Economics of Conservation Planning

1. Economics of Conservation Planning

2. Introduction • Fits into the 9 step process • Identify and evaluate onsite and offsite • Benefits • Costs • Time Value of Money • Evaluation Techniques

3. Nine Step Process • Involves many disciplines • Economics should be applied throughout • most heavily during Phase II (Decision Support)

4. Nine Step Process

5. Benefits of Conservation • Onsite benefits • occur at or close to activity • 2 types of onsite benefits • Maintain or Restore Productivity • Decrease Production Costs

6. Benefits of Conservation • Offsite Benefits • Occur away from activity • may occur to different owners • Water Quality is usually offsite • Effects are Documented • CPPE in Section IV and...

7. Benefits of Conservation • Conservation Practice Economic Effects (CPEE) spreadsheet. • Section V • CPEE

10. Costs of Conservation • Two basic costs • Expenditures • Up-front installation costs • Operation and Maintenance cost • Lost Production • cost is dependent upon current yield

11. Ag Business Environment • Interest Rates • Prices • Farm Program • Cost Share and Incentive Opportunities • Taxes • etc.

12. Ag Business Environment • Economic Prosperity • Reduce Taxes • Invest in long-term conservation • Economic Stress • Long-term conservation not feasible • Apply part of a system

13. Time and Money • $1 today = $1+interest tomorrow • Opportunity Costs • Interest paid on a loan • return given up on another investment

14. Time and Money • Interest • the amount earned or paid for the use of money • Number of Periods • time of the investment • Present Value • Principle - amount borrowed or invested today

15. Time and Money • Future Value • Principle + interest • Payment • reoccurring deposits or receipts representing either principal, or principal plus interest

16. Time and Money • One-time Values (Installation cost) • Occurs at a single point in time • Annuities (Benefits) • Occur over an extended period • Constant, Decreasing, or increasing • Lag (deferred grazing) • Occurs at some point in the future

17. Time and Money • Annuity Table • Loan Amortization Worksheet • Amortization Table • Excel • Pocket Card

18. Time and Money • Future Value • PV(1+ i)n • Rule of 72 (double your money?) • 72 / i or 72 / n • Present Value • FV/(1+I)n

19. Evaluation Techniques • Partial Budgeting • Break-even Analysis • Cost Effectiveness Method • Conservation Effects for Decision-making • Economic Thresholds • Crop Budgets

20. Evaluation Techniques • Partial Budgeting • Method of estimating how small changes will effect net income.

21. Evaluation Techniques • Break-even Analysis • Evaluate how much of an investment can be made based on expected returns.

22. Evaluation Techniques • Cost Effectiveness Method • Costs of alternatives that achieve the stated objective are compared.

23. Evaluation Techniques • Conservation Effects for Decision-making • Allows you to consider all physical, sociological, and economic factors. CED

24. Evaluation Techniques • Economic Threshold • Compare treatment costs to lost revenue that will be incurred if left untreated.

25. Evaluation Techniques • Crop Budgets • Show the inputs required • Show estimated costs • Good when starting a new enterprise • eFOTG Section I • Economic Data - Other Resources • Missouri Farm Business Planning Handbook

28. Where is Econ Info Found • eFOTG • Section I • Econ Data • Cost lists • Cost tools • Section III • Quality Criteria • Econ • Section V • CPEE

29. Where is Econ Info Found • General Manual • Part 400 – Econ Policy • Part 404 Subpart D – Cost Sharing • 2 Handbooks • Water Resources • Conservation Planning (Draft)

30. Contact Information • For assistance contact Angie VanDyke 573-876-0908 angie.vandyke@mo.usda.gov