A Carrot-and-Stick Approach to Environmental Improvement: Marrying Agri-Environmental Payments and Water Quality Regulations

By Johansson, Robert C.; Kaplan, Jonathan D. | Agricultural and Resource Economics Review, April 2004 | Go to article overview

A Carrot-and-Stick Approach to Environmental Improvement: Marrying Agri-Environmental Payments and Water Quality Regulations


Johansson, Robert C., Kaplan, Jonathan D., Agricultural and Resource Economics Review


Agri-environmental programs, such as the Environmental Quality Incentives Program, provide payments to livestock and crop producers to generate broadly defined environmental benefits and to help them comply with federal water quality regulations, such as those that require manure nutrients generated on large animal feeding operations to be spread on cropland at no greater than agronomic rates. We couch these policy options in terms of agri-environmental "carrots" and regulatory "sticks," respectively. The U.S. agricultural sector is likely to respond to these policies in a variety of ways. Simulation analysis suggests that meeting nutrient standards would result in decreased levels of animal production, increased prices for livestock and poultry products, increased levels of crop production, and water quality improvements. However, estimated impacts are not homogeneous across regions. In regions with relatively less cropland per ton of manure produced, the impacts of these policies are more pronounced.

Key Words: agricultural sector simulation, agri-environmental programs, manure nutrients, water quality

The U.S. Environmental Protection Agency (EPA) estimates that agricultural pollution contributes to 60% of impaired streams, 30% of impaired lakes, 15% of the impaired estuaries, and 15% of the impaired coastal shoreline assessed (U.S. EPA, 2002a). all told, more than 11.6 million acres of U.S. rivers and lakes are considered impaired by excessive discharge of agricultural pollutants: soil, pesticides, pathogens, nitrogen, and phosphorus (U.S. EPA, 2002b). U.S. policy makers have adopted carrotand-stick approaches to address some of the water quality problems linked to agricultural production and subsequent pollution. Federal funding targeted toward the mitigation of agricultural impacts on water quality has increased ("carrots"), and more stringent water quality regulations have been enacted pertaining to agricultural production ("sticks").

Specifically, funding for conservation practices on animal feeding operations (AFOs) and cropland through the Environmental Quality Incentives Program (EQIP) has been authorized to increase from 2002 levels of $200 million to more than $1 billion by 2005 [U.S. Department of Agriculture/ Natural Resources Conservation Service (USDA/ NRCS), 2002]. EQIP provides agri-environmental payments to producers in order to generate broadly defined environmental benefits and to assist producers in complying with local, state, and federal water quality regulations. In addition, EPA has mandated nutrient standards for the largest AFOs, known as concentrated animal feeding operations (CAFOs). These standards essentially require manure nutrients generated on CAFOs to be spread on cropland at a rate no greater than the agronomic nutrient demand of the crops grown on that land, inclusive of commercial fertilizer applications. We couch these policy options in terms of agri-environmental "carrots" and regulatory "sticks," respectively.

The U.S. agricultural sector is likely to respond to these carrots and sticks in a variety of ways. A well-developed literature has examined the effects of agri-environmental payments for crop producers and their potential to reduce the environmental impacts of agricultural production (see, e.g., Cooper and Keim, 1996; Koran and Claassen, 2001). Recent national-level studies have also explored the implications of new water quality regulations for livestock and poultry production (USDA/NRCS, 2003; Kaplan, Johansson, and Peters, 2003; U.S. EPA, 2001 ; Food and Agricultural Policy Research Institute, 2001 ). These latter studies predict adverse economic impacts for affected AFOs, improved water quality, and increased commodity prices.

Notably missing from the literature are analyses of how these alternative approaches for improving water quality might interact across regions and across crop, livestock, and poultry sectors. Recent analyses have considered how agri-environmental payments might affect water quality markets (Horan, Shortle, and Abler, 2003) or might interact with other conservation programs, such as Sodbuster (Giannakas and Kaplan, 2001). …

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