economics of conservation planning. introduction §fits into the 9 step process §identify and...
TRANSCRIPT
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Economics of Conservation Planning
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Introduction
Fits into the 9 step process Identify and evaluate onsite and offsite
Benefits Costs
Time Value of MoneyEvaluation Techniques
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Nine Step Process
Involves many disciplines
Economics should be applied throughout most heavily during Phase II
(Decision Support)
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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
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Benefits of Conservation
Onsite benefits occur at or close to activity
2 types of onsite benefits Maintain or Restore Productivity Decrease Production Costs
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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...
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Benefits of Conservation
Conservation Practice Economic Effects (CPEE) spreadsheet.
Section V• CPEE
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Costs of Conservation
Two basic costs Expenditures
• Up-front installation costs
• Operation and Maintenance cost Lost Production
• cost is dependent upon current yield
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Ag Business Environment
Interest RatesPricesFarm ProgramCost Share and Incentive OpportunitiesTaxesetc.
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Ag Business Environment
Economic Prosperity Reduce Taxes Invest in long-term conservation
Economic Stress Long-term conservation not feasible Apply part of a system
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Time and Money
$1 today = $1+interest tomorrow
Opportunity Costs Interest paid on a loan return given up on another investment
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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
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Time and Money
Future Value Principle + interest
Payment reoccurring deposits or receipts representing
either principal, or principal plus interest
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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
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Time and Money
Annuity Table
Loan Amortization Worksheet
Amortization Table Excel Pocket Card
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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
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Evaluation Techniques
Partial BudgetingBreak-even AnalysisCost Effectiveness MethodConservation Effects for Decision-makingEconomic ThresholdsCrop Budgets
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Evaluation Techniques
Partial Budgeting Method of estimating how small changes will
effect net income.
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Evaluation Techniques
Break-even Analysis Evaluate how much of an investment can be made
based on expected returns.
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Evaluation Techniques
Cost Effectiveness Method Costs of alternatives that achieve the stated
objective are compared.
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Evaluation Techniques
Conservation Effects for Decision-making Allows you to consider all physical,
sociological, and economic factors.
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Evaluation Techniques
Economic Threshold Compare treatment costs to lost revenue that
will be incurred if left untreated.
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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
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Where is Econ Info Found
eFOTG Section I
• Econ Data– Cost lists
– Cost tools
Section III• Quality Criteria
– Econ
Section V• CPEE
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Where is Econ Info Found
General Manual Part 400 – Econ Policy Part 404 Subpart D – Cost Sharing
2 Handbooks Water Resources Conservation Planning (Draft)