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Iowa Nutrient Reduction Science Assessment Cost Estimate and Outreach

Iowa Nutrient Reduction Science Assessment Cost Estimate and Outreach. John D. Lawrence Associate Dean and Director Ag and Natural Resources Extension Iowa State University. Cost Estimates. Acknowledgement N and P Teams Dr. Mike Duffy ISU Ag Decision Maker Farm Management

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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

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