IPM and Agricultural Economics

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IPM and Agricultural Economics
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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

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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

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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
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Decision Makers
Information Source

• Experience
• Education
• Actual/Projected Prices
• Local Community
• Extension Agents
• Chemical Reps
• Scientific Advisors
• Agribusiness (esp. donors)
• International Trade Partners
• Constituents
• Marketing
• Nutrition Taste
• Availibility

1. Farmers
2. Policy Makers
3. Consumers
4. Agribusiness
5. Processing Industry
6. Distributors
7. Insurance

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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. -gtSimple 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)

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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

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Lets 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
Ecosystem Services What the ecosystem offers
us
-Productive Soil -Water Resources -Pollination -En
ergy (Solar Fossil Fuel)
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
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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.

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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

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The Big Picture Ecology and Economics
Ecosystem Services Valuation
Our Farms Finances Profitability
Ecosystem Services What the ecosystem offers
us
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 Farms Ecosystem
Economic Services Valuation
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The Big Picture Ecology and Economics
Ecosystem Services Valuation
Our Farms Finances Profitability
Ecosystem Services What the ecosystem offers
us
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 Farms Ecosystem
Economic Services Valuation
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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.

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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.

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Externalized Costs

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

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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

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The Bottom Line Profit

• How would you define Profit?
• If you were growing a hothouse of tomatoes and
  selling them all to Wegmans, 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?

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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
  marginal benefits 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?

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Marginal Costs

• Marginal Costs are the additional costs imposed
  when one more unit of a given product is
  produced. If a bakers 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.

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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 cant 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.

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EfficiencySupply, Demand, and Price
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Beyond Profit

• What goals might growers have besides profit?
• What about Agribusiness? -Policy Makers?
  -Consumers?

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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

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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?
• gt 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.
• gt Costs to farmers Degradation of soil and
  overall agroecological health leads to increased
  external/purchased inputs

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Externalities and Economic Inefficiency
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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.

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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).

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Part II IPM and Agricultural Economics
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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

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The Big Picture Ecology and Economics
Ecosystem Services Valuation
Our Farms Finances Profitability
Ecosystem Services What the ecosystem offers
us
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 Farms Ecosystem
Economic Services Valuation
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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

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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

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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.
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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)

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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
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Fungicides to Control Damping Off
DOSE g fung./L PLANTS Per Tray
0 10
2 41
4 65
6 83
8 92
10 98
12 100
14 97
16 90

• A greenhouse experiment showed that less
  damping off of bedding plants could be achieved
  with increasing doses of a fungicide drench.

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• 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?

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Hypothetical Example Case 2 Hypothetical Example Case 2 Hypothetical Example Case 2 Hypothetical Example Case 2 Hypothetical Example Case 2 Hypothetical Example Case 2 Hypothetical Example Case 2 Hypothetical Example Case 2
  Marketable Partial Fixed Sorting Total Total  
Fungicide Dose Plants Cost Cost of Tray Cost (0.05 per dead cell) Cost Revenue (0.12 per plant) Profit per Tray
(grams/ liter) per Tray () () () () () ()
0 10 0.00 3.50 4.50 8.00 1.20 -6.80
2 41 1.00 3.50 2.95 7.45 4.92 -2.53
4 65 2.00 3.50 1.75 7.25 7.80 0.55
6 83 3.00 3.50 0.85 7.35 9.96 2.61
8 92 4.00 3.50 0.40 7.90 11.04 3.14
10 98 5.00 3.50 0.10 8.60 11.76 3.16
12 100 6.00 3.50 0.00 9.50 12.00 2.50
14 97 7.00 3.50 0.15 10.65 11.64 0.99
16 90 8.00 3.50 0.50 12.00 10.80 -1.20


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How would an IPM Approach Change our Approach
Cost Benefit Analysis?

1. What else prevents damping off besides
   fungicides??
2. Consider a systems approach - is there anything
   we can do to create an environment inhospitable
   to the establishment of these diseases?
3. Investigate biocontrol options In this case
   there are some microbial fungicides that are a
   possibility depending on your target disease and
   system
4. If using fungicides, (especially the targeted
   varieties like DMIs Benzimidazoles) manage
   application to avoid resistance

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Many Other Options in Our Case

1. 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.
2. Seed borne disease can also be avoided by
   soaking the seeds for 15 minutes in a bleach
   solution
3. 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)
4. Keep plant crowns above soil line dont bury
   seeds too deeply
5. Avoid overcrowding  and overfeeding (maintain
   consistent growth)
6. Avoid taking cuttings or transplanting when the
   soil is wet.
7. Disinfect tools and containers
8. Rotate plantings on a 2 to 3 year schedule using
   plants from different families in order to starve
   out existing pathogens.
9. Provide constant air movement not tied in with
   the light timer.   This helps the seedlings to
   aspirate, and excess soil moisture to wick.  

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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

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Risk Technology Adoption

• So why dont all farmers move toward IPM in an
  attempt to conserve ecosystem services?
• They arent 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 unacceptable risk
  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).

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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

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Valuation Replacement Costs

• 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.

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Issues for Scientists

• 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 sites
  physical characteristics (e.g. as measured by
  vegitation) and not at all on the services it
  provides to humans.

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Information Markets

• 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

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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