Cost-Sharing of Improved Irrigation Technologies to Reduce Nonpoint-Source Pollution

Transcription

1 Cost-Sharing of Improved Irrigation Technologies to Reduce Nonpoint-Source Pollution Glenn D. Schaible, C. S. Kim, and Stan G. Daberkow Economic Research Service, U.S. Dept. of Agriculture, 1800 M Street, NW, Washington, DC 20036, Phone: (202) , schaible@ers.usda.gov This note is presented as part of a joint initiative on Economic Incentives and Water Resources Management implemented by the World Bank s Agriculture and Rural Development, Environment, and Water Supply and Sanitation Departments and the International Food Policy Research Institute (IFPRI). Across most irrigated agriculture, irrigation and fertilization inefficiencies result in runoff and deep percolation (leaching) of applied agricultural nutrients (primarily nitrogen and phosphates) into both surface and aquifer water supplies, often degrading these supplies for species habitat and for human consumption. As part of the Federal Agriculture Improvement and Reform Act of 1996, the U.S. Congress established the agricultura l cost-share program known as the Environmental Quality Incentive Program (EQIP) to address growing public concerns about nonpoint-source pollution. In The Farm Security & Rural Investment Act of 2002, the U.S. Congress expanded the water quality objectives of EQIP by funding a new ground and surface water conservation program emphasizing cost sharing of more efficient farm irrigation systems. Since nitrogen fertilizer is highly water soluble, the amount of nitrogen fertilizer lost in irrigation through le aching and runoff depends largely on the irrigation technology, as well as other factors such as soil type and topography, which affect the amounts of both irrigation water and nitrogen fertilizer applied in crop production. This note examines the economics of cost-sharing of advanced irrigation technologies as a 2003

2 means to improve water -use efficiency and reduce groundwater nitrate levels (Kim et al., 2000). Both irrigation and fertilization inefficiencies are incorporated within the economic analysis and used to identify increased farmer and societal costs and benefits associated with shifts to water -conserving irrigation systems. The economic analysis also accounts for changes in the stock of nitrates in groundwater and differences in the rate of nitrate leaching associated with alternative irrigation technologies. Economic and water quality impacts associated with cost sharing of improved irrigation technology were examined for irrigated agriculture in Merrick county, Nebraska. Breakeven values were computed for producers, i.e., the minimum subsidy (cost-share) required to induce Merrick county farmers to adopt water-conserving irrigation technologies. General Economic Decision Criteria A farmer s decision to invest in an improved irrigation technology depends upon whether additional (net) producer costs are lower or greater than additional producer benefits, and the amount of a public cost-share subsidy. Net producer costs for an improved technology include increased annual investment costs less the reduction in operating and maintenance costs. The public cost -share subsidy depends upon both the size of producer costs and benefits, and the size of benefits to society. Producer benefits include increased farm profits associated with reduced nitrogen application costs and enhanced productivity associated with increased resource -use efficiency. Measured benefits to society include a reduction in the opportunity costs associated with producer input -use inefficiency. The producer investment decision may differ for three alternative cases. For Case I, the producer s decision to adopt an improved irrigation system is based solely on a comparison of producer costs and benefits alone and involves no public cost-share subsidy. For this case, the net change in producer costs are less than the additional economic benefit accruing to the farmer alone. A rational producer, in this case, would be expected to adopt an improved irrigation technology without a cost-share 2

3 subsidy. For Case II, the net change in produc er costs for an improved irrigation technology is greater than the producer s expected economic benefit. In this case the farmer would be willing to pay the additional costs of adopting an improved irrigation system. However, the farmer would not be willing to pay additional costs greater than his expected total economic benefits. In order to encourage the farmer to adopt the improved irrigation technology, the minimum public cost-share would need to cover the producer costs greater than the farmer s economic benefit. For Case III, the net change in producer costs for an improved irrigation technology is greater than the sum of measured economic benefits to the farmer and to society. Often however, all benefits to society are not always readily measured, resulting in a need for flexibility in establishing the public cost-share subsidy. In this situation, the farmer remains willing to pay additional costs, but also remains unwilling to pay those costs greater than his economic benefit. Therefore, without a public cost-share, the farmer remains unwilling to adopt the improved irrigation technology. To encourage adoption of the improved irrigation technology, the minimum public cost-share would need to cover all remaining costs; even those costs greater than the sum of measured economic benefits to the farmer - and to society. From a broader social economic perspective, there generally are additional benefits to society associated with improving irrigation and fertilization efficiencies for irrigated agriculture that are not accounted for in empirical analyses, which in effect tend to underestimate the net social value of an improved technology. In particular, society benefits from: (1) fewer resources devoted to cleaning the contaminated resource, such as nitrate removal from drinking water supplies; (2) improved human health or less demand for health service; and (3) lowered risk of ecological damage associated with improved habitat for endangered species. Given the strong likelihood of such additional benefits, they could justify a public cost-share greater than the total private (producer) economic benefits less the additional producer costs. 3

4 Results for Merrick County, Nebraska Observed nitrate concentration in groundwater in Merrick county, Nebraska, on average was 18.7 parts per million (ppm), according to a survey conducted by the Central Platte Natural Resources District (CPNRD) during the period. The U.S. Environmental Protection Agency (EPA) standard for drinking water is 10 ppm nitrates. About 68 and 32 percent of total irrigated acres for corn production in the study area were irrigated with conventional furrow-gravity irrigation, and with center -pivot sprinkler systems, respectively. The nitrate leaching rate for a conventional, furrow-gravity irrigation system for the study area is nearly three times the rate for a centerpivot sprinkler system (0.23 % vs %). Results in Tables 1 and 2 identify the cost-share economics (expressed in 1990 dollars) and groundwater quality impacts associated with more extensive adoption of three improved-irrigation systems [namely, a furrow/gravity-based tail-water recovery system, a furrow/surge-flow gravity system, and a center-pivot (CP) sprinkler system]. From a private economic perspective, a Merrick county irrigator using a conventional furrow -gravity system would be better -off adopting a tail-water recovery system or a surge -flow gravity system, even without a cost-share subsidy. Total additional net producer (private) costs for these improved gravity systems, $7.07 and $8.03 per hectare, respectively, are slightly less than the additional economic benefits to the producer (alone) for these systems, $8.88 and $10.82 per hectare, respectively (Table 1). However, for a center-pivot sprinkler irrigation system, total private economic benefits for the producer alone ($19.23 per hectare) are not large enough to offset higher additional net producer costs, $41.78 per hectare. These results could likely help explain the rather sluggish adoption rate in the study area for centerpivot irrigation. In this case, the minimum government cost-share 4

5 required to encourage the adoption of a center-pivot sprinkler system is estimated to be $22.55 per hectare per year. While both the tail-water recovery and surge-flow gravity irrigation systems are attractive without a public cost-share subsidy (that is, their additional producer economic benefits are greater than their additional net producer costs), these two systems are not the best technology choice for the study area from a groundwater quality perspective. Results in Table 2 indicate that the stock of nitrates in groundwater continues to increase after 15 years for all three gravity systems. The stock of nitrates in groundwater declines below the baseyear level after 15 years only for the center -pivot sprinkler system. Results in Table 2 also show that the nitrate concentration level also increases over the base-year level for all three gravity systems. In fact, nitrate concentration for a tailwater recovery, furrow -gravity system, after 15 years, is higher (at ppm) than nitrate concentration for a conventional furrow -gravity system (at ppm). This deterioration in water quality occurs because even though a tail-water recovery system has a higher irrigation efficiency than a conventional furrowgravity system (0.73 % vs %), for this study area it also has a higher rate of leaching than a conventional furrow -gravity system (0.27 % vs %). However, for the furrow-based, surge-flow gravity system, while nitrate concentration decreases (relative to a conventional furrow -gravity system), it does so at a decreasing rate. Even though the center-pivot sprinkler irrigation system requires a cost-share subsidy to encourage faster adoption, this system reduces both the stock of nitrates in ground water and nitrate concentration after 15 years (Table 2). Clearly, from a groundwater quality perspective for Merrick county Nebraska, a public cost-share program could make a significant contribution to reducing irrigation-induced nonpoint-source contamination. However, groundwater nitrate levels remain above EPA drinking water standards, implying that additional public intervention would likely be required to meet EPA standards. 5

6 Table 1. Cost-Share Economic Values 1 for the Adoption of Improved Irrigation Technologies for Merrick County, Nebraska. Improved Irrigation System Tail water Surge Center recovery flow pivot Additional Economic Benefits ($/hectare) 3 (A) Producer Only (B) Producer and the rest of Society (C) Annuity of Increased Capital Investment Costs 2 (Over a Conventional Furrow-Gravity Irrigation System) (D) Reduced Annual Labor and System Maintenance Costs (Over those of a Conventional Furrow-Gravity System) (E) Additional Net Producer Costs [Rows (C) + (D)] (F) Producer Net Economic Benefits [Rows (A) (E)] All values are in 1990 prices (US$). 2 Calculated based on an annuity using a 5 percent discount rate and life expectancy of 15 years. 3 One hectare = 2.47 acres. Table 2. Stock of Nitrates and Their Concentration Level in Groundwater (after 15 years) for Merrick County, Nebraska 1 Stock Irrigation Technology of Nitrates Concentration (kg/hectare) ppm For a conventional furrow -gravity irrigation system For a tail-water recovery, furrow -gravity irrigation system For a surge -flow, furrow-gravity irrigation system For a center-pivot sprinkler irrigation system Base year stock of nitrates in groundwater was at kg/hectare with a nitrate concentration of 18.7 ppm. Implementation Consequences In response to average nitrate concentration levels reaching a high of ppm, the CPNRD, in 1987, adopted a Groundwater Quality Management Plan (GWQMP) designed to control nitrate concentration levels in groundwater. The program established a three -phase, nitrate 6

7 regulatory approach across areas of the CPNRD defined on the basis of average groundwater nitrate levels (Phase I areas: ppm; Phase II areas: ppm; and Phase III areas: above 20.1 ppm). Use of nitrogen fe rtilizer was increasingly restricted across Phase I to III areas. However, nitrate regulations during the early years of the GWQMP usually involved restrictions only on the timing of nitrogen use, as well as annual monitoring and reporting of deep-soil residual nitrogen and the nitrogen content of all wells used to irrigate fields growing corn, grain sorghum or potatoes. Adoption of best management practices, including fertilizer calibration meters, irrigation well-hour meters, vertical dam manifolds, irr igation flow meters, and tail-water recovery and surge-flow gravity irrigation systems were encouraged through availability of cost-sharing programs from the CPNRD, with cost-shares ranging up to 50 percent. In addition, recognizing uncertainties associated with differences between amounts of nitrogen needed and the availability of nitrogen from infield sources (residual soil levels, irrigation water, and the previous year s crop), the GWQMP guidelines allowed for some flexibility in determining recommended commercial nitrogen application rates. Prior to the District s GWQMP, nitrate levels in the high nitrate areas increased 0.5 ppm per year. At the end of the first year under the GWQMP, the groundwater nitrate level dropped by 0.3 ppm and continued to dr op annually through the 1993 crop year. Adverse weather conditions increased nitrate levels during 1994 and 1995, but then the nitrate level in the high-nitrate area dropped to as low as ppm in the spring of 1999 [ While modest reductions in groundwater nitrate levels are consistent with program objectives, the CPNRD recognized the need to revise its GWQMP in order to achieve more significant reductions in groundwater nitrate concentrations. The GWQMP was amended and re-authorized in 1995, again in 1998, and is currently undergoing major revision. Initial changes involved stricter enforcement of producer monitoring and reporting of nitrogen and well-water use. 7

8 Failure to provide required field-level data to the CPNRD could now result in a subpoena. Well output monitoring was made mandatory, with producers in the higher-nitrate areas required to use well flow meters. In addition, the CPNRD introduced a one -on-one producer education/training program wherein a producer gets weekly irrigation assistance on one field and a complete evaluation of their irrigation system. More recently, the CPNRD has re-defined the GWQMP s Phase I III nitrate management areas and added a Phase IV area. The new nitrate management areas were re-defined based on lower groundwater nitrate-concentration rates (Phase I area: ppm; Phase II area: ppm; Phase III area: 15.1 ppm and higher). The new Phase IV area includes lands where the groundwater-nitrate levels did not decline at an acceptable rate. For these areas, the CPNRD sets the expected crop yield and the nitrogen application rate. Also, both the timing and amount of nitrogen applied are now regulated, with less flexibility allowed in determining recommended nitrogen application rates. In addition, CPNRD staff work directly with producers on implementing best management practices. The new GWQMP received preliminary State approval on April 24, Finally, only recently has the CPNRD subsidized adoption of a sprinkler irrigation system. The initial sign-up for a $5,000 Center- Pivot Incentive Payment Program occurred on April 1-15, Eligible farmers included those participating in the CPNRD s GWQMP. However, the constraining factor for the new CP Incentive Program appe ars not to be willing participants, but rather, limited costshare budgets. The views expressed in this Note are the sole responsibility of the authors and do not necessarily reflect those of the Economic Research Service or the U.S. Department of Agriculture. 8

9 The findings, interpretations, and conclusions of this note are the author s own and should not be attributed to the World Bank, its management, its Board of Executive Directors, or the countries they represent. Additional Reading Kim, C. S., Sandretto, C. L. and Hostetler, J. E. (1996). Effects of Farmer Response to Nitrogen Fertilizer Management Practices on Groundwater Quality, Water Resources Research, 32: Kim, C. S., Sandretto, C. L. and Lee, D. (1999). Controlling Groundwater Quality with Endogenous Regulatory Instruments, Natural Resource Modeling 12 (2): Kim, C. S., Schaible, G. D. and Daberkow, S. G. (2000). An Efficient Cost- Sharing Program to Reduce Nonpoint-Source Contamination: Theory and an Application to Groundwater Contamination, Environmental Geology, 39 (6): Williams, J., Llewelyn R., Reed M., Lamm F. and Delano D. (1997). Economic Analysis of Alternative Irrigation Systems for Continuous Corn and Grain Sorghum in Western Kansas. Contribution No S, The Kansas Agricultural Experiment Station, May Version, 46 pp. 9