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Economics of Conservation Planning
Introduction
Fits into the 9 step process Identify and evaluate onsite and offsite
Benefits Costs
Time Value of MoneyEvaluation Techniques
Nine Step Process
Involves many disciplines
Economics should be applied throughout most heavily during Phase II
(Decision Support)
Nine Step Process
IdentifyProblems
DetermineObjectives
AnalyzeResource
Data
Evaluate the plan
Implement the plan
Makedecisions
Formulatealternatives
Evaluatealternatives
Application and Evaluation
DecisionSupport
Collection and AnalysisInventoryResources
II
I
III
Benefits of Conservation
Onsite benefits occur at or close to activity
2 types of onsite benefits Maintain or Restore Productivity Decrease Production Costs
Benefits of Conservation
Offsite Benefits Occur away from activity may occur to different owners
Water Quality is usually offsite
Effects are Documented CPPE in Section IV and...
Benefits of Conservation
Conservation Practice Economic Effects (CPEE) spreadsheet.
Section V• CPEE
Costs of Conservation
Two basic costs Expenditures
• Up-front installation costs
• Operation and Maintenance cost Lost Production
• cost is dependent upon current yield
Ag Business Environment
Interest RatesPricesFarm ProgramCost Share and Incentive OpportunitiesTaxesetc.
Ag Business Environment
Economic Prosperity Reduce Taxes Invest in long-term conservation
Economic Stress Long-term conservation not feasible Apply part of a system
Time and Money
$1 today = $1+interest tomorrow
Opportunity Costs Interest paid on a loan return given up on another investment
Time and MoneyInterest
the amount earned or paid for the use of money
Number of Periods time of the investment
Present Value Principle - amount borrowed or invested today
Time and Money
Future Value Principle + interest
Payment reoccurring deposits or receipts representing
either principal, or principal plus interest
Time and Money
One-time Values (Installation cost) Occurs at a single point in time
Annuities (Benefits) Occur over an extended period
• Constant, Decreasing, or increasing
Lag (deferred grazing) Occurs at some point in the future
Time and Money
Annuity Table
Loan Amortization Worksheet
Amortization Table Excel Pocket Card
Time and Money
Future Value PV(1+ i)n
Rule of 72 (double your money?) 72 / i or 72 / n
Present Value FV/(1+I)n
Evaluation Techniques
Partial BudgetingBreak-even AnalysisCost Effectiveness MethodConservation Effects for Decision-makingEconomic ThresholdsCrop Budgets
Evaluation Techniques
Partial Budgeting Method of estimating how small changes will
effect net income.
Evaluation Techniques
Break-even Analysis Evaluate how much of an investment can be made
based on expected returns.
Evaluation Techniques
Cost Effectiveness Method Costs of alternatives that achieve the stated
objective are compared.
Evaluation Techniques
Conservation Effects for Decision-making Allows you to consider all physical,
sociological, and economic factors.
Evaluation Techniques
Economic Threshold Compare treatment costs to lost revenue that
will be incurred if left untreated.
Evaluation Techniques
Crop Budgets Show the inputs required Show estimated costs Good when starting a new enterprise
eFOTG Section I Economic Data - Other Resources Missouri Farm Business Planning Handbook
Where is Econ Info Found
eFOTG Section I
• Econ Data– Cost lists
– Cost tools
Section III• Quality Criteria
– Econ
Section V• CPEE
Where is Econ Info Found
General Manual Part 400 – Econ Policy Part 404 Subpart D – Cost Sharing
2 Handbooks Water Resources Conservation Planning (Draft)
