Agriculture Reference
In-Depth Information
2005, the authors estimated that the value of going from no natural enemies
to one per soybean plant is worth $32.60 ha
−1
, amounting to some $84 mil-
lion during 2005 for the U.S. states of Iowa, Illinois, Michigan, Minnesota,
and Wisconsin. This estimate is based solely on natural enemy contributions
to soybean profitability, so it ignores other sources of value to society, such
as the health and environmental benefits of reduced insecticide use. Because
the model uses the factor input valuation method, it is sensitive to assump-
tions about the aphid predation rate per natural enemy, as well as the price and
pest-free yield of soybean.
Estimating Economic Supply and Demand for Ecosystem Services
When Markets Are Missing
The economic valuation of climate-regulating and water-quality-regulating eco-
system services is more complicated because these services lack the direct market
links of agricultural pest regulation services. Markets designed for climate- and
water-quality-regulating services have been piloted since the late 1990s. However,
localized water-quality nutrient trading has not been established successfully in
the United States for a variety of reasons (Hoag and Hughes-Popp 1997), many of
which also apply to carbon trading markets.
Developing economic values for these regulating services calls for understanding
the cost to producers of supplying them and the benefits to consumers of enjoying
them. Valuation of both costs and benefits can be measured by studying trade-offs
(Polasky and Segerson 2009). On the supply side, how much would farmers need
to be compensated to adopt practices that reduce net greenhouse gas emissions and/
or reduce waterborne nutrient losses from topsoil? On the demand side, how much
would consumers be willing to pay to be equally well off with improved climate
and water quality vs. degraded environmental quality?
Farmers earn their livelihoods from farming, so income matters a great deal.
But farmers generally make management decisions based on the welfare of
their households using more complex criteria than simply profit maximization.
When eliciting from farmers how they weigh trade-offs between increased
production costs and increased ecosystem services, these other objectives
are automatically factored in. So-called stated preference methods of eco-
nomic valuation that are described below can be used to capture this complex
decision-making process.
But when analyzing ecological experimental data—such as that from the
MCSE—making the simplifying assumption that farmers aim to maximize
profit enables a trade-off analysis of private profitability compared to the pub-
lic benefits from ecosystem services. A common feature of many ecosystem
services is that they generate benefits beyond the boundary of the farm. These
benefits may not be factored into the farmer's decisions, especially if gener-
ating them entails added costs. Given that agroecosystems generate a multi-
plicity of products and services, trade-off analysis enables comparing these
outputs, typically using profitability as a numéraire for comparison (Wossink
and Swinton 2007).
