trt. 10) Compost (Trt. 9) 13000 15000 Cover mix 2 + Fertigated N 17000 (Trt. 11) 19000 Mean Gross Margin ($/10ac) 21000 230 Percent reduction in useadjusted EIQ Reduction in Cost and Environ. Impact by IPM Level: Michigan Tart Cherry, 1999 35% 30% 25% 20% “Advanced” IPM 15% Basic IPM Intermediate IPM 10% 5% Conventional 0% 0% 5% 10% 15% Percent cost reduction from Conventional PM 20% Challenges to incorporate environment & health in economic analysis • Cost-effective non-market valuation – Environmental economists have developed a variety of methods, but most require costly, targeted studies – Emergent lit on “benefit transfer” from prior studies • How to aggregate different E&H benefits? – Scoring measures • Subjectivity problem • Scores not necessarily designed for assessment – Multiple E&H measures • Unwieldy to analyze • Diminishing willingness to pay for more E&H benefits Scaling up from one IPM user to society: Adoption • Need clear, simple IPM definition to measure adoption 100% Max adoption • Projecting adoption trends into the future 0 Present Time Scaling up from one IPM user to society: Market effects • When many users adopt IPM, indirect market effects may result – Price effect (supply curve shifts) • Higher yields will depress price • Higher costs will cause some producers to exit, increasing prices for those who remain – Income effect (input demand shifts) • Higher producer incomes may raise demand for environmentally friendly inputs • Economic surplus analysis can estimate effects If IPM raises yields, shifting Supply from S to S’S Price S’ CS p* PS D Q* Quantity Current state of the art • Benefit-cost analysis over time based on – – – – Adoption trends IPM public program costs Market-adjusted net benefits per adopter Environmental & health benefits • Valuation • Trade-offs • Staff paper on “Economics of IPM”: • http://agecon.lib.umn.edu/cgi-bin/pdf_view.pl?paperid=1854 Challenges ahead: Cost-effective assessments • Excellent impact assessments are costly – Expert opinion is cheap; can lead to error & bias – Surveys are costly, but cooperation with NASS can cut costs & strengthen data quality – Benefit transfer research is developing new tools for adapting prior E&H valuation results to new settings • Scaling up economic assessment to multiple programs at national or international level not easy – Spillovers – Diminishing marginal benefits Challenges ahead: Assessing biological IPM • Innovations in ecological pest mgt calls for bioeconomic modeling of production systems with pests present – Dynamic systems • Time to achieve new equilibrium? • Resilience & vulnerability to shocks? – Beyond pesticide thresholds to habitat management for beneficials – What value of such long-term investments? Biological control of the pesky Michigan wolverinebug Expert opinion vs Survey data: IPM adoption, tart cherry, 1999 30000 25000 Acres 20000 Advanced IPM Intermed. IPM 15000 Basic IPM Conventional 10000 5000 0 Experts: NW Michigan Survey: NW Michigan Survey: All Michigan Expert opinion vs Survey data: Gross revenue by IPM level, t.cherry, 1999 2100 2000 1900 $/acre 1800 Experts assumed no revenue difference from Conventional PM. 1700 1600 1500 1400 1300 1200 Conventional Basic IPM NB: Error bars = 2 x Standard deviation Intermed. IPM Advanced IPM