With the legislature back in session, the debate over how to protect Delaware’s water resources from excess agricultural nutrients is heating up again. The EPA has proposed a tax on poultry processors to finance nutrient management programs, but has been vague about what those programs would be. The poultry industry has repeatedly rejected a poultry tax in favor of voluntary controls, but remains vague on accountability. There is talk about a poultry litter incinerator, which raises questions about siting ("Not In My Back Yard!"), air pollution and ash disposal. Meanwhile, other states have moved ahead with new programs mandating poultry and livestock farmers to develop and implement approved nutrient management plans over the next few years. These programs are controversial, and they’re going to cost farmers and taxpayers a lot of money, but they aren’t particularly innovative, and they may be very inefficient. I believe Delaware can do better. I believe a decentralized, incentive-based approach could achieve the same water quality objectives at lower cost, giving Delaware agriculture a competitive advantage.

For example, Maryland’s program looks pretty tough on paper, but policy-makers are now trying to back-pedal away from implementation deadlines. Maryland is trying to solve its agricultural nutrient problems with technology standards, under which regulators dictate the specific pollution-control technologies that farmers must install. This adversarial "command-and-control" approach has various shortcomings. It ignores the economic incentives that cause firms to pollute, and doesn’t attempt to balance costs and benefits of pollution abatement. It transfers decision-making from firms to government regulators who don’t understand the specifics of individual firms’ production processes and pollution abatement options. The regulatory agency typically mandates an inefficient "one size fits all" technology for everyone, and then has to police firms to insure that the mandated technologies are installed, operated and maintained correctly. Firms do the minimum necessary to comply, and have no incentive to reduce their pollution any further. When the mandated technologies fail to deliver the desired environmental quality improvements, frustrated regulators may toughen up the standards and force firms to adopt new or revised technologies. Unfortunately, the most ambitious "get-tough" laws often turn out to be the least enforceable. This paradox is well known to political scientists. Being an economist, I prefer policies that rely on economic incentives rather than command-and-control to protect environmental quality.

In the case of non-point water pollution, it actually makes more sense to manage pollutants by watershed or sub-basin rather than by political boundaries. It’s impractical to monitor each individual non-point source, but we have the scientific resources to quantify agricultural nutrients and other pollutant sources by sub-basin, and establish statistical relationships linking basin-aggregated source data to pollutant concentrations at sub-basin outlets. What we need are local groups that can assume authority for the non-point pollution generated within their own sub-basins, and we need to give those groups appropriate incentives and resources to manage that pollution efficiently. Here’s an outline for one possible approach:

Let farmers and poultry processors organize nutrient management cooperatives in each basin where agriculture is a primary source of pollution. These people know the specifics of their basins best. The cooperatives could fund whatever nutrient management strategies they wanted. They might subsidize the use of alum in litter, phytase in feeds, precision agriculture technologies, or they could negotiate litter exports to other basins, or establish vegetative buffers in riparian zones--whatever mix of strategies is most cost-effective for them. The nutrient management cooperatives could be financed with public funds, or they could be self-financed. Self-financing would give cooperatives more autonomy than government financing, and many farmers are already familiar with voluntary commodity check-off programs.

Now it’s obvious that farmers and processors don’t just establish and finance nutrient management cooperatives spontaneously. They need incentives to do so, preferably economic incentives such as pollution abatement grants or a pollution tax. Naturally grants or subsidies are more appealing to the poultry industry than taxes, but they have several problems. It would seem appropriate to give larger grants to the most polluted basins where more cleanup is needed, but this can create perverse incentives to increase rather than reduce pollution levels. And any program that appears to reward polluters is going to be politically unpopular.

Much as the poultry industry dislikes the idea, a tax on poultry would probably be more workable, particularly if farmers decide on how the revenues should be spent. The most efficient tax would be indexed to nutrient concentrations at basin outlets, and would vary by basin. Flocks raised in basins with high nutrient loadings would be taxed at higher rates, and flocks grown in relatively unpolluted basins might not be taxed at all. Tax rates would be adjusted periodically to reflect changes in water quality. The tax revenues generated from each basin would finance the basin’s nutrient management cooperative. The most polluted basins would get the most funds to control their nutrients. Producers in those basins would have the strongest incentives to cooperate in minimizing aggregate nutrient loadings in order to minimize their taxes and remain competitive with producers in other basins. A basin’s tax would be eliminated when the basin achieves some realistically attainable water quality target.

Who would bear the cost of a tax on processed poultry? The tax burden would be split three ways, although the proportions can only be guessed at. Poultry integrators would absorb some of the tax in lower profits, pass some portion of the tax back to farmers in the form of reduced prices paid for flocks, and probably pass some portion of the tax forward to retailers and consumers in slightly higher retail prices. So in effect, farmers would be sharing the costs of their nutrient management programs with integrators and the public.

Several technical questions need to be addressed, such as exactly how the tax rates would be determined and adjusted, how nutrients from non-agricultural sources would be accounted for, and how to counter the advantage of untaxed flocks from Maryland. These issues are solvable and worth thinking about.

This kind of policy would require a lot of scientific and technical support, but these support resources are available. Dean John Nye, Dr. William Ritter, Dr. Thomas Sims and other faculty and Extension professionals in the University of Delaware’s College of Agriculture and Natural Resources have been working on various aspects of nutrient management and water quality for decades. My own geographic information systems research has delineated 15 distinct sub-basins within the Inland Bays watershed, and quantified poultry production capacities and cropland within each sub-basin. Boonchauy Boonmee, one of my graduate students, showed that the ratio of a sub-basin’s poultry production capacity to its cropland acreage is a very strong predictor of water quality at the sub-basin outlet. Our analysis also supports my contention that nutrient management policies should be basin-specific, since variations in agricultural nutrient loadings depend on local variables such as landscape pattern, soils, drainage properties, ditching, crop management practices, rotations, etc. Our study results also suggest that we can achieve substantial reductions in nutrient loadings in the Inland Bays at reasonable cost.

As Dean Nye noted in a previous column here, a program to convert cropland in riparian zones to vegetative buffers, for example, might cost $50 per acre in rental payments per year, and provide local wildlife habitat benefits as well as water quality benefits downstream. Our GIS analysis identified about 9,000 acres of cropland in Inland Bays watershed that are located within 60 meters of streams, rivers or bays. If every acre of that cropland were idled (making very wide buffers), the aggregate rental payments would only cost about $450,000 a year. The Inland Bays watershed alone produces maybe 400 million pounds of poultry a year, so paying for this with a poultry tax would require a tax rate of twelve hundredths of a cent ($0.0012) per pound. These are rough estimates, but the bottom line looks very doable.

Riparian buffers alone won’t be enough to clean up our waterways. We’ll need a mix of strategies, and to be cost-efficient, the strategy mix has to be flexible enough to deal with diverse local situations. Delaware needs to look beyond traditional command-and-control approaches, and re-define the roles of environmental official and farmer. I’m hoping our environmental officials will address the economic incentives that cause farmers to pollute, and then step back and trust the farmers to get it right.