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Economic Analysis of
IPM Strategies
Project
personnel: Brian
Adam, Dirk
Maier
Businesses that handle stored grain
products have economic incentives to control insects
(Elliott et al. 1998). Alternative (IPM) measures that reduce use of
pesticides are being developed, but
businesses often are reluctant to invest in the facilities necessary to
use new technology without better
information on whether the expected payoff will cover the
costs of the investment Net present value of investment and operation
costs of the alternative
technologies will be compared to net present value of expected benefits.
Engineering studies will be used to measure
investment and operation costs of each technology.
Labor and equipment needed for each technology, and safety risks of each
technology, will be compared. Entomological
analysis will measure effectiveness of insect
control. These results will be used to measure cost of product damage
and to measure the risk of exceeding
a specified level of pesticide residue for each technology or of
failing to achieve a specified level of insect control. Firms will be
more likely to adopt new
technologies whose cost-effectiveness has been verified if they have
accurate information about the
relative costs and benefits of alternative technologies.
A post-harvest economic model has
been developed and validated to assess the feasibility,
limitations and economic costs and benefits of alternative IPM
technologies versus conventional
stored product protection methods (Rulon et al., 1999). The model
analysis is based on a variation of the net
present value called net present cost (NPC), which
represents the true measure of an investment’s value over time.
Because grain treatment and
conditioning with integrated pest management tools during storage is a
single step in a long processing chain, it
is difficult to associate income flows directly with
changes in storage practices. The NPC method allows for evaluation of
expense flows associated with
storage only. By isolating the expenses associated with the storage
process from all other events before and
after this time frame, it is possible to look much more
precisely at the alternatives proposed. Of course, since this method
looks only at expenses, the results
must be evaluated on the basis of a minimum discounted expense rather
than the maximum discounted income. Therefore, when looking at the
results of the model, the lower the
NPC the better. As opposed to the annual operating cost, the NPC
takes into account any initial capital investment, the cost of
ownership, and the potential tax
benefits of owning capital equipment. All of these factors will be
measured in this research over a ten
year period and costs associated with events further out in time
will be discounted back to their value in today’s dollars. In each
year the expenses will be calculated
and inflated according to pre-defined inflation factors. An after-tax
expense will then be calculated based on
the premise that all expenses would offset a portion
of income and thus reduce the firm’s taxable earnings. The model will
be validated using available data
from farm and commercial facilities (Rulon et al. 1999), information
from the experimental tests to be conducted as part of this consortium
project, input from end users and equipment
manufacturers, and historic economic data. The
economic model will then be applied to determine the annual operating
costs and amortized net present
costs for a representative range of on and off-farm grain facilities
utilizing appropriate financial data from
these operations. This approach will also allow for
a determination of the capital investment cost associated with any new
IPM technology, such as ozone
generators that various operations could afford. |
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