Economic and environmental implications of agricultural practices and alternative policies on water quality : White River Region, Indiana

Abstract

Environmental issues continue to gain priority among societal goals. Water quality has been the focus of much of the attention, with the emphasis shifting from point source to nonpoint source pollution from agriculture. The objectives of this study were to assess economic and environmental impacts of alternative agricultural systems on farm net returns and environmental flows, and to examine farm-level responses to alternative policies. The biophysical simulation model (EPIC-WQ) and a firm level mathematical programming model were used. Output from EPIC-WQ (crop yields and environmental flows) and crop enterprise budgets were used as inputs to the farm level economic model. Alternative policies included regulation (standards) and economic incentives (input tax and effluent tax). Nitrogen runoff is not a problem, so policy evaluation and discussion are mainly confined to atrazine. Per acre results indicated that the increase in corn yield for a corn-soybean rotation going from a low and medium input use to a high input use was 11% and 1%, respectively. The per acre net returns were highest for a corn-soybean rotation with medium input use and minimum tillage. No-tillage reduced soil erosion but increased nitrogen runoff. Atrazine concentrations in runoff were highest in May and exceeded the EPA standard of three parts per billion. The results of the farm level analysis suggest that standards on the concentration of discharge of atrazine is a possible policy option for controlling agricultural pollution with a minimum cost to the farmer. A tax on atrazine equal to the price times 12 reduced expected net returns by 16% and caused a change in the production practices to included a no-herbicide option for corn. A charge on atrazine runoff had similar results as in the case of an input tax. Furthermore, the risk implications indicated that the rate of decline in atrazine runoff was dependent on risk preference and availability of production options on the farm. The results of this research indicate that regulation and economic incentive policies are both applicable to correct externalities but there are issues of costs of implementing, administering and of political acceptability.