Water Resources Research Act Program

Details for Project ID 2016MN365B

Making Farm-Scale Decisions to Improve Watershed-Scale Environmental Quality: Policy Comparisons Based on Farm-Level Abatement Costs

Institute: Minnesota
Year Established: 2016 Start Date: 2016-03-01 End Date: 2018-02-28
Total Federal Funds: $20,760 Total Non-Federal Funds: $53,463

Principal Investigators: Jay Coggins, Brent Dalzell

Abstract: The Midwest Corn Belt, located mostly in the upper reaches of the Mississippi watershed, is a leading source of nutrient runoff. Excessive nutrient runoff has nowhere to escape public attention because water quality has already been threatened in the Mississippi waterbodies. In Iowa, this has triggered a conflict between local farmers and a water treatment plant, the Des Moines Water Works. However, a more stringent standard on nutrient runoff would create greater pressure on agricultural profitability and production. Proper policies and innovations are needed, because the current situation imposes significant policy challenges. We have selected 10-15 of the most feasible and promising best management practice (BMP) combinations in the sample area of Minnesota and Iowa. They cover a comparatively large range of potential reductions in runoff. The influence of these BMP combinations on agricultural production and nutrient runoff has been simulated through the Soil and Water Assessment Tool. The relationship between agricultural profitability and water quality improvement is analyzed through a detailed economic model and econometric methods. Cost functions are estimated for each hydrologic response unit, which can be regarded as a “farmer” that is the fundamental agent making decisions on farming practices. The analysis allows us to estimate the trade-off between agriculture and environment for different policies, including uniform reduction, uniform BMP implementation over the whole area, taxes, and water quality trading. In particular, we also explore questions such as, how can the target on nutrient runoff reduction be achieved under different policy scenarios? What are the monetary cost and benefits associated with it? Regarding water quality trading, the possibility and the potential efficiency gains among farmers, and between point and nonpoint sources will be figured out in the sample area. Moreover, complementing previous work on agricultural runoff, our study relaxes the assumption on risk neutrality. The effect of farmer’s risk aversion attitude on policy responses and economic outcomes will be estimated.