Will Fulwider 0:15
Welcome to field notes. Today we’re talking with Jeff Hadachek, an assistant professor of Ag Economics with UW Madison, and also a UW Madison extension specialist.. Today, the topic that we have here is conservation economics. And I’m going to just punch it over to Jeff to talk about, why is that important?

Jeff Hadachek 0:37
Yeah, and you look around the state today, and you hear a lot of conversations around issues with with water quality. Nationally, we have conversations about the extent of greenhouse gas emissions, and oftentimes those conversations are sort of in tension with really intensive production of goods. In particular within agriculture, it’s intensive production of of agricultural products and so and I think economics really gives us sort of a tool set to evaluate sort of those trade offs and to be able to find the right balance of what is, what is the optimal extent of of conservation, what are the appropriate practices that we should be implementing as A society as a whole. And I think we get, we get tools to be able to have those conversations quantitatively, and to be able to bring sort of action data points to to those conversations. And so that’s what I hope to we can jump into today,

Michael Geissinger 1:37
Definitely. So Jeff, how about we start with just like, an overview of the work that you do, and sort of like the intersection of conservation and economics in general, right?

Jeff Hadachek 1:50
Yeah. And I think, you know, there’s a lot of misconceptions about what economists do and and what we do know and what we don’t know. And so I think that that’s a good place to start. But you know, generally, like most, I’m gonna guess, most people probably know sort of the, or have heard the terms like supply and demand before, right? And those are really sort of the levers that economists use to sort of evaluate any, any challenge that is before us. And so I think, you know, with with conservation, we really have, like, it, what’s the supply of conservation versus what’s the demand for conservation? On one side, you know, the demand for conservation can really be dictated by, like, what are the environmental services that that conservation practice may provide, maybe it’s cleaner water, maybe it’s, you know, cleaner air or better soil health, right? These are, these are some like, those are the sort of the demand side things that may be policy or other sort of incentive mechanisms may be put in place, sort of these financial incentives to to demand conservation, but on the on the supply side, right? It really comes down to what a farmer can supply Right? Like what makes sense for their their budgets and what makes sense for their operations. Most of the time, you know that is dictated by financial things, but oftentimes it’s other it’s other behavioral things too. Like it’s It’s the belief about, you know what, what you’re doing. It’s the perception or knowledge gaps. Like, all of those things can kind of sort of play a role, into feeding into the objective function for the farmer. So most of the time that means it’s evaluating, like whether something’s profitable or not, but other times it’s it’s more of a behavioral kind of conversation as well. Is, is it are neighbors doing it, or do you have the knowledge to do it yourself? So all of those things sort of matter and feed into the sort of quote, unquote economics of it. And you know, so that partial budget analysis is really just part of it. But, yeah, yeah,

Michael Geissinger 4:05
Yeah, definitely. So you’re kind of talking about the behavioral aspect too, and how, like, the demand of conservation can somewhat drive, like the supply of conservation as the farmer is like able. What are we discussing usually, when we’re talking about that behavior change on farm. And I realize that that’s something that probably changes quite a bit depending on policies and like new research that comes out. But right now, for conservation economics, what are the types of practice practices we’re usually taking a look at?

Jeff Hadachek 4:38
Yeah and yeah. I mean, you were right, though, is that, like most of that, is sort of dictated by, like, what policies are in place and what is talked about by an Extension professional so, you know, cover crops and no till are sort of the two workhorses when it comes to these conversations around conservation in general. Particularly in our traditional sort of row crop operations here in the Corn Belt. You know, there’s, there’s reason why those two are sort of the the workhorses. Is one. It’s like they’ve been around for a long time. And we sort of know, you know how to use those technologies and and practices. But also from, like, a policy perspective, when you’re sort of incentivizing individual practices, like, there’s a lot of things that farmers can do that could be under the umbrella of conservation, but to actually measure that, to actually say, like, is something being done on the landscape, oftentimes it’s, it’s a measure like has to, has to simplify that down to sort of these two measures, and oftentimes that’s the adoption of no till and the adoption of of cover crops. But I mean, there are certainly other practices like riparian buffers or stream bank restoration that all of those things also are like under the umbrella of conservation. But when we look at like what federal funding goes to or what state funding goes to in the state of Wisconsin, the majority of it are in the two leading recipients are cover crops and no till and so I mean, and rightfully so, those two practices can go a long way to, you know, keeping those nutrients In the field and in our our water, and keeping the soil in our field too, right, and preserving that soil for for years to come.

Will Fulwider 6:28
And so it sounds like, you know this, no till and cover crops, which is, as you mentioned, this workhorse of conservation within the state, and you know, nationwide, it seems an almost structural reason for that, it’s because it’s easier to grasp. It’s kind of tangible, and it’s within these production systems. It’s not to the side like a riparian buffer is, but, you know, and it’s kind of a mindset game, right? And so, but is that? Does that bear out as well economically? You know, is when we run the economics of it, like you do as an economist, are those the more economic, more economically beneficial practices amongst conservation practices, are there ones that we should actually be pushing that do see much more tangible benefit to farmers? And is there always a benefit to these conservation practices or not?

Jeff Hadachek 7:18
Yeah, the measurement of adoption is actually sort of the better measure, I would say, of of economics, rather than actually dollars and cents, most of the time that adoption is driven by the dollars and cents, right? And when it comes to no till like that dollars and cents is like, you’re spending less time in the field. So not only is it like, are you spending less money on fuel and machinery to actually have the tillage equipment in place or whatever, but you have less time in the field. And so oftentimes, and I think, Michael, you’ve heard me say this and will you’ve heard me say this before, but it’s like when you’re when you compare cover crops in no till. No Till is a different sell, because you’re asking a asking farmers to do less, right? Maybe you have to apply additional herbicide to terminate weeds or whatever, in place of the tillage, but you’re asking less time in the field, whereas cover crops, you’re asking farmers then to manage another living thing that has its own risks, that has its own potential effects on your cash crop, then in the following year, right? So and So you’re asking then cover crops, you’re asking farmers to do more. So the two sort of, it’s, it’s not just a blanket statement about whether one and like, whether both things pencil out and and oftentimes, I think what we see that then going back to this adoption comment, is that adoption for no till is a lot higher than adoption for cover crops in the state. And I think that that’s, that’s, like I said, the measure that, that I’m thinking about, oftentimes, is what’s driving that adoption, and some of those factors I talked about, I think, are the real drivers behind that? And in terms of, like, generally, do these things pencil out? It’s, it obviously depends a lot on conditions. It depends a lot on what farmers are leveraging and what they’re doing on their own, in their own fields, but it is oftentimes with cover crops, because you’re asking for additional cost for seed, and then there’s the potential yield drag that you that sometimes talked about for the cash crop afterwards, like that becomes a lot harder so and it becomes like, I think you have here varied experiences about this, but I think oftentimes we may have the case where a farmer tries it once it really impacted their cash crop, and it really impacted their bottom line negatively in year one, and then they maybe never touched again. And so that is, that is where I think it’s, it’s important then to just be upfront and honest about that is that, you know, some of those, those negative effects may actually be negative effects on your bottom line, may actually be sort of expected, and that’s why there’s, there’s these incentives in place, from a federal and state perspective, is you have these cost share programs in place to sort of overcome some of those things in that first year, especially so.

Will Fulwider 10:35
One way to view these cost share programs right is like, we’re de risking it for farmers. But another way to view it as, I guess, like society is paying for the benefit they see right out on the landscape. Because the whole reason we’re pushing these practices, conservation practices, is because they have larger benefits beyond just kind of the farm level, right? And so I think I kind of want to take it there a little bit, as we’ve talked about, does it pencil out? What are the economics for farmers of the conservation practices at the farm level, but what about looking at the society level? Like, what does that look like? How do we even think about that and maybe kind of lending that towards the amounts that these are paid into? Like, it seems like an arbitrary amount, but how are these figured out? Yeah, yeah, for sure.

Jeff Hadachek 11:20
So, yeah, I think in the maybe the best framework to think this, think this through, this is like within the context of greenhouse gasses and carbon. So what we have in the United States, there’s a pretty general the agreeance on a term of social cost of carbon, and maybe, if you guys have heard of it, maybe. But essentially, what that boils down to is trying to get to a single number of like, what is every single ton of carbon that’s emitting in the atmosphere? What are the damages of that? And that involves things like health. It involves things like, you know, GDP growth for countries, for industry. So what that number tries to do is try to, tries to take in all of those sort of environmental effects and boil it down to a single number on a per ton ton basis, right? There’s, you know, and then when it comes to, like, what’s the actual value of that, there’s a lot of disagreements and some controversy, right? So, what the EPA uses, or what the US government, what the US government uses, in whole, is $51 essentially, per ton of carbon emitted into the atmosphere. So when it comes then, to say, a cost benefit analysis from a public and social perspective, the pretty simple question can be asked then, is, like, is a practice, or is a change in something green, a green technology that we can get is the, is the benefit that we’re going to get from that $51 per ton? Essentially, it is, is, I guess, the cost that it takes to get that ton of carbon less than $51 per ton. If yes, then, like that benefit cost analysis penciled out, right? But then there’s a lot of other things that may cost more than $51 to to incentivize or to put in place. So that’s getting back to sort of this conversation about demand like that. That’s a little bit sort of the public demand for these sort of ecosystem services, and, you know, it’s a little bit harder when it comes to water quality. There’s a lot of other sort of nuances, and actually, just, honestly, less research that’s been done by economists to get to that single number. So even though there’s sort of this wide range around the social cost of carbon, what’s, what’s the social cost of water pollution, is a lot. It’s even more varied and even more controversial. So that’s that’s in a sense, like, what sort of the the discipline of environmental economics tries to boil down to, is getting some of these really hard to quantify, sort of willingness to pay measures for society that aren’t always sort of concrete into sort of monetized terms, and that’s what we’ve done with sort of the social cost of carbon, right? So you can debate the amounts of the social cost of carbon, but that’s, in its essence, what it’s trying to do. And then so to answer your question about like, how do these payment programs determine or how does, how does, say, USDA, NRCS, determine how much these cost share programs should be? One, it’s, it’s somewhat driven by budget constraints and what’s available in the farm bill or what’s available in the inflation Reduction Act. But two, it’s like, Does, does those do those practices sort of meet that target of carbon or sequestration or avoided emissions that would have taken place if, say, You tilled up the ground. So that’s, you know, a little bit long winded answer, but that’s, that’s, in essence, those, those supply and demand factors. That are moving when we determine what those policy option options should be.

Michael Geissinger 15:06
Yeah, definitely. And Jeff, if we kind of zoom into like the like the individual farm here quick, how does that process look differently for like a farmer that’s trying to make decisions around conservation and sort of like assessing, okay, is there quote, unquote profitability or quote unquote losses from this? What are some ways that they can weigh that?

Jeff Hadachek 15:31
Yeah, yeah. I mean, so at a very basic level, you know, thinking about, like partial budgets are, oftentimes, what’s what’s used from extension economist is to say, like, if you make this minor change in your operation, is that? What? How is that going to impact your sort of net returns in a given year? So if you’re changing from sort of a conventional system to cover crop and no till you know, how does your budget look one, one or the other? And, you know, really simply, really naively, if it pencils out, if it if the net returns for making that change are greater than then, yeah, that’s something we could recommend. However, though, and I think this is where maybe that sort of model has done a little bit of a disservice to conservation practices in general, is that with conservation, with practices that impact soil health for the farmer specifically, so this is on farm, those benefits may not always materialize in sort of that first year. So especially with with, again, these two practices that we’re talking about, just for simplicity and for illustration, cover crops and no till, some of those, those the benefits of building that soil health building even, yeah, just healthier soils doesn’t manifest until years down the road. So if you just look in a single snapshot of one year, maybe it doesn’t pencil out in one year, but are you factoring in sort of those long term benefits? And then once we once that conversation starts coming into play, it becomes is more complex. It’s more complex, right? Like, how much do you value, sort of your future earnings versus your your current earnings, and this year, how much do you Yeah, so that’s, that’s what we call, sort of a discount rate. How much do you discount, you know, future money versus money in your in your pocket. Now, the other side of this, then is risk, is that knowing that you know when, if you’re making a decision over the longer term that there’s going to be fluctuations, including weather fluctuations and and how, when these conservation practices sort of interact with those weather variables in sort of a unique way that generates different expectations for net return based on whether it’s a hot year, whether It’s a dry year, whether it’s a really wet year like the one we’ve had now. And so there’s all of these factors that sort of come into play. So both this sort of discount rate factor and this conversation of risk are both things that these conservation practices specifically cover crops in no till can positively impact both future earnings and positively impact the risk on farm. So research has shown that that latter point, but when it comes then to making a decision today, right? It’s like, how much, how much does a farmer it really comes things that they’re really sort of unobservable and unknowable from sort of a researcher, from, you know, our job as an extension personnel is like, how much does farmer How much do farmers value certainty? Or, you know, how much are they impacted by the negative value of uncertainty? And then again, like, how much do you value, sort of the future or versus today, like those, those things are not necessarily directly observable and will vary from from farmer to farmer. So that’s where it then begins to be a little bit like, that’s our job is sort of Extension professional sort of ends there, because we can’t say, we can’t tell farmers how much to value those things or we can’t, yeah, say how much risk should be worth to them, like that. That’s a personal decision, right? So

Will Fulwider 19:31
I’m going to try and zoom in even a little bit closer and see like, is there a way that you can I know it’s difficult, because it’s all kind of like in the future, theoretical, the values that the farmer will change, the value that you know they are ascribing to this practice, yada yada. But you mentioned kind of these future soil health benefits, and trying to capture the value of that, like, how do you as an economist, I mean, that’s hard. That’s kind of a squishy topic, right? We’re trying to put science to it, but it’s still a little squishy. How do you as an economist put actual numbers to future soil health?

Jeff Hadachek 20:08
Yeah, and yeah that’s a good question and you know to answering that question is complex. It requires a lot of assumptions to boil down to a certain number and it’s an interdiscplinary question too, right? So I need input from a soil scientist on what physical change can be expected and then the economist can put numbers to it. In particular, the effect on yield.

Um, and but to get to that, that shift, and to get to that, that makes sense for you. As a farmer like I think you have to just experiment and to see what that how that plays out. And, like I said, I think keep track of what those things, how those things affect your your yields. Do the experiments yourself, because all of those your grounds gonna react differently than somebody else’s ground and your time limitations or what works for you may not work for it may not be the same thing that works for everyone else. So yeah, and then I think, I think too, like I mentioned that making sure that you know, sort of that those options are available to you, say, through NRCS or the inflation Reduction Act, can also help go a long way to overcome some of those startup costs. I actually just saw this yesterday, that Wisconsin is in 2024 so far, Wisconsin is the has received the most NRCS cost share dollars in 2024 I don’t know, I don’t know what that’s attributed to, but, like, so Wisconsin has received something like $12 million already to date in 2024 but that, and that’s greater than, you know, really large, AG, states like Texas and California. So folks are doing something right? Like, like, people are that were the words out there and the resources are available. So I think that’s, that’s something that is a success to think about. So, yeah,

Will Fulwider 26:28
well, that’s encouraging to hear Jeff, any, any last parting thoughts,

Jeff Hadachek 26:35
yeah. I mean, I think I am. I’m still relatively new to UW and to Wisconsin in general, but I’m putting together some resources that makes, particularly through decision support tools that’ll make these sort of make the dollars and cents of this sort of be visualized in a little bit more appealing way. You know, I think the traditional way to think about these things are sort of these Excel spreadsheets that require a lot of user inputs. I’m really trying to simplify that down to a web application that just requires maybe a few minutes of farmers time to input their baseline conditions and to see this as an illustration, I guess, more than anything, just to be able to visualize that. So I guess be on the lookout for some of that, and I think there will be additional resources through my programming in the future. So yeah, any questions, also, I’m always available and happy to answer it via email. So cool.

Will Fulwider 27:31
Well, I’m looking forward to those resources. That’s for sure. Thanks for coming on. We really appreciate it. Yeah, thank you.

Thanks for listening. This has been field notes from UW Madison extension. My name is Will Fulwider regional crops, educator for Dane and Dodge counties. And I was joined by my co host, Michael Geisinger, outreach specialist in Northwest Wisconsin for the nutrient and pest management program of UW Madison. A big thank you to Joe Ryan for creating our theme music, and to Abby Wilkymacky for our logo. If you have any questions about anything you’ve heard today or about your farming practices in general, reach out to the extension agriculture educators serving your region you.

Transcribed by https://otter.ai