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Facilitating the Development of
Stakeholder-driven, Performance-based
Incentives for Agricultural Pollution Control
Jonathan R. Winsten, Ph.D.
Agricultural Economist
University of Vermont and Winrock International
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Can we improve water quality, farm
viability, and the cost-effectiveness of
agricultural pollution control?
How can we assist farmers to take the most
cost-effective actions for water quality?
Can we pay farmers to meet specific
performance targets?
Will this increase farm profitability while
reducing nonpoint source pollution?
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Overall Goals:
Reduce nonpoint source pollution from
agriculture
Provide greater flexibility for farmers
Induce innovation for pollution control
Improve the cost-effectiveness of
government spending
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How Do We Get There?
Link farm management decision-making to
environmental outcomes through
appropriately designed incentives
Internalize the externalities of agricultural
pollution
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The Economic Justification
There is no market for agriculturalpollution control
There is no real financial incentive forfarmers to control NSP
A financial incentive from policy can serveas a price for pollution control
Environmental performance becomesincorporated into farm business planning
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Farming and the Environment
The Farm
MarketInputs
Non-ma
rket
inputs
MarketO
utputs
Non-market
Outputs
Nutrients
Sediments
Bacteria
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Current Policy Approach
The Farm
MarketInputs
Non-ma
rket
inputs
MarketO
utputs
Non-market
Outputs Assumes BMPs
will affect NSP
Govt. cost-share of
BMPs and structures
Does not use farmers
knowledge as business manager8
Incentives for Performance
The Farm
MarketInputs
Non-ma
rket
inputs
MarketO
utputs
Non-market
Outputs
Incentives
Input decisions
Technologies
Structural BMPs
More Options = Lower Cost
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Environmental Management Becomes
Part of Farm Business Management
MarketInputs
Non-ma
rket
inputs
Total OutputsThe Farm
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Potential Benefits
Flexibility
Induced innovation
Lower-cost solutions
Enhanced farm income
Not market distorting
In the WTO Green Box
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Challenges and Constraints
Measuring performance
Information-intensiveFarmer information needs
Agency information needs
Appropriately designed incentives
Shifting gears
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Performance Measures
Where, how, and when environmentalperformance is measured and monitored
Need measures that are closely related to ultimatewater quality concern AND directly influenced byfarm management decisions
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Performance Measures
In the Lake, Bay, or Ocean
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Performance Measures
In the River
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Performance Measures
On the Farm
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P index calculated for every field used by thefarm
Field scores weighted based on area (and on riskcategory)
Incentive payments result from minimizing riskof P loss from the entire farm
Farmers have:great flexibility in ways to reduce farm score
Incentive to find the most cost-effective solutions
Resource Concern: Phosphorus Control
Example: Whole-farm P Index Score
Farm-level Performance Measure
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Weighted Whole-farm P Index ScoreMeasuring Performance - A Simplified Example
Fie lds Acre s
Area
Weight IPI Score
IPI
Category
Risk
Weight
Weighted
Score
Field 1 100 0.20 17 Very High 25 85
Field 2 100 0.20 8 High 16 25.6
Field 3 100 0.20 3 Medium 9 5.4
Field 4 100 0.20 2 Low 4 1.6
Field 5 100 0.20 1 Very Low 1 0.2
Total 500 1.00 117.8
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Weighted Whole-farm P Index Score
Total
Farm
Acres
Weighted
Farm
Score
Payment
per Acre
Total
Annual
Payment
500 117.8 $3.00 $1,500
Weighted
Farm
Score
Incentive
Payment
per Acre
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Triggers bonus payment for participatingfarmers
Provides a reality check on WQimprovement from farm-level performance
May induce some peer pressure forparticipation
Resource Concern: Phosphorus Control
Example: P Level at Mouth of Watershed
Watershed-level Performance Measure
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Residual nitrate at harvest shows if excessN was present during growing season
Optimum range is from 700-2,000 ppm N
Incentive paid for average farm score
below 2,000 ppm (increases below 1,500
and 1,000)
Resource Concern: Nitrogen Loss
Example: Cornstalk Nitrate Test
Farm-level Performance Measure
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Predicts soil organic matter and quality via:OM returned to the soil
Field operations that affect OM
Erosion (RUSLE II)
Farmers receive per acre payment for a weightedaverage SCI score of 0.1 or greaterPayments can increase for each increase of 0.1 in SCI
score
Improves long-term soil productivity, while
minimizing soil erosion
Resource Concern: Erosion/Sedimentation
Example: Soil Conditioning Index
Farm-level Performance Measure
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Performance-based Incentives for
Agricultural Pollution Control
Two Related (USDA-funded) Projects:
National Facilitation Project (NIWQP)
Providing information and guidance to
stakeholder groups around the U.S.
Pilot-Testing Project (NRCS-CIG)
Providing incentives in Iowa and Vermont
watersheds
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National Facilitation Project
Objectives:
Deliver education and outreach on performance-
based incentives Help watershed stakeholder groups to develop
specific recommendations
Provide a national clearinghouse for informationon performance-based incentives
Coordinate and assemble lessons learned to informnational policy discussions
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Increasing Tribal Involvement in the
Water Quality Network
Water is central to tribal community,culture, history, and future
TCU participation in USDA Water QualityProgram has been limited
Promote collaboration among TCUs andwith USDA on water quality issues
Provides a linkage with Indian nations
Contact: [email protected]
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