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
• What is not included– Monetized environmental benefits– Adoption time
Overview
• Economic process– Direct estimates
– Indirect effects
• Challenges and remaining questions
• Outreach plans
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
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
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
Positive EAC = CostNegative EAC = Benefit
• Examples of positive EAC– Cover crops– Installing bioreactors– Installing wetlands– Land use changes
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
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
Cost per Pound Removed N = Page 26, P = page 23
Nitrate-N Reduction %
(from baseline)
Cost of N Reduction $/lb (from baseline)
State Average EAC ** ($/acre)Practice/Scenario
Cover crops (rye) on ALL CS and CC acres 28 5.96 49Reducing nitrogen application rate from background to the MRTN 133 lb N/ac on CB and to 190 lb N/ac on CC (in MLRAs where rates are higher than this)
9 -0.58 -2
Cover crops (rye) on all no-till acres 6 5.97 45Sidedress all spring applied N 4 0.00 0Using a nitrification inhibitor with all fall applied fertilizer
1 -1.53 -3
Move all liquid swine manure and anhydrous to spring preplant
0.3 -74.36 -20
Moving fall anhydrous fertilizer application to spring preplant
0.1 -283.27 -20
Cost curves
Cost
Q
MC
ATC
AFC
AVC
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
N P
Initial Investment (million $)
Total EAC* Cost
(million $/year)
Statewide Average
EAC Costs ($/acre)Name Combined Scenario
% Reduction from baseline
NCS1MRTN Rate, 60% Acreage with Cover Crop, 27% of ag land treated with wetland and 60% of drained land has bioreactor
42 30 3,218 756 36
NCS3
MRTN Rate, 95% of acreage in all MLRAs with Cover Crops, 34% of ag land in MLRA 103 and 104 treated with wetland, and 5% land retirement in all MLRAs
42 50 1,222 1,214 58
Example Combination Scenarios that Achieve N and P Goal From NPS
N P
Initial Investment (million $)
Total EAC* Cost
(million $/year)
Statewide Average
EAC Costs ($/acre)Name Combined Scenario
% Reduction from baseline
NCS8
MRTN Rate, Inhibitor with all Fall Commercial N, Sidedress All Spring N, 70% of all tile drained acres treated with bioreactor, 70% of all applicable land has controlled drainage, 31.5% of ag land treated with a wetland, and 70% of all agricultural streams have a buffer) - Phosphorus reduction practices (phosphorus rate reduction on all ag land, Convert 90% of Conventional Tillage CS & CC acres to Conservation Till and Convert 10% of Non-No-till CS & CC ground to No-Till
42 29 4,041 77 4
Example Combination Scenarios that Achieve N and P Goal From NPS
Summary of Example Scenarios
Initial Investment (million $)
Total EAC* Cost (million $/year)
Statewide Average EAC
Costs ($/acre)Name
NCS1 3,218 756 36
NCS3 1,222 1,214 58
NCS8 4,041 77 4
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
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
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
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
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
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
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
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
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
