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Using Pay-for-Performance Conservation to Reduce

Phosphorus Loss in the West Branch Milwaukee River

The Pay-for-Performance Concept

Jonathan Winsten, Ph.D.

Agricultural Economist

Winrock International

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Field-specific Bang-for-the-Buck

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What’s Needed?

Conservation programs that:

• Provide clear nutrient reduction goals

• Are focused on environmental outcomes

• Provide flexibility and incentive to maximize

“bang for the buck”

Can be achieved through government

programs or markets.

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Background

• Food production and environmental quality

have inherent trade-offs.

• Regulations decrease productivity and increase

costs.

• Current conservation programs focus on

practices, not outcomes.

– Any BMP has highly variable outcomes.

• Pay-for-performance conservation can motivate

farmers, lead to innovation, and reduce costs.

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• Rewards farmers for achieving specific

environmental performance targets;

• Farmers choose how to achieve targets;

• Incentivizes farmers to choose the most cost-

effective actions;

• Provides opportunities for additional farm

income.

Pay-for-Performance Conservation

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The Economic Justification

• Market failure

• Current programs focus on specific practices

– Subset of possible actions

– Designed to offset cost

– Effectiveness varies greatly

• Performance-based incentives can serve as a

“price” for pollution control

• Environmental performance becomes

incorporated into farm business planning

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Quantification

How do we quantify environmental performance? • Measurement vs. Modeling

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Measured vs. Modeled

Performance

• Measured performance

Real data from actual conditions

Volatile weather makes planning difficult

Is measurement practical at the farm-level?

Use of proxy variables

• Modeled performance

Allows for scenario analysis – before actions are taken.

Is it accurate enough? • In a given year?

• Over the long-term?

Is it simple enough to use? • Trade-offs between simplicity and accuracy?

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For More on Quantifying Performance

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Quantification

How do we quantify environmental performance? • Measurement vs. Modeling

Where do we quantify environmental performance?

Need performance measures that are closely

related to ultimate water quality concern AND

directly influenced by farm management

decisions.

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Performance Measures –

In the Lake, Bay, or Ocean

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Performance Measures –

In the River

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Performance Measures –

On the Farm

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Model at the Farm –

Measure at the Watershed

• Modeling farm performance

– Allow scenario analysis

– Only the farmer’s actions affect performance

– Triggers primary incentive payment

• Measuring watershed performance

– Not prohibitively expensive

– Provides a focal point and real report card

– Triggers a secondary incentive payment

– Farmer-to-farmer peer pressure for participation

• Concept recent winner in U.S. “Nutrient Challenge”

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Program Design Questions

What do we pay for? • Reduced losses vs stewardship levels

How much do we pay? • Setting the appropriate incentive level

Where will the funding come from? • More efficient use of current spending

• Generate demand from downstream for

reduced nutrient loads

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Rock River Watershed - Vermont Cost per Pound of P Loss Reduced

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Coffee Creek Watershed - Iowa Cost per Pound of P Loss Reduced

-$10

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

Individual Farm-level P Reduction Actions

Co

st p

er P

ou

nd

of

P L

oss

Red

uct

ion

Manure/Fertilizer Management

Crop Rotation Changes

Tillage

Sediment Traps

Contouring

Buffers

Cover Crop

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Cumulative Results

State

P Loss Reduced

(lbs/acre/yr)

Farm Cost

($/lb P)

Farm Profit

($/lb P)

Sediment Loss Reduced

(tons/acre/yr)

Iowa 0.88 -$0.61 $10.61 1.58

Vermont 0.26 $4.86 $20.14 1.01

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Lessons Learned

• Cost-effectiveness varies greatly across AND within BMPs;

• Producers are motivated by becoming agents of change;

• Performance-based incentive payments can induce cost-effective outcomes;

• Quantifying performance is information and labor-intensive.

19

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Looking Ahead

• Information systems are improving rapidly

– Models

– Remote sensing

– Measurement methods

• Tight budgets and persistent WQ problems require more cost-effective solutions

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Contact Information

Jonathan R. Winsten

Agricultural Economist

Winrock International

Email: jwinsten@winrock.org

Tel: +1-802-343-3037