Iowa Nutrient Reduction Science Assessment Cost Estimate and Outreach - PowerPoint PPT Presentation

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Iowa Nutrient Reduction Science Assessment Cost Estimate and Outreach

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  1. Iowa Nutrient Reduction Science AssessmentCost Estimate and Outreach John D. Lawrence Associate Dean and Director Ag and Natural Resources Extension Iowa State University

  2. 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

  3. Overview • Economic process • Direct estimates • Indirect effects • Challenges and remaining questions • Outreach plans

  4. 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

  5. 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

  6. 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

  7. Positive EAC = CostNegative EAC = Benefit • Examples of positive EAC • Cover crops • Installing bioreactors • Installing wetlands • Land use changes

  8. Positive EAC = CostNegative 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

  9. 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

  10. Cost per Pound Removed

  11. Cost curves Cost MC ATC AVC AFC Q

  12. 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

  13. Example Combination Scenarios that Achieve N and P Goal From NPS

  14. Example Combination Scenarios that Achieve N and P Goal From NPS

  15. Summary of Example Scenarios

  16. 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

  17. 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

  18. 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

  19. 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

  20. 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

  21. 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

  22. 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

  23. 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

  24. 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