Economic Assessment of IPM Programs

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
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 _at_ 10

Discounted Annual Net gain _at_ 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 EH benefits?
• Scoring measures
• Subjectivity problem
• Scores not necessarily designed for assessment
• Multiple EH measures
• Unwieldy to analyze
• Diminishing willingness to pay for more EH
  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
Time
Present
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?pape
  rid1854

15
Challenges aheadCost-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 EH 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 aheadAssessing 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
(No Transcript)
19
Expert opinion vs Survey dataIPM adoption, tart
cherry, 1999
20
Expert opinion vs Survey dataGross revenue by
IPM level, t.cherry, 1999
Experts assumed no revenue difference from
Conventional PM.
NB Error bars 2 x Standard deviation