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Assessing Tradeoffs Between Cane Production and Water Quality Peter Donaghy DPI&F John Rolfe, Judith Wake CQU.

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Presentation on theme: "Assessing Tradeoffs Between Cane Production and Water Quality Peter Donaghy DPI&F John Rolfe, Judith Wake CQU."— Presentation transcript:

1 Assessing Tradeoffs Between Cane Production and Water Quality Peter Donaghy DPI&F John Rolfe, Judith Wake CQU

2 Overview Increasing interest in market-like mechanisms to manage natural resources Give farmers financial incentives to produce environmental outcomes as well as normal production Design and take-up are crucial issues Case study dealing with cane farmers in Sandy Creek catchment

3 Market based instruments Extensively used in US Developing interest and application in Australia BushTender in Victoria Range includes competitive tenders, offsets, cap & trade, eco-labelling, tradeable development rights, baseline & credit, mitigation banking

4 Key economic advantages MBIs work by structuring incentives in more appropriate ways and allowing competitive pressure to operate Pressure to provide services at lowest cost Competition between participants means more efficient allocation of resources Process also reveals opportunity cost information and addresses problems of asymmetric information in NRM

5 Asymmetric information Government/NRM bodies know what are priorities for environmental protection Farmers know how to manage land and what costs of changed management are Neither group has good access to information held by other side Need a negotiation process to find best solution

6 Why is design important? Many MBIs involve the setting of property rights and exchange mechanisms so there is certainty and confidence in trade Eg rules for allocating funding under a conservation tender If the rules are not appropriate, then may result in perverse outcomes Often good to test this first

7 What we did in this project Designed some trial cane farms Held 3 workshops with groups of cane farmers Asked farmers to submit bids for different conservation actions Riparian buffer strips Fertiliser reductions Conversion to minimum till

8 Contract details Described voluntary agreements Contracts with local NRM body 5 year agreement Annual payments each year Payments for farmers to perform agreed management actions Simple monitoring process

9 Why water quality? Strong interest from government in improving water quality into GBR lagoon A number of farming activities suggested as contributing to water quality issues Difficult to find concrete evidence Complex systems Limited scientific evidence

10 Why conservation tenders? Negotiates fairly with growers Does not involve more regulation Recognises existing property rights Efficient Gets better outcomes for government spending Lets farmers find most efficient way of meeting the outcomes

11 Flexibility of a tender system Focus is on growers suggesting things they might do to achieve conservation outcome In exchange for payments Different growers might suggest different actions

12 Our workshops Gave each farmer a trial farm Farms were all much the same Five different soil types 5 x fallow, 5 x plant, 5 x 1 st ratoon, 3 x 2 nd ratoon, 2 x 3 rd ratoon House, access roads River on one side, creek on the other


14 Riparian grass strips Asked farmers in workshops to indicate on their property map where they would create grass strips Could put them on river or creek Could make them any width Had to add up areas of different soil types; 4 small squares = 1 hectare Had to fill in a bid sheet

15 Bidding card Date________________________ Round________________________ Property________________________ Soil TypeHectares Involved Non calcic brown (Pioneer) Yellow podsolic (Marian) Grey clay (Brightly) Soloths (Kinchant) Sand Amount of money needed (each year for 5 years)$ ___________________

16 Performance of a round Each farmer identified a buffer strip on a map Identified area of cane that would not be grown Identified amount of money required We assessed environmental benefits of each buffer strip Identified most cost-effective bids Awarded prizes to three best bids

17 Riparian Filter Strip Bids

18 How we assessed bids Designed our own metric in a spreadsheet Four main components Environmental Benefit Indices Area of each soil type Width of buffer zone Stream type Metric ranked bids based on their potential to achieve water quality improvement Compared this to $ bids

19 Variation in Opportunity Cost Grass filter strip bids varied from $97/ha to $3,563/ha Large variations in grower opportunity costs. 10 cheapest – 163ha for $37,645 10 dearest – 127ha for $348,313 Variation facilitates cost efficiencies

20 Regression Analysis of Bids CoefficientStd. ErrorSignificance Constant-118890.96624911.123.001 Non calcic Brown (Pioneer)1570.052561.571.017 Yellow Podzolic (Marian)6576.558985.499.000 Grey clay (Brightly)1199.198694.511.112 Soloths (Kinchant)5151.5761165.339.001 Sand-5959.8701950.584.011 Age761.516280.196.020 Years in area-758.044314.536.035 Area of cane farmed66.69934.221.077 Off farm income6452.01911136.002.574 % off farm income-713.525273.310.024 Balance prod and env6930.5314207.391.128 Interest in being paid959.2204023.138.816 Preferred agency644.0133444.284.855 Round-3595.4986726.095.604 Property type8328.3463035.536.019 Group8288.3033892.936.057 Property area327.738113.638.015 Adjusted r 2 =.96

21 Average Bid Value Summaries Management actionAverage bid from Expert panel Average bid from cane farmers Establishing grass filter strips$1,083 /ha$1,387 / ha Reducing fertilizer applications (N and P) by 50% $290 / ha$727 / ha Adoption of minimum tillage$128 / ha Using a legume crop as a green fertilizer at least every 5 years $529 / ha

22 Who Are the Experts? Farmers bids reflect additional factors other than farm productivity Social, demographic and farm characteristics influencing bids These factors not apparent from farm productivity models

23 Conclusions Wide variation in opp costs between cane growers both within and across management actions Reflects heterogeneity of farms/farmers Cost effective to focus on growers with lower opportunity costs Ineffective nature of fixed rate approach (eg. devolved grants)

24 Conclusions Results provide insights into factors other than farm production that affect bid formulation. Farmers views different to panel of experts!! Process skills farmers to participate in the real deal!! Contract design including monitoring and enforcement important Construction of metric is difficult, limited to available data and crucial to process

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