Economic Assessment of IPM Programs Scott M. Swinton Dept. of Agricultural Economics Michigan State University 4 th 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, 1998 Reductions to Income ($)Gains To Income ($) Added Cost Insect pest prediction model 2 Added scouting 111 Added Revenues (None) Reduced Revenues (None) Decreased Cost Reduced sprays 551 Total Reductions (A) 113Total Gains (B) 551 Net Change (B-A) 438 Source: M. Williams M.S., 2000

Potential discounted cumulative returns to investment in IPM $ Year Discounted Annual Net 10% Cumulative Net gain Break-even In Year 7 Discounted Cumulative Net 10% Discounted Break-even In Year

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

Mean-risk profitability tradeoff in tart cherry groundcover management (NW Mich, ) x x Desired direction

Profitability-nitrate leaching tradeoff in tart cherry groundcover systems (NW Mich, ) x Desired direction

Reduction in Cost and Environ. Impact by IPM Level: Michigan Tart Cherry, 1999 Conventional Basic IPM Intermediate IPM “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 Percent adoption 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 Price S 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”:

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

Expert opinion vs Survey data: Gross revenue by IPM level, t.cherry, 1999 NB: Error bars = 2 x Standard deviation Experts assumed no revenue difference from Conventional PM.