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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: Virgil_Dupuis@skc.edu

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