Jonathan R. Winsten
Winrock International Institute for Agricultural Development
Farmers not only produce our food and fiber needs, they are important stewards of our water resources. Farmers are highly effective at responding to price signals for the efficient production of food and fiber; now it is incumbant upon us to develop appropriate price signals for the protection of water resources. Furthermore, inherent variation in topography, soils, farming systems, and farmer preferences dictates that a ”one‐size‐fits‐all”, practice‐based approach to agricultural pollution control is not likely to yield efficient nor cost‐effective solutions. Recent advances in modeling nutrient losses from agricultural land have allowed for the development of performance‐based conservation programs.
This presentation explores the solution of using pay‐for‐performance (PFP) conservation as an approach that can reduce nutrient and sediment loss from agricultural land in a cost‐effective manner. The ability of any given conservation practice to reduce nutrient loss varies very greatly from farm‐to‐farm and even from field‐ to‐field. With PFP, crucial field‐specific data are utilized in a science‐based model to provide estimates of nutrient loss from very specific conservation actions that are of potential interest to a given farmer. The farmer receives an annual performance‐based incentive payment based on the estimated units of phosphorus (P), nitrogen (N), or sediment (depending on the specific water quality needs of the given watershed) that are reduced relative to the farm’s baseline level of losses. In a PFP program, participating farmers are motivated to find and implement the most cost‐effective actions for their specific fields. According to economic theory, farmers will start with the most cost‐effective actions and continue to implement conservation up to the point where the margincal cost of the last unit of nutrient loss reduction equals the payment per unit in order to maximize farm profits. Program administrators can set the payment level to optimize nutrient loss reductions given budget constraints.
Adding a secondary (i.e. BONUS) payment when in‐stream nutrient thresholds have been met based on water quality monitoring at the mouth of the watershed has several important properties for program success. First, farmers, like all people, want to see that their actions are having a tangible impact toward a solution. Measuring load reductions allows farmers to see when they have ”moved the needle” toward improved water quality. Clearly defined and achievable goals are essential for human motivation. Second, to increase the probability that any participating farmer will collect the bonus payment, farmers are more likely to recruit participation of other farmers in the watershed, which is extremely valuable outreach for the program. Third, measuring load reductions at the mouth of the watershed is where ”the rubber meets the road” and is essential for understanding when improvements in ambient water quality have been achieved.
The U.S. federal government already spends in excess of $5 billion per year in an attempt to reduce nutrient loss from agriculture using practice‐based programs. Using price signals through PFP conservation will embed environmental quality considerations into farmers’ business decision‐making processes. This will benefit farmers, water quality, and tax payers.