# Presentation: 311954

## Economic Forces andProgress with PostharvestMethyl Bromide Alternatives

- Orlando, FloridaNovember 01, 2004

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

- Economic Forces andProgress with PostharvestMethyl 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.

## Table E.1: Economic Impacts of Methyl Bromide Alternatives

-  **for Rice Miller’s Association**

| Loss Measure | Methyl Bromide | Heat Treatment |
| --- | --- | --- |
| Gross Revenue (US$/1000 m3) | $29,385 | $27,720 |
| - Operating Costs (a+b) per 1000 m3 | $27,916 | $28,274 |
| 	a) Cost of MB or Alternative | $427 | $640 |
| 	b) Other Operating Costs | $27,489 | $27,634 |
| Net Revenue (US$/1000 m3) (net of operating costs) | $1,469 | $(554) |
| Loss Measures |  |  |
| Time Lost (days) | 0 days | 17 days |
| Loss per 1000 m3 (US$/1000 m3) | $0 | $2,023 |
| Loss per Kilogram MB (US$/kg) | $0 | $62 |
| Loss as a % of Gross Revenue (%) | 0% | 18.25% |
| Loss as a % of Net Revenue (%) | 0% | 138% |

- Potential economic losses were estimated for ...facilities that have not been converted to heat treatment.
- ...where heat treatment may potentially be technically feasible...
- Economic costs ...arising from three ... factors.
- ...in most cases ...heat treatment is more expensive, and labor is increased
- ...capital expenditure

## Slide 14

## 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