H_200_NREH - National Resource Economics Handbook

Part 610 - Natural Resource Economics Handbook

Subpart A - Economics Analysis and Conservation Planning

           610.0  Introduction

A.  Purpose and Scope

(1)  The NRCS Natural Resource Economics Handbook has been developed as a technical reference for NRCS personnel—primarily economists and field planners—to help them evaluate the efficient and effective use of public investments in conservation programs and to provide sound guidance to land users regarding the economic aspects of planning and implementing conservation systems.  Specifically, the handbook is intended to serve as a resource for field planners to improve the quality of the assistance and input they provide to land users as they evaluate the prospective effects of conservation alternatives and make conservation and natural resource management decisions.

(2)  Since this handbook has in part been prepared for introducing economic concepts to noneconomist NRCS field planners and staff, only limited economics and financial concepts that comprise the basic economic factors influencing conservation decisionmaking are introduced.  These include benefits, costs, market price identification, identification and evaluation of nonmarket benefits, interest, annuities, and several evaluation techniques involving partial budgeting, break-even analysis, cost-effectiveness and marginal analysis methods.  The core economic and financial concepts introduced in this handbook have been explained with examples of simple application of economics and conservation practices.  This handbook does not address the benefits and costs associated with specific NRCS conservation practices.  Rather, it presents more general concepts that can be applied within multiple different conservation planning contexts.  More details about the economic analysis of specific NRCS conservation practices will be developed through training workbooks and case studies in the future.

(3)  This handbook puts economic analysis in the context of conservation planning.  NRCS field planners work with land users to develop conservation plans that, when implemented, will help them meet their personal conservation-related farming or ranching objectives.  Those objectives usually include resolving resource concerns while simultaneously improving farm or ranch operations and meeting their economic needs.  NRCS planning policy directs field planners to develop at least two different conservation systems for the cooperating land user in order to provide him or her with an adequate range of options from which to choose.  As an individual conservation plan is being developed, the field planner assists the land user in understanding and evaluating the potential resource and economic effects of alternative conservation practices and systems.

(4)  This handbook treats economic analysis of resource conservation in the context of farm or ranch operations, but it does not engage in the full scale economic analysis of farm or ranch analysis itself.  NRCS planners usually do not become involved in financial details of the operations of a farm or ranch.  Rather, they engage in more limited conservation-related analysis, completing evaluations that are generally limited to assessing the effects of a specific change in operations, namely the implementing a given conservation practice or system of practices.  However, NRCS planners are required to be mindful about the constraints of conservation programs and projects from the general social and economic conditions of the land users.

(5)  This handbook provides guidance for NRCS personnel to conduct economic analysis of resource conservation at easy to intermediate complexity.  NRCS field planners are expected to be able to independently complete analyses of simple to intermediate complexity, including partial budget and other types of analysis.  As resource settings and conservation systems become more complex, the accompanying analyses often require formal assistance from an NRCS regional or national economist.  Economic analyses completed as part of the conservation planning process can range in complexity from very simple to extremely intricate.  The relative complexity of any analysis should be driven by the corresponding complexity (or simplicity) of the context within which the decision is being made.  The goal in providing economic support for conservation planning is to provide to decisionmakers—the land users—enough information for them to make sound decisions regarding their conservation activities.  Accordingly, the complexity of the economic evaluation of any conservation plan should hinge on the complexity of the resource setting, the alternative systems being evaluated, and the amount of information needed for the land user to confidently and comfortably decide which conservation system they prefer to adopt. 

B.  Handbook Organization

(1)  Subpart A first introduces the context and basic concepts of economic analysis for conservation planning, and then expands on the subject of economic analysis as a central part of the conservation planning process.  This subpart describes the types of natural resources and their conservation needs, NRCS resource conservations and its role in resource conservation, and the basic concepts related to economic analysis of resource conservation, conservation decisionmaking, relative importance of benefits and costs, and Federal regulations on economic analysis for public decisionmaking.  This subpart also introduces the NRCS nine-step planning process, the conservation effects for decisionmaking framework and their relationship to economic analysis of resource conservation. 

(2)  Subpart B explains the basic process of identifying and categorizing the benefits and costs of a conservation project.  It also introduces the concept of “T” charts and shows an example of how a “T” chart can be used to evaluate the net benefits provided by a conservation project. 

(3)  In subpart C, readers are introduced to basic cash flow analysis and other financial analysis techniques often used in benefit-cost analysis.  These include discounting, compound interest, calculation of a present net value, and other analysis techniques. 

(4)  Subpart D addresses additional methods of analysis that can be applied when determining whether a conservation project is worth completing.  The techniques presented in subpart D can also be used to determine the most-preferred conservation project when developing and comparing alternative conservation systems.  These techniques include partial budgeting, cost-effectiveness analysis, and other formal methods of project evaluation.  Even after thorough analysis and thoughtful decisionmaking, it is sometimes the case that a land user will be reluctant to adopt the selected conservation system. 

(5)  In subpart E, readers are introduced to some of the constraints that face land users and that influence them in determining whether to put conservation systems into practice.  A basic knowledge of these obstacles to adoption can help NRCS field planners better understand the land users’ perspective and provide ideas for how to help them overcome those obstacles. 

(6)  Subpart F provides an introduction to statistics for conservation planning to provide readers with a solid understanding of how to properly use statistics to analyze conservation system data.  Readers are expected to understand the core economic, financial, and statistical concepts presented in this handbook and to become familiar with their application so that they can offer effective help to conservation planners and NRCS clientele across the country.

(7)  Subpart G is the general glossary that gives definitions of the terms included in this handbook.

(8)  Subpart H provides a list of reference materials on the subjects presented in the foregoing chapters.  These materials serve as sources of more indepth information for interested NRCS economists and planners.  Check the economics section of the NRCS Web site to find a list of useful resources for conducting economic analysis of resource conservation, such as reference materials, data, tools, examples, and case studies.

C.  Types of Natural Resources

Natural resources can be divided into three primary categories based on their renewability and the degree to which each resource is susceptible to human and other impacts.  The risk of resource degradation and the respective need for applying conservation to each resource depends in part on what type of resource it is.  These three major resource types are perpetual, renewable, and nonrenewable. 

(1)  Perpetual Resources.—The availability of perpetual resources is independent from human activity.  Examples include solar radiation, tidal forces, and wind energy.  It is not physically possible to conserve perpetual resources, although energy and many natural resources produced by them can be stored and conserved.  We should replace nonrenewable resource use with perpetual resource use as much as possible so long as the total costs of doing so are justified by the benefits obtained.

(2)  Renewable Resources.—Renewable resources reproduce or are replenished by natural processes.  Plants and animals are examples of renewable resources.  So are fresh water and clean air.  Renewable resources have a fixed supply at any given time, but their total stock increases, remains constant, or declines over time, depending in part on human activities.  If a renewable resource is used at a rate exceeding its reproduction, growth, or renewal rate, the stock of that resource will decrease.  On the other hand, renewable resources can last into perpetuity if they are properly used and managed.  Recycling could also play an important role in conserving renewable resources.

(3)  Nonrenewable Resources.—Nonrenewable resources are essentially finite in quantity and, within a human time scale, are not renewed by natural processes.  Typical examples of nonrenewable resources include fossil fuels and minerals.  Nonrenewable resources can sometimes be recycled, but once a nonrenewable resource has been converted to a nonuseful or lower potential energy state (such as when metal oxidizes or fossil fuel is burned), it is no longer available for most human uses.  We should use nonrenewable resources efficiently and reuse or recycle them whenever possible.  We should also use these resources for investments in technology, education, and productive capital so that future generations will be better equipped to deal with exhausted supplies of some nonrenewable resources.

D.  NRCS Resource Concerns and Resource Conservation

(1)  NRCS is responsible for leading the effort to conserve natural resources on private land within the United States.  When choosing between conservation systems, the degree to which each alternative system meets the conservation goals of the agency at the national, State, and local levels should be taken into consideration.  The views and objectives of the land user and others in the local and regional area must also be included in the decisionmaking process for the implemented system to have the fullest potential for success in meeting its resource objectives.  Local conservation leaders set priorities among resource concerns based on their understanding of existing resource condition and opportunities.  Coordination among conservation partners to take these priorities into account can lead to more economically efficient solutions to natural resource concerns and achievement of resource sustainability, which is one of the national objectives of NRCS.  Economic analysis plays an important role in designing and implementing any conservation systems for the wise use of natural resources.

(2)  Title 450, General Manual (GM), Part 401, states in part, “NRCS provides technical assistance to decisionmakers to protect, maintain, and improve soil, water, air, plant, and animal resources and related human considerations.”  These resource categories have traditionally been referred to within NRCS as the SWAPAE+H resource concerns:  Soil, Water, Air, Plant, Animal, Energy, and Human.  Title 450 of the general manual places responsibility for the development and maintenance of a national quality criteria template—for States’ use in their respective Field Office Technical Guides (FOTGs)—on the National Technical Guide Committee.  This template outlines the specific subcategories of and resource concerns and considerations that States are expected to address in conservation planning and in the application of conservation practices at the field level.  The detailed resource concerns included in the national quality criteria change from time to time, but the basic natural resource elements addressed by NRCS conservation planning and implementation policies remain largely unchanged for long periods of time.  Human considerations are not included in the quality criteria template, but rather are resource considerations they are included in the national Conservation Practice Physical Effects database, and also included in the FOTGs.  These quality criteria and resource considerations comprise the basis for conservation effects in the NRCS evaluation process called “conservation effects for decisionmaking” (CED), the output of which is primarily expressed as benefits of conservation activities.

(3)  NRCS bases its recommendations for conservation efforts on a list of well-defined conservation practices contained in the NRCS National Conservation Practice Standards database.  This list of practices is adjusted and the practice standards themselves are edited periodically as conservation technology and understanding of conservation effects are improved over time.  The basic categories of practices and the core conservation practices—intended to address the SWAPAE+H resource concerns—remain relatively stable from year to year.  Conservation practices are assembled into resource management systems (RMSs), which are intended to address a full range of the typical resource concerns found within specific geographic areas.  The practices within a given RMS are divided into three categories of priority:  essential, facilitative, and additional.  Generally speaking, management practices such as irrigation water management, prescribed grazing, or nutrient management are considered to be the most important practices for resolving the typical spectrum of resource concerns found on agricultural lands within specific land-use categories such as crop land, grazing land, or headquarters.  These would be listed as essential practices.  Facilitating and additional practices include sprinkler irrigation system, range planting, access control, and waste storage facility, among many others.

(4)  Information on RMSs and State-specific conservation practice standards, and other conservation planning and implementation is included within individual States’ FOTG data systems.  The detailed criteria and implementation guidelines provided in each conservation practice standard establish the basis for conservation practice costs in CED.

           610.1  Economic Analysis of Resource Conservation

A.  Economic Analysis and Conservation Decisionmaking

(1)  Economic analysis of resource conservation has many aspects and can be conducted from different perspectives.  An analysis could focus on a single project, or it could evaluate a program that covers many projects.  It could be conducted from a land user perspective or a societal perspective.  It could be completed at an individual field, farm, watershed, regional, or national level. 

(2)  This handbook focuses primarily on the economic feasibility of resource conservation at the individual project level from the land user perspective.  As decisionmakers for consumption and production, we weigh the benefits and costs of our decisions.  Aspects that cannot be measured in dollars influence many of those decisions.  Ultimately, we try to compare the benefits of a purchase or investment to its costs.

(3)  Decisionmaking for land users in resource conservation is the same as any other decisionmaking.  Once a problem is identified, the physical and monetary effects of alternatives can be compared.  One of the land user’s important concerns is whether his or her potential benefits from installing new conservation measures would outweigh their costs.  Therefore, from this perspective, a field-level economic analysis mainly evaluates the benefits and costs of a specific conservation project.  It involves identifying, estimating, and comparing the benefits and costs of the project.

(4)  The conservation decisionmaking process consists of first developing a full range of alternatives, then identifying the benefits and the costs of each alternative, evaluating the importance of the benefits of each option, and finally determining which alternative offers greatest net benefit or the smallest costs for the same level of benefits produced.  Effective conservation planning must involve both the land user and the conservation planner.  Together they need to identify the important physical and economic factors that are to be examined and look into the future to identify any anticipated changes in conditions “with” and “without” conservation.  In addition, the land user needs to determine the relevant time horizon for conservation planning, constrained by the planning horizon or physical life of the particular conservation practices in question.  This process enables comparison to eventually select the most desirable option.  In short, a typical benefit-cost analysis for any resource conservation practice or activity requires four simple steps for each planning alternative: 

(i)  Estimate costs

(ii)  Estimate benefits

(iii)  Convert benefits and costs to “like terms”

(iv)  Compare costs and benefits

B.  Relative Importance of Benefits and Costs

(1)  The conservation decisionmaking process involves the comparison of tradeoffs within and between alternative options.  Some conservation effects may have a common denominator, such as a market price, while others do not.  Once costs and benefits are identified, they are quantified, given a dollar value (if possible) and converted to “like terms” where possible.  Conservation costs and benefits are most easily compared when they are in the same units and evaluated over the same time period.  Economic analysis can and should still take place without dollar values, but, where possible, costs and benefits should be described using the same units (i.e., the same denominator).  Once costs and benefits can be compared, informed decisions can be made.  Specific techniques for economic analysis of conservation will be described later in this handbook.  When evaluating a project from the land user’s perspective, the land user, not the assisting professional, determines the relative importance of the prospective benefits of alternatives in comparison with their costs to establish which alternative offers the most important benefits per dollar, especially in cases where benefits are difficult to quantify or occur at offsite locations.

(2)  Economic evaluations usually involve assigning appropriate unit prices to benefits and costs associated with the alternatives under consideration whenever possible, and when not possible, assessing the relative importance of the non-dollar benefits and costs.  Therefore, quantification of effects, gains, and losses will be easier to complete when the evaluation begins with time or physical measures, such as hours, bushels, gallons, and pounds, whenever possible.

(3)  Items such as commodities are generally priced based upon future market expectations taking into account previous and current conditions.  It is important to not base decisions on relatively short-term spikes or sudden dips in commodity markets.  In addition, it is also important to not base decisions on “side-deal” prices, but rather using fair market values in performing an analysis.  USDA maintains “normalized” prices for commodities based on 5-year averages.

(4)  Conservation costs can generally be categorized as increases in expenses, decreases in income, or undesirable changes in physical conditions.  Increases in expenses may include purchasing materials or equipment, or hiring labor.  Decreases in income may result from taking land out of production or reducing crop or livestock yields.  Data such as labor costs, at times, may not be readily available, even though a labor market exists.  Labor required for implementation may not increase out-of-pocket cash costs—such as when the land user or his or her family (sometimes collectively referred to as “family labor”) will perform the labor.  On the other hand, labor saved by implementing the conservation system might not always be added to cash revenue.  This is because savings in labor costs have cash value only when labor cash payments are reduced, or when cash revenue is generated from use of the saved labor in an alternative activity.  Certainly, saved labor may provide the benefit of increased leisure time to the laborers.  Similarly, commitment of labor has a cash cost only when additional cash payments are made to labor or when committed labor on the part of the land user reduces cash revenues due to being taken out of a higher-paying alternative activity.  The example of labor commitment versus changes in cash value demonstrates the economic concept of opportunity cost, which relates the value of a good or service to a prospective alternative use.

(5)  Conservation benefits are desirable outcomes of conservation and the opposite of conservation costs.  Examples include reductions in expenses or increases in income realized by bringing land into production or increasing crop or livestock yields.  Additional benefits include positive changes in resource or other conditions that can’t necessarily be calculated in dollar terms.  Landscape appearance, quality of life, and the presence of endangered wildlife species are examples where monetary values are either not readily available or are not generally agreed upon.  Although the intrinsic values of some characteristics of alternatives may not be quantifiable in dollar terms, they nevertheless need to be included in the decisionmaking process as society has determined that they must be protected.

C.  Federal Regulations on Economic Analysis for Public Decisionmaking

(1)  Federal Government agencies are responsible for evaluating whether their actions will result in efficient resource allocation, generating a net positive balance between benefits and costs.  Agencies are charged with considering and properly dealing with all of the elements of sound benefit-cost and cost-effectiveness analyses (Office of Management and Budget (OMB) Circular No. A-94).  Public decisionmaking differs from private decisionmaking in that Federal agencies allocate public resources for the benefit of society as a whole.  In private sector decisionmaking, only the viewpoint of the private stakeholder matters.  In public resource allocation decisionmaking, “the most economically efficient policy is the one that allows for society to derive the largest possible social benefit at the lowest social cost.  This occurs when the net benefits to society (i.e., total benefits minus total costs) are maximized” (US EPA 2010). 

(2)  For most State- and field-level NRCS economic analyses, the principles and policies contained in OMB Circular No. A-94, are to be used.  Circular No. A-94 directs economists to consider in their analyses the incremental dollar and non-dollar, quantifiable and unquantifiable, tangible and intangible benefits and costs of each project.  (For national analysis, any Federal project defined as economically significant (having an annual effect on the economy of $100 million or more per year or adversely affecting in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or Tribal governments or communities) must be evaluated using the guidelines in OMB Circular No. A-4.) 

(3)  Further guidance provided in Executive Orders 12866 and 13563 and in Memorandum 11-10 establishes the requirement that agencies may consider and discuss values that are “difficult or impossible to quantify.”  These values include equity effects, human dignity, fairness, and distributive impacts of Federal actions (from M-11-10).  While the majority of Federal policies related to benefit-cost analysis relate to regulatory actions, there are ample resources available that provide clear direction to agencies on how to conduct non-regulatory economic analyses.

(4)  Not all NRCS economic analyses are related to normal conservation planning decisions.  NRCS also engages in decisionmaking related to water resource projects.  For these, NRCS is one of the agencies required to apply the policies contained in “Economic and Environmental Principles and Guidelines for Water and Related Land Resources Implementation Studies” (P&G) (see note below).  The guidelines in P&G do not apply to field-level economic analyses.  In addition, NRCS has its own water resource economics handbook, found in the NRCS national directives system, Title 200, National Resource Economics Handbook, Part 611. 

Note:  The P&G was initially designed under the Water Resources Council (WRC) in 1973 and was revised several times.  The Council of Environmental Quality is leading another revision of the document beginning in 2011.

           610.2  NRCS Conservation Planning

A.  Objectives of the NRCS Conservation Planning Process

(1)  Economic analysis is a part of the NRCS’s conservation planning process.  Title 180, National Planning Procedures Handbook (NPPH), Part 600, is used by NRCS to guide the conservation planning process (180-NPPH, Part 600, Subpart A, “Framework or Planning”).  Through conservation planning, NRCS helps land users make informed decisions in the use and conservation of resources to achieve both their own objectives and those of society for sustained use of soil, water, air, plant, animal and energy resources.  In particular, by involving land users in the planning process, NRCS aims to—

(i)  Help protect, conserve, and enhance natural resources.

(ii)  Design alternatives that meet local resource quality criteria for identified resource issues.

(iii)  Include the consideration of human concerns toward achieving sustainable agriculture.

(iv)  Consider the effects of planned actions on interrelated geographical areas (i.e., looking offsite, beyond the planning unit boundary).

(v)  Consider and explain the interaction between biological communities and society.

(vi)  Focus on ecological principles.

(vii)  Consider the effects and interactions of planned systems and practices on the natural resources, as well as economic and social considerations.

(viii)  Assist with development of plans, regardless of scale, that will help achieve the client’s and society’s objectives.

(ix)  Identify where knowledge, science, and technological advancement are needed.

(2)  Beyond the NRCS conservation planning objectives, by working with individual land users, conservation planners can—

(i)  Help land users understand their resources and resource management needs, potentials, and problems.

(ii)  Identify opportunities and alternative solutions to problems.

(iii)  Determine effects of alternative solutions, including comparison of effects expected if the problems remain untreated.

(iv)  Choose alternative solutions that are consistent with the land user's objectives.

(v)  Implement and maintain feasible solutions as rapidly as is practical.

B.  The Nine-Step Planning Process

(1)  NRCS uses a three-phase, nine-step planning and implementation process for conservation systems (figure 610A-1).  This process is used in all instances where assistance is provided to land users or clients, regardless of the expected outcome or scope of the planning effort, the type of conservation treatments involved, or the source of funding to be used for implementation of conservation treatments. 

(2)  The degree of detail used in the planning process varies with the type, method, and scope of assistance; the complexity of the planning situation; and the different approaches toward planning preferred by the recipients of technical assistance.  Using the process creates a consistent planning method nationwide.  The steps are as follows: 

(i)  Phase I:  Collection and Analysis

·          Step 1.  Identify problems and opportunities.

·          Step 2.  Determine objectives.

·          Step 3.  Inventory resources.

·          Step 4.  Analyze the resource data.

(ii)  Phase II:  Decision Support

·          Step 5.  Formulate alternatives. 

·          Step 6.  Evaluate alternatives. 

·          Step 7.  Make decisions. 

(iii)  Phase III:  Application and Evaluation

·          Step 8.  Implement the plan. 

·          Step 9.  Evaluate the plan. 

(3)  While the nine steps are shown in sequence, the process is very dynamic and interactive.  This planning process requires the use of skills from many disciplines, such as economics, agronomy, soils, and engineering, to achieve the highest quality of assistance.  Economic analysis should play an important role throughout the planning process.  It enters into the process most heavily during phase II for formulating alternatives of choice based on economic concepts and principles to develop conservation plans (step 5).  Key factors for consideration are the relationships between the costs of the conservation treatments and changes in resource conditions that will occur after the implementation of the treatments.  Evaluations of the costs of treatments and their effects on the resource lead to formulation of cost-effective alternatives prior to decisionmaking.  Economic principles and methods are necessary to evaluate multiple conservation alternatives (step 6). 

(4)  Technical references and policy for guiding conservation planning include the following:

(i)  National Planning Procedures Handbook

(ii)  National Food Security Act Manual (NFSAM)

(iii)  Field Office Technical Guide (FOTG)

(iv)  Natural resources quality criteria

(v)  Resource management system guidance

(vi)  Conservation practice physical effects

(vii)  Conservation effects for decisionmaking

(viii)  General Manual

·          180-GM, Part 409, “Conservation Planning Policy”

·          190-GM, Part 410, “Compliance with NEPA and Endangered Species”

·          420-GM, Part 401, “Cultural Resources”

(ix)  Title 440, Conservation Programs Manual, Part 500, “Locally Led Conservation”

Click here for a copy of Figure 610A-1: Conservation Planning    

           610.3  Conservation Effects for Decisionmaking

A.  Introduction

(1)  Purpose and Scope

(i)  Phase II of the NRCS nine-step planning process comprises steps 5 through 7, which are “Formulate Alternatives,” “Evaluate Alternatives,” and “Make Decisions.”  In on-the-ground conservation planning, these three steps are often repeated in an iterative process as alternatives are developed, analyzed, and either adopted, adjusted, or discarded.  Economic analysis is an important part of the evaluation and decisionmaking steps in conservation planning.  Within the phase II process, the CED model provides a formal framework to guide NRCS planners and economists through the economic evaluation of each alternative.  This model enables NRCS planners to display and evaluate the effects of various conservation options available to land users (180-NPPH, Part 600, Subpart F, Exhibit 14, and Subpart D, Exhibit 42).  This is the point in the conservation planning process where the techniques of economic analysis are most often applied. 

(ii)  The CED process can be used to assist land users with their conservation decisions by—

·          Providing a framework in which to organize and present information that facilitates comparison of the positive (gains) and negative (losses) effects of a conservation option.

·          Permitting consideration of all physical, sociological, and economic values pertinent to the evaluation.

·          Encouraging the employment of analytical tools at appropriate levels of sophistication to provide information.

·          Capitalizing on the knowledge and experience of our agency professionals and clients to foster interaction throughout the decisionmaking process.

(2)  The Planning Process

(i)  The CED process is an integral part of the planning process outlined in the National Planning Procedures Handbook.  CED is not a new system, but a method of thought organization.  It provides a way to evaluate the continuum of all alternatives available to the land user, and is intended to make conservation planning and application easier and more efficient.  The central concept of conservation planning is to develop a list of practices that, when implemented, will address the resource concerns found to exist during the resource inventory process, as well as helping the land user to meet his or her conservation and production objectives.  A thorough process of developing conservation system alternatives will also include an evaluation of the potential cumulative and interactive effects of the proposed conservation practices.  Some of these effects can be identified by referring to the Conservation Practice Physical Effects database found in section V of the FOTG.

(ii)  NRCS planners develop alternative RMSs—also known as conservation management systems (CMSs)—to present land user with different ways in which to address existing resource concerns on the planning land unit.  A conservation planner working with a land user can be faced with any of several planning contexts leading to different conservation system types.  Ideally, the planner will develop a conservation plan that will adequately address all resource concerns on all land units within the operation controlled by the cooperating land user.  A plan developed at that level of completeness and that is expected to result in all resource concerns meeting NRCS quality criteria is an RMS.  At times, however, the land user will be interested in developing a plan that addresses only a limited number of resource concerns—or even a single resource concern alone.  In this case, the planner will develop what is called a “progressive management system.”  NRCS planners are encouraged to develop RMS-level conservation systems as often as possible rather than resorting to “progressive” conservation planning.  Progressive planning is generally limited to situations in which a land user simply does not have the time or the interest to contribute to a planning effort that addresses all resource concerns at an RMS level.

(iii)  In the past, basic conservation systems (BCSs) and alternate conservation systems (ACSs) were part of an effort to bring land users operating on highly erodible lands into compliance with provisions of the Food Security Act (1985).  While these types of conservation systems are still applicable within certain planning contexts, their use declined after most farmers participating in USDA financial assistance and support programs were brought into compliance.  Each alternative conservation system will contain different conservation practices and, therefore, will be expected to generate different conservation effects.  The CED process is intended to formalize the evaluation these effects and to provide clear information to inform the land user’s choice of a conservation system.

(3)  Collecting and Recording Information

(i)  The collecting and recording of effects information for the CED process is not new; it has been the major thrust of CMSs, and of planning in general.  The CED evaluation process links the planning process with economic input and emphasizes the end objective.  Identifying the expected effects from applied conservation allows decisions to be made and actions to be taken.  The CED framework is applicable to all NRCS programs and planning situations.  Consequently, it is also the theme and organizational tool for this handbook, which has an explanation of the steps in the process of evaluation, a diagram of the decisionmaking process, and examples of evaluation approaches.  Subsequent subparts explain the various economic principles, tools, and techniques available for use if one wishes to carry evaluations to a more detailed level of analysis.

(ii)  The relationship between CMSs and CED-based evaluation is captured in Title 190, National Biology Handbook, Subpart B, “Conservation Planning,” which states that the expected output of the conservation planning process includes a set of practical CMS alternatives compatible with client and NRCS objectives; a CED worksheet for each alternative, displaying effects and impacts for the client to consider and use as a basis for making conservation decisions; and technical assistance notes reflecting discussions between the planner and the client.

(4)  The Framework.—The CED framework combines information from many disciplines so the effects of implementing a prospective conservation system can be comprehensively and effectively evaluated.  For more information about CED analysis and the conservation planning process, consult 180-NPPH, Part 600, Subpart D, Section 600.42, “Support Guidance for Conservation Effects.”

Click here for a copy of Figure 610A-2: Conservation Effects for Decisionmaking             

B.  Steps in the CED Process

(1)  Benchmark

(i)  Field-office-level planning efforts should always first identify the benchmark condition.  The planner and land user work together to develop a picture of existing conditions, trends, problems, opportunities, and objectives.  The assistance provided is based upon soil, water, and other natural and cultural resource information.  The description of benchmark conditions could include—

·          Other inventories and evaluations.

·          Description of current crops, farming practices, livestock type and condition, and available equipment.

·          Consideration of sociological and economic characteristics.

(ii)  Planning objectives and the complexity of each situation determine the level of detail necessary for inventories and evaluations.

(iii)  The objectives of the land user will usually affect the kind and amount of information gathered and evaluated.  The formulation of planning objectives, however, requires that the objectives of society, as well as those of the land user, be considered.  The planning process should also identify opportunities.  This creates a broader view that goes beyond the search for resource problems in order to recognize where resource enhancements may be achieved.  For example, if a given area does not have a significant soil resource problem onsite, opportunities may still exist to make on-farm improvements that could increase efficiency and profitability, while at the same time reducing negative water or air quality effects offsite.  The benchmark condition scenario is also known as the “with condition” or the “future with project.”

(2)  Alternatives

(i)  Alternatives that meet both individual and societal objectives need to be considered after a picture of the benchmark situation and expected future trends have been developed.  The RMS formulation process will normally be used to develop alternatives that provide alternatives that will address a comprehensive range of the resource challenges faced by the land user.

(ii)  Proposed alternatives enable planners to develop a picture of the conditions that could exist on the farm or ranch with conservation treatment.  Alternatives represent the world of possibilities, a vision of what could be, based on predictive models, professional judgment, and experience with the expected effects of each action or set of actions considered.  They are the different options that are proposed to deal with current and future resource concerns arising from the existing situation. 

(iii)  An alternative is generally a RMS, but could also be an ACS for plans developed for the 1985 Food Security Act.  The alternative could consist of a single practice or simply be an adjustment to present farming operations.  Proposed alternatives must be consistent with sections III and IV of the FOTG and must be approved at the requisite level of authority.  Apart from the FOTG, the experience and knowledge of the planner and decisionmaker are the main sources of information to be used for selection of a resource system.

(iv)  To achieve the goals of a specific alternative, certain steps or actions need to be taken.  Examples of potential actions include a change in cropping sequence, land use, time of seeding, tillage, or timing of cultivation; structural improvements to the farm; or simply lowering the speed of a single tillage operation.

(v)  Each individual conservation planner has a different experience base that can be increased through on-the-job training, specialized training courses, field trials, or the use of models.  A useful learning experience for planners is to visit land users with successful conservation treatments already applied.  Technology transfer through exposure in this manner rapidly broadens an employee's perspective and improves his or her expertise and confidence.  If successful on-farm experiences are documented and shared as case studies, the knowledge base of others within and outside the agency could also be easily enhanced.  Such experiences should be recorded first in physical and biological terms rather than monetary ones, because monetary values are simply a translation of the former and can be expressed in current dollars at any time.  Experience gained by a conservation planner in any of these ways can result in improvement of future analyses completed by that planner.

(3)  Impacts

(i)  The completed alternative is compared with the benchmark condition to estimate the impacts of the actions.  The impacts of applied conservation options are the differences between the benchmark or current condition and trends and the proposed alternative situation.  This future condition is known alternatively as the “with condition” or “future with project.”  Quantification of the impacts is dependent upon the degree of detail used to describe or measure the benchmark and expected alternative conditions.  The impacts should be described in narrative form at a minimum, and in quantitative terms to the extent possible.  They should also be recorded in an easy to understand manner for consideration by the decisionmaker.

(ii)  Conservation effects or impacts (see note below) worksheets can be used to record this information.  Differences in erosion rates, habitat values, water quality, acres farmed, bushels harvested, labor and fuel requirements, pesticides used, etc., should all be documented to the extent that such information is needed by the land user or is required by the agency.  The timeframe when the impacts occur might also be identified, because certain actions such as pasture improvements can result in immediate costs, but the resulting yield increases may be delayed and then occur for an extended period of time.

(4)  Values

(i)  The term “values,” as used within the CED process, is best understood as referring to the viewpoints and preferences of the cooperating land user.  Each individual's preferences will affect the value they place on an impact as well as determining whether that impact is viewed as a positive or negative difference in conditions.  For example, the addition of 10 more quails to a land unit may be viewed as a positive impact by one person and as a negative impact by another, depending on their individual preferences; although the first would enjoy listening to the additional birds’ singing, the other would be annoyed by the additional birds, viewing them as a nuisance.

(ii)  A land user’s views and personal values may be in harmony with society's best interests or they may be in direct conflict with the needs and preferences of their community or society at large.  The conservation planner has a responsibility to convey to the land user the positive effect that their decisions could potentially have on the surrounding landscape as well as benefits that could be generated for society.  Regardless, in field-level conservation planning, the cooperating land user’s viewpoint is used to assess whether a resource impact is treated as positive or negative change.  The land user’s viewpoints also serve as the basis for assessing the relative importance of the benefits and costs associated with each alternative conservation system.

(iii)  Once the land user’s preferences and values have been applied to the impacts of each conservation alternative, the positive and negative attributes of a proposed conservation practice or system can be displayed for evaluation in a format called a “T” chart, as explained in subpart B.  The level of detail included in the “T” chart, as well as the level of detail of the overall analysis, usually depend on the amount of information required for the land user to make an adequately informed decision about whether and which conservation system to adopt.

Note:  In most NRCS publications, as well as within common usage, the terms “effects” and “impacts” are used interchangeably.  Within the NRCS Conservation System Guide (CSG) system, however, the term “effect” is defined as the resulting condition after a conservation treatment is applied (“future with conservation” in the context of this document).  This handbook does not follow the CSG convention and, in keeping with standard usage, treats the terms “impact” and “effect” as synonyms.

(iv)  It is important to note that we do not ignore market prices in favor of using the land user’s own ideas about prices of the inputs required to implement a conservation system.  Rather, we use objective information on quantities and prices, not the land user’s ideas about them.  Where the land user’s preferences come in is in terms of preference ordering and determination of whether a characteristic is viewed as positive or negative, especially with respect to non-market goods and qualitative characteristics of conservation alternatives.

C.  Identify and Measure Conservation Effects

(1)  The correct identification and accurate accounting of conservation effects due to conservation treatments is very important for purposes of comparing and selecting among alternative conservation options.  Undesirable resource conditions, such as high erosion rate or low yield level, can be improved by adopting certain actions or activities of conservation practices.  The estimated future condition without conservation practices should be compared to the condition expected with their implementation.  The difference between the “without” and “with” options is the impact of conservation.  The benchmark condition and “future without” condition serve as the bases of comparison for the analysis.  Identifying the benchmark condition is the first step in assessing conservation effects for decisionmaking.

(2)  Conservation effects should be stated objectively and must be made in reference to time.  Consider an example where current management is causing an accumulation of salts in the root zone.  Without treatment, continuing accumulations are expected to cause reduction in crop yield (see line AB in figure 610A-3).  With adoption of a conservation system, salt accumulated in the root zone will be reduced and crop yields will be maintained (see line AC in figure 610A-3).  The area ABC is the change in yield resulting from adoption of the conservation system when evaluated over the 15-year period.  Costs other than those for upfront practice installation need to be considered to accurately evaluate the effects of the conservation system.  For example, if a one-time, upfront labor cost is the only cost of implementing the conservation system, and annual yield change is the only gain, determination of the net benefits of adoption can be made by comparing the value of the annual gain in yield to the annualized cost of installation labor.  If, however, yearly operation and maintenance costs will be incurred, those costs should be added to the annualized labor costs when completing an economic evaluation of the conservation system.

Click here for Figure 610A-3: Expected Yield Levels Over Time With and Without Conservation Treatments                  

(3)  Estimates of future conditions, with and without treatment, are commonly made by using the benchmark inventory of the current situation as a starting point.  Based on historical trends and current data, future trends can then be projected while scenarios regarding the current relationships and foreseeable developments are considered.  Projections of future “with” and “without” treatment conditions should reflect the views and expectations of the decisionmakers as well as being based on information acquired from library research, local and professional judgment, data sources such as soil surveys, and other sources of published and anecdotal information.

 

   

[H_200_NREH_610_A - Amend. 3 - July 2012]

Subpart B - Benefits and Costs of Conservation

           610.10  Introduction

A.  When completing an economic analysis of alternative conservation systems, conservation planners and land users must first identify all relevant benefits and costs.  Then they must measure those benefits and costs so that they can develop a meaningful estimate of the net benefits of each alternative.  This subpart addresses basic issues related to the identification and measurement of benefits and costs as a first step in the process of completing formal benefit-cost analysis.  Benefits and costs involved in an economic analysis of conservation often are not compatible in kind, place, or time.  An economic analysis needs to take into account these factors and make appropriate adjustment when necessary.  Similarly, actions taken in one period may have effects in another.  For example, reducing soil erosion in the current time period may affect the ability of future generations to produce food and fiber; and a sludge application now may impact the options for future cropping alternatives.  A responsible, complete economic analysis should take into consideration these types of possible effects.

B.  An important consideration in the economic analysis of conservation practices is who pays the costs and who receives the benefits.  They are often not the same person.  In standard public benefit-cost analysis, all benefits and costs are to be included in the evaluation, to whomsoever they may accrue.  In order to assist a land user in deciding whether to personally incur the costs necessary to implementing a given conservation system, however, the analysis must identify to whom any prospective gains and costs will accrue, including both monetary and non-monetary benefits and costs. 

C.  In benefit-cost analysis for conservation, it is important to avoid jumping to the conclusion that the decisionmaking land user values only those benefits accruing directly to him or her.  On the other hand, some costs, such as installation cost, can be greatly offset by Government cost-share dollars or by favorable income tax treatment of incurred costs for conservation projects.  Such offsets can directly reduce the out-of-pocket costs to land users and need to be taken into account in economic analysis for conservation.

D.  The concept of externalities is used by economists to describe a situation in which some or all of the benefits of a private action are enjoyed by (or costs paid by) someone who was not directly a party to the market transaction generating those benefits (or costs).  A classic example of an external cost is air pollution emitted by a factory whose output is sold in an overseas market.  Local citizens who have no connection with the factory—such as being employed there or owning stock in the company that operates the facility—are said to be incurring some of the costs of production without compensation.  This is defined as a negative externality.

E.  In conservation work, externalities can exist in several different ways:  benefits or costs can accrue to the public when a private land user implements a conservation system, and benefits or costs can occur on land that was not included in the original conservation plan or the area where the project was implemented.  In addition, benefits or costs are often distributed over time.  In some cases, this means that the land user will need to take future impacts into consideration when evaluating conservation alternatives.  It may even be necessary to consider that future generations could enjoy benefits or incur costs associated with current conservation activities.  It is important for conservation planners and land users to keep these concepts in mind as they go through the process of identifying and measuring the benefits and costs of alternative conservation systems.

F.  As stated in subpart A, in some circumstances, the planning environment is relatively uncomplicated and only a simple evaluation of benefits and costs is needed by the land user in order to make sound decisions about which conservation alternative to adopt.  In that case, the information contained in this subpart should be sufficient to completing an adequate analysis.  In other circumstances, a more complicated planning environment and more complex financial implications of adopting a prospective conservation system will dictate completing a more sophisticated economic analysis.  In that case, information presented in subsequent subparts will need to be understood and applied in order to complete an adequate benefit-cost analysis.  For example, in the process of selecting the most desirable conservation option, several additional factors can significantly affect the feasibility of the alternatives from the standpoint of the land user and can also alter which alternative is deemed best.  Such factors include the useful life of conservation practices, period of analysis, depreciation, interest rates, and inflation.  These subjects will be addressed in subpart C.

           610.11  Identification of Private and Public Benefits of Conservation

A.  An essential question that must be asked when evaluating a conservation system is, “who will benefit from its implementation?”  The adoption of conservation systems causes changes in natural resource conditions.  If all of the benefits of these improvements were enjoyed solely by the land users installing and maintaining natural resource conservation measures, there would be no need for public financial support for planning and implementation of conservation systems.  In reality, however, implementing a RMS invariably generates benefits that cannot be captured by the land user and are, instead, enjoyed by neighbors, the community, or society in general.  Because of the existence of these external benefits, without the involvement of NRCS the amount of completed conservation work would not reach a socially optimal level.  Accordingly, both land users and society can benefit from NRCS involvement in both conservation planning and the adoption of conservation practices.

B.  Private Benefits

Private benefits accrue to the land user and are not shared by the public in general.  An example of a private benefit of conservation is the financial reward enjoyed by a land user who produces higher crop yields and a higher quality of agricultural product as a result of taking steps to improve soil condition.

C.  Public Benefits

Public benefits are either shared by the land user with his or her community or society in general or they are enjoyed entirely by the public although generated by the private land user.  An example of a public benefit of conservation is a beautified landscape that occurs as a result of vegetation planted by a farmer to reduce blowing dust on her farm and that is enjoyed by passers-by who view the farm.  The question of who will benefit is one aspect of completing a benefit-cost analysis for a conservation system.

           610.12  Identification of Onsite and Offsite Benefits of Conservation

A.  Another aspect of evaluation is the question of the physical location where conservation benefits will occur.  Benefits from conservation work may occur at both onsite and offsite locations.  Onsite benefits occur at or close to the location of the conservation activity and generally are directly beneficial to the user or owner of the resource where the conservation activity was undertaken.  These benefits can be divided into at least two types:  maintaining or restoring productivity and decreasing production costs.  Additional onsite benefits include non-dollar benefits, such as an improvement in living conditions on a farm or ranch.  Offsite benefits occur in different locations than that of the conservation activity and may occur to different resource users and owners and to the general public.  It is also possible that implementing a conservation system in one location will lead to detrimental effects in another location or on other natural resources.  External effects can have a long-lasting impact on other land units.  It is important to always check for potential negative cross effects and unintended consequences.  A guide of conservation effects that can be expected in specific resource settings is listed in sections III and V of the local NRCS Field Office Technical Guide (FOTG).

B.  Onsite Benefits

(1)  Onsite benefits are those benefits realized on the physical land unit where the conservation system is implemented.

(i)  Maintaining, Restoring, or Increasing Productivity

In a farm setting, maintaining or restoring productivity means maintaining or restoring crop yields by protecting the soil from erosion as well as conserving water.  Crops need sufficient soil nutrients and water.  The soil needs adequate tilth and organic matter for adequate root growth.  Where erosion occurs, crops often cannot absorb basic needs from soil.  Through the removal of topsoil, wind erosion reduces the capacity of the soil to hold moisture and degrades the soil profile.  Water erosion similarly removes topsoil, reducing the quality and quantity of the soil and causing nutrients to be lost.  It can also cause onsite crop damage by forming gullies and depositing sediment.  Both of these effects lower productivity by reducing and sometimes eliminating crop stands in certain locations of a field.

(ii)  Conservation practices are designed to keep soil, nutrients, and water where they are needed.  Where conservation practices are used to reduce soil loss and conserve moisture, yields can be maintained and restored, or even enhanced.  Increased crop yields are a primary benefit of some conservation practices, often resulting in increased income and offset conservation costs to producers.

(2)  Decreasing Production Costs.—Some conservation practices are beneficial to the land user because production costs may be reduced.  Practices, such as conservation tillage and no-till, reduce the number of trips over the field, saving the farm operation time, fuel, and machinery wear (see note below).  Weed and insect control costs may, however, be increased.  Other measures that convert row crops to other land uses permit the land user to use less fertilizer and fewer chemical inputs.  Examples are field borders and grassed waterways.  These measures could involve converting low yielding row crop areas, such as end rows and watercourses, to grass.  The land user saves production expenses because these converted areas usually require less input than the row crops they displaced, thus reducing the total production costs.

(3)  Other Onsite Benefits.—Some onsite benefits are not directly measured in dollar terms.  Increases in wildlife visits, enhanced local air quality, and improved opportunities of recreation use are some examples of onsite changes in resource conditions that can be the result of implementing a conservation system.

C.  Offsite Benefits

(1)  Sometimes when conservation practices are installed, they reduce offsite resource or environmental damages, thus providing economic benefits that should be considered in the decisionmaking process.  For example, a change in a feed crop resource may positively impact offsite grazing resources, or an erosion-control project intended to improve plant condition and crop yields on a particular farm field may improve downstream water quality and, as a result, improve recreational use of the water body.  These offsite benefits may occur on land owned or operated by the land user, or they may occur on land owned by another producer or by the public.

(2)  Offsite resource concerns, such as sediment deposition and reduced water quality, are created as eroded soil is transported and deposited by the actions of wind or water.  The sediment can fill in ditches, plug culverts, reduce the useful life of reservoirs and ponds, destroy fences, destroy and damage crops, and transport contaminants, such as pesticides and fertilizers, to waterways or offsite.  Through conservation, the transport of material that pollutes the ecosystem, damaging wildlife and aquatic habitat, can be dramatically reduced.

(3)  The most effective way to avoid offsite pollution is to keep soils from eroding and keep fertilizer and chemicals on the fields where they are applied.  Practices that reduce soil loss, sediment, and chemical pollutants may be useful in maintaining or improving water quality even though offsite water quality was not an intended objective of implementing those practices.

Note:  Some analysts use “custom rates” as an estimate of the operating costs for machinery and labor costs for field operations.  A custom rate indicates the typical cost to hire a piece of machinery and its operator, usually on a per-acre basis.

           610.13  Identification of Private and Public Costs of Conservation

A.  Private Costs

Most costs associated with implementation of conservation systems are private costs.  These include private expenditures such as the land user’s share of implementation costs, operation and maintenance (O&M), replacement costs, and foregone private income.  Some costs potentially incurred by the land user are not easy to identify, but they should be included in any complete economic analysis. 

B.  Public Costs

Public costs associated with implementation of a conservation system include the obvious category of public share of implementation costs.  Less obvious public costs include any undesirable external costs such as effects on the immediate neighbors, community, or society in general due to the project’s completion.  Examples include negative aesthetic impacts to landscapes, reductions in previously-existing stream flows, and temporary or permanent displacement of wildlife that had previously been viewed and enjoyed by recreational visitors to the affected farm or ranch.

           610.14  Identification of Onsite and Offsite Costs of Conservation

A.  As in the case of onsite and offsite benefits, onsite and offsite costs are related to the physical location where costs are incurred.  And as in the case of benefits, offsite costs may occur on land controlled by the cooperating land user but outside of the area where the conservation system is being implemented.

B.  Onsite Costs.—Onsite costs are those costs of implementation that are directly associated with the land unit where conservation practices are to be applied.

(1)  Installation and Other Direct Implementation Costs

(i)  The most obvious costs are the expenditures associated with initially installing the practice or conservation system.  These include costs for obtaining inputs such as the materials, land, labor, and equipment necessary to get the conservation practice on the ground according to standards and specifications.  Sometimes these costs occur upfront, and sometimes they are distributed over time.  Another potential type of cost is losses such as deaths of desirable small wildlife that occur as part of constructing a physical facility as part of a conservation system or reduced enjoyment of the on-farm landscape by the land user because of tree-cutting necessary to system implementation.  The implementation costs listed above are usually easy to recognize.  These are called “explicit costs.”

(ii)  Other costs are not so easy to identify.  They are called “implicit costs” and include less-visible opportunity costs.  An example is the land user spending his or her time implementing the conservation project rather than working at an income-earning job, finishing a project that was competing for attention, or spending time with family members.  At times, depreciation of conservation practices is not accounted for or properly accounted for, and unpaid labor contributed by land users, or even volunteers, could also be unaccounted for.  These more subtle costs are still costs for conservation, and should be included in the derivation of the total costs for investing in a conservation practice, or a system of conservation practices.

(2)  Operation and Maintenance

(i)  Expenditures for O&M are costs that occur throughout the lifetime of the practice, usually on a year-by-year basis.  O&M outlays are expended to ensure that conservation practice continues to function properly.  Fertilizing an established waterway, operating a pump, and reseeding a terrace back slope and maintaining fences are examples of O&M outlays.

(ii)  Changing tillage practices may cause other costs to be incurred.  For example, in some soils, applications of fertilizers and pesticides must be increased when switching to conservation tillage or no-till.  Increased production costs must be accounted for in these situations.  These costs may be partly offset by fewer operations, better timing of operations, and lower equipment repair costs resulting from the elimination of gullies.

(3)  Foregone Income

Another cost for some conservation practices is a reduction in net revenue because of lost production.  When certain practices are installed in certain areas of a farm, previous production from the area is foregone.  Waterways, certain types of terraces, and changes in crop rotation can reduce yields or take land out of production altogether.  If the yields from these areas are initially low, then the loss will be small.  However, if previous yields are high, then the cost of installing waterways will also be high in terms of lost production.  Foregone income should always be accounted for when evaluating the costs of a proposed conservation project.

C.  Offsite Costs

Offsite costs are those costs that are incurred outside of the immediate project area.  These generally include cross-effects impacting non-targeted resources.  For example, displaced wildlife may begin feeding in previously unaffected areas, leading to undesirable secondary resource effects.  Or, alternatively, wildlife may be attracted to the treated land unit, creating an increased hazard to motorists on an adjoining highway.  In another example, if the underlying soil on a farm is susceptible to leaching problems, then implementing conventional no-till residue management—with its accompanying increased use of herbicide and pesticide—may exacerbate an existing groundwater pollution problem.

           610.15  Identification of the Temporal Distribution of Benefits and Costs

A.  Benefits and costs of conservation systems do not necessarily occur at the same time, nor do they necessarily occur in a single time period.  Once some conservation practices are adopted, their benefits are spread over many years.  For some practices, such as annual management practices, the majority of benefits only exist for the year during which the practice is actively being implemented.  Benefits are sometimes only fully realized several, or even many, years after a practice is implemented.  From the cost perspective, there are one-time costs, distributed costs, annual costs, and so on.  Some costs are constant and some vary over time.  The same is true of benefits.  These factors affect the financial feasibility of the project and its comparison with alternatives.

B.  Identification, quantification, and valuation of effects over a given period of analysis may quickly lead to conclusions regarding feasibility and the identification of an economically best alternative, but other considerations are important.  A close examination of the timing of gains realized and losses incurred may reveal that short-term financial demands exceed short-term ability to pay.  Comparing the timing of marginal benefits and costs to determine the financial feasibility of a proposed conservation system arises out of the financial concept called “cash flow.”  Alternatives that require high near-term costs in order to achieve long-term benefits may not be financially feasible, even though total benefits over the life of the project are expected to exceed total costs.

C.  The concepts related to the time value of money and the methods for the comparison of gains and losses on an equal time basis are described in subpart C.  A variety of methods for completing indepth evaluations of alternative conservation systems is provided in subpart D.

           610.16  Measurement of Benefits and Costs

A.  Benefits and costs could be either quantitative or qualitative.  Where benefits and costs can be readily quantified, that should be done as a first step toward establishing market values for them.  Some benefits and costs, however, can in theory be measured but in practice are impractical or impossible to measure or quantify.  When it is difficult or impossible to numerically quantify benefits or costs that are important to the planning process, national policy states that rather than leaving those factors out of the decisionmaking process, those benefits or costs should be included in the analysis in descriptive qualitative terms.

(1)  Some examples of quantified benefits include increased crop yields in tons, bushels, pounds, hundredweight, etc.; decreased water consumption in acre feet or gallons; increased irrigation efficiencies in percentage points; reduction in energy use in kW, and so on.  Some examples of qualitative benefits that would be difficult or cost-prohibitive to measure in quantitative terms include improvements in on-farm air quality; increased palatability of forage for wildlife; and reduction of negative impacts on pollinator insects.

(2)  Qualitative data should be recorded in descriptive terms that provide sufficient details to capture the preferences of the land user and the rationale behind labeling the conservation effect as a benefit or a cost.  Descriptive terms such as “large reduction in offensive odors” and “moderate increase in wildlife visitation,” and comparative terms such as “much greater enhancement of aesthetic enjoyment” and “slightly bigger improvement in ease of operations” can be used to describe and compare qualitative benefits.  It is important for the land user or future conservation planner to be able to understand the logic supporting the evaluation and the decision to which it led.

B.  Benefits and costs can also be categorized by whether or not they are traded in any market.  For example, increased crop yields are traded in commodity markets; improved air quality is not.  When market prices can be identified, it is relatively easy to quantify them in dollar terms.  When no market price exists for a benefit or cost, it is more difficult—but not impossible—to estimate its dollar value for use in calculating net benefits.  Identification of proxy market values will be addressed later in this section.

C.  Market Benefits and Costs

(1)  There are several possible approaches to and methods for identifying market prices for benefits and costs of conservation.  The first step is to determine whether an easily identified market exists for the benefit or cost.  For example, a dollar value can be assigned to an increase in corn yield that results from a conservation project by using any of several sources of market data:  first, extension crop budgets can be used to estimate increase production costs associated with the increased yield; then data from the National Agricultural Statistics Service (NASS), a State agricultural agency, or an agricultural commodity industry source can be used to establish a multiyear average price for the type of corn in question.

(2)  It’s important to recognize that finding an exact market price is not always possible or even useful.  Because prices are continually changing, it is better to use longer-term average prices for any aspects of the analysis that will be distributed over multiple years.  The timespan to use depends on the expected life of the conservation practice, the objectives of the land user, and other relevant factors determined at the time the analysis is completed.  Similarly, if a conservation system will be adopted over several years, with construction projects occurring in each of those years, current-year prices of inputs may or may not be helpful in determining the overall net benefits of the project.  On the other hand, if the project will be completely installed during the current year, existing market prices may be all that the land user needs to complete their decisionmaking process.  Choosing which market prices to use is sometimes more of an art than a science; it becomes easier and more intuitive with increased experience in the economics of conservation planning.

(3)  There are many sources of market price data that are easy to access and easy to use:  Online agriculture industry newsletters, the NASS Web site, Bureau of Labor Statistics online data sources, and so on, are a few examples of good sources of market prices.  The references section of this handbook includes a list of possible sources of data.

D.  Nonmarket Benefits and Costs

(1)  There are multiple ways in which estimated or proxy market prices can be established for non-market benefits and costs.  The most common of those that apply to conservation planning analyses include the replacement cost method, the opportunity cost approach, the travel cost method, the hedonic pricing method, and contingent valuation methods.

(2)  Replacement Cost Method.—In the replacement cost method, the analyst develops an estimate of how much it would cost to provide the benefit or mitigate the cost being evaluated.  For example, if a conservation project will protect an existing wetland, the estimated cost of creating a similar wetland can be used as its proxy market value.  Or if a conservation practice will require removing several old trees, the cost of replacing those trees can be used as a market value of the tree-related cost of that practice.

(3)  Opportunity Cost Approach.—While this process is sometimes not considered to be a valuation method, it can serve the purpose of providing important, dollar-denominated information about the impacts of a project.  In this method of evaluation, the decisionmakers determine what the benefits of the project would have to be to offset its impacts.  For example, the land user can set a minimum increase in pollinator activity that would be required in order to justify the loss of net returns (gross returns minus total costs) to the crop land taken out of production.  In this case, the reduced crop revenue can be used as a proxy value for the required increase in pollinator activity.

(4)  Travel Cost Method.—The travel cost method is most often applied to benefits or costs related recreational visitors, hunters, or fishermen to an area.  For example, if a conservation project will benefit a nearby trout-fishing stream and lead to increased trout populations, then fishermen who are visiting a trout stream somewhere else within the regional area can be interviewed to find out how much money they each spend on travel costs such as hotels, meals, transportation, and equipment purchases in conjunction with their typical fishing trips.  Those costs can then be used to extrapolate a value of the expected improvement in the fishery.  Similarly, enhanced habitat for songbirds, which attracts birdwatchers, can be valued using the travel cost method through interviews of birders.  Conversely, degradation of habitat that leads to losses of visitation can be valued as a cost using the same methodology.

(5)  Hedonic Pricing Method.—The objective of the hedonic pricing method of valuation is to identify a change in the price or value of some asset that is affected by a change in resource conditions.  The most common example is a change in property values that can be attributed to a change in the aesthetic environment.  Within the context of a conservation project, if implementation of the conservation system alternative is expected to greatly improve and enhance the physical beauty of the surroundings of a farm or ranch house, that improvement can be expected to increase the market value of the house.  That change in market value can then be used as a proxy market price for that specific benefits provided by the conservation system.

(6)  Contingent Valuation.—In contingent valuation, individuals are asked to place their own subjective market values on environmental or resource benefits.  There are two primary methods of contingent valuation: willingness to pay, and willingness to accept (compensation required).  In the “willingness to pay” method, survey participants are asked to identify how much they would be willing to pay to obtain (prevent) a prospective natural resource benefit (cost).  In the “willingness to accept” method, participants are asked how much they would have to be paid for them to consent to losing (putting up with) the prospective benefit (cost).  Both of these methods are subject to problematic distortions, including income effects, “strategic voting,” and others.  In spite of these drawbacks, contingent valuation can serve as valuable sources of proxy market values for non-market benefits and costs of conservation projects.

           610.17  Developing and Presenting Benefits and Costs Information 

A.  Decisionmaking by land users about conserving natural resources is the same as any other decisionmaking process.  Once a problem is identified and alternative solutions developed, the physical and monetary effects of alternatives can be compared to determine whether the potential benefits from installing new conservation measures would outweigh the costs.  The conservation planner’s objective is to assist the land user in identifying and understanding the effects—both positive and negative—of a conservation practice or activity.  The land user then incorporates that information into a decisionmaking process that will lead him or her to either adopt or reject the proposed conservation system.  The conservation effects for decisionmaking (CED) framework assists the land user in making conservation decisions by providing a method for organizing and evaluating information on benchmark conditions, resource concerns, conservation system effects, and other factors related to adoption of conservation practices.

B.  When developing a list of expected effects, it is important to make sure that all relevant resource impacts are included as well-defined benefits and costs, and to also make sure that none of the effects are double-counted.  A simple method for achieving these objectives is to identify as many benefits and costs of an alternative as possible and then to use the CED process to quantify impacts where possible (and to develop qualitative descriptions where quantification is not possible), search through them to eliminate duplication, and then continue on with more detailed analysis where needed.  The point of this process is to make sure all effects are considered and that none are double-counted.  If pertinent information is left out, the land user may not adequately understand the prospective attributes of the proposed project, leading him or her to make an erroneous decision. 

C.  It is important for planners to be aware of potential diminishing returns.  These exist, for example, when spending additional money beyond the minimum required to implement a conservation practice—in order to increase quality or add features to the practice beyond the basic version—results in additional but incrementally smaller conservation benefits.  It is often the case that implementing a relatively simple version of a given conservation practice will result in the achievement of a majority of the conservation benefits that can be obtained through installing that specific practice.  Adding additional features or levels of quality to the practice may result in increased conservation benefits, but as the overall level of benefits approaches the maximum possible, more and more money must be spent to achieve the same incremental increase in benefits.  In this situation, additional expenditures of money are likely to realize more conservation benefits if spent on additional practices that would address other resource concerns.

D.  Conservation Effects for Decisionmaking Revisited

(1)  The need for conservation planning is based on the notion that one or more natural resources is currently, or is expected to be, in a condition that is less than desirable.  The objective of conservation planning is to improve resource conditions.  Success in conservation implementation is measured by comparing the current “benchmark condition” to the expected future “with treatment” condition of the resource and by identifying the resulting conservation impacts.  When making a conservation decision, land users apply their own preferences and values to benefits and costs to weigh the importance of conservation impacts. 

(2)  For example, imagine a farm field that has a soil erosion resource concern.  The benchmark condition is 8 tons per acre per year of erosion and 60 bushels per acre per year in wheat yields.  The proposed conservation treatment is no-till crop residue management, which will reduce soil erosion to 5 tons per acre per year and which will increase wheat yields to 62 bushel per acre per year.  The project is also expected to double the amount of goose use of the field as temporary habitat during spring migration.  The impact is a 3-ton reduction in soil erosion, a 2-bushel increase in wheat yield, and doubled goose-grazing on new wheat growth.  From the land user’s perspective, the reduction in erosion, the increased crop yield, and the improved wildlife habitat are positive impacts, and the cost of implementing residue management is a negative impact.  If this information is sufficient for the land user to determine that he or she wants to adopt the plan, he or she may be comfortable with moving forward with implementation.  However, another land user, with different values, may consider the improved goose habitat and the resulting increase in good-grazing as a negative impact because they view the prospective presence of twice as many geese temporarily living on their field as a nuisance.  This serves as a reminder that whether a resource impact is viewed as negative or positive depends on the land user’s viewpoints, preferences, and values.

(3)  The resource impacts serve as the basis for making a decision to accept or reject a conservation treatment.  This process is repeated for each alternative that is developed.  Once again, the effects can be environmental, social, economic, or some combination of these.

E.  Presentation of Conservation Effects Using a “T” Chart

A simple way to present conservation impacts and economic information identified in the CED process is with a “T” chart.  The “T” chart is a tool that organizes information and simplifies the conservation planning and decisionmaking process.  The “T” chart describes the resource setting, resource concerns, and conservation system and lists the benefits (good or positive results) and costs (bad or negative results) of the proposed conservation action.  The information included in the “T” chart may come from the land user, the planner’s experience and education, research, and NRCS technical resources.  Using the information from the no-till example above, figure 610B-1 displays a typical “T” chart.

Click here for a copy of Figure 610B-1: "T" chart Example for Conservation Treatment Effects           

F.  “T” Chart Guidelines

(1)  It is sometimes difficult to know which benefits and costs to include in the “T” chart, especially when both onsite and offsite benefits and both explicit and implicit costs are expected to occur if the conservation system is implemented.  It helps to remember that the goal is in completing a “T” chart is to achieve completeness, to eliminate repetition or double-counting, and to prevent missing any benefits or costs in the display of effects.  Once the effects have been organized, the land user can evaluate the relative importance of the benefits and costs given his or her viewpoint and preferences.

(2)  This subpart has discussed how identify, collect, measure, and display benefit and cost information for evaluating a conservation project.  Although a positive benefit-cost ratio (the ratio is equal or bigger than 1, which occurs when the total benefits are greater than the costs) does not necessarily mean that a project is worth implementing, in some planning settings, simply seeing a comprehensive display of the project’s expected benefits and costs and finding that the net benefits are positive is sufficient information to induce the land user to adopt the project.  In other, more-complex, settings, correspondingly more-complex evaluation techniques may need to be used in order to complete an adequate analysis.  When the dimension of multiple time periods is added to the situation, the discounting and compounding techniques presented in subpart C may be necessary in order to reach a sound decision in the conservation planning setting.  Subpart D presents additional techniques specific to economic analysis of conservation practices such as partial budgeting, value analysis, and other advanced methods of analysis.

[H_200_NREH_610_B - Amend. 3 - July 2012]

Subpart C - Discounted Cash Flow Analysis

Click here for Sections 610.20 through 610.25                          

[H_200_NREH_610_C - Amend. 3 - July 2012]

Subpart D - Evaluation Techniques

610.30  Introduction

This subpart discusses partial budget analysis as the most common analytical framework for economic analysis of resource conservation.  It describes several evaluation techniques in the partial budget analysis framework that can be used for economic analysis of conservation programs and projects.  These techniques include net present value criteria, break-even analysis, cost effectiveness, marginal analysis, conservation effects for decisionmaking, and economic threshold analysis, among others.

610.31  Partial Budgeting

A.  Types of Budgets

(1)  A budget is a planned list of future revenue and expenses.  Budgeting is the process of creating a budget.  A farm budget is fundamental to any financial analysis of a farm operation.  Although NRCS planners are advised to avoid delving into the financial details of cooperating producers, budgeting at multiple levels can be a very important evaluation tool in conservation planning for making sound conservation decisions.

(2)  A farm budget can range in scope from a total budget that covers the planned revenues and expenses of an entire farm, to an enterprise budget that covers the planned revenues and expenses of a particular farm operation, such as a row crop (corn), forage and hay, grains and oilseed, herbs and specialty crops, livestock (dairy), etc., to a partial budget that only considers the planned revenues and expenses related to specific changes in a farm operation for a particular purpose.  NRCS economists and planners do not usually engage in total budget or enterprise budget analysis.  Partial budget analysis is the default choice of economic analysis of resource conservation.  However, understanding of total budget and enterprise budget analysis serves at least two purposes:

(i)  Conservation systems are a integral part of farm operation and thus total budget and enterprise budget analysis are relevant to analysis for conservation planning in certain situations as explained below.

(ii)  Published information on total budget or enterprise budget analysis—cooperative extension crop budgets, in particular—can provide valuable inputs to partial budget analysis for resource conservation.  All three types of budgets are tools for farm management and are relevant to conservation planning.  A total budget can be relevant to conservation planning for even one practice because of the potentially important spillover effects to other parts of the farm.  For example, some farmers have found that converting to no-till residue management saves them so much time that they can start a new off-farm business.  The new off-farm business has implications for the whole farm financial picture.  Thus, when looking at even one conservation practice, it might be important to keep the total farm in mind.

(3)  Enterprise budgets can be relevant because conservation practices are usually implemented within farm enterprises.  For example, the practice Residue and Tillage Management, No-till/Strip Till/Direct Seed (329) is implemented within a crop enterprise, and Forage and Biomass Planting (512) is implemented within a livestock enterprise.  Thus, during conservation planning we need to consider not only the cost of installing and maintaining the practice, but also the impact that the practice could have on the enterprise within which it is installed.  To do so, it is critical to be knowledgeable about the typical revenues and costs of the enterprise.  These can be identified by developing an enterprise budget.

(4)  A partial budget is the most common type of budget used in conservation planning.  Only the changes in benefits and costs directly related to a conservation practice or set of practices are considered in a partial budget for conservation planning.  This technique simplifies data collection and analysis while simultaneously examining how the benefits and costs of a conservation practice or set of practices stack up against each other.  It also simplifies the process of determining the potential change in net farm income that would be caused by the proposed change in operations.

(5)  Because of the importance of budgeting in farm decisionmaking, agricultural cooperative extension programs, land grant universities, and private vendors have produced many farm budgets that represents typical revenues and expenses for different farm operations within a defined geographical area.  Many enterprise crop budgets are available to the public on the web, making them easy to use in the budgeting process for conservation planning.  It is easy to find crop budget information on the Web for any specific State by combining the State’s name with search key words such as “crop enterprise budget,” “farm enterprise budget,” or “farm partial budget ” in any standard Internet search engine.  Figure 610D-1 is one example of the types of crop budgets provided by Cooperative Extension Service programs to assist farmers in evaluating their own production enterprises.  Enterprise budgets such as this one are usually designed in such a way as to facilitate easy updating of key variables over time as market and resource conditions change within a local or regional area.

Click here for a copy of Figure 610D-1: Enterprise Budget      

B.  Partial Budgeting:  Net Present Value Criteria

(1)  A Partial Budget Template

Partial budgeting for conservation planning helps to answer such questions as how much will—

·          The conservation practice or practices cost?

·          Revenues change as a result of implementing a conservation practice or practices?

·          Net income change?

(2)  Figure 610D-2 is a partial budget worksheet template showing how to display the changes in revenues and costs associated with one or more planned conservation practices.  Figure 610D-2 has two columns, with the left-hand column for positive effects and the right-hand column for negative effects of the conservation practices under consideration.  The positive effects of a conservation practice include any expected additional revenues and reduced costs, and the negative effects include additional costs and reduced revenues.  The expected change in net income is the difference between the positive and negative effects and is displayed at the bottom of the table.

  Click here for a copy of Figure 610D-2: Partial Budget Worksheet Template             

(3)  A Partial Budget Example

(i)  Buy or rent problem:  A farmer has made the decision to convert from conventional tillage to no-till cultivation of 600 acres of cropland.  A seeding drill is needed for no-till operations.  The farmer can either rent a drill or buy a new drill.  The rental cost for a drill is $7.50 per acre.  A new drill would cost $24,000, with a useful life of 10 years and a residual value of $4,000.  The same tractor would be used to pull either drill so there will be no change in tractor costs.  Annual repairs on the purchased drill are estimated at $300, and taxes and insurance will be about $50 per year.  Should the farmer purchase the new drill?  (Purchasing would be the change.)

(ii)  An example of partial budgeting used to answer the buy or rent problem is shown in Figure 610D-3.  Figure 610D-3 uses the partial budget template in figure 610D-2 with an additional time dimension.  The analysis in figure 610D-3 shows that the net present value of the purchasing decision is -$42.22.  This means that the farmer is better off renting instead of buying a new drill.  The IRR of the purchasing decision is 9.96 percent, which is smaller than the discount rate of 10 percent.  The conclusion from the IRR is consistent with that of the NPV analysis. 

 Click here for a copy of Figure 610D-3: Buy or Rent Example                  

610.32  Partial Budgeting:  Break-Even Analysis

A.  Method

(1)  Economic evaluation of conservation alternatives produces information that can be used by decisionmakers to determine the feasibility of the alternatives or to determine the most desirable alternative.  In any evaluation, four variables must be considered: 

(i)  Cost of installation, including operation and maintenance

(ii)  Benefits from the alternative

(iii)  The time period during which the alternative will be evaluated

(iv)  The interest rate used for the evaluation

(2)  If all four variables are known, the benefits from an alternative can be compared to the cost of the alternative to determine its feasibility.  If three variables are known, the fourth variable can be calculated by setting the net present value of the project to zero.  This is called break-even analysis. 

(3)  Break-even analysis provides useful information when small changes in specific conservation situations are being evaluated.  This technique can be used to determine how much of an investment can be made based on the expected returns.  Examples of break-even questions include the following: 

(i)  How much can I afford to spend, or what is the break-even cost? 

(ii)  How much should I gain to justify the spending, or what is the break-even benefit?

(iii)  How long will it take to get my money back, or what is the payback period? 

(iv)  What rate of return will I receive, or what is the internal rate of return? 

B.  Break-Even Examples

(1)  Example:  Break-Even Cost

How much can a rancher afford to spend on a stock water development if the trough life is 20 years, the interest rate is 8 percent, and the value of the increase in animal unit months (AUMs) produced each year is $140?

Solution:  Using Excel PV function, the breakeven cost = PV(8%, 20, -140) = $1374.54.  The answer can be calculated by multiplying the value of the annual benefit with the present value of an annuity of 1 for an 8-percent discount rate in a 20-year period:  $140 x 9.818.  The rancher will profit from the stock water development at any cost below the breakeven cost of $1,374.54.

(2)  Example:  Break-Even Benefit

For the same project as in example 1, what must an AUM be worth to break-even when the capital cost is $1,400, the evaluation period is 20 years, and the benefits are discounted at 11-percent interest rate, assuming the annual AUM production from the project will be 20 AUMs.

Solution:  Using Excel PMT function, the break-even annuity = PMT (11%, 20, -1400) = $175.81.  The unit price per AUM = $175.81/20 = $8.82/AUM.  The same annual AUM value can be calculated by multiplying the capital cost with the amortization factor for an 11-percent discount rate in a 20-year period:  $1,400 x 0.126.  Unit price of AUM:  $175.81/ 20 = $8.82 per AUM

(3)  Example:  Break-Even Time (Payback Period)

What is the period of capital recovery or minimum life expectancy for the proposal if the capital cost is $1,000, an 8-percent interest rate is used, and the value of the change in AUMs produced is $120 per year?

Solution:  Using Excel NPER function, the break-even period = NPER(8%, 120, -1000) = 14.3 years.  Therefore, the break-even time is about 14.2 years.

(4)  Example:  Break-even discount rate (internal rate of return): 

What is the break-even discount rate or internal rate of return when capital cost is $1,000, the effects are evaluated over a 20-year period, and the value of the change in AUMs produced is $180 per year?

Solution:  Using Excel RATE function, the break-even discount rate = RATE (20, 180, -1000) = 0.173, or 17.3 percent.  Therefore, the break-even discount rate is 17.3%. 

610.33  Partial Budgeting:  Cost-Effectiveness Approach 

A.  Cost-effectiveness analysis is an appraisal technique used when benefits cannot be reasonably measured in monetary terms and all alternatives deliver the same benefit stream. The alternative that achieves the stated objectives at the least cost is the most cost-effective alternative.

B.  It can be used in two forms: 

(1)  The constant effect method, which uses least-cost analysis to determine the alternative for meeting a stated level of benefits, including intangible benefits. 

(2)  The constant-cost method, which calculates the cost per unit of benefit, or the cost-effectiveness ratio.  This method requires that it is possible to quantify benefits (but does not necessarily require attaching a monetary price or economic value to benefits).

C.  If an analysis is used to determine the most cost-effective means of generating conservation benefits among optional technologies, it is most often in the form of the constant effect method and is called the “least-cost analysis.”  In such a case, a measure of a project’s dollar value is impossible to obtain from cost-effectiveness analysis because the analysis is done without reference to the monetary value of benefits.

Example:  Computing Present Value of Total Costs With Lifecycle Cost Analysis

(i)  Problem.—Determine the least-cost alternative.

(ii)  Situation.—Two alternatives are being considered to provide pressurized water at a given point: either a pump and motor, or a gravity-pressurized pipeline, each with a 20-year life expectancy.  The installation cost (capital cost) of the pump and motor is estimated to be $5,000 and of the gravity pipeline, $14,000.  The average annual operation and maintenance (O&M) cost for the pump and motor is estimated to be $1,000, and for the gravity pipeline, $300, at today’s price level. 

(iii)  Questions.—When compared over a 20-year life at a 7-percent real discount rate, which is the least-cost alternative?  If the real discount rate used is 3 percent, which is the least-cost alternative?  What general conclusions can we draw from this example?

(iv)  Solutions.—Compute the present value of total costs using lifecycle cost analysis to determine the least-cost alternative.

D.  To determine which option is the least-cost, the pump and motor or the gravity-pressurized pipeline, the installation and average annual O&M costs of each must be considered on a common time base using their present values.  The installation costs are already in present value form.  The present value of O&M costs can be calculated using the Excel PV function.  The present value of the total cost can be determined by adding together the present values of the installation costs and the O&M costs.  When the present value of the total cost at a given discount rate has been determined for each option, a comparison will reveal which is the least-cost means of providing equal service.  It is important to understand that an economic comparison of costs to determine the least-cost option is only valid when each option provides the same level of service or output.

Click here for a copy of Figure 610D-4: Computing Present Value of Total Cost Using Lifecycle Cost Analysis                

(1)  Conclusion.—As shown in figure 610D-4, when comparing the two options over 20 years at a 7-percent real discount rate, the present value of total costs for the pump and motor option is $15,594, and the present value of total costs for the gravity-pressurized pipeline option is $17,178.  Therefore, the pump and motor option is less costly than the gravity-pressurized pipeline option.  When the options are evaluated at a 3-percent real discount rate, their relative costs change.  The present value of total costs for the pump and motor option is $19,877 and the present value of total costs for the gravity-pressurized pipeline option is $18,463.  The gravity-pressurized pipeline option becomes the least-cost option among the two options.

(2)  General Conclusions.—High discount rates tend to push decisionmakers away from higher installation costs in favor of higher operation and maintenance costs.  Low discount rates tend to do the opposite, by making one-time installation costs look relatively more favorable than recurring annual operation and maintenance costs.  Viewed from another perspective, high discount rates tend to move decisionmakers away from options that require large and relatively irreversible commitments and toward operations with low initial commitment and high flexibility for change.  Low discount rates indicate more expected stability in future economic conditions and therefore make large initial commitments more comfortable for decisionmakers.  Note that real discount rates—rather than nominal discount rates—are being used in this analysis because it is difficult to project inflation over a 20-year period.  Thus, the average annual operation and maintenance costs are estimated at their current value.  When costs and benefits are in real terms, discount rates need to be in real terms as well. 

610.34  Partial Budgeting:  Marginal Analysis Method

A.  Marginal analysis is the analysis of the change in one variable when a small change is made in another variable.  One of its applications is the marginal physical product.  This is the amount by which production changes when a small change is made in one input with all other inputs being held constant.  For instance, one could measure how the use of different amounts of fertilizer affects wheat production.  Marginal analysis is an important concept underlying many economic analyses.  “On (or at) the margin” refers to a small change in the total of some input or in production.

B.  This approach is often used to find a conservation alternative to improve a benchmark resource condition.  The process sometimes involves first developing a wide range of alternatives and then comparing the differences between the incremental benefits of implementing the various conservation alternatives to the incremental differences among the costs of those alternatives.  Additional conservation activities should only be considered for implementation if their incremental benefits exceed incremental costs.  In other words, beyond the minimum necessary treatment, any additional costs are to be incurred only if offset by equal or greater additional benefits.  Therefore, in formulating a conservation system composed of several separable practices, each practice should be examined to determine whether that practice—in and of itself—provides positive net benefits. 

Example:

(i)  A farmer is thinking about switching from conventional tillage to a no-till system on 1000 non-irrigated acres where he currently runs a wheat/safflower rotational cropping system.  He is curious as to how the change would affect his annual costs for diesel fuel and engine oil during the wheat years in his crop rotation.

(ii)  During one year of the farmer’s conventional wheat rotation, he runs five passes across the field with his 200 HP tractor, four passes for tillage operations and one pass for planting.  By his calculations, it costs him $5.80 in tractor fuel and oil per acre per pass.  In addition, he makes one pass per year across his field with his self-propelled boom sprayer, which by his calculations costs $0.11 in fuel and oil expenses per acre.  If he switches to no-till using the type of drill he would like to purchase, he will have to upgrade his tractor to a 300 HP model.  He calculates that it will cost $11.92 per acre in fuel and oil to run the new tractor pulling the no-till drill.  If he switches to no-till, he also expects that to successfully suppress weeds, he will have to increase the number of passes per year with his boom sprayer from one pass to five passes.

·          Conventional Fuel & Oil Expenses = ($5.80 x 5 passes x 1000 AC)  + ($0.11 x 1 pass x 1000 AC) = ($29,000 + $110) = $29,110

·          No-till Fuel & Oil Expenses = ($11.92 x 1 pass x 1000 AC) + ($0.11 x 5 passes x 1000 AC) = ($11,920 + $550) = $12,470

·          Marginal Change in Fuel & Oil Costs = -$16,640

(iii)  In this example, the marginal difference between conventional tillage and no-till operations in annual fuel and oil costs during the wheat years in the farmer’s crop rotation is a decrease of $16,640.

610.35  Partial Budgeting:  Economic Thresholds 

A.  Integrated pest management (IPM) is an approach to pest control that combines biological, cultural, and other alternatives to chemical control with judicious use of pesticides.  The objective of IPM is to reduce pest infestation below a level that can cause economic damage while simultaneously minimizing the harmful effects of pest control on human health and environmental resources.

B.  A key principle of IPM is that pesticides should only be used when field examination or "scouting" shows that infestations exceed economic thresholds.  The economic threshold occurs when the levels of pest population, if left untreated, would result in reductions in revenues that exceed treatment costs.

C.  The point at which an input starts to pay for itself is called the economic threshold.  Economic thresholds can assist farmers and ranchers in making decisions about pesticide application.  Undesirable weeds and insects can cause major injury to a crop.  A small amount of injury may be tolerable if it does not significantly affect crop yields and, consequently, does not significantly affect revenues gained from selling the crop.  Nevertheless, if the presence of pests is considered to affect crop yields, decisions about using pesticides must be based on whether the cost of treating with pesticides is less than the value of expected crop yield losses.

D.  Economic Threshold Example:  Insecticides

(1)  The insecticide economic threshold is the point at which expected crop damage from insects is high enough that insecticide control costs equal the value of the expected yield losses due to the insects.  The following example demonstrates how the economic threshold method can be used to assess the need to apply insecticide in corn where the European corn borer is the target species.

(2)  Example:  An average of one borer per plant is estimated to cause a 5-percent yield loss.  Scouting the field finds about two worms per plant.  Application of an insecticide would provide 75-percent control.  Chemical and application costs are $12 per acre.  Expected yield is 125 bushels per acre, with an expected market price of $6.50 per bushel.

(i)  Potential yield loss per acre = 125 bushels x 10%(2 borers/plant) = 12.5 bushels

(ii)  Expected value of loss per acre = 12.5 bushels x $6.50 = $81.25

(iii)  Preventable value of loss per acre = 75%x $81.25 = $60.94

(iv)  In this example, the net gain per acre from insecticide treatment would be $48.94 ($60.94 - $12).  Therefore, it would be advantageous to treat the field.  Had the treatment costs exceeded $60.94 per acre, then treating the field would have resulted in greater economic losses than would result from not treating.

(v)  According to surveys conducted by the USDA Economic Research Service, scouting and threshold use are widespread in the production of specialty crops such as fruits, vegetables, nuts, and potato.

E.  Economic Threshold Example:  Herbicides

(1)  The herbicide economic threshold is the point at which weed density is high enough that herbicide control costs equal the value of the expected lost yields due to weed density.  If a specific herbicide is applied on a field where the threshold is not reached, then excess costs are incurred.  For example, if the expected yield loss due to weeds is $12 per acre and herbicide costs are $18 per acre, then this could result in $6 per acre in unnecessary costs.

(2)  The following suggests a method that can be used to evaluate the need to apply herbicide (economic threshold) in corn.  The following information is required:

(i)  Expected crop yield

(ii)  Expected crop market price

(iii)  Densities of weeds in the field by species and expected yield loss (sources of yield loss information include Extension Service, agricultural research institutes, producer's experience, etc.)

(iv)  Cost of herbicide treatment (chemical and application)

(3)  Example

A cornfield has an average of 6 giant ragweed, 24 pigweed, and 10 giant foxtail plants per 100 feet of row.  Expected yield losses as the result of the weeds are 1.5 percent (interpolated), 2 percent, and 1 percent respectively, for a total of 4.5 percent.  If the expected yield is 120 bushels per acre and the expected price is $6.50 per bushel, then the potential yield loss would be $35.10 per acre (4.5% x 120 bushels x $6.50 = $35.10).  If herbicide treatment costs were less than $35.10 per acre, then treatment would be justified.  If herbicide treatment costs are greater than $35.10 per acre, then additional costs could be avoided if the herbicide were not applied at this time.

610.36  Sensitivity Analysis

A.  Evaluating assumptions

(1)  A sensitivity analysis is conducted to test the effects of changing any assumptions that were made while evaluating the impacts of implementing a conservation system.  Sensitivity analyses can be used to systematically test what happens to the feasibility of a conservation plan if the initial assumptions are altered.  It is a means of identifying the vulnerability of the success of a conservation system to uncertain future events and values.

(2)  Sensitivity analysis can be done by varying either one assumption or a combination of assumptions to estimate the effects of those changes on the expected outcome.  To evaluate a conservation plan, it can be useful to test the effects on a farmer’s earning capacity caused by changes in prices or costs, delays in implementation, changes in yields, or some combination of these.

(3)  Sensitivity analyses need not be limited to the purposes of finding out the effects of a change in an assumption on the worth of a project.  A sensitivity analysis could be conducted, for example, to determine the effects of a delay in realization of benefits on the cash flow position of a farmer who has borrowed for an irrigation pump. 

B.  Risk Analysis

(1)  Sensitivity analyses may also be conducted in the evaluation of potential risks associated with a conservation project.  Risk is defined as the probability or chance that something will or will not occur as planned.  For example, what is the chance that yields will reach the prescribed level?  What is the likelihood that the system will be more costly than expected?  The impact of these occurrences can be tested using sensitivity analysis.  They can also be evaluated using a formal procedure called risk analysis.

(2)  In circumstances of risk, a decisionmaker can make a decision under the assumption that he or she can enumerate all possible future states and assign probabilities of the occurrences of such states.  Applied in conservation decisions, risk analysis can be more narrowly described as an analytical technique in which the estimation of net conservation benefits from conservation alternatives is based on the probabilities of occurrence of all critical events or elements of conservation in all likely future scenarios.  Production risks associated with crops also play a part in the evaluation of conditions with conservation. 

(3)  The decision-tree method has been used as one approach to help decisionmaking under risk.  The first step involves depicting actions (e.g., to apply conservation measures or to not apply them) available to a decisionmaker, the second step describes the uncontrollable events that can occur at certain probabilities and the relationship between actions and events, and the third step involves estimation and comparison of potential outcomes for each action-event scenario.  Uncontrollable events influencing the outcomes of a landowner’s decisions on conservation might include climatic changes (e.g., drought or flood), naturally occurring biological and ecological changes that are not understood and thus are unpredictable (e.g., crop disease outbreaks), and changes in the policies of Government agencies (e.g., increase or decrease of Federal funding for conservation). 

(4)  Using this decision-tree method, a landowner or planner has to judge how many action and event options to include in the tree.  The decision of a landowner regarding a conservation action will finally be based on the estimated final outcome that is derived from multiplying the probabilities assigned to each uncertain event by the expected outcomes associated with a related conservation action, thus calculating a series of expected values for the conservation action (see note below).

Note:  Contents of this section are modified from the discussion in the book, “Economics and the Environment” (Chapter 16, “Social Coordination Under Uncertainty,” pp. 224-242), by Ian Willis, printed in 1997 by Allen & Unwin.

C.  Value Engineering

(1)  Value engineering is another way to conduct sensitivity analysis.  Value engineering is a process in which the planner, the evaluator, or the decisionmaker starts with an initial conservation system alternative, adds an additional feature or increases the magnitude of a characteristic of the alternative (such as adding additional units of a conservation practice), and then evaluates the result to test for a net increase in the overall value of the conservation project. 

(2)  Value engineering can provide a means of reconsidering an alternative to make sure it provides the greatest possible net benefits given the purpose and circumstances of the decision. 

[H_200_NREH_610_D - Amend. 3 - July 2012]

Subpart E - Analysis of the Adoption of Conservation Practices

610.40  Introduction

A.  Land users usually only adopt a system of conservation practices when doing so is in their best interests.  Not all economically justified conservation practices, however, are adopted by all land users.  Many constraints facing land users affect their decisions about whether to adopt economically-justified conservation practices.  Such constraints include both economic and noneconomic factors.

(1)  Strategies to promote the adoption of new and unfamiliar conservation practices, such as residue management practices, must take into account several interrelated factors.  These include the variety of crops grown, the cost of alternative tillage systems, weather and pest expectations, the land user’s management experience, as well as Government policies, risk preference, base knowledge, and the background of regulations.

(2)  In essence, a land user’s decisions in adopting conservation practices depend on his or her assessment of managerial, economic, and environmental factors affecting his or her business, as well as the economic feasibility of the conservation practices. Understanding land users’ concerns regarding conservation practices and why they do, or do not, adopt new conservation practices, is central to collecting and assessing the appropriate information and actions to help them make informed decisions.

B.  This chapter analyzes these factors affecting land user adoption of conservation practices and discusses how a planner may design strategies to help land users improve the chances of successfully adopting conservation practices. The discussion begins with the theory of agricultural innovations adoption from the adoption-diffusion (A-D) model.  Then a method is proposed in utilizing the A-D model when working with an individual landowner.  The framework is useful for developing active listening skills to ascertain what the landowner considers in conservation choices.

610.41  Adoption-Diffusion Model

A.  NRCS has utilized the A-D model in promoting conservation to land owners and land managers.  The A-D was initially postulated by Ryan and Gross (1943) for describing acceptance of hybrid seed corn varieties in two communities in Iowa.  Everett Rogers and Floyd Shoemaker more fully developed the theory of A-D in a 1971 book, “Communication of Innovations – A Cross Cultural Approach.”

B.  Adoption-diffusion is a way of looking at what influences a producer’s decision to adopt an agricultural practice.  Influences include information or what is known about the practice. How and when a producer receives information is critical in the adoption process. The size, scale, and type of operation are also relevant to adoption.  Other influences include personal characteristics of the producer, characteristics of the community, and characteristics of the practice or innovation.

C.  This section will provide a summary of the A-D model and discuss how the A-D model could be used in the field.  Items to be covered are the how the model works, information sources, personal and farm-level characteristics that influence decisionmaking, and, finally, obstacles that may affect innovation or technology adoption. 

D.  The A-D model has three specific terms: 

(1)  Adoption is the behavior associated with an individual or group’s decision on whether or not to accept new ideas, practices, or products.

(2)  Diffusion is the process by which the adoption of a new idea, practice, or product spreads throughout a group, community, or society.

(3)  Innovation is an idea, practice, or product that is perceived as new by the individual or group.

E.  How the A-D Model Works

(1)  The A-D model has six stages in the adoption process:

(i)  Awareness of the problem.

(ii)  Interest in more information.

(iii)  Evaluation.—How the technology can be applied to the producer’s operation.

(iv)  Trial.—Testing the applicability at a specific site.

(v)  Adoption.—Full use of the technology.

(vi)  Adaptation.—Customization of the practice or technique by the producer.  Although the stages are outlined sequentially, the model is dynamic; an individual farmer or rancher may return to any one of the stages at any time during the adoption process.

(2)  Throughout the various stages, information is vital to the producer.  Information provides knowledge to decide whether or not to adopt a particular practice or system.  Because of its key role, producers need timely, accurate, inexpensive, and easily obtainable information.  Site-specific information on the agronomic, economic, and environmental costs and benefits aids the producer in the decisionmaking process.  The sources of information that a producer uses are also vital to the adoption process.

(3)  Producers use different sources of information at the different stages of the adoption process. The key information sources at work in each of the stages of the classic A-D model are listed below.  The identified sources are listed in the priority of use.  Note that while these key sources of information remain valid, today additional new sources, such as the Internet and certified crop consultants, play an increasing role in agriculture decisionmaking.  Who, what, and when an information source is used will vary by the particular producer group.  For example, research in the 1980s found that private industry was the main information source, especially for large producers.

F.  Information Sources for Each Stage of Adoption.—The A-D model has specific sources of information that farm operators use during each stage of adoption (Rogers and Shoemaker, 1971).  These sources range from mass media and government agencies down to neighbor and personal experience.  Below are the stages with the corresponding information source (Figure E-1):

Click here for a copy of Figure 610E-1: Information Sources by Stage of Adoption            

A.  Personal Characteristics That Influence Innovation Adoption

Along with information and information sources, Rogers and Shoemaker associated certain personal characteristics with the adoption of innovations or agricultural technologies.  Each of the following personal characteristics is positively correlated with the willingness of a producer to incorporate newer technology into the farm enterprise:

(i)  Above average income

(ii)  Greater number of years of formal education

(iii)  High number of agency contacts

(iv)  High participation rates in agricultural organizations

(v)  Greater reliance on mass media

(vi)  High awareness of conservation problems

(vii)  Willingness to take risks

(viii)  Full-time operator

(ix)  Desire to pass farm or ranch on to children

B.  Farm or Ranch Characteristics

As with personal characteristics, Rogers found a positive correlation between a select set of farm or ranch characteristics and adoption. The characteristics Rogers cited are as follows:

(i)  Large-scale farms

(ii)  High gross farm sales

(iii)  Owner operations

C.  Characteristics of the Technology (Practice or System)

Research has found that certain characteristics of the technology or innovation are related to the adoption process.  The practice must be—

(i)  Economically feasible.

(ii)  Observable, simple to use, and divisible into manageable parts.

(iii)  Compatible with a farmer’s beliefs, ideas, and management style.

(iv)  Flexible, easily fitting into the producer’s management of the operation.

D.  Key Points to Remember When Applying the A-D Model

(1)  Timely and accurate information can help accelerate a producer’s movement through the stages of adoption.

(2)  Field staff should regularly and continually use local information sources to promote conservation technologies.

(3)  Outreach strategies and locally led activities will be most effective in “getting conservation on the ground” if the values, personal characteristics, communication networks, and social relationships associated with each adopter category are integrated in local planning activities.

(4)  Field staff should seek out and work with early adopters.  They are leaders and their opinions and experiences are highly respected.  For example, use early adopters to demonstrate conservation technologies to the rest of the community.

(5)  Demonstrations, pilot projects, and field tours continue to be viable ways that producers can use to evaluate how a practice or system may work in their operation.

(6)  Among small-scale producers, peers, friends, and neighbors serve as trusted leaders and play a significant role in the adoption-diffusion process.

(7)  People who might be characterized as belonging to different types of groups in the community tend to respect their “own” leaders (i.e., leaders that are similar to them in status, race, ethnicity, and their farming situation).

(8)  For small-scale producers, demonstration and pilot projects must include alternative low-cost technologies.

(9)  Technical assistance and “hand-holding” during the trial stage can help a producer acquire the needed management skills in order to have a successful experience with the innovation.

(10)  Community support structures, such as environmental education programs and centers, “Conservationist of the Year” programs, active watershed coalition and “Ag Days” help to reinforce and shape the diffusion of a technology.

(11)  Based on farm or ranch characteristics and their personal characteristics, low-cost practices and technologies should be made available to small-scale operators.

(12)  Whether field staffs are working one-on-one, designing outreach, or setting up locally led activities, the known obstacles to adoption can serve as a springboard for field staff to increase and to influence the adoption diffusion process.

E.  Technical Notes and Resources of the A-D Model

The A-D model is embodied in the Technical Note 1801:  Guide for Estimating Participation in Conservation Programs and Projects.  The technical note was historically used primarily in Public Law 83-566 programs to estimate the participation rate for land treatment watershed projects.  The technical note can be used at the field office level to determine the level of technology acceptance in a particular watershed and how to better work with individuals and groups within a particular watershed to improve conservation adoption. 

610.42  Conservation Adoption at the Farm or Operator Level

A.  The application of conservation practices, however, is only one of the many decisions a land user has to make in order to manage a farm.  When providing conservation assistance to a land user, information on how adoption of alternative conservation systems will affect his or her economic situation should be included in the information presented by the conservation planner.

B.  The overall economic environment, particularly the agricultural business environment (interest rates, farm income support programs, conservation program payments, etc.) affects a land user's decisions about whether or not to adopt conservation practices.  During times of prosperity, land users usually can afford to invest in long-term conservation strategies and practices.  Installation of conservation practices is often a good way to increase future productivity, making conservation an intelligent investment.  However, while the installation costs are upfront, benefits from conservation sometimes take time to materialize.  Therefore, liquidity, cash flow, or profitability can become an issue for many land users considering conservation investments.

C.  In times of economic stress, practices that have high upfront installation costs but whose benefits take time to materialize could be good alternatives from a conservation viewpoint, but may not be affordable to a land user.  Under these circumstances, applying part of a conservation system to obtain some benefits may be better than not applying any practices at all.  When the land user's economic situation improves, the remaining planned practices could be applied, thus help the land user to reap the full benefits of conservation.

D.  In addition, as explained in the A-D model, land users may be unable or unwilling to adopt conservation practices due to other reasons, some of which are not related to financial or economic considerations.  For example, it is important for the planner to understand, to the best of his or her abilities, any social constraints that could affect how comfortable the land user will feel about his or her decision to implement a new conservation system.  Being prepared to either simply observe or possibly to actively discuss these issues will enable the conservation planner to better help the land user make a choice with which he or she is comfortable.  A sound conservation choice is one that reflects the land user’s personal circumstances, preferences, and level of comfort with adopting the proposed conservation practices.  If local producers generally consider the adoption of a specific, visible conservation practice to be ridiculous or a reason for ostracizing anyone who adopts it, a land user under those circumstances will likely be reluctant to implement that particular practice.  In that case, it would be helpful to find an alternative practice if possible.  This is just one example of a type of social constraint faced by land users.

E.  Because of general climate and physiography, as well as the site-specific conditions of any given land unit, physical limitations can play a large part in what is feasible for a producer to accomplish.  If a land user knows that his or her farm or ranch is “hammered,” perhaps having been abused by a previous land owner, he or she may be worried that achieving the desired level of resource conditions through implementation of standard conservation practices may present some difficult challenges.  Being aware of such challenges can be psychologically daunting.

F.  A different type of physical constraint is the physical well-being and abilities of the land user.  If the producer is in poor health or has physical limitations due to age or mobility, then one type of conservation system may work well while another would be prohibitively difficult for the land user to operate.  It may sometimes be the case that the land user doesn’t want to disclose a personal physical limitation to the conservation planner and, instead, will simply decline to adopt a suggested conservation system.

G.  Planners need to be sensitive to these and other potential reasons for reluctance to adopt.  Conservation planners, who always work within complex constraints faced by land users, can be more effective in the development of successful conservation plans by applying the principles of adoption analysis to better understand land users’ individual perspectives.

610.43  Adoption Analysis

A.  If land users do not adopt conservation practices, it is because there are obstacles making them unable, unwilling, or both.  These reasons are not always easily distinguishable from one another. Land users can be able, yet unwilling; willing, but unable; and, of course, both unable and unwilling. These may sound like minor distinctions, but the difference between a land user being unwilling or being unable is crucial when designing the appropriate conservation adoption strategy.  These obstacles could be due to knowledge, risk preference, economic resources, ownership of the resource base, etc. (figure 610E-2). 

Click here for a copy of Figure 610E-2: Obstacles to Adoption of Innovation                 

B.  Reasons for Being Unable to Adopt.—A land user may be willing to adopt a new conservation practice, but unable to do so.  Being unable to adopt a new conservation practice implies the existence of one or more obstacles or situations that prevent the land user from adopting the conservation practice even if he or she is willing to do so.  Such obstacles or situations might include the following:

(1)  Information is Lacking or Scarce.—A land user may be unable to adopt a practice because some of the basic information necessary for a sound economic and agronomic analysis is missing.

(2)  The Costs of Obtaining Information Are Too High.—The time, expense, and difficulty of obtaining site-specific information may be too high.  Obtaining relevant information is not cost-free to the land user.

(3)  The Complexity of the Practice is Too Great.—Available reports of extensive research show that the complexity of a technology is inversely related to the rate and degree of adoption. Conservation practices that are too complex make some land users unable to adopt them.

(4)  The Conservation Practice is Too Expensive.—Conservation investment costs (fixed and variable costs) and their impact on net returns are major concerns of land users.  An agronomically sound practice with too high of a price tag makes many land users unable to adopt.

(5)  The Labor Requirements Are Excessive.—Land, labor, and capital still determine the success of the operations of a farm or ranch.  If the labor requirements associated with a new conservation practice are very high relative to the availabilities of labor or capabilities of a farm or ranch, then the farm or ranch manager may be unable to adopt it.

(6)  The Planning Horizon is Too Short.—Conservation practices may be rejected by a land user because their current planning horizon is too short, when considering the time associated with recouping initial investments, learning costs, or depreciation of the present equipment line. Many of today's land users may not be farming or ranching in a few years because of retirement or other transitional considerations.  Asking them to make a long-term investment in a short planning horizon could result in them being unable to adopt.

(7)  The Availability and Accessibility of Supporting Resources Are Limited.—Few land users could adopt innovative conservation practices without significant support.  This support can exist in different forms.  The lack of any one of these could be the obstacle that prevents a land user from adopting.  Examples are:

(i)  Local equipment or agrochemical dealers are willing to absorb the risk of investing in products and associated replacement and repair parts not currently being used in their trade areas.

(ii)  Other land users using conservation practices are willing to share both successes and failures.

(iii)  USDA information and assistance network is capable of answering land user questions.

(iv)  Federal, State, and local financial assistance is available when land users need it.

(8)  Managerial Skills Are Inadequate.—As in the case with the physical resource bases they manage, diversity among land users is tremendous.  A dimension of this diversity is managerial skill.  Too often conservation practices are designed for land users with average or above-average management skills.  Local assistance networks are also oriented to this group because of the performance and evaluation systems used in USDA.  Either of these can create a situation where land users with less than average management skills receive little or no assistance in building these important skills.  These land users will then make the decision to reject the conservation practice because they lack the requisite managerial skills or the opportunity to develop them.

(9)  Control Over the Adoption Decision is Limited or Nonexistent.—Viewing a land user or operator as an independent decisionmaker who calls all the shots is common.  The operator, therefore, becomes the focal point of most efforts to transfer new technologies.  In many situations, however, a decision cannot be made without the approval of a partner, source of financial credit, landlord, or some other third party.  If these other interests are not convinced of the merits of a new conservation practice, then the land user or operator will be unable to adopt.

B.  Reasons for Being Unwilling to Adopt

(1)  Land users may be unwilling to adopt a new conservation practice.  This implies that they have not been persuaded that the practice will work or is appropriate and beneficial for their farm or ranch operations.  Attempts at persuading can be unsuccessful for any of multiple reasons.  As in the case of being unable to adopt, many of these situations are created by factors related to insufficient provision of information to the land user; therefore, he or she is making a reasonable decision in rejecting the practice.  Until the appropriate information is offered, the unwillingness to adopt will not change.

(2)  Reasons Land Users Might Be Unwilling to Adopt

(i)  Information Conflicts or is Inconsistent.—Land users may be unwilling to adopt a practice because of inconsistency or even outright conflicts in the information about the practice.  Concerned about water quality in a vulnerable area, the land users may hear that a particular conservation practice always requires more pesticides or that another local land user claims it requires fewer pesticides.  They will often remain unwilling to adopt until these divergent messages become more consistent.

(ii)  Poor Applicability and Relevance of Information.—To make a sound decision, land users need information that is applicable and relevant to their farms or ranches.  Data from a neighboring State or even across the county line may be judged as not meeting local conditions.  Until the data of the adapted are made available and relevant to local situations, the land user will remain unwilling to adopt.

(iii)  Conflicts Between Current Conservation Goals and the New Technology.—New technologies do not always fit into existing conservation practices and the policy context in which they operate.  In these cases, the general expectation is that land users will adapt their operations to meet the adoption requirements of the technology.  This can be contrasted with a situation where a flexible technology is designed and introduced so that it can be adapted to fit into a land user's operation.  Land users may be unwilling to adopt if they feel that too much adaptation is required.

(iv)  Lack of Knowledge on the Part of the Land User or the Promoter of the Conservation Practice.—An individual who has not had the opportunity to learn about a new practice or a planner who lacks sensitivity to the basic needs of a potential adopter can cause the land user to remain unwilling to adopt.

(v)  The Practice is Inappropriate for the Physical Setting.—The land users may be expected to adopt a practice that is inappropriate for the physical setting for their farms or ranches. Potential yield losses, inefficient use of inputs, or even negative environmental impacts can result from this situation.  Some land users, recognizing this incompatibility, remain unwilling to adopt.

(vi)  The Practice Increases Risk of Negative Outcomes.—A conservation practice can increase the probability of a negative outcome in many ways.  For example, a relatively wet, versus a dry year can have many implications for pest control, nutrient amount and placement, and the timing of tillage operations.  Relying on agrochemicals for pest control can make the land user more dependent on weather patterns and increase the potential costs of rescue operations.  The complexity of a practice, importance of the timeliness of operations, and the interdependence of inputs all can increase perceived or real uncertainty and risk.  Some land users are simply unwilling to make major decisions under conditions of uncertainty or where risk is significant.

(vii)  Belief in Traditional Practices.—Although traditional beliefs and practices in agriculture are often scorned, one should not forget that those traditional land users continue to survive in today's competitive environment while thousands of their innovative or progressive neighbors have gone out of business.  Some land users are unwilling to change because those traditional practices may present the least risk in dynamic agricultural markets.

(viii)  Conservation (Buyer) Remorse.—After learning more about the practice, the landowner backs out because “it’s not what I thought it was” or “the maintenance and repair time was not what I expected.” 

(ix)  Perceived Information Source Bias.—The landowner may not trust a Government or company representative who gives advice requiring the landowner to spend money or time when that advisor does not share in the resulting losses.  Government and sales representative salaries do not depend on the success of the conservation practice.

610.44  Strategies for Assisting Conservation Adoption

A.  Decision Matrix

(1)  A planner may use a decision matrix to analyze a land user’s decisionmaking rationale for conservation adoption.  Such a decision matrix is an excellent way to organize land users’ reasons for adopting or rejecting conservation practices.  Each of a landusers’ reasons for adopting or rejecting conservation practices can be categorized into one of the four cells in a 2x2 matrix (figure 610E-3).  Using the matrix to organize the target group's reasons for adopting or rejecting NRCS’s recommendations of conservation practices can assist conservation planners in determining appropriate actions necessary to implementing a successful conservation program or project.

Click here for a copy of Figure 610E-3: Decision Matrix for Conservation Adoption: Reasons for a Landuser's Adoption and Rejection of a New Practice                     

(2)  The matrices in figure 610E-4 summarize various combinations of a land user’s reasons for adoption and rejection of new conservation practices (for example, for low initial-cost systems (LICS)).  The figure shows, for example, if a land user has never heard of a LICS from NRCS, but has a history of adopting conservation innovations, then that land user would fit into the category of being unable and willing.

(3)  Identifying the category or cell into which an individual land user falls would help a conservation planner tailor a conservation adoption strategy to meet the needs and concerns of that particular land user.  Realization of a land user's reasons for adoption or rejection should enable the conservation planner to avoid ignorance of and insensitivity to the land user's needs, and help put more conservation practices on the land.

Click here for a copy of Figure 610E-4: Low Initial-Cost Systems (LICS): Reasons for Landuser's Adoption and Rejection of New Practices                       

(4)  The data in the matrix is based on interactive questions of the land manager that relate to adoption willingness and ability. 

(i)  Sample questions could include the following:

·          What is your present operation practice?

·          Have you heard of LICS?

·          Do you know of anyone in the county using LICS?

(ii)  Upon describing LICS, ask if the land manager is comfortable with operation and maintenance (O&M) requirements of a set of LICS practices.  Follow up with a question over the O&M work or costs to determine reasoning for being unable or unwilling. 

(5)  Sample Conversation:

Example of a farmer who has never worked with NRCS before but has heard about and seen what NRCS has done for other farmers.  

·          Farmer (F) comes into the field office and says, “I want to do terraces.” 

·          Conservationist (C) replies, “We can do terraces, but are terraces what you need?”

·          F:  “My neighbor has terraces.”

·          C:  “I can understand why you’d like terraces.  Tell me, what do you want the terraces to do for you?”

·          F:  “I’ve got soil falling off the side of the hill.”

·          C:  “Terraces can certainly help with that.  But, while you’re here, we might look at other ways to keep the soil on the side of your hill.”

·          F:  “My neighbor’s works.”

·          C:  “Well, you and I have the opportunity to explore other ways.  Perhaps there is another way that better fits your farm and the way you run your farm.  Maybe we can think about the equipment you have or want to buy, or the kind of labor you have throughout the year, or maybe we can even find a more cost effective-way to keep the soil on the hill.”

(6)  This type of conversation allows the farmer to reveal the different types of ability.  Maybe the farmer can afford the terrace installation, but does not have the labor for the O&M.  His or her neighbor with the terraces has the labor for the O&M but maybe he or she does not.  This type of conversation reduces the probability that the resulting contract will have to be modified or cancelled.  

(7)  This type of conversation reduces the likelihood that the landowner will, in the future, say: 

(i)  “I didn’t realize I’d have to check the terraces after every storm.  I just don’t have time for that.   I’ve got other things to do after a storm.”

(ii)  “I didn’t realize the terraces would cost me that much!  I guess costs have really gone up since my neighbor installed his terraces.”

(iii)  “I didn’t realize that I’d have to spend at least 2 days a year to do maintenance.  I’m having a hard time fitting that into my schedule.”

(8)  You will notice how ability can take different forms:  ability to pay the dollar costs, ability to provide the labor for repairs and maintenance when there are other, ongoing tasks on the farm.  You will also notice that willingness and ability interact with each other. 

B.  Observations About Adoption of Conservation Practices

(1)  At least three general observations can be made from the lists presented in this section about why land users are unable or unwilling to adopt conservation practices.  First, increasing the adoption of conservation practices depends upon whether conservation planners can identify reasons why land users are unable or unwilling to adopt, and then remove these impediments.  Being aware of these reasons can expand the conservationist’s ability to listen for subtle cues the landowner may give during a conversation.  Following up on the subtle cues can lead to more direct information about the barriers.

(2)  Second, many of the factors causing land users to be unable or unwilling to adopt conservation are beyond their control.  In many cases, it is not so much a land user’s failure, but a system’s failure.  For example, the conservationist might work with State office staff to explore possible modifications to the practice installation that will be more suitable to the particular farm and still meet practice standards.

(3)  Third, any one remedial strategy is not sufficient to address all the issues associated with land user’s choice against adopting conservation practices.  A combination of technical, financial, or educational assistance may be necessary to achieve a desired outcome.  The specific type of assistance the land user needs must be delivered in a format compatible with his or her capabilities.

(4)  Finally, the promotional strategies that worked for the early adopters are generally not as effective with late adopters.  If accelerated rates of adoption for conservation systems are desired, then NRCS personnel must be as willing to accept new ideas and methods as they expect potential adopters to be accepting of new practices.  For additional reading, see:  "Farmer Adoption of Production Technologies," by Pete Nowak, a professor in the Nelson School for Environmental Studies at the University of Wisconsin-Madison.

[H_200_NREH_610_E - Amend. 3 - July 2012]

Subpart F - Introductory Statistics
[H_200_NREH_610_F - Amend. 3 - July 2012]

Subpart G - General Glossary
[H_200_NREH_610_G - Amend. 3 - July 2012]

Subpart H - General References

           610.80  References

A.  Arkin, Herbert and Raymond R. Colton.  1967.  Tables for Statistics, 27 Most Frequently Used Tables with Explanations and Instructions, Second Edition.  Barnes & Noble, INC.  New York.

B.  Barlowe, Raleigh.  1958.  Land Resource Economics.  Prentice Hall.  Upper Saddle River, New Jersey.

C.  Boardman, Anthony E., David Greenberg, Aidan Vining, David Weimer. 2010. Cost-Benefit Analysis: Concepts and Practice, Fourth Edition. Prentice Hall. Upper Saddle River, New Jersey.

D.  Bureau of Economic Analysis, Regional Accounts Data.

E.  Cambell, Harry F. and Richard P. C. Brown.  2003.  Benefit-Cost Analysis – Financial and Economic Appraisal Using Spreadsheets. Cambridge University Press.  New York.

F.  Carlson, Gerald A., David Zilberman, and John A. Miranowski.  1993.  Agricultural and Environmental Resource Economics.  Oxford University Press.  New York.

G.  Chu, Kong.  1968.  Principles of Econometrics.  International Textbook Company.  Scranton, Pennsylvania. Page: 11-12.

H.  Christensen, Douglas.  1986.  Proposed Technical Note – Statistical Method.  Soil Conservation Service, Midwest National Technical Center, U.S. Department of Agriculture.

I.  Cochran, W.G.  1977.  Sampling Techniques, 3rd ed.  John Wiley & Sons, Inc.  New York.

J.  Drummond, H. Evan and John W. Goodwin.  2001.  Agricultural Economics.  Prentice Hall.  Upper Saddle River, New Jersey.

K.  Freeman, A. Myrick, III.  1979.  The Benefits of Environmental Improvement:  Theory and Practice.  Johns Hopkins University Press.  Baltimore.

L.  Gittinger, J. Price.  1982.  Economic Analysis of Agricultural Projects, 2nd ed.  Johns Hopkins University Press.  Baltimore.

M.  Herfindahl,Orris C. and Allen V. Kneese.  1974.  Economic Theory of Natural Resources.  Charles E.  Merrill Publishing Company.  Columbus.

N.  Hinrichs, Roger A.  1996.  Energy:  Its Use and the Environment, 2nd ed.  Saunders College Publishing.  Fort Worth.

O.  Johansson, Per-Olov.  1987.  The Economic Theory and Measurement of Environmental Benefits.  Cambridge University Press.  New York.

P.  Kahn, James R.  1995.  The Economic Approach to Environmental and Natural Resources.  The Dryden Press.  Fort Worth.

Q.  Kay, Ronald D. and William M. Edwards.  1999.  Farm Management, 4th Edition.  McGraw Hill.  New York.

R.  Nowak, Peter J.  “Why Farmers Adopt Production Technology,” Journal of Soil and Water Conservation, 47(1), pp.  14-16, January, 1992.

S.  Pagano, Robert R.  1998.  Understanding Statistics in the Behavioral Sciences, 5th Edition.  The Dryden Press.  Fort Worth.

T.  Rogers Eerett M. and Floyd F. Shoemaker. 1971.  Communication of Innovations: A Cross-Cultural Approach.  Free Press.  New York.

U.  Schaeffer, R.L., W. Mendenhall, and L. Ott.  1996.  Elementary Survey Sampling, 5th ed.  Duxbury Press.  Boston.

V.  U.S. Department of Agriculture, Economic Research Service.

W.  U.S. Department of Agriculture, National Agricultural Statistics Service.

X.  U.S. Department of Agriculture, Natural Resources Conservation Service.  July 2004.  Technical Note 1801: Guide for Estimating Participation in Conservation Programs and Projects.  Social Sciences Discipline, East National Technical Support Center, Greensboro, NC.

Y.  U.S. Department of Agriculture, Natural Resources Conservation Service.  January, 2000.  National Planning Procedures Handbook. 

Z.  U.S. Department of Agriculture, Natural Resources Conservation Service.  1997.  “Grazing-lands economics,” National Range and Pasture Handbook, Chapter 10.

AA.  U.S. Department of Agriculture, Natural Resources Conservation Service.  1997.  General Manual, Part 400, Economics Policy. 

BB.  U.S. Department of Agriculture, Natural Resources Conservation Service.  1998.  National Resources Economics Handbook, Water Resources, Part 611. 

CC.  U.S. Department of Agriculture, Natural Resources Conservation Service.  1996.  Water Quality.  National Resources Economics Handbook, Part 612.

DD.  U.S. Department of Agriculture, Natural Resources Conservation Service.  Field Office Technical Guide.  Sections I and V. 

EE.  U.S. Environmental Protection Agency, National Center for Environmental Economics, Office of Policy, 2010.  Guidelines for Preparing Economic Analyses, December 17, 2010. Page A-14. 

FF.  U.S. Water Resources Council.  1983.  Economic and Environmental Principles and Guidelines for Water and Related Land Resources Implementation Studies (P&G).

GG.  Walpole, Ronald, 1982.  Introduction to Statistics, 3rd ed.  Macmillan Publishing Co., Inc.  New York. 

HH.  Wills, Ian. 1997. Economics and the Environment. Allen & Unwin, Sydney, Australia.  Pages: 224-242.

[H_200_NREH_610_H - Amend. 3 - July 2012]

Part 611 - Water Resources

Part 611 - Water Resources
[H_200_NREH_611_WR - October 2006]

Part 612 - Water Quality

Part 612 - Water Quality
[H_200_NREH_612_WQ - October 2006]

Part 613 – Developing Cost Data for Conservation Planning
  


Subpart A – Introduction

 

613.0  Purpose

613.1  Scope

613.2  Cost Data for Conservation Planning Versus Financial Assistance Programs

613.3  Cost Data Worksheet Format

 

Subpart B – Cost Data

 

613.10  Introduction

613.11  Cost Data

613.12  Additional Considerations for Developing Cost Data

613.13  Cost Data Source Documentation

613.14  Rounding

 

Subpart C – Maintenance of Cost Data

 

613.20  Introduction

613.21  Cost Data Annual Plan of Work – Example

613.22  Cost Data Quality Assurance

613.23  FOTG Cost Data

 

Subpart D – Glossary

 

613.30  General Terms and Definitions

 

Subpart E – Exhibits

 

613.40  Cost Data and Scenario Examples

613.41  Cost Data Quality Review Worksheet



    


   
  


[H_200_NREH_613 - 1st Ed., Amend. 4 - ]