Environment: How much do regulations cost hog farmers?

Monday, December 10, 2007

Some answers can be found in the George Morris Centre's recent comparison of costs in the United States and across Canada.They can vary quite considerably, depending on the size and location of the operation
by SAM BRADSHAW

The George Morris Centre has just completed a detailed paper on the effect of environmental regulations on hog farming. This is the second part of my summary of the study, which covers costs of environmental compliance.

Here, the study identifies the set of environmental regulations affecting hog producers in Canada and the key cost elements of these regulations. On page 31 is a chart providing an overview of provincial and municipal regulations.

Compliance costs in the United States. In 2002, the U.S. Environmental Protection Agency (EPA) signed the Final Rule on Concentrated Animal Feeding Operations (CAFOs). CAFOs are defined as new and existing operations, which stable or confine and feed, or maintain for a total of 45 days or more in any 12-month period, more than 2,500 swine for example, weighing over 55 pounds.

The impact of CAFOs was estimated using costs for nutrient management planning, facility upgrades, land application and technologies for balancing on-farm nutrients. EPA estimated the total compliance cost for large CAFOs at $283.2 million US per year (pre-tax in 2001 dollars), of which $24.9 million was the estimated cost for the hog industry (nine per cent).

Costs to medium-sized CAFOs were estimated at $39.1 million per year, of which $9.5 million was the hog industry (approx. 24 per cent). Costs to medium and small operations designated as CAFOs were estimated at $3.8 million per year, of which $400,000 was the hog industry.

In addition, the EPA estimated that the administrative cost to federal and state governments of implementing the rule would be $9 million per year. Overall, the economic value of the environmental benefits was comparable to the estimated costs of the rule. The monetized benefits of the final rule ranged from $204 million to $355 million annually, whereas the total social costs of the final rule were estimated at approximately $335 million annually.

Economic model for Canada. This section provides an overview of the economic model developed to assess the environmental regulatory cost of compliance for a 600-sow farrow-to-finish hog operation established in each province of Canada. The section starts with an introduction to the concept of modelling environmental regulations for the same farm in each province, followed by a description of the evaluation framework.

There were two key assumptions made in this analysis. The first was that the operation was a newly established hog facility in 2006 and that it was fixed at 600 sows, farrow-to-finish. The second was that compliance with the regulations was the least cost option for the most efficient management decision, given the size of the operation.

Due to a lack of building costs data, British Columbia is not included in the provincial model comparison of environmental costs. However, this section begins with a qualitative discussion of environmental costs in British Columbia in order to provide an understanding of the costs of compliance in the province. Subsequently, the environmental costs of compliance used in the model are presented for the remaining provinces.

In British Columbia, existing regulations do not specifically require any plans, buffer strips or monitoring measurements. Therefore, the least cost option is zero for these environmental costs.

The B.C. Code of Agricultural Practice for Waste Management requires that agricultural wastes be applied to land only as a fertilizer or soil conditioner and in a manner that prevents pollution.

Although no specific land base requirements are established, the legislation implies that nutrients applied be in balance with the nutrient demands of the crop being grown.

The biggest environmental cost for hog producers in the Fraser Valley would be purchasing or renting enough land on which to apply manure. Current land values are in the $40,000 to $50,000 range per acre, and land rental costs range from $300 to $600 per acre.

The total cost of environmental compliance by province for the model operation is shown in the table below. The model operation would experience the highest costs of environmental compliance if situated in Ontario, followed by Manitoba.

Nutrient management planning costs. Ontario had the highest total cost of compliance, at $3,451 per year. The annual cost of nutrient management planning in Quebec, Saskatchewan and Manitoba ranged from $900 to $2,000. In Alberta and New Brunswick, the model operation showed typical spending of less than $500 annually. Nutrient management planning is voluntary in Nova Scotia and P.E.I. and therefore no costs were applied.

Alberta, Manitoba, Ontario, Quebec, New Brunswick and PEI have legislation governing the handling of manure, including winter spreading restrictions and minimum separation distances/buffers from water sources. In contrast, Saskatchewan and Nova Scotia provide guidelines, but do not legislate these practices.

The cost of establishing buffer strips was relatively consistent across the provinces, ranging from $300 to $500 per year. Engineering costs associated with designing and constructing manure storage facilities were also similar across the provinces, averaging approximately $1,000 annually.

Sources of financial assistance. Three national programs have been created in Canada to cover 30 different beneficial management practices (BMPs). These programs standardize much of the environmental costs across Canada and are called, respectively, the National Farm Stewardship Program (NFSP), Greencover Canada (GC) and the National Water Supply Expansion Program (NWSEP).

The NFSP is a voluntary cost-share program to encourage producers to improve management of farms through beneficial management practices that reduce risks to water and air quality, improve soil productivity and enhance wildlife habitat. The maximum federal contribution per legal farm entity with a unique Farm Business Registration Number (FBRN) is $30,000. The NFSP will typically cover either 30 per cent or 50 per cent up to the program caps.

The NFSP requires operations to have an Environmental Farm Plan in place to be eligible for financial assistance.

Greencover Canada is an initiative to help producers improve land management practices, promote sustainable land use, protect water quality, reduce greenhouse gas emissions, enhance biodiversity and wildlife habitat, and expand the land base covered with perennial forage and trees.

The maximum federal contribution per legal farm entity is $20,000. GC is set to cover 50 per cent of expenses up to the program caps. The BMPs for Greencover will be covered in the NFSP program in some provinces. The combined federal contribution between NFSP and GC will be no more than $30,000. Like the NFSP, the GC program requires operations to have an Environmental Farm Plan to be eligible for financial assistance.

The NWSEP's objective is to provide assistance to the agricultural community across Canada to help reduce the risk of future water shortages through the planning and development of secure, healthy and reliable water resources. Three tiers of projects are eligible for funding through NWSEP.

The first tier includes on-farm water infrastructure. For this tier, the federal government will contribute up to one third of eligible project costs to a maximum of $5,000 per project. The program maximum is $15,000 per applicant.

The second tier involves multi-user water supplies and the federal government will provide up to one-third of eligible costs. The third tier involves strategic initiatives. Cost sharing arrangements for this tier are determined on a project-by-project basis.

Federally, Farm Credit Canada (FCC) offers a loan program, the Enviro-Loan, for agricultural producers who wish to improve their agricultural operations environmentally. The Enviro-Loan provides financing for the construction, improvement or expansion of manure management facilities. Producers and value-added agricultural businesses that intend to make environmental improvements (including shelterbelts, buffer zones, odour control technologies and composting facilities and structures) are eligible for a loan.

This paper, entitled “Environmental and Economic Impact Assessments of Environmental Regulations for the Agricultural Sector: A Case Study of Hog Farming,†was prepared by Cher Brethour, Beth Sparling, Terri-lyn Moore and Delia Bucknell of the George Morris Centre and Ken Engele of the Prairie Swine Centre for Agriculture and Agri-Food Canada. BP

Sam Bradshaw is environmental specialist with Ontario Pork