Location: University of Alberta and AARD
Research team: Scott Jeffrey, Vic Adamowicz, Manikarnika Kanjilal, Catalina Solano Rivera, Qing Chen, Jim Unterschultz, and Aung Moe
Duration: February – March 2013
The project’s objectives are to evaluate the farm level wealth impacts of conversion of annual crop land to forage production, of restoration of wetlands and of nutrient management in the Boyne, Little Saskatchewan, and La Salle watersheds in the province of Manitoba. AAFC, using their watershed models, developed different land use best management practice scenarios. The economic analysis used these scenarios to estimate the economic impact on farm wealth resulting from implementing these scenarios. Several of the scenarios are unrealistic but provide baseline economic analysis with which to guide future benefit-cost analysis of alternative land uses.
The land use scenarios evaluated are as follows:
100% conversion of cropland in each watershed to permanent forage over 20 years.
Conversion only of less productive (marginal) cropland in each watershed to permanent forage over 10 years.
Restoration of all identified former wetlands in cropland in each watershed over 20 years.
Restoration of former wetlands only in less productive (marginal) cropland in each watershed over 20 years.
Reduced application of synthetic fertilizer on cropland receiving annual manure applications in each watershed with full implementation achieved in one year and new land use continuing forever.
The general economic approach includes the direct and selected indirect costs (e.g. opportunity cost of lost annual crop production) as well as benefits. Each watershed is treated as a single farm and net present analysis is used to estimate the present value of these future changes on farm wealth. The analysis uses an opportunity cost of 8%/year. The summary results on the impact on total farm wealth and annual farm wealth are reported in the table on the next page.
The present analysis employs the capital budgeting technique called the Net Present Value (NPV) method for the forage conversion and wetland conversion scenarios and a Present Value of a perpetuity (PV) method for the nutrient management scenario. The NPV analyses are conducted using the same conceptual model and methodology for the given land use change scenarios in three watershed areas under study.
A final report summarizing the results of the research project (i.e., changes in total and annual farm wealth in three MB watersheds using AAFC land scenarios.) will be delivered at the completion of the overall project.