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Economic Assessment of IPM Programs

Economic Assessment of IPM Programs. Scott M. Swinton Dept. of Agricultural Economics Michigan State University 4 th 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

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Economic Assessment of IPM Programs

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  1. Economic Assessment of IPM Programs Scott M. Swinton Dept. of Agricultural Economics Michigan State University 4th National IPM Symposium, Indianapolis, Apr. 8-10, 2003

  2. 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

  3. 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?

  4. Reductions to Income ($) Gains To Income ($) Added Cost Insect pest prediction model 2 Added scouting 111 Added Revenues (None) Reduced Revenues (None) Decreased Cost Reduced sprays 551 Total Reductions (A) 113 Total Gains (B) 551 Net Change (B-A) 438 Illustrative partial budget: Intermediate IPM replaces Conventional PM in 10-ac tart cherry orchard, 1998 Source: M. Williams M.S., 2000

  5. 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 Year Discounted Break-even In Year 9-10 Break-even In Year 7

  6. 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

  7. Mean-risk profitability tradeoff in tart cherry groundcover management (NW Mich, 1995-2000) x x Desired direction

  8. Profitability-nitrate leaching tradeoff in tart cherry groundcover systems (NW Mich, 1995-2000) x Desired direction

  9. Reduction in Cost and Environ. Impact by IPM Level: Michigan Tart Cherry, 1999 Intermediate IPM Basic IPM “Advanced” IPM Conventional

  10. 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

  11. Scaling up from one IPM user to society: Adoption • Need clear, simple IPM definition to measure adoption • Projecting adoption trends into the future 100% Max adoption Percent adoption 0 Present Time

  12. 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

  13. If IPM raises yields, shifting Supply from S to S’ S Price S’ CS p* PS D Q* Quantity

  14. 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

  15. 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

  16. 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?

  17. Biological control of the pesky Michigan wolverinebug

  18. Expert opinion vs Survey data:IPM adoption, tart cherry, 1999

  19. Expert opinion vs Survey data:Gross revenue by IPM level, t.cherry, 1999 Experts assumed no revenue difference from Conventional PM. NB: Error bars = 2 x Standard deviation

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