Economics of Conservation Planning

Introduction §Fits into the 9 step process §Identify and evaluate onsite and offsite l Benefits l Costs §Time Value of Money §Evaluation Techniques

Nine Step Process §Involves many disciplines §Economics should be applied throughout l most heavily during Phase II (Decision Support)

Nine Step Process

Benefits of Conservation §Onsite benefits l occur at or close to activity §2 types of onsite benefits l Maintain or Restore Productivity l Decrease Production Costs

Benefits of Conservation §Offsite Benefits l Occur away from activity l may occur to different owners §Water Quality is usually offsite §Effects are Documented l CPPE in Section IV and...

Benefits of Conservation §Conservation Practice Economic Effects (CPEE) spreadsheet. l Section V CPEE

Costs of Conservation §Two basic costs l Expenditures Up-front installation costs Operation and Maintenance cost l Lost Production cost is dependent upon current yield

Ag Business Environment §Interest Rates §Prices §Farm Program §Cost Share and Incentive Opportunities §Taxes §etc.

Ag Business Environment §Economic Prosperity l Reduce Taxes l Invest in long-term conservation §Economic Stress l Long-term conservation not feasible l Apply part of a system

Time and Money §$1 today = $1+interest tomorrow §Opportunity Costs l Interest paid on a loan l return given up on another investment

Time and Money §Interest l the amount earned or paid for the use of money §Number of Periods l time of the investment §Present Value l Principle - amount borrowed or invested today

Time and Money §Future Value l Principle + interest §Payment l reoccurring deposits or receipts representing either principal, or principal plus interest

Time and Money §One-time Values (Installation cost) l Occurs at a single point in time §Annuities (Benefits) l Occur over an extended period Constant, Decreasing, or increasing §Lag (deferred grazing) l Occurs at some point in the future

Time and Money §Annuity Table §Loan Amortization Worksheet §Amortization Table l Excel l Pocket Card

Time and Money §Future Value l PV(1+ i) n §Rule of 72 (double your money?) l 72 / i or 72 / n § Present Value l FV/(1+I) n

Evaluation Techniques §Partial Budgeting §Break-even Analysis §Cost Effectiveness Method §Conservation Effects for Decision-making §Economic Thresholds §Crop Budgets

Evaluation Techniques §Partial Budgeting l Method of estimating how small changes will effect net income.

Evaluation Techniques §Break-even Analysis l Evaluate how much of an investment can be made based on expected returns.

Evaluation Techniques §Cost Effectiveness Method l Costs of alternatives that achieve the stated objective are compared.

Evaluation Techniques §Conservation Effects for Decision-making Allows you to consider all physical, sociological, and economic factors.

Evaluation Techniques §Economic Threshold l Compare treatment costs to lost revenue that will be incurred if left untreated.

Evaluation Techniques §Crop Budgets l Show the inputs required l Show estimated costs l Good when starting a new enterprise §eFOTG Section I l Economic Data - Other Resources l Missouri Farm Business Planning Handbook

Where is Econ Info Found §eFOTG l Section I Econ Data –Cost lists –Cost tools l Section III Quality Criteria –Econ l Section V CPEE

Where is Econ Info Found §General Manual l Part 400 – Econ Policy l Part 404 Subpart D – Cost Sharing §2 Handbooks l Water Resources l Conservation Planning (Draft)

Contact Information §For assistance contact Angie VanDyke