Economic Assessment of IPM Programs

Scott M. Swinton

Dept. of Agricultural Economics

Michigan State University

4th National IPM Symposium, Indianapolis, Apr. 8-10, 2003

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

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?

Illustrative partial budget: Intermediate IPM replaces Conventional

PM in 10-ac tart cherry orchard, 1998Reductions to Income ($) Gains To Income ($)

Added CostInsect pest prediction model 2Added scouting 111

Added Revenues(None)

Reduced Revenues(None)

Decreased CostReduced sprays 551

Total Reductions (A) 113 Total Gains (B) 551

Net Change (B-A) 438  

Source: M. Williams M.S., 2000

Potential discounted cumulative returns to investment in IPM

$

Year

DiscountedAnnual

Net gain @ 10%

1 2 3 4 5 6 7 8

CumulativeNet gain

Break-evenIn Year 7

DiscountedCumulative

Net gain @ 10%

DiscountedBreak-evenIn Year 9-10

9

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

4000

5000

6000

7000

14000 15000 16000 17000 18000 19000 20000

Mean Gross Margin ($ / 10ac)

Sta

nd

ard

Dev

atio

n o

f Y

earl

y M

ean

s

Std. Spring Nitrogen (Trt. 2)

Cover mix 2 (Trt. 6)

Compost (Trt. 9)

Cover mix 2 + Fertigated N(Trt. 11)

Metered, Fertigated N(Trt. 10)

Mean-risk profitability tradeoff in tart cherry groundcover management (NW Mich, 1995-2000)

x x

Desired direction

Profitability-nitrate leaching tradeoff in tart cherry groundcover systems (NW Mich, 1995-2000)

x

0

10

20

30

40

50

60

70

11000 13000 15000 17000 19000 21000 23000

Mean Gross Margin ($/10ac)

Mea

n N

itra

te l

each

ing

(kg

/ha)

Std. Spring Nitrogen (Trt. 2)

Metered fertigated Nitrogen (Trt. 10)Cover mix 2 +

Fertigated N (Trt. 11)

Compost (Trt. 9)

Cover mix 2 (Trt. 6)

Desired direction

Reduction in Cost and Environ. Impact by IPM Level: Michigan Tart Cherry, 1999

0%

5%

10%

15%

20%

25%

30%

35%

0% 5% 10% 15% 20%

Percent cost reduction from Conventional PM

Pe

rce

nt

red

uc

tio

n in

us

e-

ad

jus

ted

EIQ

Conventional

BasicIPM

IntermediateIPM

“Advanced”IPM

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 E&H benefits?– Scoring measures

• Subjectivity problem • Scores not necessarily designed for assessment

– Multiple E&H measures• Unwieldy to analyze• Diminishing willingness to pay for more E&H benefits

Scaling up from one IPM user to society: Adoption

• Need clear, simple IPM definition to measure adoption

• Projecting adoption trends into the future

Time

Pe

rce

nt a

dop

tion

0

100%

Max adoption

Present

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

p*

D

Quantity

PriceS

PS

CS

S’

Q*

If IPM raises yields, shifting Supply from S to S’

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?paperid=1854

Challenges ahead:Cost-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 E&H valuation results to new settings

• Scaling up economic assessment to multiple programs at national or international level not easy– Spillovers – Diminishing marginal benefits

Challenges ahead:Assessing 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?

Biological control of the pesky Michigan wolverinebug

Expert opinion vs Survey data:IPM adoption, tart cherry, 1999

0

5000

10000

15000

20000

25000

30000

Experts: NWMichigan

Survey: NWMichigan

Survey: AllMichigan

Acr

es

Advanced IPM

Intermed. IPM

Basic IPM

Conventional

Expert opinion vs Survey data:Gross revenue by IPM level, t.cherry, 1999

1200

1300

1400

1500

1600

1700

1800

1900

2000

2100

Conventional Basic IPM Intermed. IPM Advanced IPM

$/ac

re

NB: Error bars = 2 x Standard deviation

Experts assumed norevenue differencefrom Conventional PM.