Economic Concepts Related to Appraisal II

Outline What is meant by economics Sustainable agriculture What are the basic issues related to appraisal Example of soil erosion

Economics of Sustainability Economics – It is not the study of money, it is the study of scarce resources Microeconomics is the study of the firm or individual Macros economics is the study at the societal level

Economics of Sustainability Some of the costs and/or benefits are pecuniary while others are non-pecuniary In addition, some of the costs and/or benefits do not fall to the ones who create them (externalities) When studying economics we are trying to see how an individual or society allocates its scarce resources to achieve its goals

Sustainable Agriculture: What Does it Mean – “The appropriate use of crop and livestock systems and agricultural inputs supporting those activities which maintain economic and social viability while preserving the high productivity and quality of Iowa’s land.” – “ … not a concretely defined set of management strategies and technology, but an approach which targets the enhancement of natural processes …”

Economics of Sustainable Agriculture 1.Profit 2.Ability to generate an income 3.Risk 4.Labor use including timeliness, quality, and trade- offs 5.Energy use

Economics of Sustainable Agriculture 6.Environmental Quality 7.Impact on rural communities 8.Impact of food supply including safety and cost 9.Structure of agriculture 10.Efficient and effective use of resources

Appraisal Issues 1.Valuing benefits and costs 1.Externalities 2.Non-market goods and services 3.Common property 4.Resource depletion 2.Resource Distribution 3.Time 4.Changes in technology 5.Changes in preferences

Erosion Class None or Slight – More than 7 inches of A or A plus E Horizon Moderately Eroded – 3-7 inches Severely Eroded – Less than 3 inches Overwash – 8-18 inches of recently deposited material above A Horizon

WATER EROSION – WINNESHIEK COUNTY (LOOKING RIGHT AT HARVEST)

WATER EROSION – CHICKASAW COUNTY

WATER EROSION – WINNESHIEK COUNTY (LOOKING CENTER)

WATER EROSION – BUTLER COUNTY

WIND EROSION – BUTLER COUNTY

BREMER COUNTY 1999

BREMER COUNTY – 1999

PESTICIDES, NUTRIENTS AND SEDIMENT – WHERE DO THEY GO?

ROOT RIVER AFTER 2” RAIN THE MISSISSIPPI RIVER

SOURCE: NATIONAL OCEANIC AND ATMOSPHERIC ADMINISTRATION POINT WHERE THE WATERS OF THE MISSISSIPPI RIVER MEET THE WATERS OF THE GULF OF MEXICO

AGRICULTURE AND HYPOXIA HYPOXIA = LOW OXYGEN < 2 PPM OXYGEN WILL NOT SUPPORT FISH AND OTHER AQUATIC LIFE NUTRIENT ENRICHMENT FROM FERTILIZERS AND EROSION (SEDIMENTS) ARE MAJOR CAUSES OF HYPOXIA THE CORN BELT IS A PRIMARY SOURCE FOR NUTRIENT ENRICHMENT

HYPOXIC ZONE IN THE GULF OF MEXICO DECEMBER, 2007 SOURCE: NATIONAL OCEANIC AND ATMOSPHERIC ADMINISTRATION

Erosion Cost Categories Individual farmer – Fertility loss – Reshaping of field landscape – Loss of organic matter Society – Water quality, recreation, navigation, drinking water, etc. Land owner – Decrease in value of the land

External Costs Cost of erosion estimates range from $19 to $6.20 per ton In the Corn Belt there was 3.9 T/acre water erosion and.2 T/acre wind erosion Range from $77.90 to $25.42 per cropland acre in the Corn Belt Tegtmeier/Duffy estimates from $14.09 to $45.68 for all external costs USDA average for soil $25.42 versus total $29.89

Erosion Do farmers take erosion into account when making their decisions? Do land buyers/renters consider erosion level when acquiring land?