IPM and Agricultural Economics

1. IPM and Agricultural Economics

2. 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

3. 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

4. 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

5. Farmers Policy Makers Consumers Agribusiness Processing Industry Distributors Insurance Experience Education Actual/Projected Prices Local Community Extension Agents Chemical Reps Scientific Advisors Agribusiness (esp. donors) International Trade Partners Constituents Marketing Nutrition & Taste Availibility Decision Makers Information Source

6. 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)

7. 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

8. 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: “Economic Services:” What the economy offers us QUESTION:What influences the Economic and Ecological ‘Conditions’ for farming? -Infrastructure -Markets -Lending Institutions -Subsidies

9. 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.

10. 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

11. The Big Picture: Ecology and Economics Ecosystem Services Valuation Ecosystem Services: What the ecosystem offers us Our Farm’s Finances & Profitability Economic Policy Ecosystem Health Our Farm Management Information Knowledge Education Information Knowledge Education Economic Health Environmental Policy “Economic Services:” What the economy offers us Our Farm’s Ecosystem “Economic Services” Valuation

12. The Big Picture: Ecology and Economics Ecosystem Services Valuation Ecosystem Services: What the ecosystem offers us Our Farm’s Finances & Profitability Economic Policy Ecosystem Health Our Farm Management Information Knowledge Education Information Knowledge Education Economic Health Environmental Policy “Economic Services:” What the economy offers us Our Farm’s Ecosystem “Economic Services” Valuation

13. 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.

14. 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.

15. Externalized Costs • What are externalized costs? • In order to really understand externalized costs, one must first understand the components of profit

16. 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

17. TheBottom 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?

18. 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 marginalbenefits 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?

19. 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.

21. 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.

22. Efficiency:Supply, Demand, and Price

23. Beyond Profit • What goals might growers have besides profit? • What about Agribusiness? -Policy Makers? -Consumers?

24. 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

25. Back to Externalities • 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

26. Externalities and Economic Inefficiency

27. 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.

28. 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).

29. Part II: IPM and Agricultural Economics

30. 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

31. The Big Picture: Ecology and Economics Ecosystem Services Valuation Ecosystem Services: What the ecosystem offers us Our Farm’s Finances & Profitability Economic Policy Ecosystem Health Our Farm Management Information Knowledge Education Information Knowledge Education Economic Health Environmental Policy “Economic Services:” What the economy offers us Our Farm’s Ecosystem “Economic Services” Valuation

32. 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

33. 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

34. 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.

35. 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)

36. 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…

37. 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.

38. 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?

40. How would an IPM Approach Change our Approach & Cost Benefit Analysis? • What else prevents damping off besides fungicides?? • Consider a systems approach - is there anything we can do to create an environment inhospitable to the establishment of these diseases? • Investigate biocontrol options : In this case there are some microbial fungicides that are a possibility depending on your target disease and system • If using fungicides, (especially the targeted varieties like DMI’s & Benzimidazoles) manage application to avoid resistance

41. Many Other Options in Our Case: • Purchase disease free plants and seeds.   Consider fungicidal 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.

42. 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

43. 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 unacceptablerisk 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 long-term sustainability).

44. 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 macro-economic policy, but is useless in specific land-use or pollution-permitting 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

45. 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. Valuation: Replacement Costs

46. 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. Issues for Scientists

47. 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 Information Markets

48. 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