A Farm-Level Evaluation of Agricultural Profit and Ground Water Quality: Texas Seymour Aquifer

The Seymour Aquifer of north-central Texas is known to have elevated levels of nitrates. The design of economically sound policies for reducing agriculture's nitrate contribution to the aquifer suggests a need to evaluate alternative management practices and implications of different policies on nitrate percolation and associated loss of net returns.

In the absence of field and experimental data, a validated process model (EPICWQ) was used to simulate crop yield and nitrate percolation by using stochastic weather and by varying the quantity and timing of nitrogen and irrigation applications across two soil types and tillage practices. Using these simulated data, a set of response functions was estimated and incorporated inside a risk-sensitive farm-level optimization model. Various policy instruments such as a performance standard, design standard, performance tax, performance subsidy, nitrogen tax, and nitrogen subsidy were evaluated to determine the economic and environmental tradeoffs for the region.

A performance standard or a design standard (obtained from the model solution of performance standard) will decrease farm net income (over variable cost) by $6,220 or $5,225 for risk neutral and risk averse case, respectively. Arbitrarily selected design standards such as split use of fertilizer and minimum tillage reduced percolation but not down to 10 ppm. The net income loss for a performance tax was $ 17,340 and $ 15,233 for the two risk behavior scenarios, respectively. A performance subsidy would increase net income (subsidy received minus abatement cost) by $452 and $784 for risk neutral and risk averse case, respectively. A nitrogen tax of 200% of the purchase price of nitrogen caused a $29,680 and $36,910 reduction in net income while a nitrogen subsidy increased net income (subsidy received minus abatement cost) by $4,474 and $8,285, respectively.

For the whole region, the least costly policy alternative would cost approximately $1 million either as farm net income loss or as government subsidy. Comparing this cost with the cost of bottled water (used as a proxy for the loss of consumer surplus) shows that this cost is about three times the cost of bottled water.