# Presentation: 695339

## Economic Forces and

- Orlando, FloridaNovember 01, 2004

- James D. Schaub, Ph.D.                                                    U.S. Department of Agriculture                                    Office of Risk Assessment and Cost-Benefit Analysis

- Progress with Preplant
- Methyl Bromide Alternatives

## OVERVIEW

- Define Economics
- What Economics Says about Research
- Economic Feasibility and Critical Uses
- Economic Respective on Adoption of New Technology
- Economics and Other Policy Issues

## Economics

- DEFINITION: Economics studies the problems of the allocation of scarce resources between alternative and competing ends.
- MICRO VS MACRO
- CONSUMER/FIRM
- INDUSTRY
- SECTOR
- NATIONAL ECONOMY
- GLOBAL ECONOMY

## Economics

- Economic Research, Theory, and Models
- Equity and Efficiency
- Institutions and Law
- Policy

## Economics and Research

- Research should be publicly funded when
- Private sector provides too little
- Risk high  /  Rewards low
- Scale is too big
- Intellectual property rights limited
- Large externalities benefiting society
- Essential to National Security
- Statutory mandate or Treaty obligation

## Economics and Research

- Strong property rights enforcement encourages private research
- Theories of competition and efficiency suggests public resources be allocated by competition
- Equity side of economics suggests allocation to achieve a distribution goal
- Economics of Public Choice notes roles for political process, citizen preferences, ...

## Feasibility

| Technical
 | Economic |
| --- | --- |
| Physical measures | Monetary measures |
| Published research on efficacy, e.g., yield, percent survival | Proprietary business data; Forecast costs, prices, quality; Representative firm |
| Experimental plots and field trials;  experiments and site evaluations | User assessments; Observed market outcomes--adoption |
| Tends to focus on single production period or trial | Sustainability is critical |
| Unclear how variable performance affects technical feasibility | Even small negative deviations could be catastrophic  |

## Feasibility

- If an alternative is not technically feasible, it cannot be economically feasible.
- Thus, CUN’s that claim lack of technically feasible alternative, frequently do not report economic data.
- Both technical and economic feasibility may have large situational aspect.
- Thus, must determine on case by case basis.

## Approaches to Economic Feasibility

- Partial Budgeting
- Net Revenue Analysis
- Transferability/Adoption Models
- False or Pseudo-economic Reasoning

## Slide 10

| Alternative results in  |  |  |
| --- | --- | --- |
|  | Lower costs  | Higher costs  |
| Lower gross revenue  | Ambiguous.
Alternative is economically feasible if costs decrease more than revenues.  If revenues decrease more than costs, the alternative may or may not be economically feasible  | Alternative may be marginally or significantly inferior.  May be cases where alternative is deemed economically feasible |
| Higher gross revenue  | Alternative is superior.  Maybe a little, maybe a lot.
 | Ambiguous.
Alternative is economically feasible if revenues increase more than costs.  If costs increase more than revenues, the alternative may or may not be economically feasible.
 |

## CRITICAL USE NOMINATIONS

- The United States 2004 Critical Use Nominations are posted on the EPA website
- _[www.epa.gov/spdpublc/mbr/2004_nomination.html](http://www.epa.gov/spdpublc/mbr/2004_nomination.html)_
- I am not reporting any MBTOC findings regarding the U.S. nominations.

## EGGPLANT

| Alternative | Yield* | Cost in year 1 (U.S.$/ha) | Cost in year 2 (U.S.$/ha) | Cost in year 3 (U.S.$/ha) |
| --- | --- | --- | --- | --- |
| Florida |  |  |  |  |
| Methyl Bromide | 100% | $3,010 | $3,010 | $3,010 |
| 1,3-D + Chloropicrin | 71% | $3,719 | $3,719 | $3,719 |
| Metam-Sodium | 56% | $3,519 | $3,519 | $3,519 |
| Georgia |  |  |  |  |
| Methyl Bromide | 100% | $3,642 | $3,642 | $3,642 |
| 1,3-D + Chloropicrin | 71% | $3,242 | $3,242 | $3,242 |
| Metam-Sodium | 56% | $3,027 | $3,027 | $3,027 |
| Michigan |  |  |  |  |
| Methyl Bromide | 100% | $1,475 | $1,475 | $1,475 |
| 1,3-D + Chloropicrin | 94% | $1,772 | $1,772 | $1,772 |

**EGGPLANT**

## Slide 13

| MICHIGAN EGGPLANT | Methyl Bromide | 1,3-D + Chloropicrin |
| --- | --- | --- |
| Yield Loss (%)  | 0% | 6% |
|    Yield per Hectare  | 3,665 | 3,445 |
| * Price per Unit (us$) | $9.30 | $8.60 |
| = Gross Revenue per Hectare (us$) | $34,074 | $29,627 |
| - Operating Costs per Hectare (us$) | $24,730 | $24,359 |
| = Net Revenue per Hectare (us$) | $9,344 | $5,268 |
| Loss Measures |  |  |
| 1. Loss per Hectare (us$) | $0 | $4,076 |
| 2. Loss per Kilogram of Methyl Bromide (us$) | $0 | $84 |
| 3. Loss as a Percentage of Gross Revenue (%) | 0% | 12% |
| 4. Loss as a Percentage of Net Revenue (%) | 0% | 44% |

## Florida

- No technically (and thus economically) feasible alternatives to MB are presently available to the affected eggplant growers.  As such, the U.S. concludes that use of MB is critical in Florida eggplant production.
**Michigan**
- The U.S. concludes that, at present, no economically feasible alternatives to MB exist for use in Michigan eggplant production.  Two factors have proven most important in this conclusion.  These are yield loss and missed market windows, which are discussed individually below.

## Slide 15

## ADOPTION

- Market Forces Only
- What time path?
- Government Involvement
- Training, Extension
- Regulation
- Taxes and Subsidies
- Insurance

## Policy Issues with Economic Content

- Is there a bright line to define economic feasibility?  What is sufficient evidence?
- Approving CUN’s reduces economic incentives for research and commercialization of alternatives.  How can Parties maintain economic incentives?
- What rates of commercialization and adoption should Parties look for?  No longer a phase out of MB; now a phase in of alternatives.
- How should Parties value risk tradeoff of alternatives for MB?  Human and environmental consequences compared to destruction of zone.

## Policy Issues with Economic Content

- How should Parties ensure equity across users?
-            -     New entrants
-            -     New owners
-            -     Growing or expanding enterprises
-            -     Old facilities versus new facilities

## THANK YOU

- THE END