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"photographs" Silver prints if essential to the understanding o f the of "photographs" m ay be ordered at a d d itio n al charge by w ritin g th e O rder D epartm ent, giving the catalog num ber, title , auth o r and specific pages you wish reproduced. University Microfilms 300 North Z eeb Road Ann Arbor. M ichigan 48106 A X erox Education Company I 73-12,718 GOOD, Darrel Lane, 1946POTENTIAL IMPACT OF ENVIROM4ENTAL POLLUTION ABAT04ENT ALTERNATIVES ON THE MICHIGAN DAIRY FARMING INDUSTRY. Michigan State University, Ph.D., 1972 Economics, agricultural U n iversity M icrofilm s, A X E R Q \C o m p a n y , A n n A rb o r, M ic h ig a n POTENTIAL IMPACT OF ENVIRONMENTAL POLLUTION ABATEMENT ALTERNATIVES ON THE MICHIGAN DAIRY FARMING INDUSTRY By Darrel Good A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DO C T O R OF PHILOSOPHY Department of Agricultural Economics 1972 PLEASE Some NOTE: pages may indistinct Filmed University as Microfilms, have print. received. A Xerox Education Company ABSTRACT POTENTIAL IMPACT OF ENVIRONMENTAL POLLUTION ABATEMENT ALTERNATIVES ON THE MICHIGAN DAIRY FARMING INDUSTRY By Darrel Good Concern is being expressed by the public, groups, industry and researchers over the contamination and pollu­ tion of the environment. Pollution originating from all sources, whether it be municipal, is receiving attention from local, industrial or agricultural state and federal agen­ cies charged with maintaining or enhancing environmental quality. Over time, the problems surrounding the management of animal waste in such a manner as to prevent environ­ mental contamination have been compounded because of the increased concentration of livestock production into larger and more confined facilities and the increasing numbers of nonfarm residents in traditional farming areas. Although various federal and state statutes have been enacted or proposed to curb environmental pollution arising from animal wastes, more persuasive controls in Darrel Good the form of direct regulation may be expected to originate from state legislatures. The economic impact upon Michigan dairy farms of compliance with specific legal constraints for animal waste management was evaluated. Impacts of legal con ­ straints upon cost of milk production were first analyzed within a theoretical framework. A linear programming model was established to analyze the impact of specific control measures on "representative” farms in terms of labor requirements, costs of production and returns to the operator's labor and management. Capital requirements of compliance w i t h the control measures were also d e t e r ­ mined. Synthesized dairy firms were developed; organized around specified herd size and housing and waste handling systems. These synthesized firms were incorporated into the linear p r o g r amming model and analyzed under three environmental pollution abatement alternatives: 1. Mandatory retention and disposal of surface runoff at the production site, 2. Prohibition of winter land disposal of wastes, and 3. Mandatory subsurface disposal of wastes. Compliance with these pollution abatement alter­ natives requires additional investment in dairy waste handling facilities. The magnitude of these investment requirements vary according to production technology Darrel Good utilized. The w a r m enclosed housing systems utilizing outside waste storage facilities have the lowest additional investment requirements per cow. The stanchion housing systems require the largest additional investment per cow. Investment economies accrue to the larger herd sizes. The magnitude of these economies varies by p r o ­ duction technology utilized. Depending on production technology u t i l i z e d , investments per cow are 4 to 15 percent lower for the larger herd sizes than for the smaller herds. Policy compliance increases total milk production costs, at the present level of output, for all production technology-herd size combinations studied. Variable costs of production are reduced only for the stanchion and cold covered housing systems. Total milk production costs are increased the least for the cold covered h o u s ­ ing systems, and the most for the stanchion housing systems and the 80-cow open lot system. Returns to operator's labor are reduced by only five percent for 160-cow cold covered housing systems, but are reduced by 37 percent for 40-cow stanchion ho u s i n g systems. This implies that operators of smaller dairy herds, especially those with stanchion housing systems, may be economically disadvantaged by pollution abatement policies, of the nature considered in this study, to the extent that they will discontinue milk production. ACKNOWLEDGMENTS This thesis represents the efforts of several individuals, and the author wishes to express sincere appreciation to those individuals who contributed to its development. Dr. Larry Connor, who served as the author's major p rofessor and thesis adviser, provided invaluable assistance in initiating and completing this thesis. patience, His guidance and friendship during the past three years are deeply appreciated. The author is especially grateful to Professor Ray Hoglund who contributed generously of his time and expertise throughout all stages of this study. Much of the data used in this study are attributable to the efforts of P r o f essor Hoglund. A special note of appreciation is extended to Dr. James J ohnson who provided numerous insights throughout the study. He also gave unselfishly of his time in making useful suggestions on early drafts of the thesis. The author is grateful to Dr. Lester Manderscheid and Dr. Allan Schmid for their efforts in reading and providing helpful suggestions on the final draft of the thesis. ii Last, but certainly not least, appreciation to my wife, Nancy, I w i s h to express and sons, Kevin and Keith for their encouragement and sacrifices throughout my graduate program. TABLE OF CONTENTS Chapter I. II. Page INTRODUCTION ...................................... 1 The P r o b l e m ..................... * ............. ............ . ............ Research Objectives Method of Procedure ............................ 2 3 4 APPRAISAL OF WASTE HANDLING A N D DISPOSAL PROBLEMS ON MICHIGAN DAIRY FARMS .............. 8 Introduction ..................................... Dairy Farms, Milk Cows and Milk Production . . Housing and Waste Handling Systems . . . . . . Environmental Considerations . . . S u m m a r y .......................................... III. IV. PRESENT AND POTENTIAL ENVIRONMENTAL QUALITY CONTROLS RELEVANT TO MICHIGAN DAIRY FARMS 8 8 21 27 29 . . 32 Introduction ..................................... Present Control Measures .................. . . Controls in Other States ....................... Potential Environmental Controls Specific to Michigan Livestock Production ............ 32 33 54 THEORETICAL ECONOMIC IMPACT OF POLLUTION A B A T E M E N T ........................................ 57 61 Externalities ................................... Alternative Solutions .......................... Theory of Firm Adjustment to Environmental Controls . . . . . 61 62 A s s u m p t i o n s ................................... A n a l y s i s ....................................... 72 77 Constraints on Compliance with Environmental Controls ....................... 90 iv 67 Chapter V. Page THE ANALYTICAL M O D E L ............................ I n t r o d u c t i o n ......... * ......................... The T e c h n i q u e ................................... The F i r m .......................................... Alternative T e c h n o l o g i e s .................. . . * The Model Description ........... VI. VII. 99 99 100 102 105 108 The Objective Function , ..................... The Constraints . . . . . 109 110 THE SYNTHETIC F I R M S ............................ 116 Introduction ..................................... The Estimates ......................... 116 117 P r i c e s .............. C o n s t r a i n t s ................................... Coefficients ................................... 117 119 120 Labor Requirements and Costs of Milk P r o d u c t i o n ................................ .. . Summary of M i l k Production A c t i v i t y ......... Labor Requirements and Costs of Crop Production Activities ....................... Basic Machinery Complement ..................... Investment Requirements ....................... Hired Labor and Return to Operator's Labor .............................. Summary of Synthetic Firms ..................... 144 148 IMPACTS OF ALTERNATIVE POLLUTION ABATEMENT POLICIES .............................. 151 Introduction ..................................... Impact of Runoff Control Policy . . . . . . . 151 152 Facility Requirements . . . . . ............ Economic Impact .............................. S u m m a r y ....................................... 153 156 159 Impact of No Win t e r Disposal Policy 121 134 136 139 140 ......... 161 Impact on Solid Manure Systems .............. Impact on Liquid Manure Systems ........... 163 170 v Page Chapter Impact of Subsurface Disposal Policy VIII. ........... 179 Facility Requirements ....................... Economic Impact .............................. 180 180 Impact of Three Pollution Abatement P o l i c i e s ....................................... .............. Relationship to Economic Theory Summary and Conclusions ....................... 183 187 191 C O N C L U S I O N S ..................................... 195 . Summary of Analytical Models ................ Empirical Findings .............................. I m p l i c a t i o n s ..................................... 195 198 205 A P P E N D I C E S .............................................. 212 BIBLIOGRAPHY 236 LIST OP TABLES Table 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Page N u mber and percentage distribution of dairy farms and milk cows by herd size ....................... for Michigan 14 Number and percentage distribution of dairymen selling milk and number of cows for seven production areas and state . . . . . . 17 Number and percentage distribution of dairy h o using systems by size of herd on Michigan Grade A dairy f a r m s .......................... 22 Relationship of size of herd to waste handling system used, Michigan Grade A Dairy Farm Survey, 1 9 6 8 .................................... 24 Relationship of type of housing to waste handling system used, Michigan Grade A Dairy Farm Survey, 1968 25 N u mber of dairy farms by type of housing and waste handling systems and size of herd . . . . 26 Dairymen's estimate of neighbors' objections to manure odors and distance to nearest no nfarm and farm home and lake or stream . . . . 28 Type of housing and manure handling systems adapted to Michigan . ......................... 107 Restrictions on operator labor availability . Estimated labor requirements per cow for the milk production activity— alternative housing systems, herd sizes and manure handling s y s t e m s ........................................ v ii . 122 120 Table 11. 12. 13. 14. 15. 16. Page Estimated annual labor requirements per cow for the milking and feeding activities and the manure h a n d l i n g operations— alternative housing systems, herd sizes and manure handling s y s t e m s ................................... 125 Estimated costs and receipts p e r cow plus replacement of items unaffected by pro­ duction technology or herd size . . . . . . . . 128 Estimated costs per cow plus replacement of items affected b y production technology or h erd s i z e .......................................... 129 Estimated investment requirements for housing facilities and milking parlor ......... 133 Labor requirements, costs and receipts per cow plus replacement for producing milk under alternative housing systems, waste handling systems and herd s i z e s ................ 135 Estimated labor requirements and costs of corn grain, c o r n silage and alfalfa haylage p r o d u c t i o n .................. 137 17. Estimated costs of basic m a c h i n e r y complement . 141 18. Estimated total investment requirements— alternative hou s i n g systems, manure handling systems and h e r d s i z e s ............................ 142 19, Hired labor, return to fixed factors and return to o p e r a t o r - a l t e r n a t i v e housing s y s t e m s , waste handling systems and herd sizes. 20. Labor requirements, investment requirements, crop acreage, annual costs and returns of milk production--alternative housing systems. manure handling systems and h e r d sizes ......... 149 Estimated investment requirements and annual costs of runoff control for two open lot housing s y s t e m s .............................. 157 Impact of runoff control on two open lot housing systems . .............................. 160 21. 22. viii Table 23. Estimated investment requirements and changes in annual costs and labor requirements per cow resulting from a no winter disposal policy--alternative housing systems and herd sizes .......................................... 24. Estimated changes in investments, costs, returns and hired labor resulting from a no win t e r disposal policy--alternative housing systems and herd sizes ................... 25. Estimated investment requirements and changes in annual costs and labor requirements per cow resulting from a no winter disposal policy for those systems handling wastes as . . . . . . . . a liquid .......................... 26. Estimated changes in investments, costs, returns and hired labor resulting from supplementing existing storage facilities with additional tank s t o r a g e - w a r m enclosed housing ................................... 27. Estimated changes in investments, costs, r e t u r n s , and hired labor resulting from supplementing exist i n g storage facilities with outside storage'— w a r m enclosed housing . . 28. Estimated investment requirements and changes in annual costs and labor requirements per cow resulting from subsurface disposal of m a n u r e — two herd s i z e s ............................ 29. Estimated impact of three pollution abatement policies-^alternative housing systems, waste handling systems and herd sizes ......... LIST OF APPENDICES TABLES Table Al. A2. A3* A4. A5. Bl. B2. B3. Page Coefficients for milk production activity reflecting twelve combinations of housing systems, manure handling systems and herd sizes for synthetic dairy f i r m s .................. 212 Coefficients for milk production activity reflecting runoff control on the open lot housing system— two herd s i z e s ................. 214 Coefficients for milk production activity reflecting winter storage and runoff control-alternative h o u s i n g systems and herd sizes ........................... 215 Coefficients for the milk production activity reflecting winter storage and subsurface disposal of m a n u r e — liquid manure handling systems ......................... 216 Basic linear programming tableau for synthetic dairy firms in southern M i c h i g a n .......................................... 218 Estimated distribution of Grade A dairy cows by size of herd and type of h o u s i n g ........... 224 Estimated aggregate effect of pollution abatement policies on the Michigan dairy farming industry— all Grade A dairy herds . . . 226 Estimated aggregate effect of pollution abatement policies on the Michigan dairy farming industry— Grade A dairy herds with thirty or more cows ..................... 22 8 x LIST OF FIGURES Figure 1. Page Trends in total number of dairymen selling milk in M i c h i g a n ................................... 10 Trends in number of milk cows on Michigan f a r m s .............................................. 11 3. Trend in total milk production in Michigan 19 4. Milk production per c o w .......................... 20 5. Firm production function for m i l k .............. 74 6. F i r m cost functions for milk production 75 7. Increased fixed costs associated with abatement facility ................................ 2. 8. 9. 10. 11. 12. . . . . . . . Increased fixed and variable costs of production associated with abatement facility 78 . 81 Increased variable costs of production due to reordering of the use of variable inputs of p r o d u c t i o n .............. .. ......................... 83 Increased fixed costs, reduced variable and reduced total costs due to addition abatement facilities and the reordering the use of variable production i n p u t s costs of of ......... 85 Increased fixed costs, reduced variable costs, increased total costs due to addition of pollution abatement facility and the reordering of the use of variable production inputs ................................ 86 Increased fixed costs, reduced variable costs, unchanged total c o s t s , due to the addition of pollution abatement facilities and the reorder­ ing of the use of variable production i n p u t s .................... 87 xi Page Figure 13. 14. 15. Increased fixed costs r increased variable and total costs for low levels of output, reduced variable and total costs for high levels of output, due to addition of pollution ab a t e ­ ment facility and reordering of the use of variable production i n p u t s — total cost curves Increased fixed costs, increased variable and total costs for low levels of output, reduced variable and total costs for high levels of output, due to addition of pollution abate­ ment facility and reordering of the use of variable production inputs— average cost c u r v e s .................... . . 88 89 Alternative adjustments to required winter storage of wastes for w a r m enclosed housing s y s t e m ................................................. 171 xii CHAPTER I INTRODUCTION Concern is being expressed by the public, industry groups, and researchers over the contamination and pollu­ tion of the environment. Pollution originating from all sources, whether it be municipal, industrial or agricultural, is receiving attention from local, state and federal agencies charged w i t h maintaining or enhancing environ­ m ental quality. Several types of farm wastes have been identified as potential or existing sources of environmental pollu­ tants. These sources include: ment from soil erosion, (2) (3) pesticide residues and (1) accumulation of sedi­ fertilizers applied to soils, (4) animal wastes. Animal wastes may contribute to air, ground water and/or soil contamination. surface water, Over time the p r o b ­ lems surrounding the disposal of animal waste in such a manner as to prevent environmental contamination have been compounded because of: (1) increased concentration of livestock production into larger and more confined facili­ ties, (2) availability of relatively inexpensive commercial fertilizers which sharply diminishes the value of animal 1 manure as a source of plant nutrients, (3) reduction in the availability of farm labor which forces many livestock producers to seek labor-saving technology in handling animal wastes and (4) increasing numbers of nonfarm resi­ dents in traditional farming areas. In recent years various federal and state statutes have been enacted or proposed to curb environmental pollution arising from animal wastes. Thus, some livestock producers are no w faced with large volumes of wastes that are low in e c o n o ­ m i c values; moreover, the management and physical disposi­ tion of these low-value wastes are legally restricted to assure pollution control. The Problem This investigation is to determine the economic impact on Michigan dairy farms of potential environmental quality controls on animal waste management. The impact of environmental quality controls will depend on: (1) the extent to which livestock wastes on Michigan dairy farms are actually contributing to environmental p o l l u ­ tion, (2) the nature of this pollution air pollution) pollution. and {i.e., water or (3) the requirements necessary to abate The requirements necessary to abate pollution, in turn, depend upon the type of legal control measures enacted. 3 For purposes of this study, three potential legal control measures, examined. specific to j-ivestock production, These measures include: are (1) mandatory reten­ tion and disposal of barnyard and/or feedlot waste runoff, (2) prohibition of "winter" land disposal of wastes and (3) m a n datory odor control of wastes by means of sub­ surface disposal. The impact of these alternative legal controls are appraised from the standpoint of adjustments required on Michigan dairy farms to be in compliance with these controls. The effect of the required adjustments are analyzed in terms of capital requirements, operating costs, labor requirements and return to the operator's labor, management and risk bearing. Research Objectives The specific objectives of this study include: 1, To determine the present legal restraints w i t h i n which Michigan dairy farmers must function in the management -of animal wastes. 2, To identify those Michigan dairy operations which are potentially most affected by legal environmental quality controls. 3, To evaluate the effects upon representative dairy farms of adjusting existing waste 4 management systems to be in compliance with applicable environmental quality controls. The achievement of these objectives will provide informa­ tion on the economic impact of implementing alternative legal pollution control measures to individual dairymen and public policy decision-makers. Method of Procedure The objectives of this study are met in three steps. The first step assembles data relevant to identi­ fying actual or potential livestock waste management problems on Michigan dairy farms. Data assembled are taken from several secondary sources and Michigan dairy farm surveys conducted by the Michigan State University Department of Agricultural E c o n o m i c s . 1 includes: Michigan, The data collected trends in number of dairymen selling milk in trends in number of milk cows on Michigan farms, number and percentage distribution of Michigan dairy farms and milk cows by size of herd, geographic distribution of da i r y farms and cows, number and percentage distribution of dairy housing systems by size of herd, relationship of size of herd to waste handling system used on Michigan d a i r y farms, survey results of dairymen's estimates of neighbor's objections to manure odors, and survey results indicating distance from dairy production unit to nonfarm 5 and farm homes, and survey results indicating distance from dairy production unit to lakes and streams. In the second step, the present legal restraints within which Michigan dairy farmers must function in the management of animal wastes are identified. The results of a survey of state legal statutes in the North Central 2 Region which pertain to animal waste management and selected cases of private litigation involving livestock waste management problems are used as a basis for defining present legal restraints. Two additional sources of in­ formation are utilized in an attempt to predict various future legal restraints on animal waste management in Michigan. These sources are: (1) actions recently taken by the Michigan Water Resources Commission and the Air Pollution Control Division of the Michigan Department of Health in correcting individual pollution problems on Michigan farms and (2) actual and/or proposed legal restraints applicable to livestock production in other states. The third step is an evaluation of the economic impact upon Michigan dairy farms of compliance with legal constraints for animal waste management. Impacts of legal restraints upon cost of milk production are first analyzed within a theoretical framework. Then, a linear programming model is established to analyze the impact of specific control measures on "representative” farms 6 in terms of labor requirements, returns to the operator's costs of production, and labor and management. Capital requirements are handled external to the model. Synthe­ sized firms are developed, organized around specified herd size and housing and waste handling systems. These syn­ thesized firms are incorporated into the linear pro g r a m ­ ming model and analyzed under the three alternative legal control measures previously enumerated. Subsequent chapters present the analysis, pleted in these three steps. as c o m ­ Chapter II describes the structure of Michigan dairy farming; Chapter III discusses the legal pollution constraints within Michigan and in other states; Chapter IV is a theoretic presentation of the economic impact of pollution abatement on individual firms; Chapter V describes the linear programming model; Chapter VI provides the estimates used therein; Chapter VII presents empirical results of the analysis; and Chapter VIII summarizes the analysis and presents impli­ cations for dairymen and public decision-makers. Chapter I Footnotes 1964 Census of Agriculture# U.S. Department of Commerce, Bureau of the Census, Vol. II, Chapter 2; Dairy Statistics 1 9 6 0 - 1 9 6 7 , U.S.D.A., ERS, Statistical Bulletin No. 4^0, pp. 47-49; C. R. Hoglund, "The Dairy F a r m Enter­ prise: Project 80+5. The Michigan Dairy Industry of 19 8 5 , ” Michigan Agricultural Experiment Station, Research Report (in process of p r i n t ) ; C. R. Hoglund and G~ M c B r i d e , Michigan's Changing Dairy F a r m i n g , Research Report 96, Michigan State University, Agricultural Experiment Station, January, 1970, p. 7; C, R. Hoglund, J. S., Boyd, L. J. C onnor and J. B. Johnson, "Waste Management Practices and Systems on Michigan Dairy Farms," Agricultural Economics Report, Report No. 208, Michigan State University, January, 1972. 2 L. J. Connor, J. B. Johnson, C. R. Hoglund, "A Summary of State Regulations Pertaining to Animal Waste Management in the North Central Region of the U n i t e d States," Agricultural Economics R e p o r t , No. 193, Department of Agricultural Economics, Michigan State University, May, 1971. 7 CHAPTER II A PPRAISAL OF WASTE HANDLING AND DISPOSAL PROBLEMS ON MICHIGAN DAIRY FARMS Introduction The problems encountered by dairy farmers in the collection, storage and disposal of waste are a function of several variables. These variables include: amount of manure produced of housing facility (i.e., number of cows); (open lot, stanchion, the the type cold covered, or w a r m e n c l o s e d ) ; the type of waste handling system being used (liquid or c o n v e n t i o n a l ) ; the nearness of the produc­ tion unit and land disposal area to neighbors and w a t e r ­ ways. This chapter examines some of these variables with respect to Michigan dairy farms to provide an appraisal of the type and magnitude of waste handling problems on these f a r m s . Dairy Farms, Milk Cows and Milk Production N u mber of Dairymen Selling Milk There has b e e n a consistent downward trend in the number of Michigan dairymen selling milk over the past 15 8 9 years. A high percentage of those dairymen discontinuing milk production had herds of less than 30 cows, with the number of dairymen with herds larger than 30 cows actually increasing for some periods. The trends in the number of dairymen selling milk for the period 1956 to 1970 and p r o ­ j e c t e d 1 for 1985 are shown in Figure 1. The number of dairymen selling milk decreased from more than 57,000 in 1956 to approximately 13,800 in 1972. The decrease is expected to continue in the future, resulting in an e s t i ­ mated 4,800 dairymen by 1985. Figure 1 also indicates that Grade B dairy farms are expected to cease to exist in Michigan after 1980. Number of Milk Cows The trends in the number of milk cows on Michigan dairy farms for the period 1955 to 1972 and projected for 19 85 are given in Figure 2. The number of milk cows decrease from 817,000 in 1956 to an estimated 466,000 in 1972. The rate of decrease in the number of dairy cows was quite drastic from 1955 to 1959 and again from 1964 to 1970. Between 1959 and 1964 the total number of dairy cows only decreased by approximately five percent, 650,000 to 620,000. same time period, from Census data indicate that during this the number of cows on farms with herd sizes of 30 cows or more increased by slightly more than 66 percent. The number of cows on farms with herds of less 10 60 r Thousands of dairymen All Dairymen Selling Milk 1960 Figure 1. Source: 1970 1980 Trends in total number of dairymen selling milk in Michigan, 1955-1970, and projected for 1985. 1955-1972: Animal Health Division, Michigan Department of Agriculture, BRY periodic reports. 1985: Ray Hoglund, "The Dairy Farm Enterprise: Project 80+5. The Michigan Dairy Industry of 1985," Michigan Agricultural Experiment Station, Research Report (in process of p r i n t ) . 11 Figure 2. Source: Trends in number of milk cows on Michigan Farms, 1955-1970, projected 1985. 1955-1969: Milk Production, Disposition and Income, U . S . D . A . , Statistical Reporting Service, DA 1-2. 1970: Karl Wright, Dairy Changes in Michigan and the Top Five Dairy S t a t e s , Agricultural Economics Report, Report No. 209, Michigan State University, September, 1971, p. 35. 1985: Ray Hoglund, Project 80+5 Report. 12 800 700 Actual 600 Projected Grade A of cows 500 Thousands 400 300 200 100 Grade B 1955 1960 1965 1970 1980 1985 13 than thirty cows decreased by approximately 35 percent. U.S.D.A. statistics indicate that the number of dairy farms with herd sizes of 30 or more cows increased by 2 nearly 52 percent during the period 1959 to 1964. For 1966, Grade A milk production accounted for 5 3 percent of the herds and 75 percent of the cows on Michigan dairy farms. By 1971 these percentages had increased to 70 and 88 percent, respectively. cated above, As indi­ it is estimated that by 1980 all milk p r o ­ duction in Michigan will be Grade A. Size Distribution of Michigan Dairy Herds The number and percentage distribution of dairy farms and milk cows by size of herd for 1959, 1964, 1970 and projected for 1985 are given in Table 1. However, data for 1959 and 1964 are not completely comparable to the 1970 data. The data for number of herds for 1959 and 1964 are actually "number of farms reporting dairy cows,” based on U.S.D.A. statistics. Data for 1970 are "number of dairymen selling milk," based on unpublished data obtained from Ray Hoglund, Department of Agricultural Economics, Michigan State University. It is expected that the "number of farms reporting dairy cows" would be overstated relative to "number of dairymen selling milk" for those herds with less than 30 cows. Data for the 14 Table 1, Number and percentage distribution of dairy farms and milk cows by herd size for Michigan, 1959, 1964, 1970 and projected 1985. Cows Per Farm <30 30-49 50-99 >100 Totals Number of Herds 1959a 1964 1970 1985 47,701 26,980 9,140 400 3, 388 4,679 3,900 1,100 634 1,371 1,650 1,400 51 146 410 1,100 51,774 33,176 15,100 4 ,000 92.1 81. 3 60.6 10.0 6.6 14.1 25.8 27.5 1.2 4.1 10.9 35.0 0.1 0.5 2.7 27.5 100.0 100.0 100.0 100.0 462.639 300,795 142,000 10,000 120,091 170,057 150 ,000 45,000 38,441 89,447 116,000 105,000 6,873 16,246 57,000 200,000 628,044 576 ,545 465,000 360,000 73.7 52.2 30.5 2.8 19.1 29.5 32 .3 12 .5 6.1 15.5 25. 0 29.2 1.1 2.8 12.2 55.5 100.0 100.0 100.0 100.0 Percent of Herds 1959a 1964a 1970 1985 Number of Cows 1959a 1964 1970 1985 Percent of Cows 1959a 1964a 1970 1985 aTotals for 1959 and 1964 are not the same as indicated in Figures 1 and 2 because of different sources of data. Sources: 1959, 1964: Number of Cows--1964 Census of A g r i ­ culture, U.S. Department of Commerce, Bureau of the Census, Vol. II, Chapter 2. Number of Herds— Dairy Statistics 1960— 6 7 , U.S.D.A., E.R.S,, Statistical Bulletin No. 4 30, pp. 47-48. 19 70, 1985: Ray Hoglund, "The Dairy Farm Enterprise: Project 80+5, The Michigan Dairy Industry of 1985," Michigan Agricultural Experiment Station, Research Report (in process of pri nt) . 15 other herd sizes should be relatively comparable, p a r t i c u ­ larly percentage distribution data. Data for number of cows for 1959 and 1964 are 1964 Census of Agriculture data. The total number of cows in Michigan for 1970 is ba sed on data in Wright's publication {Karl Wright, Dairy Changes in M ich iga n and the Top Five Dairy S t a t e s , Agricultural Economics Report, Report No. Michigan State University, September, 1971, p. 209, 35) with the herd size breakdown bas ed on data from the Project 80+5 report. These data are expected to be comparable. However, the figures for total number of cows in 1959 and 196 4 are substantially smaller than those p rovided by U.S.D.A. tistics {upon which W rig ht' s publication is based). sta­ There­ fore, the percentage distribution of dairy cows for 1959, 1964 and 1970 should be comparable although the distribution by number may not be comparable. Table 1 indicates that between 1959 and 1970 there was a definite trend towards fewer and larger dairy farms. There was a drastic reduction in the number of herds of less than 30 cows, w i t h a substantial increase in the number of herds of more than 50 cows. to continue, This trend is expected resulting in only ten percent of the herds having less than 30 cows and more than 60 percent of the herds having more than 50 cows by 1985. The same type of trend has occurred with regard to the number of dairy cows. There has been a substantial 16 reduction in the number of cows on farms with less than 30 cows, relatively little change on farms with 30-49 cows, a considerable increase for herd sizes of 50-99, and a rela- tively large increase for herds with more than 100 cows. The 1985 estimates indicate that the greatest reduction in the number of cows in the future wi ll come from herds with fewer than 50 cows. The number of cows on farms w i t h more than 100 cows is expected to increase substantially, account­ ing for 55 percent of all dairy cows by 1985. Geographic Adjustment The number of dairy farms and milk cows are shown for seven production areas for Michigan for 1960 and 1970 and projected for 1985 in Table 2. In absolute figures, both number of dairymen and cows were reduced in all areas; however, percentagewise, there were slight reductions in the importance of dairying from 1960 to 19 70 in the Upper Peninsula, Northern and Southeastern areas and slight gains o c cur rin g in the Western, Southern and Thumb areas. These trends are expected to continue in the future, w i t h the Southern area gaining the most and the urbanized So u t h ­ ea stern area losing the most in both number of dairymen selling milk and number of dairy cows. The average size of dairy herds for all production areas doubled from 1960 to 1970 and are projected to in­ crease by two and one-half times from 1970 to 1985. Herd Table 2. Number and percentage distribution of dairymen selling milk and number of cows for seven production areas and state, 1960 and 1970 and projected for 1985. Milk Cows Dairymen Selling Milk 1960 1970 1985a 1960 1970 Cows Per Farm 1985a 1960 1970 1985 Number 1. Upper Peninsula 2. 3. 4. 5. 6. 7. Northern Western Central Thumb Southern Southeastern State 3,186 4,766 6,962 5,249 6,804 8,717 5,978 1,141 1,431 2,569 1,963 2.836 3,200 1,940 270 350 720 490 820 975 375 39,100 60,250 101,280 68,590 104,480 151,280 116,020 25,650 34,500 79,200 49,450 83,900 115,900 77,400 17,350 25,050 66,600 37,700 71,200 100,750 41,350 12 13 15 13 15 17 19 23 24 31 25 30 36 40 64 71 92 77 87 103 110 41,662 15,100 4,000 641,000 466,000 360,000 15 31 90 Percent 1. Upper Peninsula 2. 3. 4. 5. 6. 7. Northern Western Central Thumb Southern Southeastern State 7.7 11.4 16.7 12.6 16.4 20.9 14.3 7.6 9.5 17.0 13.0 18.8 21.3 12.8 6.7 8.9 18.0 12.2 20.4 24.2 9.6 6.1 9.4 15.8 10.7 16.3 23.6 18.1 5.5 7.4 17.0 10.6 18.0 24.9 16.6 4.8 7.0 18.5 10.5 19.8 28.0 11.4 100,0 100.0 100.0 100.0 100.0 100.0 aMedium projection. Source: Ray Hoglund, "The Dairy Farm Enterprise: Project 80+5, The Michigan Dairy Industry of 1985," Michigan Agricultural Experiment Station, Research Report (in process of print), 18 size is the smallest in the Upper Peninsula, Northern and Central areas and the largest in the Southern and South­ eastern areas. For the state, average herd size is pro­ jected to increase by 59 cows or to 90 cows by 1985. Total Milk Production Total milk production during the ten-year period, 1955-196 5, was relatively stable compared to the downward trend in number of milk cows (Figure 3). Total milk sup­ ply actually increased during the period 1959 to 1964. This corresponds to the period when the number of milk cows on farms was almost constant. There was a sharp reduction in both milk cow numbers and milk production from 1965 to 1968 and a leveling off of both since 1968. It is estimated that by 1985 total milk production in Michigan will be from 4.7 to 5.2 billion pounds annually. Milk Production Per Cow Figure 4 indicates that milk production per cow increased steadily from 1955 to 1965, stabilized from 1965 through 1967 and increased again from 1967 to 1970. Over this 16-year period, production per cow increased by nearly 50 percent, or from 6,670 pounds per cow annually to 9,90 3 pounds per cow annually. Telfarm data at Michigan State University indicates that milk production per cow does not vary substantially with the size of the herd. Production Actual Projected 4.0 ___ I__ 1955 Figure 1960 3. Sources: __ k___ 1965 1970 1 1985 ■ - Trend in total mil k production in M i c h i g a n , 19551970, projected for 1985. 1955-1970— Milk Production Disposition and I n c o m e , U.S.D.A., Statistical Reporting Service, DA 1-2. 19 85— Ray Hoglund, "The Dairy F a r m Industry: Project 80+5, The Michigan Dairy Industry of 1985," Michigan A g r i c ult ura l Experiment Station, Research Report (in pro cess of p r i n t ) . 135 20 125 115 pounds 105 Hundred 95 85 75 Actual Projected 65 1955 Figure 4, Source: 1960 1965 1970 1975 1980 1985 Milk production per cow, 1955-1970 and projected 1985. 1955-1970— Milk Production, Disposition and Income, USDA Statistical Reporting Service, DA 1-2. 1985— Ray Hoglund, "The Dairy Farm Enterprise, Project 80+5. The Michigan Dairy Industry of 1985," Michigan Agricultural Experiment Station, Research Report (in process of p r i n t ) . 21 per cow is slightly lower for herds with less than 30 cows, but is essentially equal for other herd size categories. It is estimated that by 19 85 milk production per cow will be at a 13,000 pound average. Housing and Waste Handling Systems Dairy Housing Systems The number and percentage distribution of dairy housing systems, by size of herd, on Michigan Grade A dairy farms for 1970 and projected for 19 85 are given in Table 3. The predominant type of housing system in Michigan is presently the stanchion barn. However, these systems are concentrated in the smaller herd sizes, with the open lot free stall and cold covered free stall s ys­ tems b e i n g more prevalent for larger herd sizes. Because the trend of small producers discontinuing production is expected to continue, the open lot free stall and the cold covered free stall systems are expected to dominate by 1985. The number of farms with warm enclosed free stall housing systems in 1985 is expected to be more than double the number of present systems. Although similar figures on distribution of dairy housing systems by size of herd are not available for earlier time periods, some indication of the past trends in dairy housing are given by Hoglund, Boyd and Spercher. 3 Table 3. Number and percentage distribution of dairy housing systems by size of herd on Michigan Grade A dairy farms, 1970 and projected for 1985, Cows Per Farm Type of Housing Under 30 1970 30-■49 1985 1970 50-99 1985 1970 100 or More 1985 1970 1985 Totals 1970 1985 Number of Farms Stanchion Stanchion-switch Open lot loose housing Open lot free stall Cold covered free stall Warm enclosed free stall Totals 3,460 250 420 90 — — 280 45 20 55 — — 2,090 270 510 435 35 10 530 110 110 300 40 10 390 130 300 490 255 85 170 85 80 525 420 120 14 4 31 186 130 45 10 10 30 250 600 200 5,954 654 1,260 1,201 420 140 990 250 240 1,130 1,060 330 4,220 400 3,350 1,100 1*650 1,400 410 1,100 9,630 4,000 82.0 5.9 10.0 2.1 — — 70,0 11.2 6.0 13.8 — 62.4 8.1 15.2 13.0 1.0 0.3 48.2 10.0 10.0 27.3 3.6 0,9 23.6 8.0 18.0 29.7 15.5 6.2 12.1 6.1 5.7 37.5 30.0 8.6 3.4 1.0 7.6 45.4 31.7 10.9 0.9 0.9 2.7 22.7 54.6 18.2 61.7 6.8 13.1 12.5 4,4 1.5 24.8 6.2 6.0 28.2 26.5 8.3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Percent of Farms Stanchion Stanchion-switch Open lot loose housing Open lot free stall Cold covered free stall Warm enclosed free stall Totals Source: — Ray Hoglund, "The Dairy Farm Enterprise; Project 80+5, The Michigan Dairy Industry of 1985," Michigan Agricultural Experiment Station, Research Report (in process of print). 23 In the early 19 60's, approximately 85 percent of the dairy cows in M i c h i g a n were housed in stanchion barns. This was down to 65 percent in 196 8 and is expected to be less than 20 percent by 1980. Free stall housing is of recent origin in Michigan w i t h the first system constructed in 1961. early 196 3 there were less than 20 in operation. By A study of Grade A farms indicated the number of free stall systems had increased to more than 1,000 by the end of 1968, r e p r e ­ senting 11 p ercent of the herds and 19 percent of the cows on Grade A farms. As Table 3 shows, free stall housing represented slightly more than 18 percent of the Grade A herds in 197 0. The first covered free stall h ousing systems in Michigan w e r e built in 1965. The previously cited study indicates that dairymen had built at least 40 completely n e w cold co vered and 10 n e w w a r m enclosed systems by the end of 196 8. In addition, at least 25 dairymen had con­ structed a partial cold co vered system wh ich included the free stall barn and usually a feed bunk located within the barn. As indicated by Table 3, free stall housing, open lot, and covered ho using systems are becoming more prevalent and are expected to predominate by 1985. Waste Handling Systems D e t a i l e d historical da ta on the type of waste handling systems used on M i c h i g a n dairy farms is not 24 available. However, some data is available on recent trends in the type of systems in use. Tables 4 and 5 show the relationship be tween size of dairy herd and type of ho usi ng systems to the type of was te handling systems used on M ich iga n Grade A dairy farms in 196 8. These tables indicate that all farms with less than 30 cows and all farms using either a stanchion or stanchion-switch housing system used the conventional waste handling system. Liquid waste systems were more predominant on the large farms or m o r e dairy cows) ho usi ng system. (100 and on dairy farms using a covered In total, there w e r e only 74 liquid waste systems in operation on Michigan Grade A dairy farms in Table 4. Relationship of size of h erd to waste handling system used, Michigan Grade A dairy farm survey, 1968. Waste Handling System Used Cows Per Farm 30-49 50-99 100 and Over 5 ,284 —— 3,705 12 1, 357 30 170 32 10,516 74 100.0 99 .7 .3 97.9 2.1 84. 7 15. 3 93.3 .7 30 All Farms Number of Farms Conventional Liquid Pe rce nt of Farms Conventional Liquid Source: C. R. Hoglund and G. McBride. Michigan|s Changing Dairy F a r m i n g , Research Report 96, Michigan State University, Agricultural Experiment Station, January, 1970, p. 7. 25 Table 5. Relationship of type of housing to waste handling system used, Michigan Grade A dairy farm survey, 1968. Type of Dairy Housing Waste Handling System Used St an­ Stan­ chion chion Switch Open Lot Loose Housing Open Warm Cold Lot en­ Free Covered closed Stall Number of Herds Conventional Liquid 7,212 0 593 0 1,595 4 1,036 44 79 17 1 9 100. 0 0 100.0 0 99.7 .3 95.9 4.1 81. 8 18.2 10.0 90.0 Percent of Herds Conventional Liquid Source: 1968, C. R. Hoglund and G. McBride, Michigan's Changing Dairy F a r m i n g , Research Report 96, Michigan State University, Agricultural Experiment Station, January, 1970, p. 7, representing only .7 percent of all Grade A producers. Table 6 shows the distribution of dairy farms by type of housing, waste handling system and size of herd for those farms included in a 1971 survey of Southern Michigan dairy 4 farmers. The scraper-loader-spreade r system was the most important method of handling and hauling dairy waste for all herd sizes. Liquid waste handling systems were used on 16.4 percent of those dairy farms with 100 or more cows. Six of the 25 farms with liquid systems utilized an open lot system of housing, to liquid storage and handling. a system not we ll adapted As the trend towards 26 Table 6, Number of dairy farms by type of housing and waste handling systems and size of herd, 1971 survey of Southern Michigan dairy farms. Cows Per Farm nousing ana naatc Handling System3 3049 5074 75- 100 & 99 Over 20 14 13 12 — 14 All Farms Stanchion Stanchion Stanchion switch 5 3 33 34 9 3 4 30 31 — 42 38 3 41 3 152 6 6 7 6 14 4 13 9 40 19 85 89 67 73 314b — Open Lot Bedded area: Scraper-loader-spreader Free stall: Scraper-loader-spreader Liquid system C o vered Hou sin g— Free Stalls Scraper-loader-spreader Liquid system Totals — aFarms w i t h less than 30 dairy cows were not in­ cluded in the survey. The farms w ith less than 30 cows utilize a common system of handling dairy wastes: wastes are either hand loaded or mechanically loaded into a spreader with a gutter cleaner and distributed on cropland on every suitable day. Total of 340 survey schedules returned from 550 m a i l e d out. Twenty-six survey schedules not sufficiently filled in to use in analysis. Source: C. R. Hoglund, J. S. Boyd, L. J. Connor and J. B. Johnson, "Waste Management Practices and Systems on Mi chi gan Dairy Farms," Agricultural Economics R e p o r t , Report No. 20 8, Michigan State University, January, 1972. 27 larger da iry herds and more covered housing systems c o n ­ tinue, the number of liquid waste handling systems will likely increase. Environmental Considerations Odors In a recent survey of Southern Michigan dairy farmers, 5 respondents were asked about their neighbors' reactions to manure odors from their dairy operations. They were asked to indicate whether the neighbors objected very strongly, only modera tel y or not at all to dairyrelated odors. Of 314 respondents, 236 or 84 percent indicated no objections had been raised by their neighbors. For the dairymen with covered housing-liquid manure systems, 31 percent indicated moderate objections and 6 p erc ent indicated very strong objections to manure odors had been reported by neighbors (Table 7). Nearness to Neighbors The urban sprawl in many areas of Michigan has resulted in a mixture of rural nonfarm residents and dairy farmers in areas wh ich had historically been inhabited only by farmers. In the above-mentioned survey, approxi­ mately one-half of the dairymen stated that they had n o n ­ farm neighbors within one-half mile of their barnyard (Table 7). A smaller percentage of the dairymen w i t h 28 Table 7. Dairymen's estimate of neighbors' objections to manure odors and distance to nearest nonfarm and farm home and lake or stream. Housing and Manure Handling System Open Lot Housing Item Stanchion Housing Bedded Area Free Stalls Covered Housing Scraper. . Liquid Loader „ System System Percent Objections of neighbors to manure odors: Very strongly Moderately Not at all Distance from barnyard to nearest: Nonfarm home— <1/2 mile 1/2 - 1 mile >1 mile Farm neighbor— <1/2 mile 1/2 - 1 mile >1 mile Lake or stream— <1/2 mile 1/2 - 1 mile >1 mile Distance from fields covered with manure to nearest: Nonfarm home— <1/2 mile 1/2 - 1 mile >1 mile Farm neighbor-<1/2 mile 1/2 - 1 mile >1 mile Stream or lake— <1/2 mile 1/2 - 1 mile >1 mile Source: — 9.1 90.9 13. 3 86.7 1.3 16.5 82.2 — 7.2 92.5 6.3 31.2 62.5 54.5 27, 3 18.2 56.7 30.0 13.3 50,0 29.6 20.4 47.5 32.5 20.0 43.8 37.5 18.7 66 ,6 27.4 6.0 66.6 27.6 5.8 63.1 31.6 5.3 65.0 32.5 2.5 50.0 50.0 0.0 30.3 18.2 51,5 40.0 36. 7 23.3 36.2 30.2 33.6 37.5 30.0 32,5 43.8 31.2 25.0 66.7 15.1 18.2 73.3 16.6 10,1 63.8 21.1 15.1 55.0 30.0 15.0 68.8 25.0 6.2 75.7 18.2 6,1 80.0 16.7 3.3 73.7 22.4 3.3 82.5 15.0 2.5 68.8 31.2 — 33.3 21.2 45.5 50,0 20.0 30.0 50.0 20.4 29.6 45.0 17.5 37.5 56.1 25.1 18.8 pi i* C. R. Hoglund, J. S. Boyd, L. J, Connor and J. B. Johnson, "Waste Management Practices and Systems on Michigan Dairy Farms," Agricul­ tural Economics Report, Report No, 208, Michigan State University, 1972. 29 larger herd sizes, systems, especially those with covered housing indicated a nonfarm neighbor this close to their barnyard. Approximately 64 pe rcent of the dairymen reported a farm neighbor wi t h i n one-half mile of their barnyard. Sixty-five percent of the dairymen reported n o nfarm neighbors within one-half mile from fields which were used for manure disposal. Seventy-five percent of the respondents had farm neighbors within one-half mile of fields being covered with manure. Nearness to Lakes and Streams Approximately 35 per cen t of the survey respondents indicated the location of a lake or stream within one-half mile of their dairy barns and yards. Forty-five percent of the respondents indicated the location of a stream or lake w ithin one-half mile of the fields on wh ich manure was spread. Summary The data presented in this chapter indicate several trends which have c reated actual or potential environmental pollution problems resulting from animal wastes produced on Michigan dairy farms. towards The trend larger producing units had resulted in larger amounts of manure being produced at any one site. Actual and potential problems are created in disposing of the 30 dairy wastes without polluting the environment because of the increased volume of manure to be handled. The trend towards confinement housing systems and liquid waste handling systems has resulted in the practice of providing two or more months of waste storage capacity. Consequently, for these systems, larger amounts of dairy wastes must be disposed of at one time. This situation may increase the possibility of surface water pollution from field runoff. Furthermore, surface runoff may be­ come a problem for those firms using an open lot housing system. The concentration of milk production in the southern portion of the state corresponds to the state's human population concentration. As urban sprawl continues, the probability of a farm-nonfarm interface increases. Odor from livestock wastes will become a definite problem for dairy farmers operating in these interfaces. Surface water pollution from livestock wastes, originating from either the production site or the dis­ posal site, is a constant threat. Because of the large number of lakes and streams in Michigan, many dairy farms are located within one-half mile of a body of water. Chapter III discusses present legal control mea­ sures, both in Michigan and in other states, which are applicable to problems of environmental pollution result­ ing from animal wastes. Chapter II Footnotes Ray Hoglund, "The Dairy Farm Enterprise: Project 80+5, The Michigan Dairy Industry of 1985," Michigan Agri­ cultural Experiment Station, Research Report, {in process of print). Dairy Statistics, 1960-67, U.S.D.A,, E.R.S., Statistical Bulletin, No. 430, pp. 47-48. C. R. Hoglund, J. S. Boyd, and J. A. Speicher, "Economics of Open Lot Versus Covered Free Stall Dairy Housing Systems," Farm Science^ Research Report 9 1 , Michigan State Uni ver s i t y , Agricultural Experiment Station, June 1970. ^C. R. Hoglund, L. J. Connor, J. B. Johnson and J. S. Boyd, "Waste Management Practices and Systems on Michigan Dairy F a r m s ," Agricultural Economics Report N o . 2 0 8 , Department of Agricultural Economics, Michigan State University, January, 1972. 5 Ibid. 31 C H A P T E R III PRESENT AND POTENTIAL ENVIRONMENTAL QUALITY CONTROLS RELEVANT TO MICHIGAN DAIRY FARMS Introduction This chapter examines in some detail the present legal restraints within which Michigan dairy farmers must function in the management of animal wastes. Federal and State statutory controls and codes are examined; private litigation are reviewed. cases of In addition, predictions of probable directions of future environmental controls on Michigan livestock producers are presented. these predictions include: The basis for (1) actions taken by the M i c h i ­ gan Water Resources Commission and the Michigan Air P oll u­ tion Control Division of the Michigan Public Health Department in correcting individual pollution problems on Michigan farms and (2) actual and/or proposed environ­ mental quality controls in other states. The economic impact of implementing each of these potential legal controls on Michigan dairy farmers is analyzed in Chapter VII. 32 33 Present Control Measures Federal Regulation The Federal Water Quality Act of 1965 (Public Law 89-2 34) provides that the states may, prior to June 1967, and after public hearing, 30, adopt water quality c ri­ teria applicable to interstate waters or portions thereof within the State.^ Upon U.S. Environmental Protection Agency's approval of such State criteria, these criteria will become applicable quality standards. of matter from any source, The discharge including livestock operations, into such waters which reduces water quality below stan­ dard specification is subject to prosecution by the Attorney General of the United States. Michigan water quality standards, adopted June 28, 196 7, were approved by the U.S. 196 8, Government on April 17, These approved standards are enforceable by the Federal government and the State of Michigan. The U.S. Army Corps of Engineers, under a ut h o r i ­ zation provided in the Refuse Act of 1899, has jurisd ic­ tion over some animal waste pollution problems through its approval or denial of applications for permits to discharge wastes to navigable waters and their t r i b u ­ taries. The approval of the Michigan Water Resources Commission and the United States Environmental Protection Agency for water quality considerations is a prerequisite 34 to issuance of the permit by the Corps of Engineers. 2 Under administrative codes developed to implement p r o v i ­ sions of the Refuse A c t , confined feeding operations need to apply and obtain a permit if two criteria are met: (1) if the max i m u m size of their operation at any one time in the preceding year exceeded 1,000 animals units and (2) if there was a direct discharge of waste to the r e ­ ceiving waters. Specifically, a statement of the code concerning applicability says that: Confined livestock and poultry operations are s u b ­ ject to the permit pr ogram if the given feedlot or facility contain 1,000 or more animal units (1,000 beef animals, 700 dairy cows, 290,000 broilers, 180,000 laying hens, 55,000 turkeys, 4,500 hogs for the slaughter market, 35,000 feeder pigs, 12,000 sheep and lambs, or 145,000 ducks) at any time during the calendar year preceding the filing of the a p p l i c a ­ tion; AND, (1) the livestock or poultry facility utilizes a man-made drainage, flushing or collecting system (waste pits, ditches, detention ponds, lagoons, waste pipes, or the like) from w hic h measurable waterborn wastes are regularly discharged irrespective of rains or m elt ing snow, into a navigable stream or its tributary, or (2) a regularly flowing stream into which wa stes are directly placed traverses the feedlot or facility, or (3) there is a frequent overflow from a containment or retention f aci lity.3 Runoff from confined livestock and poultry o p e r a ­ tions due only to natural causes is not considered a "discharge" at this time, within the me aning of the term as applied to permits required under the Refuse Act of 4 1899. If an operator has confined livestock operations at different locations or a feedlot whi ch naturally 35 drains in separate directions the 1,000 animal unit cri ­ terion applies to eac h separate operating unit. Michigan dairymen can obtain application forms for a discharge permit from the U.S. Army Engineer, Detroit District Office. Information provided by the dairyman indicates the details of the dairy operation including size of operation, quantities of feed and water used, waste handling practices, nature of the wat er dis ­ charged, and a drawing to identify the location of c o n ­ fined feeding areas, containment ponds, adjacent streams, ditches, ravines, land disposal areas and other a p p r o ­ priate facilities. The Michigan Water Resources Commission must provide in a certification or other written communication a statement that there is a reasonable assurance that the applicant will conduct his dairy operation in a manner which will not violate applicable water quality standards. The U.S. Environmental Protection Agency will evaluate the application to assure that (1) applicable State water quality standards have been correctly applied, (2) the applicant's affluent is given at least secondary treat­ ment or its equivalent where the standard required this, and (3) there is strict adherence to the Environmental Protection Agency's policy that high quality waters do not suffer degradation. Af ter approval of the application by the Michigan Water Resources Commission and the U.S. 36 Environmental Protection Agency, the Corps of A rmy E ngi ­ neers can issue a permit. State Regulations In Michigan, authority for pollution control is ve s t e d in the Wat er Resources Commission and the Air Po llution Control Commission. To date, neither of these Commissions have established regulations relating speci­ fically to livestock production. Both Commissions have dealt with environmental problems accruing from livestock operations on an individual farm basis. Complaints are referred directly to these Commissions, who in turn review the individual case and prescribe the necessary actions. The water Resources Commission feels this method of dealing with potential pollution problems is superior to specific regulations requiring minimum abatement facilities for all livestock production. Commission p er­ sonnel have stated that to be effective in controlling pollution, such a regulation w o u l d have to be tailored to handle the worst possible situation. As a result, the regulation would require o v e r — investment in pollution abatement facilities on many farms. If the regulation we re not designed to handle the worst possible situation, the case could arise in w hic h an individual producer fully complied w ith the regulation, but continued to con­ tribute to water pollution. Personnel with the Water 37 Resources Commissi on indicate that they would favor the issuance of guidelines to be followed by livestock pro5 ducers in order to minimize water pollution problems. The responsibilities and authority of the Water Resources Commission and the Air Pollution Control C o m ­ mission are discussed separately. In addition, the major provisions of the Michigan Environmental Protection A ct and an example of its application are discussed. Water Resources Commission g The W a t e r Resources Commission is responsible for establishing water qu ality standards for the various waters of the state in relation to current or future public use as it shall d e e m necessary Acts of 1929, as amended). (Act 245, Public State w a t e r s include both underground and surface waters. The Commission has the authority to make regulations and orders restricting the polluting content of any waste m ate ria l or polluting substance discharged or sought to be discharged into any state waters. It has the authority to take all a p p r o ­ priate steps to prevent any pollution it feels is u n r e a ­ sonable and against public interest in view of the e x i s t ­ ing conditions of any state waters. any duly appointed agent, reasonable times, The Commission, or has the right to enter at all in or upon, any private or public p r o ­ perty for the purpose of inspecting and investigating 38 conditions relating to the pollution of any water. Any person requiring a new or substantial increase over the present use now made of the waters of the state for sewage or waste disposal is required to file a written statement wit h the Commission detailing: of the enterprise contemplated, required, (1) the nature (2) the amount of water (3) source of the water, (4) the proposed point of discharge of the wastes into state waters, estimated amount discharged, and (5) the (6) a fair statement setting forth the expected or known characteristics of the waste. Most incidents of actual or potential water p o l ­ lution involving established livestock producers are brought to the attention of the Water Resources C o m m i s ­ sion on a complaint basis. Some incidents, however, are discovered by W ate r Resources Commission field agents. When the Water Resources Commission receives a complaint of actual or possible w a t e r pollution, it makes an i mme ­ diate investigation of the situation. The prime concern of the Water Resources Commission is the levels of BOD, suspended solids, nutrients and bacteria (Clostridium) waters which are receiving livestock effluent. If the Wa ter Resources Commission makes a finding of unlawful pollution, it issues a notice of the finding to the involved party. the pollution; The notice includes orders for abating included in the orders are a time table of 39 for (1) the submission of abatement plans by the livestock producer to the W ate r Resources Commission for approval, (2) the initiation of construction activities for abating pollution and (3) the completion of the abatement facility. Provisions for a public hearing regarding the alleged pollution, if so desired, orders. are also specified in the If a hearing is held, and the findings of the Water Resources Commission are upheld, the time table as perscribed must be followed. Following is a brief description of the cases of livestock waste management in which the Water Resources Commission has been in7 volved. The first involvement of the Water Resources Commission in livestock waste management concerned a party establishing a new beef feeding-slaughter plant operation in Southern Michigan. The feedlot was designed to annually feed approximately 20,000 cattle. As required by law, the party proposing the operations came to the Water Resources Commission with a plan for handling waste produced by the operation. The Water Resources Commis­ sion reviewed the plans and made recommendations. The final plans for handling the feedlot wastes consisted of runoff retention facilities, irrigation system. storage lagoons and a spray Wells were also located around the feedlot and disposal area as a means of monitoring ground water characteristics. 40 The Wat er Resources Commission has since been involved in two incidents of stream pollution from beef cattle feedlot runoff. The first incident involved a cattle feeding operation which was constructed on an existing farm. The feedlot itself was a new operation, designed to feed 2,000 cattle. The owners failed to file with the W ate r Resource Commission. The Water Resources Commission notified the owners of the require­ ments to file a wr itt en statement for approval of the waste control facilities. The owners took no immediate action and in the spring of the following year, investi­ gation by the W ate r Resources Commission determined that runoff from the feedlot had substantially increased the level of suspended solids, nutrients, BOD and Clostridium bacteria in a stream located near the feedlot. The owners were then required to devise some method (subject to approval by the Water Resources Commission) and dispose of the runoff. to collect As a result, the feedlot was graded and a waterway constructed to channel runoff into a lagoon for storage. Stored wastes were then applied through spray irrigation onto the owner's land. The second incident of w a t e r pollution due to feedlot runoff involved a feedlot consisting of four t e n—acre plots designed to facilitate 2,000 cattle. At the time of investigation by the Water Resources Commis­ sion, there were approximately 2,500 cattle on these four 41 lots. Runoff from these lots resulted in a high level of organic material, oxygen depletion and a "substantial” fish kill in a nearby stream. As a result, the feedlot owner was required to construct a retention facility to collect the runoff. The waste was collected in a lagoon and disposed of via a spray irrigation system. Wells were also constructed around the feedlot in order to monitor the ground water characteristics. In addition, the feed­ lot owner reduced the number of cattle in the feedlots. The Water Resources Commission also became in­ volved in an incident involving a cattleman who allowed his pastured cattle to graze into a river which- bordered the pasture. eroded, As a result, the banks of the river became creating a soil runoff and sediment problem. The Water Resources Commission investigated and made a find­ ing of unlawful pollution. Before the Commission com­ pleted its process of making recommendations for correction of the problem, the owner moved the cattle to a different location. The Commission indicated that their recommenda­ tion would have required the construction of a fence to prohibit the cattle access to the banks of the river. In addition to the above incidents, personnel of the Commission indicated that they have handled some "minor cases" of water pollution from livestock wastes. These incidents were handled on an ad hoc basis by Water Resources Commission field agents. Recommendations for 42 corrective actions required only minor adjustments by the livestock producers and were followed voluntarily and immediately. Air Pollution Control Commission® The Michigan Air Pollution Control Commission is responsible for establishing rules and regulations for controlling or prohibiting air pollution and controlling and abating air pollution in accordance with any rule or regulation which it may promulgate under existing legis­ lation (Act 348, Public Acts of 1965, as amended). The Commission has the right to enter and inspect any property at reasonable times or places pursuant to reasonable notice for the purpose of investigating either an actual or suspected source of air pollution or ascertaining com­ pliance or noncompliance with any rule or regulation. This Commission also has other powers such as to receive and initiate complaints of air pollution in alleged vio­ lation of any rule or regulation which may be promulgated under the Air Pollution Act. As part of the general rules of the Air Pollution Control Commission, a person planning to construct, in­ stall, reconstruct or alter any process or control equipment which may be a source of air pollution must submit plans and specifications to the Commission for approval prior to the initiation of any construction, 43 installation or alteration. The plans and specifications should include such information as the expected c o m p o s i ­ tion of the air stream, ex pec ted physical characteristics of particles and type of air cleaning device {if a n y ) . A permit to install is granted when the Commission d e t e r ­ mines that the plans and specifications are in accordance with the rules and regulations pertaining to air pollution control. After the completion of any construction for which an application, plans and specifications were approved, the Commission shall issue a permit to operate the facility, provided its actual operation does comply with air pollution control rules and regulations. The Air Pollution Control Division of the Michigan Department of Health has responsibility for investigating complaints concerning air pollution in Michigan. complaint is found to be substantive, If the the Air Pollution Control Division makes recommendations for abating the pollution, and can legally enforce these recommendations if the p art y involved is in violation of any Air P o l l u ­ tion Control Commission regulations. Following is a brief discussion of some of the complaints, specific to livestock operations, w h i c h the Air Pollution Control 9 Division has received and acted upon. D a i r y .-’-The Air Pollution Control Division has investigated only one dairy operation for alleged air pollution. A number of residents located near a dairy 44 operation complained of foul odors emanating from the manure as it was being spread on the operator*s land. The dairy operation in question was a 110-cow operation using a liquid manure system. The complaint was inves­ tigated and found to be substantive. The operator agreed to the Air Pollution Control Division's recommen­ dation that he use a chemical treatment in the liquid storage tanks to reduce odors. The treatment has been effective in controlling odor within the tolerance limits of the neighbors. If the chemical treatment had not been effective, the Air Pollution Control Division would have then recommended subsurface disposal of the liquid manure. Poultry.--The Air Pollution Control Division has received complaints concerning 16 different poultry facilities. All complaints received were concerning odors from caged layer-egg production units. The sources of these odors were determined to be primarily from the bird housing unit, manure disposal methods and improper incineration or disposal of dead birds. The investigation of these complaints showed that three facilities were considered to be in compliance; 11 were considered to be in violation of the Michigan Air Pollution Control Act (Act 348, P . A . , 1965) action was requested; two require further evaluation to determine compliance. corrective action, and corrective Of the 11 facilities requiring four have successfully completed 45 control programs and seven have yet to submit control programs or additional evaluation of the effectiveness of the program is necessary. The air pollution control staff recommended that improved housekeeping techniques, manure disposal improved techniques for (eq., plowing under manure the same day it is s p r e a d ) , and proper dead bird disposal methods (use of adequate pathological incinerator or burial methods) be included in odor control programs. S w i n e .— Complaints have been received concerning seven different swine facilities. odors The complaints we re of from the housing unit and/or from the spreading of the wastes on the land. Investigations revealed that two facilities were considered to be in compliance and another operator improved his housekeeping techniques, resolving the problem before the investigation was completed; facilities require further evaluation; two the other two facilities have resolved odor problems, one by ceasing operation and the other by using ground injection of the liquid manure. Beef C a t t l e .— Complaints have been received co n­ cerning three different beef cattle facilities. All of these complaints were of odors from manure accumulation on the feedlots. The results of Air Pollution Control Division investigation indicated that one operator removed the cattle from the lot before the investigation 46 was complete; one operator reached an agreement with the complainants to limit the number of cattle on the lot and one operation was following generally good sanitation methods when it closed. Environmental Protection Act of 197010 This Act provides that . . . the Attorney G e n e r a l , any citizen, corpora­ tion, organization, governmental unit or other legal entity may bring an action in the circuit courts of the state against any other citizen . . . entity for declaratory and equitable relief for the purpose of protecting the air, water and other natural resources of the state from pollution, impairment, or destruc­ tion. Before this Act became Michigan law, an individual had to demonstrate some personal injury or damage before bringing suit. This Act provides individuals the oppor­ tunity to bring action directly against governmental agencies as well as against private concerns or nongovern­ mental entities, without having been personally damaged, in order to protect the public's interest in the State's natural resources. This is true even though the defendant may have previously complied with requirements of the Air Pollution Control Commission or the Water Resources Com­ mission, or both. The first court case relating to a livestock farm under the Environmental Protection Act came to trial in October, 1971, and was decided in February, 1972, (Clinton 47 County Circuit Court File No. 844). their action on two counts. The plaintiffs based In Count I plaintiffs claimed that a swine finishing barn constructed by defendants in 1965 constituted a private nuisance because noxious odors and toxic gases emanating from defendants' barn were carried to plaintiffs' property by reason of prevailing winds from the southwest and exhaust fans in the barn. In Count II plaintiffs cited Act 127, P.A. 1970, M.S.A. 14.528, effective October 1, 1970, known as the Thomas J. Anderson, Gordon Rockwell Environmental Protection Act of 1970 and on the basis of the factual allegations of Count I claimed a violation of this Act. Under both counts, plaintiffs sought injunctive relief. The defendant was operating a swine confinement finishing barn in an area zoned agricultural. The barn was constructed according to plans and specifications prepared by the Michigan State University Department of Agricultural Engineering. The excrement was collected in a pit below the floor of the barn and was periodically emptied by means of a vacuum tank wagon and spread on defendant's land. The plaintiffs' complaints were investigated by the Air Pollution Control Section of the Michigan Depart­ ment of Health. In seven visits, the Air Pollution Con­ trol Section was unable to substantiate the complaints. Furthermore, the Air Pollution Control Section has, for 48 its purpose, the enforcement of standards regulating p ol­ lution set by the Air Pollution Control Commission. Since no standards or regulations relative to pollution control of agriculture have be en promulgated by the Commission, any action to abate w o u l d have to be by persuas ion rather than by enforcement of regulations. There was no q ues tio n that the swine operation was produci ng disagreeable odors. however, The court was not convinced, that the plaintiffs proved diminished property values or any health hazard from the odors. Furthermore, the court found that the defendant was using good farming practices, producing n either insect and rodent problems nor w ate r pollution problems. In addition, it was es ti­ mated that the defendant w oul d suffer a cost of $20,000 if he were forced to relocate his barn, w ithout assurance that other neighbors wo uld not be subjected to the same odors. The court found that on balance the equities were in favor of the d efe ndant and the appeal for injunc­ tive relief on the basis of nuisance was denied. Due to the lack of standards by the Air Pollution Co ntrol C o m ­ mission, the court also found that the Environmental Protection Act, as it n o w stands, could not serve as a basis for relief to the plaintiffs. In reaching this decision, the court made the following statements wh ich may have significance in future cases; 49 There is no question but what the Environmental P r o ­ tection Act is broad in scope and does not exclude agricultural pursuits from its operation. However, as the Court interprets Sec. 3 of the Act, the legis­ lature is in effect saying that some balance has to be maintained between absolutely no pollution and the carrying on of activities necessary to human existence. The raising of livestock to pr ovi de meat for human consumption is a lawful and neces sar y occupation that of necessity will result in the production of animal waste and in turn odor. It w oul d be the opinion of the Court that if the livestock operation is carried on in an area zoned for that purpose in a generally accepted manner, and that the operation is carefully carried on so that waste products are handled with reasonable efficiency and dispatch so that the odor entering the atmosphere is held to a practical minimum, it could very well be said that a defendant has estab­ lished an affirmative defense "that there is no feasible and prudent alternative to defendants" c o n ­ duct and that such conduct is consistent w i t h the promotion of the public health^ safety and welfare. This is not to say that the raising of livestock is free from all restraint so far as the Environmental Control Act, as it n o w stands. Unless there are definite standards set there w o u l d appear to be a balancing of interests on a case by case basis required with the livestock raiser having the burden of affirmative defense. Privaetly Initiated Court Action Regulation of pollution may occur through common law provisions such as nuisance, rights. trespass and water Nuisance actions have been used more often and more successfully than the other t w o . ^ What constitutes a "nuisance" may vary s u b s t a n ­ tially from state to state. In general, however, the existence of a "nuisance" is based on the premise that all persons have the basic right that they are not to be interfered with in the reasonable enjoyment of their 50 property. tions, 12 With regards to livestock and poultry o p e r a ­ "the following might be 'nuisances' if they inter­ fere w i t h the free movement on or use of property, the value of or profits from property, smell, decrease offend the sense of hearing and sight, or cause inconvenience, bodily discomfort, mental distress or injury to health: manure solids or other waste-derived pollutants in surface water or underground water; able odors, dust, smoke, tr ans por ted materials; flies, offensive or otherwise o b j e c t i o n ­ feathers and other wind- objectionable noises or excessive rodents and other pests." 13 Plaintiffs have essentially three alternative courses of action in a nuisance suit: tion, (2) seek damages (actual and/or punitive) seek an injunction and damages. injunction, equities) (1) seek an injunc­ or (3) If the suit is for an a "balancing-o f-i nte res t s " (balancing of approach is used by many courts. Under this a p p r o a c h the court is actually w eig hin g the interests of the parties involved in the suit. The party judged to have the greatest interest will win the lawsuit. If the interests of the plaintiff is judged to be superior, there is a trend to require modification of the livestock o p e r a ­ tion to reduce or eliminate pollution rather than to require the livestock producer to cease production. Cases dea ling with requests for injunctive relief m a y be accompanied by spearate counts requesting "actual" 51 and/or "punitive" damages. actual damages 14 The primary legal issue in is w hether the polluter caused the damages allegedly suffered by the plaintiff. It is not necessary to determine whether negligence was involved in order to establish liability; proof of causation is sufficient. Punitive damages may be granted if there was malicious intent related to the conduct which injured another person or his property. The following actual cases (not in Michigan) are presented to illustrate recent nuisance cases involving the awarding of actual damages, punitive damages and injunctive relief. Case 1 In this case, a cattle feeder had contracted to feed 7,500 he ad of cattle for a major packer. after the feedlot began operating, 15 Soon a heavy rain "flushed out" the feedlot into a nearby creek. The contaminated water from the creek seeped into the we ll of a dairy farmer located downstream. After drinking from the well water, his cattle became ill and several died. The d a i r y ­ man incurred substantial veterinary e x p e n s e s , was forced to haul wat er from other sources and eventually had no other choice but to discontinue dairying. At trial, the jury decided this was legally a nuisance and the dairy farmer was reimbursed for his actual damages. No punitive 52 damages were awarded because the cattle feeder's actions were judged to be neither malicious nor intentional. Case 2 This case was a civil action to recover damages and seek an injunction because of a private nuisance. 16 The defendant had purchased a 139-acre tract of land and constructed facilities for the production of hog breeding stock. Facilities included eleven totally enclosed and mechanically ventilated buildings with capacity of about 3,800 head of hogs, ment, and eight 30 acres of open lots for hog confine­ anaerobic lagoons with a combined surface area of five acres and capacity to store three to four y e a r s ’ manure production. The plaintiffs (owning property adjacent to the defendant) indicated that (1) lagoon overflow or release of lagoon contents flowed across their property and on one occasion, a dislodged plug on one lagoon drainpipe permitted a large volume of lagoon contents to flow across the property of one of the plain­ tiffs, through his stock watering pond and into a creek; (2) runoff from about 12 acres of hog lots drained across the p l a i n t i f f s ’ property and into ponds; and (3) obnoxious odors from the defendant’s property affected the uses and values of their properties. The court awarded $46,200 in actual damages and $90,000 in punitive damages to the 53 plaintiffs. The presiding judge had excluded an inj unc ­ tion as a possible choice. Case 3 This case involves a request for injunction on two counts: (1) that the use of the defendant's property as a cattle feedlot was unlawful since it was contrary to the zoning ordinance, and (2) that the cattle feedlot was both a public and private nuisance because of odors, flies, other insects, bacteria in the air, and nitrates in the g r o u n d w a t e r , ^ The defendant purchased a 24-acre plot of land in an area that had been classified as an "agricultural d i s ­ trict" in 1942 and proceeded to construct a commercial feedlot designed to confine about 2,800 cattle (the p r e ­ vious owner had finished as many as 400 cattle at one time on this p r o p e r t y ) . circular, The intention was to construct a funnel-shaped feedlot (covering four a c r e s ) , divided into 12 pie-shaped pens, with all pen surfaces sloping toward the center of the circle. Manure was to be drained into an earthen pit and then trucked to a Wisconsin-based composting operation. Fourteen hundred cattle were being fed on the partially finished feedlot. The court found that the defendant was operating a commercial cattle feedlot in an Agricultural Use D i s ­ trict. The court ruled that the feedlot did not 54 constitute a stock farm, a domestic animal-breeding o p e r a ­ tion, or a use commonly classed as agricultural, but was found to be a stockyard or a use substantially similar to that of a stockyard as de fined under Industrial Zoning. Therefore, the defendant was found in violation of the zoning ordinance. The decree further found the feedlot to be a public and private nuisance because of the i mmi ­ nent danger of contaminating groundwater, of actual pollution of surface wa ter wh ich escaped to nearby properties, of the existence of offensive odors wi th no effective means to control or abate the odors and su b­ stantially contributing to the fly population. The defendant was permanently enjoined from using the p r e ­ mises as a cattle feedlot after March 1, 1970. Controls in Other States The predominant provisions provided by specific legislation and administrative codes in other states are livestock operation registry and/or permit provisions. These registration and per mit requirements are of two general types. 18 The first type requires the re gistra­ tion and/or a permit for the continued operation of a livestock production facility. The second type, usually established from general state water quality statute p r o ­ visions, mo st frequently requires the approval and issu­ ance of a p ermit for the construction and continued 55 operation of a waste abatement facility and/or waste dis­ charge point. Criteria used to determine whether a livestock facility is eligible for registration or for the approval of an operating permit for initiating or continuing p r o ­ duction vary among states. Several states require only that the livestock operation be in compliance with waste discharge requirements, w i t h the means of achieving c o m ­ pliance being the decision of the operator, who may choose among various alternatives and seek the approval of the w a ter pollution control agency for that alternative which is optimally suited to his overall resource position. Other states, however, specify minimum facilities which must be constructed prior to the registration or issuance of a permit. In Iowa, the mi nimum water pollution control facilities for uncovered confined beef feeding operations include terraces and retention ponds capable of contain­ ing three inches of surface runoff from the feedlot, waste storage, and other contributing areas. Similar m inimum wa ter pollution control facilities are required in Kansas. In Arizona and Oklahoma feedlots are required to have at all times mechanical means grading feedlots. 19 for scraping, cleaning, and Criteria such as these imply a re­ quired set of abatement technology for all firms, 56 irrespective of the uniqueness of the resource position of a particular firm. In general, those required to register are new and/or expanding firms, firms w hic h have or are contem­ plating discharges directly into streams, and livestock firms over a given minimum size or over a minimum level of waste production. States now having a registration and/or permit sy ste m include Connecticut, Maine, M a s s a ­ chusetts, New Jersey, New York, Pennsylvania, Island, Minnesota, Indiana, Rhode Iowa, Kansas, Nebraska, Oklahoma, Texas, Arizona and Florida. In Massachusetts a statute requires that there be no cattle or other animals h oused or otherwise con­ fined within fifty feet of the high water mark of water supply sources. In Minnesota new animal lots are p r o ­ hibited within shoreland, within a floodway, w ith in 1,000 feet of the boundary of a p ubl ic park, in s ink ­ holes or areas draining into sinkholes or within onehalf mile of the nearest point of a concentration of ten or more residences at the time of construction. The states of Maine and Illinois have considered or are considering legislation w h i c h would limit the timing of manure application to the land to limit the drainage therefrom to inland or tidal waters. Most state controls on livestock operations are derived from general state water and/or air quality 57 statutes. However, several states are considering the introduction of legislation specific to livestock o p e r a ­ tions. These states include New Jersey, Pennsylvania, Illinois, Missouri, North Dakota and South Dakota. Potential Environmental Controls Specific to Michigan Livestock Production Based upon the information presented in this chapter, three potential control measures, Michigan livestock producers, sis in Chapter VII. specific to are identified for a n a l y ­ These regulations wil l be analyzed to determine their impact upon Michigan dairy farmers in terms of capital requirements, labor requirements, costs of production and n e t returns to the farm operator. Two of the control measures selected for analysis are primarily measures for reducing potential water p o l l u ­ tion from livestock wastes. These are the mandatory control of runoff from open lots and pr ohibition of win ter spreading of dairy wastes. The first control measure will presumably apply largely to those dairymen who have open lot facilities. It implies that some type of retention and holding facility must be installed to collect s ur­ face runoff from the lot. The second control measure would apply to all milk pro ducers and wou ld imply that satisfactory manure storage facilities be constructed. 58 The capacity of this storage facility would have to be sufficient to store manure production for six months. A third control measure wh ich is analyzed con­ sists of measures designed to reduce odors resulting from livestock wastes. This measure would specify sub­ surface disposal of manure through the use of a soil injector in the case of liquid manure, method wit h regards to solid wastes. or the plow-down A lth oug h aerated lagoons represent an alternative for odor control, are not analyzed in this study. they The specific requirements of compliance with these control measures will be detailed in Chapter VII. To provide a basis for the empirical analysis of these control measures, a theoretical d is­ cussion of the economic impact of pollution abatement is presented in the next chapter. Chapter III Footnotes L. J. Connor, R. L. Maddex and L. L, Leighty. "For Michigan Livestock Producers: Environmental Quality Legal Considerations," Extension Bulletin E-732, Farm Science Series, Cooperative Extension Service, Michigan State University, December, 1971. ^Federal Reg ist er, 36:67 (April 7, 1971), 6564- 6570) . 3 Correspondence, U.S. Environmental Protection Agency, Chicago Office, November, 1971. ^I b i d . '’personal interview with Mr. Robert Courchaine, Michigan Water Resources Commission, March 12, 1972. g L. J. Connor, R. L, Maddex and L. L. Leighty. "For Michigan Livestock Producers; Environmental Quality Legal Considerations," Extension Bulletin E-7 32, Farm Science Series, Cooperative Extension Service, Michigan State University, December, 1971, pp. 4-5. 7 Based on interview with Mr. Robert Courchaine, Michigan Water Resources Commission, March 12, 1972. O L. J. Connor, R. L. Maddex and L. L. Leighty. "For Michigan Livestock Producers: Environmental Quality Legal Considerations," Extension Bulletin E-732, Farm Science Series, Cooperative Extension Service, Michigan State University, December, 1971, p. 5. ^Based Ufc>on telephone conversation and subsequent letter dated April 10, 1972, from Mr. Paul Shutt, Division of Air Pollution Control, Michigan Department of Public Health. 0L , J . C o n n o r , R . L . Maddex and L . L . L e i g h t y . "For Michigan Livestock Producers: Environmental Quality Legal Considerations," Extension Bulletin E-732, Farm Science Series, Cooperative Extension Service, Michigan State University, December, 1971, p. 5. 59 60 Donald R. Levi and Dale Colyer, "Economic Impli' cations of Some C iti ze n-Initiated Legal Mechanisms for Solving Environmental Quality Problems," Am eri can Journal of Agricultural E c o n o m i c s , 53:5 (December" 1968). 12 L. J. Connor, R. L. Ma d d e x and L. L. Leighty, "For Michigan Livestock Producers: Environmental Qulaity Legal Considerations," Extension Bulletin E-732, Farm Science Series, Cooperative Extension Service, Michigan State University, December, 1971, p. 6. ^ T . L. W ill ric h and J. R. Miner, "Litigation Experience of Five Livestock and Poultry Producers," ASAE International Symposium on Livestock W a s t e s , held at The Ohio State University, A p r i 1, 1971. ^ L . J. Connor, R. L. Ma d d e x and L. L. Leighty, "For Michigan Livestock P r o d u c e r s : Environmental Quality Legal Considerations," Extension Bulletin E-7 32, Farm Science Series, Cooperative Extension Service, Michigan State University, December, 1971, p. 6. 15l b i d . 16 T. L. Wi llrich and J. R. Miner, "Litigation Experience of Five Livestock and Poultry P r o d u c e r s ," ASAE International Symposium on Livestock W a s t e s , held at The Ohio State University, April, 1971. 17ibid. 18 J* B, Johnson, L. J. Connor, C. R, Hoglund and J. Roy Black, "Implications of State Environmental Legis­ lation on Livestock Waste Management," paper prepared for the 1972 C ornell Agricultural Waste Managem ent C on­ ference . 19 L. J, Connor, J. B, Johnson and C. R. Hoglund, "A Summary of State Regulations Pertaining to Animal Waste Management in the North Central Region of the United States," Agricultural Economics R e p o r t , No. 193, Department of Agricul tur al Economics, Mi chigan State University, May, 1971. CHAPTER IV THEORETICAL ECONOMIC IMPACT OF POLLUTION ABATEMENT Externalities The fact of environmental pollution from live­ stock wastes is essentially one of technological externalities*^* Externalities exist because the p r o ­ perty rights for such goods as water and air are not adequately defined. For example, the water of "navig- a b l e u w ate rways is no minally recognized as belonging to all of the people of a state, but ownership of the water is not vested in any one agent who could act as trustee for the people. inhibits trading. This lack of clarity of property rights This situation differs from the case of most other inputs, such as land and labor, where ownership is precisely d efined and services must be p u r ­ chased. As a result, livestock producers may view waste disposal into the waterways (and atmosphere) resource which contributes to production. as a free However, the livestock p r o d u c e r s ' disposal activities may have a direct (negative) effect on other users of the water. Consequently, other users of the natural resources may 61 62 incur additional costs due to the pollution w h i c h they can't avoid by purchase. In the absence of fully defined property rights for goods such as water and air, the livestock producers* use of these resources for waste disposal is not counted as a cost of production. Consequently, the supply and demand mechanism of the market does not make its adjust­ ments nor allocate resources with complete knowledge of all costs that are incurred. Therefore, in the absence of adequately defined property rights, environmental quality controls developed by mechanisms external to the market system are thought necessary to provide a more socially acceptable balance between levels of economic activity {i.e., livestock production) and environ mental pollution. Alternative Solutions It is implied in mu ch of the recent literature that the solutions to the problems of pollution require the establishment of environmental quality standards. A number of possibilities by wh ich these standards of quality may be established have been discussed in the literature. The alternatives may be classified as: voluntary action, (1) (2) legal actions initiated either by those personally damaged or by individuals not personally 63 damaged and (3) collective action initiated by local, 2 state or federal government. Voluntary actions per se are unlikely to be e f f e c ­ tive unless there is some type of economic incentive for a polluter to reduce the level of pollution. This incen­ tive may take the form of bribes by those affected; i.e., individuals suffering damage may pay a polluter to reduce pollution. The affected party will continue to pay for reduction of pollution until this payment becomes equal to the cost of suffering the pollution. The effectiveness of bribes are limited because of imperfections in some bargaining situations and because of the public good's nature of pollution. (That is, affected party A may not offer a bribe in the be lief that someone else will; and he will reap the benefits and not suffer any costs.) Another p oss ibi lit y of voluntary action is for the polluter and damaged party to merge into one unit nalize the e x t e r n a l i t y ) . (inter­ This solution may not be d e s i r ­ able if there are a large number of parties involved or if these parties are not firms, but individuals. Johnson and Connor 3 point out that voluntary action on the part of a firm to reduce pollution may be limited by the size of the firm. If uniform voluntary adoption of some abatement technology were expected by all members of an industry group, smaller individual firms could become economically disadvantaged. 64 The second possibility of establishing env i r o n ­ mental quality standards to control agricultural pollution 4 is that of individual legal action. Walker has pointed out the ineffectiveness of this alternative due to: (1) the difficulties encountered in pleading and proof of an agricultural pollution claim, (2) the failure of the courts to approach the agricultural pollution problems w i t h an enlightened attitude and (3) the fact that court action is too unpredictable to serve as a basis for reliable pollution control. This leaves as the third, discussed alternative, unit. and most frequently collective action by a governmental Within the realm of collective action there are several means by w h i c h environmental standards could be achieved. tion, These include prohibition, zoning, directive, re gul a­ taxes and subsidies or payments. Prohibition as a means of achieving a quality standard overlooks the fundamental point that optimality does not require that externalities be eliminated, but rather optimality requires that externalities be present in the "right amount." It should be recognized that most receiving resources possess some natural capacity for self-cleansing. Prohibition would mean that this natural capacity would go unused. Solution by directive implies that some g o v e r n ­ mental unit could decide the "right amount" of pollution 65 and issue a directive limiting pollution to this amount. The "right amount" of pollution m a y be defined as that quantity of pollution which equates the marginal benefit (to the polluter) of pollution to the marginal cost of those suffering from the pollution. However, the b e n e ­ fits and costs associated with pollution are conditioned upon the manner in w h i c h property rights are defined. Any redefinition of property rights for resources such as air and water cou ld result in a different "right amount" of pollution. Therefore, there may be as many "right amounts" of pollution as there are ways in which property rights are defined. The directives should be adjusted so that the marginal effectiveness of the last dollar spent for processi ng of w a s t e s would be equated for all polluters. 5 The measurement and administrative problems and costs w o u l d undoubtedly be substantial. Government regulation to control pollution has tended to imply uni f o r m requirements imposed on the pr o­ ductive process of all firms. The regulation w ould apply to all producers without al lowing for differences in size and location of producers and the amount of actual damage resulting from each producer. That is, the effects of pollut ion by various producers are di f­ ferent, but regulations would r equire them all to follow g un iform practices. Macaulay shows that regulation leads to long run forces that w ill result in an overdemand 66 for stream quality. rights, That is, within given property regulation result is less waste discharge than that quantity which equates marginal benefits to marginal costs of the discharge, Zoning has been used to prevent mixtures of con­ flicting land uses. late in many cases.7 However, zoning may have come too Zoning usually applies only to the establishment of new firms in an area. Provisions for nonconforming uses do not allow for the remedy of already conflicting uses. Government payment for the installation of pollu­ tion abatement devices which the firm would not otherwise purchase because of the magnitude of the capital outlay required or because the investment is not profitable represents another possible method of achieving environ­ mental quality standards. A variant of the payment scheme is to provide incentive payments to the firm for pollution abatement. Payment schemes seem to have some merit if the firm is allowed some flexibility in its selection of the technique used in abating the pollution. The last category of collective action considered consists of tax and subsidy schemes. That is, a firm could be taxed for any external diseconomy it created and paid a subsidy for any external economy it creates. Most of the concern seems to be with external diseconomies. The theory of the tax scheme is that a firm would use 67 those methods required to reduce pollution until the cost of abatement increased to equal the tax it is charged per unit of pollution. The tax rate would be set so that these two costs become equal at the "right amount" of Q pollution. Macaulay presents an interesting argument on who should be charged, the po llu ter for the damage he causes or the affected party w h o demands clean water. He contends that if people wa nt clean water they should pay for it. That is, their demand for clean wa ter is just as much an externality on the p oll u t i n g firm as pollution is to them. He further points out that subsidies may result in overdemand for stream quality in the long run, but charges do not. Knetsch 9 provides an interesting footnote to the discussion of charges versus subsidies. He notes that efficiency is served by either subsidizing polluters not to pollute or charging polluters for the right to pollute, but that policy prescription differs with equity considera tions and the way in which we interpret property rights. That is, subsidization or charges result in the same amount of pollution abatement per dollar expended, but different people bear the costs of the abatement. Theory of F i r m Adjustment to Environmental Controls The solutions to agricultural pollution problems arising from animal wastes are restricted to a large 68 degree by the production technology involved. For example, in milk production milk and manure are actually joint p r o ­ ducts. The proportion of milk to manure can be altered to some degree by changing the feed ration, changing the amount of feed fed, or by milking a different breed of cattle. Within the present technology, however, the p r o ­ portion cannot be altered sufficiently to allow substan­ tial milk production with little or no manure production. [Furthermore, the "price” of manure is normally negative. That is, the cost of disposing of manure (usually on land) is greater than the nutrient value of the manure in crop production.] As a result, the mi lk producer is faced with substantial amounts of a waste material that must be dis ­ posed of or utilized in some effective manner. Since the amount of manure associated with milk production cannot be reduced substantially, the remain­ ing methods of reducing pollution originating from animal wastes are (1) reduction in the number of animals, alteration of the collecting, handling, processing and/or disposing phase of the waste system or tion of these two. (2) (3) some co mbi na­ It is expected that in cases where animal wastes are posing a severe water pollution p r o b ­ lem, the alteration of the waste handling system will involve investment in "durable" abatement facilities. This expectation has been substantiated in cases involv­ ing beef production in Michigan. 69 Investments in durable assets for waste handling and/or pollution abatement are reflected in the "fixed" cost curves of the firm. has been made, That is, once the investment the costs associated w i t h that asset do not change as the level of milk production changes. The added waste ha ndling and/or pollution abatement facilities per se are assumed to be neutral to the milk production process; that is, these additional durable assets do not affect the efficiency of feed use in the production of milk. Variable costs of production may be affected, h o w ­ ever, if the added waste handling and/or abatement facil­ ity also requires the use of other resources labor). For instance, (e.g., the same level of milk production wo u l d require a larger input of labor, or conversely the same labor input wou ld yield a lower output of milk. This type of an effect would be reflected by a shift to a new production function resulting in a different firm cost structure. Variable costs may be reduced in in­ stances where the abatement facility substitutes for some previously performed services hauling of manure) (i.e., stacking and which were previously reflected in total variable costs. The economic impact of environmental controls affecting animal waste management, production, in terms of cost of are expected to be substantially different from the case of restricted pesticide use. In the case 70 of restrictions on pesticide usage, the input is a v a r i ­ able factor of production and the impact is on variable costs of production rather than " f i x e d ” c o s t s . ^ Within the population of Michigan milk producers, the economic impact of environmental controls can be e x ­ pected to vary substantially between individual firms. Whenever environmental quality controls are implemented, each producer must identify the form, required, investment outlay and cost of abatement technology that best suits his existing resource situation. The type and magnitude of costs associated w i t h the abatement system can be expected to differ among m i l k producers depending upon (1 ) the current cost structure of the pro ducer (determined by type of dairy housing system, number of cows, feeding and milking arrangements and type of waste handling system being u s e d ) , (2 ) the form of the legal restraint (i.e., directive, regulation, etc.) and the phase of the waste handling system which is affected (i.e., collection, storage or disposal) and (3) loca­ tional differences of milk producers. An illustration of the differential effects of alternative forms of legal restraints is the government regulation versus a directive. For example, a g ove rn­ ment regulation requiring compulsory adoption of a particular pollution abatement facility wo uld be expected to have different consequences than a directive specifying 71 the maximum nutrient load of a stream and allowing each Michigan milk producer to make the decision of which abatement technology to employ to be in compliance with directive requirements. Economic analysis indicates that the costs of livestock production attributable to a b a t e ­ ment facilities and practices are minimized when the operator is allowed to choose that abatement facility which most efficiently uses his existing resources. 12 Locational differences may arise because streams carry different use-class standards, which in turn carry different w a t e r quality discharge requirements. it is unlawful Since for a livestock operator to discharge wastes into a waterway if the discharge will reduce the quality of the receiving wat erw ay below its specific use-class standards, the milk producer discharging into the higher use-class stream may incur more abatement costs than w ill the operator discharging into the lower use-class stream. Because of the variety of factors which affect the economic impact of environmental controls on animal waste management, responses by individual producers are expected to differ. Therefore, four different a l t e r n a ­ tive initial impacts of environmental controls are analyzed to determine the possible effects on individual operators. 72 Assumptions For the purposes of this theoretical analysis, four basic assumptions are made. First, it is assumed that the production of m ilk is given by: Y = F (Xl ... xd /xd+1 where: X^ ... x g//xg+1 ... Xn > Y = output of milk ... = variable factors X,^. ... X = factors w h i c h d+i g of production are firm but variable fixed for the between e n t e r ­ prises X g+i ... X = factors w hic h n are fixed for the firm and for the production of milk. The factors X. .., X . are combined in their least 1 d MVP cost combination and are used to the point where i = 1 P xi for i = 1 ... d. In terms of milk production, this vector of inputs may consist of feed, hir ed labor, of f-f arm ser ­ vices and any other inputs which have an expected earning power greater than the cost of the input. X,,, d+1 ... X g The factors are fixed for the farm because the value of these factors in production is less than acquisition 73 price, but greater than salvage price Px^ sal ~ 0, for i = d+1 ... g ) . (» > Px^ acq > M V P X ^ > These factors are vari­ able between enterprises, however, and are expected to be allocated between enterprises to obtain equal marginal returns {MVPx ^ j for all j). are identical, for i = d + 1 ... g, and This input vector may include such factors as buildings, tractors, land and family labor. these factors may become variable Some of (upward or downward) in the event that a change in product prices, input price or productivity of the factors which is sufficient to change the relationship of MVP's with respect to acquisi­ tion and salvage p r i c e s . The factors X ,, ... X are fixed on the firm for g+1 n the same reason as the X,.., a+l ... X g factors (i.e., 00 > P x . ‘"■i acq > MVP X ^ > Px ^ sal "> 0 ), but are not variable between enterprises. This input category may include such factors as the milking parlor and associated equipment, specialized buildings, waste handling equipment and the dairy cows. Again, these factors may become variable in the event that the relationship of MVP's to prices of the factors is altered. The production function for milk may be represented as in Figure 5, The basic assumption concerning the nature of the production function, specifically the nature of fixed 74 Milk (Y) TPP APP MPP X 1 LCC Figure 5. Firm production function for milk. factors of production, implies that the general form of cost functions associated w i t h milk production are those illustrated in Figure 6 . Figure 6 illustrates two average fixed cost two average total cost curves. These result from valuing fixed factors of production at two price levels, tion and salvage. and acquisi­ The salvage value of the fixed factors are included in the analysis to represent opportunity cost of these factors of production. in some instances, It is expected that compliance w i t h environmental controls may reduce the profitability of milk production sufficiently that some factors which are presently fixed may be wit hdrawn 75 MQ ATC .TC AVC AFC AFC Output Figure 6 . Firm cost functions for milk production. from milk production. For example, it may become more profitable to use buildings or family labor in other livestock enterprises. In the case of low profit m a r ­ gins, the opportunity cost of the dairy herd itself may exceed its value in milk production and, therefore, be sold. Se con dly r it is assumed in the analysis that input prices as well as the price of milk remain constant. This assumption is made because presumably current prices are relevant when the operator makes the decision of whether or not to comply with environmental controls. It is recognized that due to reorganization of some firms the 76 supply and, therefore, price of milk may be affected. However, there is no m e t h o d of saying a priori in which direction and by w h a t magnitude prices for milk will move. Thirdly, as a starting point in subsequent analy­ sis, milk price is assumed to be w ithin the vertical interval bounded b y m inimum A TCA and m inimum A T C g F igure 6 ). (P^ in This assumption is consistent with the de fi­ nition of fixed factors of production employed in this analysis. If p ri ce of milk was below min A T C g (p£ in Figure 6 ), some of the fixed factors w oul d be diverted to other enterprises or sold off the farm. Conversely, if the price of mil k was above min AT Cft (P3 in Figure 6 ), m o re of the "fixed" assets would be purchased or diverted from other enterprises into milk production. milk was not in the A T C g - A T C A interval, If price of the milk p r o ­ ducer would reorganize production so that this was the case. The fourth assumption is that milk producers are profit maximizers and will, output therefore, produce at that level w her e the marginal cost of milk production equals the m arginal revenue of milk production. assumed to be in stage II of production, tively sloped marginal cost curve. i.e., This is a posi­ 77 Analysis With these assumptions specified, it is possible to theoretically analyze the possible economic impacts and resulting mil k producer adjustments resulting from compliance w i t h environmental controls specific to live­ stock waste management. Four (4) basic impacts will be analyzed in terms of their possible effects on the indi­ vidual milk producer. These impacts include environmental controls for w h i c h compliance results in fixed costs of production, (1 ) increased (2 ) increased fixed costs of production and increased variable costs of production, (3) only increased variable costs of produ cti on and (4) increased fixed costs of production but decreased vari­ able costs of production. The possible effects of these initial impacts are analyzed in terms of changes in usage levels of variable and "fixed" factors of production, changes in the level of milk output and changes in per unit as well as total returns. Increased Fixed Costs of Production Environmental quality controls may necessitate only an investment in a new durable asset whi ch would not affect the production function of milk. That is, it is conceivable that some type of abatement system could be adopted that is completely neutral to milk production. 78 This type of facility wo uld affect the milk production costs, however, by increasing "fixed" costs. This effect is represented in Figure 7, where such an increase is shown in the shift of AFCg, AFC^, ATCg and ATCft curves. MC 13 ATC AT CA ATCg ATC„ AVC Milk Output Figure 7. Increased fixed costs associated with abatement facility. It could be argued that the salvage value of some pollution abatement facilities is zero or even negative (i.e., incur a cost of removal). However, factors are considered in aggregate if the "fixed" (i.e., the farmstead) the addition of a pollution abatement facility is expected to increase AFCg and A T C g . 79 The decision to make this type of investment depends on the magnitude of the increase in A T C g relative to the price of milk. The investment wou ld be justified if the resulting ATCg'*' curve (at its minimum) does not exceed the price of milk. The level of milk production will remain at the same level, but the returns above A T C g are reduced. If the investment in pollution abatement facilities would result in an A T C g curve w h i c h exceeds the price of milk, the o pti mal adjustment for the individual operator w o u l d be to either discontinue milk production or reorganize by selling some of the previously "fixed" ing on the technology being used, assets. Dep e n d ­ the optimal adjustment may involve replacing the present housing-milking-manure handling system and expanding herd size in order to attain a lower cost operation, This type of adjustment is made possible by the fact that previously "fixed" assets have become variable. Increased Fixed and Variable Costs of Production A second possibility is that compliance with environmental quality controls implies an investment in a p oll uti on abatement facility or modifica tio n of present facilities, which, in turn, affects the productivity of other factors in the milk production function. For 80 example, abatement technology whi ch requires the use of labor implies that to attain the previous level of output of milk more labor is required. the present level of labor input, possible. In effect, Conversely, maintaining less milk production is the addition of the abatement facility results in a new production function for milk. The shape of the ne w production function is actually not known for the general case, All that can be said, in general, is that the resulting output after adjustment will likely be less than the original output levels at corresponding levels of input usage. Compliance with an environmental control having this type of impact, will result in a new set of cost curves for the firm. Again, the exact shape of the new cost curves is not known? but, in general, they will exceed the original curves because of the reduced p r o ­ ductivity of some inputs. Figure 8 illustrates that all cost curves would be expected to shift. Figure 8 illustrates that A V C ^ , A T C ^ g and ATC^A each reach a mi n i m u m at lower output levels than achieved on corresponding curves prior to the adoption and op e r a ­ tion of the abatement facilities. This is due to the fact that production is lower at all levels of input of the variable factors. The individual milk pr oducer will make the n e c e s ­ sary adjustments to his existing facilities if A T C 1g , at Milk Output Figure 8 . Increased fixed and variable costs of p roduc­ tion associated with abatement facility. its minimum point, does not exceed the price of milk. Assuming that this is the case, output of milk will be reduced because the MC curve will shift upward and to the left, due to reduced efficiency of some inputs. Total returns over A T C g as well as returns per unit of milk produced will be reduced. If compliance with environmental controls re­ sulted in an ATCg curve which exceeded the price of milk, the optimal adjustment for the firm would be to discon­ tinue milk production or to reorganize the production process by selling some of the previously fixed assets 82 ("selling" includes transfer of the use of some assets out of milk production into other on-farm enterprises). Again, depending on the present technology being used, the optimal adjustment may be to replace the housingmilking-manure handling system with a lower (per unit) cost operation. Increased Variable Costs of Production Compliance with environmental controls may neces­ sitate only the reorganization or timing of use of pre­ sently used inputs. If this is the case, the production function for milk is again altered. Presumably, the new production function for milk will lie below the original function at all levels of inputs. That is, the new com­ bination of inputs is expected to be less efficient than the original. Again, the exact shape of the new produc­ tion function with respect to the original function is unknown. However, if n o additional inputs are used, fixed costs will remain the same; but variable and marginal costs are expected to increase. Figure 9 illustrates the nature of the new cost structure relative to the original costs of production. The individual milk producer will comply with environmental controls which have this type of an effect on the costs of production as long as the ATC^g curve, at its minimum, does not exceed the price of milk. The 83 MC $ AFC AFC Milk Output Figure 9. Increased variable costs of production due to reordering of the use of variable inputs of production. production of milk will be reduced as a result of the marginal cost curve shifting upwards and to the left. Per unit, as well as total returns over A T C g , will be reduced. If compliance resulted in an A T C g curve w h i c h exceeded the price of milk, the optimal adjustment for the milk producer would be to either discontinue milk production or reorganize his production system. 84 Increased Fixed Costs and Decreased Variable C o s t s ~ of Production Compliance with environmental controls may result in an increase in "fixed" costs of production but a reduc­ tion in the variable costs of production. As indicated above, such a situation could occur if the installation and use of a pollution abatement facility substituted for some previously performed services which were relfected in the total variable cost functions. As a result of this type of substitution effect, a new produc­ tion function becomes relevant. However, in this instance the new function will exceed the original production func­ tion. Therefore, although fixed costs increase, total costs may increase, decrease or remain unchanged. Figure 10 illustrates the new cost structure relative to the old in the case of increased fixed costs, and reduced variable costs sufficient to reduce total costs. The individual operator will comply with the environmental controls without reorganizing his opera­ tion if price of milk does not exceed A T C 1^. However, the level of output will be increased because the MC curve has shifted downward and to the right, due to increased efficiency of some inputs. Per unit as well as total returns above A T C g 1 will be increased. 85 MC MC ATCa ATCa1 ATCS ^TCS1 ^ AVC S AVC1 \ \ $ Milk Output Figure 10. Increased fixed costs, reduced variable costs and reduced total costs due to addition of abatement facilities and the reordering of the use of variable production inputs. If compliance with the environmental controls within the present structural framework resulted in an ATC 1 curve lying below the price of milk, the optimal A adjustment for the firm would be to reorganize his opera­ tion by purchasing more of the previously "fixed" assets. Figure 11 illustrates the new cost structure relative to the original curves in the case that v a r i ­ able costs are reduced but fixed costs increase suffi­ ciently that total costs increase. 86 MC MC A TC A A T C , A y ATCS f A TC c ✓AVC / AVC1 $ AFC AFC AFC A FC Milk Output Figure 11. Increased fixed costs, reduced variable costs, increased total costs due to addition of po llution abatement facility and the reordering of the use of variable production inputs. The individual operator will comply w i t h en v i r o n ­ mental controls wit hin his p resent structure as long as ATCg1 (at its minimum) does not exceed the price of milk. The level of milk production will be increased because of the shift of the MC curve. A T C c will be reduced, O Per unit returns above although total returns may be increased or decreased depending on the magnitude of increased output relative to the decrease in per unit returns. If compliance resulted in an ATC 1 curve which b exceeded the price of milk, the optimal adjustment for 87 the firm would be to reorganize by selling some of the previously "fixed" factors of production. Figure 12 illustrates the new cost structure relative to the original cost curves in the case where fixed costs are increased, but are e xac tly offset by reduced variable costs such that total costs remain unchanged. MC, M C 1 ATC ATC ATCg, ATC ^ AVC / AVC1 $ AFC AFC AFC AFC Milk Output Figure 12. Increased fixed costs, reduced variable costs, unchanged total costs, due to the addition of pollution abatement facilities and the reorder­ ing of the use of variable production inputs. The producer will comply wit h an environmental control of this type, with no effect on output or returns. 88 It should be noted that the economic impacts which have been analyzed do not exhaust all the possible impacts. It has been assumed in this analysis that the impact on costs of production was the same at all levels of output. For example, when average fixed costs, average variable costs and average total costs increased, it was assumed that they increased at all levels of production. It is quite possible that compliance with environmental con­ trols may affect the production function such that total costs have the relationship illustrated in Figure 13. TC /. T C 1 A TVC / TVC $ TFC TFC Milk Output Figure 13. Increased fixed costs, increased variable and total costs for low levels of output, reduced variable and total costs for high levels of output, due to addition of pollution abatement facility and reordering of the use of variable production inputs— total cost curves. 89 If this type of impact is relevant, the optimal adjustment for the firm will depend on the level of out ­ put at which points a and b exist in Figure 13 relative to the present level of output. That is, an impact such as that illustrated in Figure 13 will result in new average and marginal cost curves that will intersect the original cost curves. It is this type of shift in cost structure that m ay lead to expansions in output within the present structure or through purchase of more of the previously "fixed" assets. Figure 14 illustrates this alternative. MC MC ATC AVC Milk Output Figure 14. Increased fixed costs, increased variable and total costs for low levels of output, reduced variable and total costs for high levels of output, due to addition of pollution abatement facility and reordering of the use of variable production inputs— average cost curves. 90 Essentially, what this type of shift in cost structure indicates is economies to size in the pollution abatement equipment. As a result, m ilk production will be expanded w i t h the addition of the pollution abatement system. If the m inimum point of A T C ^ is b elow the price of milk, the firm will reorganize by purchasing m ore of the previously "fixed" assets. The possibility also exists in this situation for the firm to change c o m ­ pletely the milk production technology in use (e.g., from a stanchion housing system to a confinement system). Figure 14 presents only one possible relationship of the new cost curves, structure, relative to the original cost in the set of impacts w h i c h have different effects at different levels of output. large number of possible effects, There are a depending on where the new cost curves intersect the original curves. The true relationship is an emperical question, but is expected to vary among firms depending on existing technology and the form of environmental control* Constraints on Compliance With Environmental Controls The previous analysis indicates, theoretically, the optimal adjustment of individual milk producers to environmental controls designed to reduce pollution 91 originating from animal wastes. However, there are several factors which may act as constraints, which are not i n c o r ­ porated in the above analysis. hibit individual operators indicated by the analysis. These constraints may p r o ­ from adjusting in the manner Following is a brief d i s c u s ­ sion of some of the major constraints w hic h may affect some milk p r o d u c e r s . ^ Financial Consideration Economic feasibility of adoption of pollution abatement facilities is a necessary but not a sufficient condition for obtaining pollution abatement. In instances w h er e a substantial investment is required in order to comply with environmental controls, milk producers must have or be able to get the funds needed to make the investment. The ability of a farmer to ob tain credit from the usual sources Federal Land Banks, {commercial banks, PCA, FHA, life insurance companies) depends to a large extent on prospects for repayment wit hin a re a­ sonable length of time. The purpose for which a farmer uses the credit wou ld not ordinarily be an important restruction. Thus, credit to construct animal waste abatement facilities wou ld be generally available if the farmer's repayment capacity was satisfactory. Although pollution abatement is an eligible purpose \ for most lenders, some concern exisfcd about the possibility 92 of farmers being able to get financing for such facilities if they do not add to earning capacity. 15 This may be more serious for marginal operators, but even quali­ fied operators may be reluctant to borrow for investments that would not increase income and, therefore, require repayment from the present level of e a r n i n g s , Another relevant consideration that both farmers and lenders face is the possibility of rapid obsolescence of equipment and facilities due to changing technology and environmental standards. Furthermore, it is con­ ceivable that credit requirements for pollution abatement would preclude credit availability for regular farm p r o ­ duction purposes. Experience to date (Farm Credit Administration) indicates that initially some problems may arise in lend­ ing for waste disposal systems. Underestimation of con­ struction costs and disruption of business have led to over indebtedness and repayment difficulties. Reloca­ tion of the farm or facility, because of waste control requirements, has in instances brought unanticipated problems of high cost, lost income and additional debt. There are presently a few programs available which may be used by individual producers to defer some of the investment requirements for pollution abatement facilities, although limited in scope. The Rural Environ­ mental Assistance Program provides "cost" sharing 93 assistance to farmers. Examples pertaining to animal waste management include: pits, trenches, (1 ) construction of lagoons, diversions and other management systems. Cost sharing cannot be used to build a new slotted-floor barn, but can be used for the collecting pit under the slotted floor, and (2 ) vegetated filter strips which provide a barrier between the farm and any nearby stream. Tax incentives are provided through rapid a m o r t i ­ zation and investment tax credit. Amortization over a 60-month period may be elected for certified pollution control facilities added to or used in connection with a plant in existence before 1969 and placed in service before 1975. The amortization deduction is available only for the portion of the property's basis attributable to the first fifteen years of its useful life. The investment credit is not allowed in the case of pollution^ control facilities for wh ich the taxpayer elects the rapid amortization provision except to the cost at tr i b u t ­ able to the useful life in excess of fifteen years. Uncertainty and Lack of Knowledge Milk producers are confronted with two basic problems related to p roper management of livestock wastes in order to reduce pollution. First, the effectiveness of various control measures is sometimes unknown. great uncertainty exists regarding the degree of Second, 94 environmental quality that will eventually be demanded by society and the control measures that will be needed to achieve that quality. The cost of installing facili­ ties that may not satisfy regulations yet to be specified has placed many livestock producers in a wait-and-see position, since most could not afford to do the job twice. Old Age and Tenancy The operation of farms is affected by the age and consequent planning horizon of the persons in control of the resources involved. As people pass middle age, they become less interested in making long-term investments, discounting future returns at a higher rate. Security and immediate income become relatively more important, reducing the incentive to make long-term investments. This situation may be more acute for those owners who do not plan to transfer the farm enterprise to other family members. The situation is further aggravated by tenure status of some farm operators. ments, Any permanent improve­ livestock waste management systems included, to be installed on rented land are largely the responsibility of the landlord since all but portable equipment becomes part of the land. Thus, many tenants cannot take action to abate pollution or add any other permanent facility 95 unless they do so at their own expense and risk of n o n ­ recovery of the investment. Lack of Technical Assistance Livestock farms exist in an almost unlimited combination of circumstances with respect to size, co m­ bination of enterprises, type of soil, slope of the land, distance from residential areas and proximity to water sources of different usage. They are, therefore, confronted with a multitude of different problems associated with livestock waste management. It is unlikely that farmers have the knowledge to successfully abate pollution themselves. Programs of technical assistance to help p r o ­ ducers solve livestock waste management problems are currently available through the U.S. Service, Soil Conservation the Federal Extension Service, the U.S. Environ­ mental Protection Agency and, to a lesser extent, through some state agencies. the However, in many instances, demand for technical assistance exceeds the available supply. This problem could become more acute as p r o ­ ducers attempt to comply w i t h future environmental controls. Ab ility to Escape Enforcement Depending upon the enforcement mechanisms associated with environmental controls, some livestock farmers may 96 choose not to comply. They may be willing to p a y the costs of noncompliance (if any) avoid detection. or they may be able to Chapter IV Footnotes A technological externality is defined here to be a direct effect, that is not priced, which one decision unit might impose on another. *> J, B. Johnson, L, J. Connor, "Origin and I m p l i ­ cations of Environmental Quality Standards for Animal Production Firms," Proceedings of International Symposium on Livestock W a s t e s , ASAE (April, 1971), 10^-107. 3 Ibid. 4W illiam R. Walker, "Legal Restraints on A g r i c u l ­ tural Pollution," Paper presented at Cornell Agricultural Waste Management Conference, Rochester, New York, January 19-21, 1970. 5 Otto A. Davis, Mo r t o n I. Kamien, "Externalities, Information and Alternative Collective Action," The A n a l y ­ sis and Evaluation of Public Expenditures: The PPB S y s t e m , A compendium of papers submitted to the subcommittee on Economy in Government of the Joint Economic Committee, Congress of the U.S., 91st Congress, 1st Session, pp. 67-86. g Hugh H, Macaulay, Uses of Taxes, Subsidies and Regulations for Pollution A b a t e m e n t , Report No. 16, Water Resources Research I n s t i t u t e , Clemson University, Clemson, South Carolina, June, 1970. 7 J, B. Johnson, L. J. Connor, "Origin and Impli­ cations of Environmental Quality Standards for Animal Production Firms," Proceedings of International Sy mpo siu m on Livestock Wastes, ASAE (April, 1971) , 102-107, Q Hugh H. Macaulay, Uses of Taxes, Subsidies and Regulations for Pollution A b a t e m e n t , Report No. 16, Water Resources Research Institute, Clemson University, Clemson, South Carolina, June, 1970. g Jack L. Knetsch, "Economic Aspects of E nv i r o n ­ mental Pollution," Journal of Farm E c o n o m i c s , 48:5 {December, 1966), l2i>7-12(>6. 97 98 1 C o n v e r s a t i o n with Mr. gan W ate r Resources Commission. Robert C o u r c h a i n e , M i c h i ­ ^ A u s t i n S. Fox, "Economic Consequences of Restric­ tions or Banning the Use of Pesticides," paper published in E conomic Research on Pesticides for Policy D e c i s i o n ­ making , proceedings of a symposium in Washington, D . C . , April 27-29, 1970. 12 Roy N. Van Arsdall, James B. Johnson, "Economic Implications of Wat er Pollution Aba tement in Family Farm Livestock Production," material for discussion before President*s Water Pollution Control Board, Peoria, Illi­ nois, Jan uar y 24, 1972. 13 AFC, AVC, ATC, MC are used to represent the initial cost curves: A F C 1, AVC', ATC', MC* are used to represent the cost curves after adjustment. The sub ­ scripts S and A are used to represent cost curves evaluated at salvage and acquisition prices. 14 Roy N. Van Arsdall, James B. Johnson, "Economic Implications of Wat er Pollution Abatement in Family Farm Livestock Production," material for discussion before President's Water Pollution Control Board, Peoria, Illinois, January 24, 1972. 15 However, a lending institution may have a vested interest in k e e p i n g the farmer in operation if former debt repayment depends on continued production. CHAPTER V THE ANALYTICAL MODEL Introduction It is hypothesized that environmental quality controls specific to livestock production will increase the cost of milk produc tio n on M ich iga n dairy farms. Further, it is assumed that the magnitude of the impact will depend upon the pr esent structure of the dairy farm in terms of type of housing used, type of manure handling facility used and size of the dairy herd. An economic model of the firm was developed in the previous chapter to determine the theoretical immediate or "short-run" impact of compliance w i t h environmental quality controls for the firm with different production technologies, explicitly recognizing the fixity of certain firm assets. This chapter presents an analytical model designed to quantify the theoretical relationships expressed p r e ­ viously and to test the null hypothesis expressed above. Three alternative control measures are analyzed in terms of their impact on requirements, (1 ) labor requirements, (3) cost of milk production, 99 (2 ) capital and (4) net 100 returns to the operator for dairy farms organized around alternative milk production technologies. The model is a profit maximizing algorithm cast in a setting of perfect competition. Firm size, measured in terms of cow number and operators' labor, is fixed in any specific problem. Also, the milking facilities, feed storage and handling facilities, basic machinery complement and feed ration are assumed fixed. However, acres of land, capital needs and hours of labor are considered variable, with the magnitude of these items determined relative to the various technologies used, both before and after compli­ ance with environmental controls. The Technique A profit maximizing linear programming modeling technique is used to analyze the impact of environmental controls on Michigan dairy farms. This computerized technique is employed rather than conventional budgeting techniques becuase of the large number of alternatives being considered in the analysis. The synthetic-firm technique is used to evaluate labor requirements, costs of milk production and return to operators labor for firms as they are presently organized. The effect of environmental quality controls on the input-output coefficients is incorporated into 101 the model to determine the impact of these controls on dairy farms using alternative technologies. Synthetic firms are developed on the basis of data which the r e ­ searcher determined most realistically reflected the present structure of Michigan dairy farms. Assumptions underlying linear programming do not restrict use of the model or make it less realistic. As noted above, this analysis determines the impact of complying with e nvi ron ­ mental quality controls within the present resource organization of the firm (i.e., constant herd size and milk production t e c h n o l o g y ) . analysis; consequently, This implies a "short-run” the assumption of constant factor and product prices is valid. Another assumption basic to linear programming is that the firms' input-output, output-output and input- input relations are all linear. There is no apparent reason to assume otherwise for most relationships in this study. Where empirical evidence indicates a n o n ­ linear relationship, the relationship is assumed to be discontinuous, having different linear relationships over specified ranges of the variable. Nonlinearity in the above-specified relations is taken into co nsi der a­ tion by using a specific linear pr ogram for a specific size of firm. The linear programming technique further assumes the existence of resource constraints that influence the 102 decisions. In this analysis, constraints in the form of operator labor, milk production technology and herd size are assumed. Since real-world firms operate with con ­ straints of one type or another, this analytical model is not restricted by this assumption. The Firm The main consideration of this study is the impact of changes in waste handling facilities and/or practices on the level of returns to the operator for his labor, managem ent and rish bearing. To facilitate the analysis of this aspect of the dairy operation, assumptions are made relative to other aspects of the operation in order to hold them constant. A b reif discussion of the assump­ tions made relative to these other aspects of the dairy operation is presented.^ These assumptions are made for all firms, regardless of milk production technology used. The Manager The farm operator is assumed to have the ability to manage the particular size of operation and technology being studied. The level of management assumed, of milk production per cow, in terms crop yields and labor usage are estimated to represent the upper quartile of present Michigan dairy farm managers. However, this level of m a n ­ agement is expected to be the average or "typical" level 103 by 1980. ments, Since this study is oriented .toward future adjust­ this level of manage men t is reflected in the analysis. The size of the d air y herd and production t echno­ logy (except for waste hand lin g equipment) remain constant. Therefore, are assumed to it is assumed that the m a n ­ ager's goal is profit maxim iza tio n within the specific technological organization being studied. Location The "synthetic" farms developed for analysis are assumed to be located in Southern Michigan. As indicated in Chapter II, Southern Mic hig an has the greatest c o n c e n ­ tration of milk production and is expected to retain this position in the future. Land The hypothetical farms are assumed to be capable of acquiring enough land to produce all of the feed re­ quirements for the particular herd size being studied. As long as the cost of o wnership can be paid, the amount of land required is only limited to the specific herd size being studied. The land is also assumed to be in Land Capability Classes I or II. Capital In this analysis, variable input. capital is also treated as a That is, capital is assumed to be a v a i l ­ able in amounts large enough to make investments in 104 additional waste handling equipment and/or pollution abatement equipment to be in compliance with e n v i r o n ­ mental quality controls. two reasons. One, This assumption was made for to indicate to farm operators the m agn itude of capital required for compliance, secondly, and to indicate the impact of the investment in waste handling facilities on net returns. Even though increased investment in waste handling facilities is not revenue increasing, or necessarily cost reducing, such investments are assumed to be made in order for the firm to remain in operation. Labor The regular labor force of the hypothetical firms is assumed to consist of one operator. However, it is also assumed that qu ali fie d labor is available for hire as needed. This assumption is made to give an indication of total labor requirements before and after compliance with a specific environmental quality control. In addi­ tion, monthly labor requirements are determined as a means of appraising the impact of environmental quality controls on the distribution of labor requirements. Enterprises The hypothetical firms are assumed to be speciali zed dairy farms. However, replacement stock and* all feed requirements are assumed to be farm produced. 105 The size of the dairy operation is considered to be fixed at four different levels: cows plus replacement stock. 4 0, 60, 80, and 160 The cows, regardless of herd size, are assumed to produce 13,000 pounds of milk annually. The 13,000 milk production level is based on 2 ( Te lfarm account data indicating average milk production levels on Southern Michigan dairy farms. It is assumed that the feed ration on all farms consists of corn silage, haylage, oil meal and urea. In addition, corn grain, soybean it is assumed that the forage ration consists of 50 percent corn silage and 50 percent alfalfa haylage. Both corn silage and haylage are assumed stored in concrete tower silos and m e c h a n i ­ cally fed. Corn grain is assumed to be fed as corn and cob meal. As me ntioned above, it is assumed that all forage and corn grain requirments are produced on the farm. How­ ever, it is assumed that farms with 40, 60, or 80 dairy cows would custom hire the harvesting of corn grain. Because of the relatively low acreage requirements for corn grain on these size farms, ownership of corn h a r ­ vesting equipment is not a common practice. Alternative Technologies Types of dairy production firms included in this analysis were selected on two basic criteria. The first 106 criterion was to include those milk production systems w h i c h presently represent the majority of milk production in Michigan. Secondly, those systems which are expected to increase in popularity in the future were included. As a result, twelve alternative milk production techno­ logies are identified for initial analysis. Synthetic firms are developed to represent each of these production technologies as they presently exist. The technologies selected are differentiated on the basis of herd size, manure handling system type of housing, (Table 8 ). and type of Two synthetic firms are developed to represent milk production with stan­ chion housing facilities; for a 60-cow herd. one for a 40-cow herd and one Bo th systems are assumed to have gutter cleaners in the housing facility with wastes hauled and spread daily. For firms w i t h open lot housing facilities, the initial assumption is that alleyways and outside lots would be scraped daily with a tractor-scraper, wastes hauled and spread daily. firms are developed, Again, and the two synthetic one for an 80-cow herd, and one for a 160-cow herd. Firms w i t h cold covered housing systems are also assumed to scrape, load, and haul manure daily. 80-cow herd and a 160-cow herd are synthesized. Both an Table 8. Herd Size Type of housing and manure handling systems adapted to Michigan. Stanchion 40 Gutter cleaner-spreader Daily hauling 60 Gutter cleaner-spreader Daily hauling Open LotFree Stall Cold CoveredFree Stall Tractor scraperloader-spreader, Daily hauling Tractor scraperloader-spreader, Daily hauling Tractor scraper-liquid storage-agitatorpump-liquid spreader. Mechanical scraperliquid storage-agitatorpump-liquid spreader. Slotted floors-liquid storage-agitator-pumpliquid spreader. Tractor scraperloader-spreader. Tractor scraperloader-spreader Tractor scraper-liquid storage-agitator-pumpliquid spreader. Mechanical scraperliquid storageagitator-pump-1iquid spreader. Slotted floors-liquid storage-agitator-pumpliquid spreader. 80 160 Warm EnclosedFree Stall 10 8 For the warm enclosed housing systems two herd sizes and three alternative manure handling systems are synthesized. All three systems assumed three-months storage of manure in the liquid state. The only differ­ ence in the three systems is the waste collection method. A synthetic firm is developed to represent each of the three collection methods: (1 ) use of a tractor to scrape waste into storage tanks, (2 ) use of a mechanical scraper, and (3 ) use of slotted floors with no scraping. Detailed descriptions of these synthetic firms, in terms of costs of milk production, labor requirements, investment requirements and returns to the operator's labor are presented in Chapter VI. Using twelve alterna­ tive milk production technologies as the starting point, the impact of alternative pollution abatement policies is analyzed. The Model Description Only one linear programming model is used to analyze all of the situations of concern in this study. By making changes in the values reflecting labor require­ ments and costs of the milk production activity, alterna­ tive milk production technologies and alternative firm sizes are analyzed. not to be limiting, Since capital (or credit) is assumed investment requirements of the 109 alternative milk production systems are analyzed separately from the linear programming model. Following is a formal description of the linear programming model which is used to analyze all alt ern a­ tives . The Objective Function The solution to a specific problem maximizes the "objective value" ties available. (Zo) within the constraints and activi­ In this study, the objective value is the return to the operator's labor and a basic machinery complement. Af ter determination of the objective value, the cost of the machinery complement is deducted to give a "residual" return to the operator for his labor, m a n a g e ­ ment, and risk bearing. The objective function of the model used is: (1) zo = clXl - c2x2 - C3X3 - c4x4 - c5x5 17 - £ C . X . j= 6 Where: ^ ^ Zo is the objective value, C^X^ is the total returns from selling milk. after hauling. ^2^2 is the price of milk is the cost of milk sold. t^ie total cost of producing milk from ten cows plus replacements, less returns from culls and calves. This cost figure included operating and ownership costs of 110 milking, caring for the dairy, was te handling, feeding and housing the dairy herd; with the exclusion of all labor costs and the ownership cost of the basic machinery complement. X 2 is the number of ten cow units in p r o d u c ­ tion. is the total cost of producing corn grain, is the cost of producing an acre of corn grain, ing land costs. includ­ X 3 is the number of acres of corn grain produced. C ^ X 4 is the total cost of producing corn silage, is the cost of producing an acre of corn grain, in clu d­ ing land costs. is the number of acres of corn silage produced, C cX,. is the total cost of producing alfalfa hayb b lage. haylage, is the cost of producing an acre of alfalfa including land costs. is the number of acres of alfalfa haylage produced. 17 Z C.X. is the total cost of hiring labor during j- 6 ^ ^ the twelve months of the year. C.. , j= 6 ... 17, is the acquisition price of labor. X ^ , j= 6 ... 17, is the n u m ­ ber of hours of labor hired. The Constraints The objective function (equation 1) is maximized subject to the following resource restrictions: is the labor resource avail­ able in period 1 (January). L2 * ' ’ L 12 are t *ie lak ° r re” sources available in the remain­ ing 11 months. A. .. 1/3 's Several of the will be 0 due to no labor required in that period for a particular activity. A l, 6 ' A 2,7' A 3,8 * * * A 12,17 will all have a - 1 value b e ­ cause they are labor hiring activities wh ich add to the labor resources. This is the transfer of milk produced to milk sales. It says that the milk sold must equal that produced. This is the corn grain trans­ fer. It says that the amount produced must equal the amount required by the herd. This is the corn silage trans­ fer . This is the alfalfa haylage transfer. 112 (7) A .0 , X. = c lo ;i 1 This constraint sets the herd size, C = 4, 6 , 8 , 16 for a 40, 60, 80, and 160 cow herd, respectively. The last constraint, herd size, is the limiting constraint, with the model determining the amount of land and hired labor required for each of the herd sizes. In this manner, the model actually "simulates" the dairy production unit as it presently exists. The initial model is run once for each of the twelve production systems to deterime hired labor required in each month, crop land required, and (1 ) the amount of (2 ) the amount of (3) the return to the operator's labor and management for each of the twelve systems. After the twelve initial runs, three alternative pollution abatement policies are examined to determine (1 } which producers are affected, affected, and (2 ) how they are (3) the magnitude of the impact on affected producers, assuming policy compliance. The first policy alternative is the control of runoff from the production site. As earlier determined, only open lot systems would be affected. relevant A^ j,s and Therefore, are adjusted for this policy; and the model is run for the two open lot systems. Next, a policy prohibiting winter spreading of manure, in addition to runoff control at the production 113 site, is examined. Compliance with this policy will affect all producers, Therefore, regardless of production technology. the relevant A. and C. are adjusted and 3 the model run for each of the twelve production systems. 1 s However, more than one alternative m ethod of complying with this policy is analyzed for some of the producers, necessitating a total of 2 2 runs of the model. Thirdly, a policy requiring subsurface disposal of manure, in addition to the above two policies, examined. As earlier determined, is only those producers wi th liquid manure systems would be affected. Again, the relevant A. and C. are adjusted and the model run i , ] ’s 3 J for those systems handling manure as a liquid. Since firms w i t h liquid systems were provided with more than one alternative m e t h o d of compliance w ith the policy of no w inter spreading, the impact of subsurface disposal has to be run for each of those alternatives, nec ess ita t­ ing sixteen runs of the model. In total then, there are 52 runs of the model: a) Twelve runs to "simulate" the production units as they presently operate, b) Two runs to determine the impact of runoff controls , c) Twenty-two runs to determine the possible impacts of no winter spreading, and 114 d) Sixteen runs to illustrate the additional impact of subsurface disposal of manure wh en handled as a liquid. Within the model, the impact of these three p o l ­ lution alternative policies; in terms of (1 ) the total labor requirement and the monthly labor requirement, costs of milk production and labor is determined. (2 ) (3) returns to the operator's In addition, the investment re q u i r e ­ ments of each of these policy alternatives are identified. Chapter V Footnotes For a more complete discussion and rationale for these assumptions, see: Allen E. Shapley, "Alterna­ tives in Dairy Farm Technology with Special Emphasis on Labor," (Unpublished Ph.D. dissertation, Michigan State University, 1968). 2 T e l e f a r m is a computerized farm record keeping system ma int a i n e d by the Department of Agricultural Economics at Michigan State University. 115 CHAPTER VI THE SYNTHETIC FIRMS Introduction In order to determine the impact of pollution abatement policies on dairy farmers, synthetic firms are developed to simulate milk production on farms with alternative production technology-herd size combinations. These synthetic firms are designed to be "representative" of dairy farms within alternative production technologyherd size categories. They are "representative" in the sense that they display the same internal and external characteristics. That is, a given synthetic firm repre­ sents a population of dairy farms which have essentially the same set of productive facilities, the same inputoutput relationships, and have similar input and product market situations. Since a linear programming model is employed, the construction of synthetic firms involves the estima­ tion of prices of inputs and outputs, the estimation of the level of constraining resources, and the estimation of the input-output relationships. 116 In addition, estimates 117 are made of the magnitude of capital investments required for each of the synthetic firms. The Estimates The estimates required to develop the synthetic firms were derived by examining data from a number of sources and making judgments based on these data. In some instances it was necessary to make estimates on the basis of very limited research results. However, the estimates were examined by specialists in the field to check for relevancy and consistency. Prices The prices of most inputs in the milk production and crop production activities require very little dis­ cussion. For example, prices of purchased feed, seed and fertilizer are relatively standardized and are referenced as presented. Some prices, however, are subject to more variability and require further discussion. Following is a brief discussion of the price estimates used for some of the more crucial factors involved in milk production. Milk The price estimate of $6.00 per cwt. for milk is based on the average blend price of milk expected to p r e ­ vail, after deductions of $.50 per cwt. for handling 118 charges, in five to six years in Michigan. The average blend price for milk in Michigan, before deductions for handling charges, was $6.07 per cwt. months of 1972. for the first six It is asknowledged that the use of a different price would have a significant impact on the results, in terms of return to operator's labor, manage­ ment and risk bearing. However, of most interest in this study is the relationship of returns among the dif­ ferent production technologies. This relationship is exemplified regardless of the assumptions made about price, given that all producers receive the same price. Land As indicated in the preceding chapter, all crop producing land is assumed to be in Land Capability Class I or II. An "average" price of $500 per acre is assumed. An annual charge of $40.00 or 8 percent of the price of land is assumed as a charge for interest and real p r o ­ perty taxes. Labor Although some of the producers represented by the synthetic firms normally have full-time hired help and/or additional family labor, the assumption made relative to this study is that labor required beyond that available from the operator would be hired on an hourly basis. For 119 the larger firms, this may be full-rime labor. It is assumed that labor could be hired as needed, at a wage of $3.00/hour. This wage was selected as representing an equivalent salary of full-time hired labor. Constraints The only resource assumed to have a limited availability for purpose of this study is operator labor. It is assumed that the operator works fifty hours per week for fifty weeks, or 2,500 hours per year. Although survey information indicates that Michigan dairy farmers work close to sixty hours per week, ten hours are deducted to reflect time required for miscellaneous chores such as sick cows, repairs and up-keep of equipment and buildings. The two weeks not otherwise accounted for is considered to be vacation time to be taken in August. Total operator labor availability, by month, is indicated in Table 9. In addition to the limits placed on the avail­ ability of the operator labor, restrictions are placed on the number of cows in the dairy herd. That is, for each synthetic firm the size of the herd is predetermined and forced to be at that level. This constraint, is the crucial factor in determining total labor, and capital requirements. in turn, land, 120 Table 9. Restrictions on operator labor availability Month Month Hours of Labor Hours of Labor January 220. 7 July 220.7 February 199. 4 August 122.0 March 220. 7 September 213.6 April 213.6 October 220.7 May 220. 7 November 213.6 June 213.6 December 220.7 2,500.0 TOTAL Coefficients There are four production activities specified for each of the synthetic firms. duction" activity, the These include the "milk p r o ­ "corn grain production" activity, the "corn silage production" activity and the "alfalfa haylage production" activity. The remaining thirteen activities specified for the firms consist of twelve "labor-hiring activities" and one "milk-selling" activity. These activities require no estimates other than the prices w h i c h are discussed above. The "milk production" activity included the inputs required to milk, feed and house the cows and the inputs required to collect and dispose of dairy wastes. 121 The alternative technologies studied influence the c o e f f i ­ cient values for waste handling and feed storage op e r a ­ tions. Therefore, twelve sets of coefficients for the milk production activity are necessary to reflect each of the milk production systems. The analysis of these twelve sets of coefficients were handled by one program, the only difference between runs being the set of c oef fi­ cients used in the "milk production activity," The "corn grain production" activity, silage production" the "corn activity and the "alfalfa haylage production" activity consist of those inputs required to grow and harvest an acre of crop, with the exception of the ownership costs of the fixed machinery complement. Following is a discussion of the labor requirements and operating and ownership costs of the four production activities for each of the twelve production systems analyzed. Following this presentation is a discussion of the investment requirements for each of the twelve systems. Labor Requirements and Costs of Milk Production Labor Requirements The estimated labor requirements for the "milk p r o ­ duction activity," by month, for the twelve production systems being analyzed are presented in Table 10. This Table 10. Estimated labor requirements per cow for the milk production activity— alternative housing systems, herd sizes and manure handling systems,a»b Warm Enclosed Housing Labor Period January February March April May June July August September October November December Total Hrs/ cow/year Stanchion Housing 40 60 cows cows Open Lot Cold Covered TractorHousing Housing Scraper 160 80 160 80 160 80 cows cows cows cows cows cows hoursi per cow plus replacement MechanicalScraper 80 160 cows cows Slotted Floor 80 cows 160 cows 5.9 5.3 5.9 5.8 5.9 5,8 5.9 5.9 5.8 5.9 5.8 5.9 5.4 4.9 5.4 5.3 5.4 5.3 5.4 5.4 5.3 5.4 5.3 5.4 3,9 3.5 3.9 3.7 3.9 3.7 3.9 3.9 3.7 3.9 3.7 3.9 3.7 3,3 3.7 3.5 3.7 3.5 3.7 3.7 3.5 3.7 3.5 3.7 4.0 3.6 4.0 3.8 4.0 3.8 4.0 4.0 3.8 4.0 3.8 4.6 3.8 3.4 3.8 3.6 3.8 3.6 3.8 3.8 3.6 3.8 3.6 3.8 3.5 3.2 3.9 3.4 3.5 3.8 3.5 3.5 3.8 3.5 3.4 3.8 3.3 3.0 3.7 3.2 3.3 3.6 3.3 3.3 3.6 3.3 3.2 3.9 3,2 2.9 3.6 3.1 3.2 3.5 3.2 3.2 3.5 3.2 3.1 3.6 3.0 2.7 3.4 2.9 3.0 3,3 3.0 3.0 3.3 3.0 2.9 3.4 3.2 2.9 3.6 3.1 3.2 3.5 3.2 3.2 3.5 3.2 3.1 3.6 3.0 2.7 3.4 2.9 3.0 3.3 3.0 3.0 3.3 3.0 2.9 3.4 69.8 63.9 45.6 43.2 46.8 44.4 42.9 40.5 39.3 36.9 39.3 36.9 aincludes collection of cows, preparation of equipment, milking, cleaning equipment, feeding forage and grain, bedding and complete manure handling. b Source: C. R. Hoglund, "Labor Requirements, Investments and Annual Costs— Alternative Manure Handling Systems," unpublished data, Dept, of Ag. Econ., Mich. State Univ.; John A. Speicher, D. Lynall MacLachlan, c. R. Hoglund and James S. Boyd, "Labor Efficiency in Open Lot and Covered Free Stall Dairy Housing," Farm Science, Research Report 107, Michigan Agricultural Experiment Station, March, 1970; I. F. Fellows, "Economic Affect of Alternative Methods of Housing and Milking Dairy Cows," Connecticut Agricultural Experimental Station Bulletin 398, 1966; D. Lynall MacLachlan, "A Study of Dairy Chore Labor Under Different Systems of Free Stall Housing," unpublished M.S. Thesis, Michigan State University, 1967. 123 estimate includes the time required for milking, including time to collect cows, and prepare and clean equipment; the time required to feed both forage and grain; and time required for the complete waste handling activity, including bedding. In all cases, except for stanchion housing, a double-four herring bone milking parlor is assumed. For the stanchion housing, cows are assumed milked in the same building using a pipeline to the bulk tank. It is assumed, for all systems, that all feed is stored in concrete tower silos equipped with mechanical unloaders. For the open lot and covered housing systems, the feed is unloaded directly into the feed bunks. the stanchion housing system, however, For a feed cart is required to distribute the feed from the unloader to the c o w s . Wastes are assumed to be handled as a solid for the stanchion, open lot and cold covered housing systems. Furthermore, for each of these systems, it was assumed that wastes are collected, hauled, and spread daily. the case of the stanchion housing system, In a mechanical gutter cleaner is utilized to transport manure and bedding into the spreader. For the open lot and cold covered housing systems, a tractor equipped with a front end loader and scraper blade is utilized to collect and load the m a n u r e . 124 Manure is assumed to be handled as a liquid for the warm enclosed housing systems. For all systems, the manure is assumed to be stored in underground tanks for a three-month period. The tanks, therefore, require emptying four times per year— March, June, September and December. The only difference in the warm enclosed housing systems is the method in which wastes are col­ lected. One system utilizes a tractor-scraper to scrape waste into the storage pits; another utilizes a mechani­ cal scraper; and the third utilizes a slotted floor system, requiring no scraping. Table 10 indicates that there is a substantial difference in annual labor requirements per cow plus replacement among the alternative production systems. The labor requirements range from a high of 69.8 hours/ cow/year for the 40-cow stanchion housing system to a low of 36.9 hours/cow/year for both the mechanically scraped and slotted floor warm enclosed housing systems. Variations in labor requirements among the alter­ native milk production systems is attributable to differ­ ences in the milking, feeding, and waste handling operations of respective systems. Table 11 presents separate estimates of the labor requirements for the milking and feeding, and the waste handling operations. Table 11 indicates that the labor requirements for the milking, feeding, and waste handling operations 125 Table 11. Estimated annual labor requirements per cow for the m i l k i n g and feeding activities and the manure handling o p e r a t i o n s — alternative housing systems, herd sizes and manure handling systems. Production System Milking and Feeding h o urs/cow + Manure Handling and Bedding Total Labor Req/Cow + R/Year R'year Stanchion Housing 4 0 cows 6 0 cows 53.5 50.2 16. 3 13.7 69. 8 63.9 34.5 32.6 11.2 10. 7 45.7 43.3 34.2 32. 3 12 .6 12.1 46.8 44.4 34.2 32. 3 8.7 6.3 42.9 40. 5 34.2 32. 3 5.1 4.6 39. 3 36.9 34.2 32 .3 5.1 4.6 39. 3 36. 9 Open Lot Housing 80 cows 160 cows Cold Covered Ho usi ng 80 cows 160 cows W a r m Enclosed H o usi ng Tractor-S craper 8 0 cows 160 cows Mech.-Scraper 8 0 cows 160 cows Slotted Floors 80 cows 160 cows 126 are relatively high for the stanchion housing system. Labor requirements for the feeding operation are increased due to hand distribution of feed from the silo unloader. Labor requirements for the mi lk i n g activity are relatively high due to the neces sit y of mo v i n g the milker from cow to cow throughout the barn. Time required for the manure handling activity is increased due to the necessity of at least partially b edding each stall daily. Since all covered hou sin g systems are assumed to have the same m ilking and feeding systems, requirements are identical. the labor The time required for the milking operation is somewhat higher for the open lot system due to the fact that it takes longer to collect the cows for milking. The labor requirement for the waste handling activities is slightly less for the open lot system than for the cold covered system. The liquid was te handling systems require less time due to the increased efficiency of hau l i n g and spreading only four times per year. The mechanical scraper and slotted floor systems require the least labor for was te handling due to the elimination of the h uma n agent in the scraping operation. Costs of Milk Production The costs discussed in this section include the cash or operating costs and the ownership costs of 127 buildings, machinery and equipment, excluding the costs associated with ownership of the fixed machinery comple­ ment. These latter costs are discussed separately in the "Investment R e q u i r e m e n t s '1 section of this chapter. Several costs associated wi th the milk production activity are assumed constant (per cow) regardless of the milk production system being used or the size of the herd under consideration. Table 12. These cost estimates are listed in The annual cost of $36.00 for each cow and replacement represents an 8 percent interest charge on the capital invested in the dairy herd. It is assumed that the market price in Mi chi gan of dairy cows capable of producing 13,000 pounds of milk is $350. The average value of a replacement animal is assumed to be equal to $ 1 0 0 , so that the total value of a cow and replacement is $450. Livestock receipts are based on the assumption that each year 2 5 pe rce nt of the cows would be sold as culls for an average price of $160 each, and 75 percent of the heifers are sold as young calves at an average price of $40 each. A s s u m i n g a 50-50 bull-heifer ratio and a ten percent calf mortality rate, the livestock receipts add to $85,00 per cow plus replacement. The remaining cost estimates associated with the milk production activity are not the same for all production systems or h e r d sizes. are presented in Table 13. These cost estimates Although the source of data 128 Table 12, Estimated costs and receipts per cow plus replacement of items unaffected by production technology or herd size. item Dollars/Cow + R/Year Cash Costs Breeding 8 .00a Supplies 13.00b Taxes 18.00b Spray 1 0 SBOM 15.00° UREA 7. 20d .oob Insurance 1 0 .00b Vet 14. 50 Capital Costs 36.00e Cows and Replacement Total Cost/Cow + R/Year 131.70 85.00f Livestock Sales aS o u r c e : MA BC rates for 1972. U Source: MSU Telefarm System. cAssumes 2 5 0 / lb./cow/year @ S120/T. ^Assumes 120/lb,/cow/year @ $120/T. e Eight pe rce nt of market price. ^Includes cull calves, bull calves and excess heifer calves. Table 13. Estimated costs per cow plus replacement of items affected by production technology or herd size. Warm Enclosed Housing Stanchion Housing 40 cows 60 cows Open Lot Housing 80 cows 160 cows Cold Covered Housing 80 cows 160 cows TractorScraper 80 cows 160 cows MechanicalScraper Slotted Floors 80 cows 160 cows 80 cows 160 cows Dollars/Cow + R/Year Cash Costs 20.00 14.00 15,00 8.80 10,00 20.00 14.00 15.00 10.00 10.00 10.00 14.00 15.00 12.40 12.00 10,00 13.00 15.00 14.00 12.00 10.00 16.00 16,50 15.50 12,00 10.00 15.00 15.70 16.00 12.00 10.00 16.00 16,50 7.00 12.00 10.00 15.00 15.70 7,76 12.00 10.00 16.00 17.65 3.00 12.00 10,00 15.00 16.84 3.35 12.00 10.00 16.00 16.50 3.00 12.00 10.00 15.00 15.70 3.35 12.00 10,75 6.87 — — 5.50 5.50 — 4.54 4.54 — 5,50 5.50 — 4.54 4.54 — — — — 2.00 2.00 — 3.13 15.00 3.60 1.65 1.12 — 3.00 12.48 3.12 2.00 1,40 5.00 3.13 15.00 3.60 1.69 1.12 4.40 3.00 12.48 3.12 2.00 1.40 — 3.13 15.00 3.60 1.65 1.12 — 3.00 12.48 3,12 Capital Costs d,h Gutter Cleaner ^ 12.50 Manure Spreader 1 . 8.25 — Scraper & Loader — Mech, Scraper** Pump & Agitator** — Manure Storage**'1 — Liquid Spreader** Housing & Milking 60.75 Parlor6'1 Silage Storage & 48.50 Equipmentf Grain Storage & 32.80 Handling9'111 Total Cost/Cow + 230.60 R/Year — — 60.00 60.50 60.50 67.00 62.75 77.00 72.75 77.00 72.50 83.75 79.37 45,00 38.40 28.20 38.40 28.20 38.40 28.20 38.40 28.20 38.40 28.20 32.80 24.60 24.60 24.60 24.60 24.60 24.60 24.60 24.60 24.60 24.60 224.42 195.77 184.09 208.87 191.04 226.63 207.27 228.78 208.51 229.38 209.54 129 Bedding* Repairs & Main. Utilities0 Tractor Power Misc. A s s u m e s IT/Cow + ^Source: R/Year for stanchion housing and l/2T/Cow + R/Year for other housing systems MSU Telefarm data. Q Source: MSU Telefarm data modified by C. R, Hoglund, "Labor Requirements, Investments and annual costs— Alternative Manure Handling Systems," unpublished data, Dept, of Ag. Econ., MSU. ^Source: C. R. Hoglund, "Labor Requirements, Investments and Annual Costs— Alternative Manure Handling Systems," unpublished data. Dept, of Ag. Econ., MSU. ec. R. Hoglund, "Dairy Farming Today and Tomorrow— Trends, New Developments, and Costs and Returns," prepared for Agriculture in Action program, Jan. & Feb., 1972. ^Source: Richard L. Trimble, Larry Connor, John R. Brake, "Michigan Farm Management Handbook1971," Agriculture Economics Report, Report No. 181, Dept, of Ag. Econ., MSU, May, 1971. ^C. R. Hoglund, "Economics of Grain Silage Systems," paper presented atOntarioSilage ence, Rexdale, Ontario, Canada, December, 1971. h Assumes an annual charge of 20 percent of investment. 1Assumes an annual charge of 22 percent of investment. Assumes an annual charge of 15 percent of investment. k Assumes an annual charge of 25 percent of investment. ^Assumes an annual charge of 10 percent of investment. mincludes depreciation and interest on silo unloading losses and storage losses and grinding charges. Confer­ 131 used in determining the estimates are given below the Table, several of the capital cost estimates require additional discussion. The annual capital cost associated with the o w n e r ­ ship of a conventional manure spreader illustrates some economics of size in the new price of spreaders. For these systems handling wastes as a solid the annual charge for the spreader was 2 2 percent of the new price of the spreader. The cost of a spreader is assumed to be $1,500 for the 40-cow herd, $1,875 for the 60-cow herd and $2,000 for the 80-cow herds. handling wastes as a liquid, For those systems the ownership of an inexpen­ sive, older spreader is assumed for hauling solid manure for the dry cow and heifer barns. It is estimated that the cost of this type of spreader is $ 1 , 0 0 0 80— cow herd and $1,200 for the 160-cow herd. for the Because of the nature of these s p r e a d e r s , the annual charge is assumed to be only fifteen percent of the price. The same type of relationship is assumed in the case of the ownership of a manure scraper and loader. The price of a scraper and loader is estimated to be $1,800 for the 80-cow herd and $2,400 for the 160-cow herd, except for the liquid systems. Again, the ow n e r ­ ship of an old scraper and loader is assumed for those systems handling waste as a liquid, the 80-cow herd and $ 1 , 2 0 0 valued at $ 1 , 0 00 for the 160-cow herd. for 132 For those systems handling waste as liquid, three months storage capacity is assumed. Furthermore, the assumption is made that 1,500 gallons of storage capacity would be required for each cow per three months. Con­ struction costs are e sti mat ed to be $ . 1 0 per g allon of capacity for the 80-cow herd and $.083 per gallon of capacity for the 160-cow herd. Assessing an annual charge of ten percent of the new cost results in an estimated annual cost of $15 per cow for the 80-cow herd and $12.48 per cow for the 160-cow herd. The investment requirements for the housing and milking parlor, ment, including bulk tank and related e q u i p ­ are listed in Table 14. All systems have a double four-herringbone mi lki ng parlor, stanchion housing system. except for the The investment requirements per cow for the mil kin g parlor are estimated to be $265 for the open lot systems; systems; $2 95 for the 80-cow covered and $2 72.50 for the 16 0-cow covered systems. The required investments, per cow, for the dairy barns are estimated to be $2 65 for the open lot housing system; $300 for the 80-cow cold covered housing system; $280 for the 160-cow cold covered ho using system; for the 80-cow w a r m enclosed housing system; for the 160-cow w a r m enclosed housing system. $400 and $380 The slotted floor housing system requires an additional investment of $6 7.50 per cow for the 80-cow herd and 133 Table 14. Estimated investment requirements for housing facilities and milking p a r l o r ,3 System D ollars/Cow + R Stanchion 40 cows 60 cows 607,50 600,00 Open Lot 80 cows 160 cows 605,00^ 6 0 5 . 00b Cold Covered 80 cows 160 cows 670.00 627.75 Warm Enclosed Tractor Scraper 80 cows 160 cows 770.00 727.50 Mechanical Scraper 80 cows 160 cows 770.00 727.50 Slotted Floors 80 cows 160 cows 837.50 793.70 aSource: C. R. Hoglund, "Dairy Farming Today and Tomorrow, Trends, New Developments and Costs and Returns," Paper prepared for Agriculture in Action P r o g r a m s , January and February, 1972, and I . ET Fellows and G. S. Sanford, "Economic Evaluation of Combining a Milking Center with a Stanchion Barn," Connecticut Agricultural Experiment Station Bulletin 398, 1966. Includes paved lots. 134 $6 7.2 0 per cow for the 160-cow herd. In addition, an investment of $75 per cow is estimated to be required to house replacement stock and calves. The annual capital cost associated with silage storage and related equipment are taken to be ten percent of the new cost of concrete tower silos of sufficient capacity to meet the feed storage requirements. The size of silos assumed are one 20* X 70* and one 24* X 50* for the 40-cow herd; one 24' X 60* and one 24* X 70* for the 60-cow herd; one 26* X 70* and one 30* 80-cow herd and two 36* X 70* X 60* for the silos for the 160-cow herd. The cost estimates associated with grain storage include not only a charge for the storage facility, but also the cost associated wit h grinding the corn and a charge for storage loss. The total of these costs are estimated to be $.40 per bushel for the 40- and 60-cow herds and $.30 per bushel for the 80- and 160-cow herds. Summary of Milk Production Activity The labor requirements, costs and receipts for the milk production activity are summarized in Table 15. The estimates included in this table are merely transfers from other tables already discussed in this chapter. Data in Table 15 indicate that the 160-cow, open lot housing system has the lowest milk production cost per cow and that the 40-cow stanchion housing system has Table 15. Labor requirements, costs and receipts per cow plus replacement for producing milk under alternative housing systems, waste handling systems and herd sizes. Warm Enclcsed Housing Stanchion Housing 40 Cows Annual Labor Requirements Costs General Cash Costs Capital Costs Manure Handling Housing and Milk Parlor Feed Storage0 Livestock Receipts d Net Cost 69.8 Open Lot Housing Cold Covered Housing TractorScraper MechanicalScraper Slotted Floors 60 Cows 80 Cows 160 Cows 80 Cows 160 Cows 80 Cows 160 Cows 80 Cows 160 Cows 80 Cows 160 Cows 63.9 45.6 43.2 46,8 44.4 42.9 40.5 39.3 36.9 39.3 36.9 131.70 131.70 131.70 131,'.70 131.70 131.70 131.70 131,70 131.70 131.70 131.70 131.70 67.80 69.00 63.40 64.00 70.00 68.70 61.50 60.35 58.65 57.19 57.50 56.05 20.75 17.62 8.87 6.79 8.87 6.79 25.13 21.37 30.13 25.77 25.13 21.37 60.75 60.00 60.50 60.50 67.00 62.75 77.00 72.75 77,00 72.75 83.75 79.37 81.30 77,80 63.00 52.80 63.00 52.80 63.00 52.80 63.00 52.80 63.00 52.80 85.00 85.00 85,00 85.00 85.00 85.00 85,00 85.00 85.00 85.00 85.00 85.00 277.30 271.12 242.47 230.79 255.57 237.74 273.33 253.97 275.40 255.21 276.08 256.29 aFrom Table 11. Sum of cash costs of Table 12. CFrom Table 13. ^Excluding hired labor costs and costs of feed production. 136 the hi ghest milk production cost per cow. However, cost estimates do not include hired labor charges. these The addition of labor charges will change the relationship of production costs among these systems. Under the assump­ tions within which estimates were developed for this study, there exists only relatively small differences in the total cost of milk production as shown in Table 15. Labor Requirements and Costs of Crop Production Activities Three crop production activities are defined for each dairy production system considered. Corn for grain, corn silage and alfalfa haylage needed to fulfill the requirements of the dairy herd are produced; none are produced for sale. The per acre labor requirements and costs to produce these three crops are given in Table 16. These requirements are assumed to be the same for 40-, 60- and 80-cow herds but somewhat less for the 160-cow herds because of a different mac hinery complement. It is assumed that only those firms with 160 cows wo uld do their own corn grain harvesting. to custom hire this operation. Other firms are assumed No machinery or equipment charges are included in Table 16 as these are included in the charge for the machinery complement. Table 16. Estimated labor requirements and costs of corn grain, corn silage and alfalfa haylage production. Com Grain Corn Silage Alfalfa Haylage Item 40, 60 or ' 80 cows 160 cows 40, 60 or 80 cows 160 cows 40, 60 or 80 cows 160 cows Hours Per Acre Labor Requirements3 March April May June July August September October November Total Labor/Year .25 .5 .62 .5 .12 .12 .25 .37 2.73 .2 .4 1.5 .4 .1 .1 1.0 1.2 .3 4.2 .5 .62 .5 .12 .12 2.5 2.5 .25 .4 .5 .4 .1 .1 2,0 2.0 .2 .12 1.3 1.2 2.5 .63 1.8 - 7.11 5.7 7.55 6.2 - - - .1 1.1 1,0 2.0 .5 1.5 - - Dollars Per Acre Cash Costs Seed0 Fertilizer Spray15 a Fuel and Repairs Custom Hire0 4.80 19.00 5.00 3.20 6.50 4.80 19.00 5.00 6.00 4.80 19.00 6.50 7.00 4.80 19.00 6.50 7.00 5.50 9.00 1.00 7.50 5.50 9.00 1.00 7.50 Capital Costs Landc Total Cost/Acre 40.00 78.50 40.00 40.00 77.30 40.00 77.30 40.00 40.00 63.00 63.00 74.80 Source: Allen E. Shapley, "Alternatives in Dairy Farm Technology with Special Emphasis on Labor, unpublished Ph.D. Dissertation, Michigan State University, 1968, modified by Richard L. Trimble, Larry J. Connor, John R. Brake, "Michigan Farm Management Handbook, 1971," Agricultural Economics Report, Report Mo. 191, Department of Agricultural Economics, Michigan State University, May, 1971. Source: Richard L. Trimble, Larry J. Connor, John R. Brake, "Michigan Farm Management Handbook, 1971," Agricultural Economics Report, Report No. 191, Department of Agricultural Economics, Michigan State University, May, 1971. Source: C. R. Hoglund, C, D. Schwab and M. B. Tesar, "Economics of Growing and Feeding Alfalfa and Corn Silage for Dairy Cattle," Farm Science, Research Report 154, Michigan Agricultural Experiment Station, March, 1972. ^Excluding labor costs. 139 Net crop yields considered for this study are: 92 bushels per acre for corn g r a i n , 15 tons per acre of corn silage and 4.2 tons per acre alfalfa haylage.^" feeding" basis, loss. (hay equivalent) for These figures are on a "preserved for allowing for some harvesting and storage The annual feed requirements per cow plus r epl ace ­ ment were assumed to be 82 bushels of corn, corn silage and 4.3 tons of hay equivalent. 12 tons of 2 Basic Machinery Complement The linear programming algorithm employed in this study yields an objective function a composite return to the operator's value which is labor, management, and to the basic machinery complement. Costs associated w i t h the ownership of the basic machinery complement are deducted from the objective value to determine the return to the operator for his labor and management. Machine ry ownership costs are deducted from the objective value rather than specifying machinery costs for each production activity. As several pieces of ma chi n e r y are used for more than one production activity, this procedure eliminated the need to arbitrarily spread the fixed costs of the machin ery complement among its joint uses. The investment and annual ownership costs associated with the basic machinery complements, one 140 for the 40-, herds, 60- and 80-cow herds and one for the 160-cow are specified in Table 17. Investment Requirements Presented in Table 18 are estimates of investment requirements for housing and mi lking parlors, storage and handling, for feed for waste handling equipment, the dairy cows and replacement stock, for for the machinery complement and for cropland for alternative production systems and herd sizes. The 40-cow stanchion housing system requires the highest investment per cow, due largely to two factors: (1 ) the assumption of identical machinery complements for the 40-, 60- and 80-cow herds results in a large investment per cow for machinery for the 40-cow herd; and storage (2 ) substantial economies of size in feed facilities result in large per cow investments for the small herds. The 80-cow w a r m enclosed systems rank second in investment requirements per cow. Although the 80-cow systems enjoy some economies of size in feed storage and machinery, the investments for housing and waste storage are substantial. The mechanical scraper and slotted floor systems require a higher investment than the tractor scraper system. The 60-cow stanchion housing system has a rela­ tively high investment requirement, again due to the T able 17. Estimated costs of basic machinery complement. Herd Size Annual Ownership Costs3 Herd Size <80 <80 New Price0 Item Spec. 160 160 y. Tractor (Used) Tractor Tractor Tractor Tractor Plow Plow Plow Disc Disc Corn Planter Corn Planter Spray Attachment Spray Attachment Seeder*3 Field Chopper Field Chopper Corn Harvester Sprayer Silage Wagons Grain Wagon Forage Head Forage Head Corn Head Corn Head Harrow Cultivator Cultivator Feed Grinder Feed Grinder Windrower Windrower Silage Blower Silage Blower Truck Truck Total Cost 50 H.P. 38 H.P. 53 H.P. 70 H.P. 90 H.P. 3-16" 4-16" 5-16" 12* 16* 4-Row 6—Row 4-Row 6-Row 1,400 1,400 84 84 4,200 4,200 567 567 5,600 5,600 757 757 — — 7,400 1,000 — — 10,000 1,351 1,600 1,600 252 252 — — 2,000 315 — — 2,350 370 — — 1,300 176 — — 1,600 216 — — 1,500 236 — — 2,100 331 — — 300 40 — — 450 47 900 900 120 120 — 3,900 — 2—R PTO 615 — — 2—R PTO 10,000 1,200 — — 4,900 662 2-R Mounted 32* 1,000 1,000 150 150 S.U. 3,400 5,100 460 690 — 575 — 78 — 800 120 -— — 1,000 150 — — 600 2-Row 120 2-Row — — 1,000 150 16* 450 450 47 47 — — 4-Row 850 115 — — 6-Row 1,200 162 — 650 PTO 130 1,000 — — PTO 200 — — 9 ’ PTO 2 ,700 527 — — 4,800 756 11* S.P. — 60* 900 — 122 — — 70* 1,000 150 — — 3/4 T. 2,500 500 — — 1 1/2 T. 4,500 900 43,950 66,725 6,453 9,390 aUnless specified, the estimates were taken from Richard L. Trimble Larry J. Connor and John R. Brake, "Michigan Farm Management Handbook, 1971 Agricultural Economics Report, Report No. 191, Department of Agricultural Economics, Michigan State University, May, 1971. bSource: Allen E. Shapley, "Alternatives in Dairy Farm Technology with Special Emphasis on Labor," unpublished Ph.D. dissertation, Michigan State University, 1968. 142 Table 18. Estimated total investment requirements— alternative housing systems, manure handling systems and herd sizes. — ' Stanchion Housing Item Housing and Milking Parlor Silage Storage*3 Grain storage0 Manure Handling** Gutter Cleaner Manure Spreader Liquid Storage Scraper and Loader Mechanical Scraper Pump and Agitator Liquid Spreader a 1TS Open Lot Housing 40 cows 60 cows 80 cows 160 cows 24,300 36,000 48,400 96,800 19,400 27,000 30,050 45,000 5,400 7,600 9,200 15,000 2,500 1,500 3,050 1,875 — — — — — — — — — — r 2,000 — 1,800 — — — 3,300 — 2,400 — — — Total Manure Handling £ Machinery Complement 4,000 5,925 3,800 5,700 43,950 43,950 43,950 66,725 Land^ 54,300 81,450 108,600 217,200 18,000 27,000 36,000 72,000 Total Investment 169,350 227,925 180,000 518,425 Total Investment/Cow 4,233.75 3,798.75 3,800.00 3,240.16 Cows and Replacement q aSource: C. R. Hoglund, "Dairy Farming Today and Tomorrow— Trends, New Developments, and Costs and Returns," paper prepared for Agriculture in Action Programs, January and February, 1972. ^Source: Richard L. Trimble, Larry J. Connor, John R. Brake, "Michigan Farm Management Handbook, 1971," Agricultural Economics Report, Report No. 191, Department of Agricultural Economics, Michigan State University, May, 1971. CSource: C. R. Hoglund, "Economics of Grain Silage Systems," paper presented at Ontario Silage Conference, Rexdale, Ontario, Canada, December 15, 1971. j Source: C. R. Hoglund, "Labor Requirements, Investments and Annual Costs— Alternative Manure Handling Systems," unpublished data, Department of Agricultural Economics, Michigan State University. 143 Warm Enclosed Housing Cold Covered Housing 160 cows 80 cows Tractor Scraper 80 cows 160 cows Mechanical Scraper Slotted Floors 80 cows 160 cows 80 cows 160 cows 53,600 100,400 61,600 116,400 61,600 116,400 67,000 127,000 30,050 45,000 30,050 45,000 30,050 45,000 30,050 45,000 9,200 15,000 9,200 15,000 9,200 15,000 9,200 15,000 3,000 — 1,800 — — — 3,300 — 2,400 — — — 1,000 12,000 1,000 1,000 1,500 1,200 20,000 1,200 — 1,900 2 ,500 1,000 12,000 1,000 2,000 1,000 1,500 1,200 20,000 1,200 3,500 1,900 2,500 1,000 12,000 1,000 — 1,000 1,500 1,200 20,000 1,200 — 1,900 2,500 4,800 5,700 16,500 26,800 18,500 30,300 16,500 26,800 43,950 66,725 43,950 66,725 43,950 66,725 43,950 66,725 108,600 217,200 108,600 217,200 108,600 217,200 108,600 217,200 36,000 72,000 36,000 72,000 36,000 72,000 36,000 72,000 286,200 522,025 305,900 559,225 307,900 562,625 311,300 568,525 3,577.50 3,262.66 3,823.75 3,495.16 3,848.75 3,516,40 3,891.25 3,554.33 — g Source: Allen E. Shapley, "Alternatives in Dairy Farm Technology with Special Emphasis on Labor," unpublished Ph.D. dissertation, Michigan State Univer­ sity, 1968, modified by Richard L, Trimble, Larry J. Connor, John R. Brake, "Michigan Farm Management Handbook, 1971," Agricultural Economics Report, Report No. 191, Department of Agricultural Economics, Michigan State University, May, 1971. ^Number of acres determined by the linear programming model described in the next section. g Assumes a value of $450 per cow + R. 144 diseconomies of feed storage and machinery for the smaller herd sizes. The 80— cow cold covered system requires a higher investment than the 80-cow open lot system due almost entirely to the more expensive dairy barn required for the cold covered system. The 160-cow herds require the least investment per cow due largely to economies of size in feed storage facilities and the machi ner y complement. The open lot system requires no was te storage facilities and utilizes a less expensive dairy barn than the other systems, result ing in the lowest investment requirement per cow of all systems. Hired Labor and Return to Operator's Labor Using the estimates derived in previous sections and the model outlined in Chapter V, the amount of hired labor and the return to the operator's labor, and m a n a g e ­ ment are determined for each of the twelve synthetic firms (Table 19). All firms hire substantial amounts of labor from March through October. This period represents the increased labor requirements of the cropping activities. Firms utilizing liquid waste handling systems require additional hired labor to empty manure tanks during the months of March, June, September and December. 145 Table 19. Hired labor, return to fixed factors and return to operator— alternative housing systems, waste handling systems and herd sizes. Stanchion Housing 40 cows 60 cows Open Lot Housing 80 cows 160 cows Cold Covered Housing 80 cows 160 cows hours Hired Labor a January 15. 3 103. 3 91.3 371. 3 99.3 387.3 February 12.6 94.6 80.6 328.6 88.6 344.6 March 24.2 116.7 109.1 399.8 117.1 415.8 April 57.1 162.5 159.9 471.0 167.9 487.0 May 110.5 246.1 281.7 686.8 289.7 702.8 June 101.3 228.8 248.3 618.4 256.3 634.5 July 125.8 269.0 342.3 726.0 320.3 742.0 August 147.8 252.7 257.7 578.8 265.7 594.8 September 172.1 334.9 389.8 990.7 397.8 1,006.7 October 104.2 236.7 269.1 798.4 277.1 814.4 November 39.6 136.2 124.8 414.7 132.8 430.8 December 15.3 103.3 91.3 371.3 99.3 387.3 925.8 2,284.8 2,415.9 6 ,755.8 2,511.9 6,948.0 23.1 38.1 30.2 42.2 31.4 43.4 Total Hired Labor Total Hired Labor/Cow Return to Fixed Factors (Obj. Value) 9 ,477.88 11,899.47 20,049.86 36 ,723.84 18,713.86 35,035.84 Machinery charge 6 ,453.00 6,453.00 Return to Operator 3,024.88 5,446.47 13,596.86 27 ,333.84 12,260.86 25,645.84 Return/Hour of Operator Labor £ 1.21 2.18 6,453.00 5.44 9 ,390.00 10.93 6,453.00 4.90 Determined by the Linear Programming model as described in the next section. 9,390.00 10.26 146 Warm Enclosed Housing Tractor Scraper 80 cows 160 cows Mechanical Scraper 160 cows 80 cows slotted Floors 80 cows 160 cows hours 59.3 307.3 35.3 259.3 35.3 259.3 56.6 280.6 32.6 232.6 32.6 232.6 109.1 399.8 85.1 351.8 85.1 351.8 135.9 423.0 111.9 375.0 111.9 375.0 249.7 622.8 225.7 574.8 225.7 574.8 256.3 634.5 232.3 586.5 232. 3 586.5 280.3 662.0 256.3 614.0 256.3 614.0 225.7 514.9 201.7 466.9 201.7 466.9 397.8 1,006.7 373.8 958.7 373.8 958.7 237.1 734.4 213.1 686.4 213.1 686.4 100.8 366.8 76.8 318.8 76.8 318.8 91.3 371.3 67.3 323.3 67.3 323.3 2,199.9 6,324.1 1,911.9 5,748.1 1,911.9 5,748.1 27.5 39.5 23.9 35.3 23.9 35.3 18,229.06 34,311.04 18,921.06 35,840.64 18,873.06 35,667.84 6,453.00 9,390.00 6,453.00 9,390.00 6,453.00 9,390.00 11,776.06 24,921.04 12 ,468.06 26,450.64 12,420.06 26,277.84 4.71 9.97 4.99 10.58 4.96 10.49 147 The 160-cow cold covered housing system requires the greatest amount of hired labor due to the higher waste handling labor requirements. Even though the 40-cow stanchion housing system is the most labor intensive system analyzed, hired labor requirements are the least due to the small size of op eration, The returns to the operator for his labor and management range from $10,9 3 per hour of labor for the 160-cow open lot housing system to $ 1 , 2 1 per hour for the 40-cow stanchion housing system. Among the 80-cow herds, returns to the operator ranged from $5.44 per hour for the open lot system to $4.71 per hour for the warm enclosed housing system utilizing a tractor scraper for manure collection. Variation in returns to the operator among the alternative systems of the same herd size is not very great. This results largely from the fact that the capital intensive systems require less hired labor and the labor intensive systems have a lower capital cost component. Therefore, the total cost of milk production and, thus, total returns are very similar for these systems. 148 Summary of Synthetic Firms The labor requirements, acres of cropland, investment requirements, annual costs and returns of the twelve synthetic firms are summarized in Table 20. tion provided in this table, The inf orma­ along wi th the distribution of hi red labor given in Table 18, completely describes the synthetic firms developed for this study. In Chapter VII these synthetic firms are used to analyze the impact of three alternative pollution abatement policies on Mi chi gan dairy producers. Not all of the synthetic firms are affected by each of the policies considered. for those firms wh ich are affected, But, the analysis consists of the determination of the impact on policy compliance with respect to: the firm, ments, (1 ) the total labor requirements of (2 ) the monthly distribution of labor req u i r e ­ (3) the investment requirements of the firm, the costs of milk production, and (4) (5) the returns to the o p e r a t o r ’s labor, managem ent and risk bearing. 149 Table 20. Labor requirements, investment requirements, crop acreage, annual costs and returns of milk production-alternative housing systems, manure handling systems and herd sizes. Stanchion Housing 40 cows Labor Hours/Yeara 60 cows Open Lot Housing 80 cows 160 cows Cold Covered Housing 80 cows 160 cows 3,425.8 4,784.8 4,915.9 9,255.8 5,011.9 9,448.0 108.6 162.9 217.2 434.4 217.2 434.4 Acres of Crops Dollars Investments Housing & Parlor Feed Storage Manure Handling Machinery Land Cows + R Total Investment 24.300.00 24.800.00 4,000.00 43.950.00 54.300.00 18,000.00 36.000.00 48.400.00 96.800.00 53.600.00 100.400.00 34.600.00 39.250.00 60,000.00 39.250.00 60,000.00 4,800.00 5,700.00 5 ,700,00 3,800.00 5,925.00 43.950.00 43.950.00 66.725.00 43.950.00 66,725.00 81.450.00 108,600.00 217,200.00 108,600.00 217.200.00 27.000.00 36,000.00 72,000.00 36,000.00 72,000.00 169,350.00 227,925.00 280,000.00 518,425.00 286,200.00 522,025.00 4,233.75 3,798.75 3,500.00 3,240.16 3,577.50 3,262.66 11,092.00 7,852.72 6,453.00 2,777.40 16,267.20 11,778.95 6,453.00 6,854.40 19,397.60 15,704.84 6,453.00 7,247.70 36.926.40 30,882.36 9,390.00 20.267.40 20,445.60 15,704.84 6,453.00 7,535.70 38.038.40 30,882.36 9,390.00 20.843.40 Total Annual Costs 28,175.12 41,353.55 48,803.14 97,466.16 50,139.14 99,154.16 Total Return^c 31,200.00 46,800.00 62,400.00 124,800.00 62,400.00 124,800.00 3,024.88 5,446.47 13,596.86 27,333.84 12,260.86 25,645.84 75.62 90.77 169.96 170.84 153.26 160.29 Investments/Cow + R Annual Costs Milk Production Crop Production Machinery Hired Labor Net Returns Net Returns/Cow a includes 2,500 hours of operator labor. Includes a deduction of $85.00/cow for sale of cull cows and calves, but does not include crop production or labor costs. CTotal milk sales. 150 Warm Enclosed Housing Tractor Scraper 80 cows 160 cows Mechanical Scraper 80 cows 160 cows Slotted Floors 80 cows 160 cows 4,699.9 8,824.1 4,411.9 8,248.1 4,411.9 8,248.1 217.2 434.4 217.2 434.4 217.2 434.4 61,600.00 39,250.00 16,500,00 43,950.00 108,600.00 36,000,00 116,400.00 60,000.00 26,800.00 66,725.00 217,200.00 72,000.00 61,600.00 39,250.00 18,500.00 43,950.00 108,600.00 36,000.00 116,400.00 60,000.00 30,300.00 66,725.00 217,200.00 72,000.00 67,000.00 39,250.00 16,500.00 43,950.00 108,600.00 36,000.00 127,000.00 60,000.00 26,800.00 66,725.00 217,200.00 72,000.00 305,900.00 559,225.00 307,900.00 562,625.00 311,300.00 568,525.00 3,823.75 3,495.16 3,848.75 3,516.40 3,891.25 3,554.33 21,866.40 15,704.84 6,453.00 6,599.70 40,635.20 30,882.36 9,390.00 18,971.40 22,038.40 15,704.84 6,453.00 5,735.70 40,833.60 30,882.36 9,390.00 17,243.40 22 ,086.40 15,704.84 6,453.00 5,735.70 41,006.40 30,882.36 9,390.00 17,243.40 50,623.94 99,878.96 49,931.94 98,349.36 49,979.94 98,522.16 62,400.00 124,800.00 62,400.00 124,800.00 62,400.00 124,800.00 11,776.06 24,921.04 12,468.06 26,450.64 12,420.06 26,277.84 147,20 155.76 155.85 165.32 155.25 164.24 CH A P T E R VII IMPACTS OP ALTERNATIVE POLLUTION A BATE MEN T POLICIES Introduction The purpose of this chapter is to examine the physical and economic impacts of compliance with p o l l u ­ tion abatement policies on the twelve synthetic firms. Assuming production remains at the same level of output after compliance, the impact on the costs of production is related to the theoretical, in Chapter IV. economic models developed The theoretical models presented in Chapter IV assume the cost structure of the firm is known for all levels of output and that acquisition and salvage prices are known for all "f i x e d ” inputs. synthetic The firms developed for this study only describe one point on the firm cost curves, however. Furthermore, only the acquisition prices of inputs are presented. a result, As no definitive statements can be made concerning whether or not a given firm would comply w ith the p o l l u ­ tion abatement policy, or whether output would remain at the same level. 151 However, (number of cows) implications 152 can be identified from the nature of the impact on the synthetic firm. The policy alternatives to be examined in this chapter include: open lots, and (1) mandatory control of runoff from (2) prohibition of winter spreading of wastes, (3) m and ato ry subsurface disposal of dairy wastes. The impact of these alternative policies are examined. Impact of Runoff Control Policy Un der the assumptions made for this study, a policy requiring control of waste runoff from the production site is only applicable to the open lot housing system. Al­ though stanchion housing systems may have open lot areas, cows are generally confined during the winter. Because of the exp osed nature of the feeding and exercise area associated w i t h the open lot systems, wastes are sus­ ceptible to "flushing" w i t h storm events. This runoff is created not only by the precipitation which falls on the lot itself, but also by water from outside the lot flowing across the lot. The amount of wa ste wh ich enters a waterway from runoff is dependent upon many variables. Among the p r i ­ mary variables to be considered are the location of the feedlot, the physical characteristics of the feedlot facilities, the feedlot management of wastes and, perhaps most important, the intensity of each incidence of 153 precipitation. Depending on the mix of these variables, some firms may have no runoff problems; others may have severe problems. Facility Requirements For those open lot systems which do create runoff, a policy requiring control of this runoff is assumed. The methods and requirements for control of runoff can be expected to differ from one farm situation to another. In general, however, this type of policy implies the construction of facilities to (1) divert precipitation which falls upon areas outside the lot but tends to flow across the lot, (2) collect the mixture of water and wastes which flows from the lot with each rainfall, and (3) periodically empty the collection facilities. Again, the size and nature of diversion facilities and amount of excavation required for the detention pond depends upon the physical characteristics of the produc­ tion site. Specifically, the location of the production site in relationship to existing waterways and the nature of the terrain in the area of pond construction are crucial factors in determining the type and cost of diversion and retention facilities required. For purposes of this study, the following assumptions are made relative to the physical requirements of runoff control for the "typical" or representative open lot system.^" 154 For the diversion facility, it is assumed that the construction of an earth embankment or dike wou ld be required on two sides of the production site in order to divert w ate r away from the open lot. The production site includes the dairy barn, the open lot, the feed storage facilities and related equipment. This e m b a n k ­ ment shall be constructed to specifications allowing the diversion of rainfall equivalent to the m aximum ten-year, 2 4-hour storm level. The size of diversion required to encompass the two high sides of the production site depends on the l a y ­ out of the open lot and related buildings and equipment. For purposes of this study, it was assumed that the size of the open lot is 5 0 1 X 160' 80' X 200* for the 80-cow herd and for the 160-cow herd. Making allowances for the dairy barn and feed storage facilities, the size of diversion required was estimated to be 140' X 310' the 80-cow system and 175' X 375' tion. for for the 160-cow o p e r a ­ This results in watersheds of approximately one acre and one and a half acres for the 80-cow and 160-cow operations, respectively. A detention pond would be constructed adjacent to the watershed to collect the runnoff from the watershed. Because of the physical nature of dairy cow wastes, the use of a settling basin in conjunction with the detention pond is not required. The detention pond is assumed to 155 be constructed to Soil Conservation Service specifications. These specifications require: 1. 2 One foot of freeboard above the design storage level of the pond; 2. An earth spillway with minimum depth of one foot; 3. An elevation difference of at least two and one-half feet between ma xim um design pond level and the top of the embankment around the basin; 4. An emergency spillway at least ten feet wide and at least one foot above the maximum design pool level; 5. That the pond have a sealed botton, not sus­ ceptible to filling by groundwater; 6. and That the pond be constructed at least 1,00 0 feet from the home of persons other than the owner. In addition, the embankments, spillways and diversions must be vegetated and the detention facilities must be fenced. The size of the detention pond required is estimated by assuming that the facility would be designed to retain six m o n t h s ’ runoff from the watershed. Due to the assump­ tion of paved lots and to the impervious nature of the production site, it was assumed that all precipitation in 156 the watershed would require detention. Using an estimate of eighteen inches of rainfall in a six-month period, the capacity of the det ention ponds was determined to be 2,400 cubic yards and 3,600 cubic yards for the 80- and 160-cow operations, respectively. The detention ponds are assumed to be emptied twice a year by means of a pump and irrigation system. Un der the assumption that wastes are scraped from the lots daily, and given the composition of dairy cow manure, it is assumed that w i t h minimal agitation all of the con ­ tents of the detention pond can be emptied by means of irrigation. An SCS restriction allows a maximum irrigation load of two inches per acre at any one time. This res tri c­ tion implies a land requirement of nine acres for the 80-cow herd and 13,5 acres for the 160-cow operation, for irrigation purposes, assuming that the pond is em ptied in one pumping. It is assumed that cropland is available within pumping distance of the detention pond. Economic Impact The estimated investment requirements and annual costs associated w i t h controlling runoff are presented in Table 21. The es tim ate d investment outlays required 157 Table 21. Estimated investment requirements and annual costs of runoff control for two open lot housing systems. Size of Operation Item 80 cows 160 cows Investment Requirements Diversion3 $ 225.00 $ 275.00 Detention Pond 13 Excavation B o t t o m Surfacing 1,800.00 Vegetat ion and Fencing Irrigation Equipment 0 Total Investment 200.00 2,700.00 350.00 150.00 200.00 1,500.00 2 ,0 0 0 . 0 0 $3,875.00 $5,525.00 $ $ Annual Capital Costs/Cow Diversion Detention Pond Ve get a t i o n and Fencing .25 2 .43 1.90 .17 . 12 1. 70 Irrigation Equipment .16 1 . 12 Annual Cash Costs/Cow Maintenance6 Irrigation^ Total Annual Costs/Cow^ $ .50 . 35 3. 40 2.50 8.45 $ 6 .15 aSource; Cost estimate of $.50/foot provided by Paul Koch of SCS, Source: Cost estimate of $.50-$1, 0 0 /cubic yard suggested by Paul Koch of SCS. cSource; Cost suggested by Ray Hoglund, Professor of A g r i c ul tur al Economics, Michigan State University. Annual costs of 10 percent of investment. eAnnual cost of one percent of investment. fCost of operating the irrigation pump. gNo additional costs are attributed to taking of land for detention facilities. 158 for construction of a diversion embankment are based on a per unit construction charge of fifty cents per linear foot of embankment. The combined per unit construction charge of the detention pond, freeboard, and spillway is estimated to be seventy-five cents per cubic yard of excavation. This cost can be altered substantially, depending upon the terrain of the excavation site and the amount of labor p rov ide d by the operator. The cost of excavation presented in Table 21 approaches the m a x i ­ m u m that wo uld be required. The cost for surfacing the bo t t o m of the pond assumes approximately eighteen inches of clay w ill be required to seal the p ond to prevent filling by groundwater. irrigation equipment, It is assumed that second-hand including pump, pipe and sprinkler heads, of adequate quality can be purchased. The annual cost of controlling runoff includes a ten percent charge on investment, of one percent of investment, the irrigation system. a maintenance charge and the cost of operating In addition, labor requirements are increased by the necessity of setting up, moving, and disassembling the irrigation equipment. It is assumed that the detention pond will be emptied twice a year, once during April and May and once in October. Ea ch emptying of the pond is estimated to require sixteen hours of labor for the 80-cow herd and thirty-two hours for the 160-cow herd. 159 Table 22 presents a comparison of investment requirements, costs of production, hired labor require­ ments and returns to the operator's labor before and after compliance w ith the runoff control policy. Com­ pliance with the runoff control policy approximately doubles the investment requirements for waste handling facilities. At the same time, total investment is only increased by about one percent. The annual costs of milk production are increased by only 1 . 6 percent and 1 . 2 percent for the 80- and 16 0 cow herds, respectively; but net returns are reduced by 5.7 percent and 4.3 percent, respectively. In essence, a runoff control policy will require the operator to make an increased investment in the milk production system ($3,875.00 and $5,525.00 for the 80- and 160-cow systems, respectively) but suffer a decrease in net returns on his total investment ($772.00 and $1,176.00 for the 80- and 160-cow systems, respectively). The reduction in returns is equivalent to $.075 per hundred­ weight of milk produced for the 80-cow herd and $.05 7 per hundredweight for the 160-cow herd. Summary Runoff control policies, primarily affecting beef feedlots, are in effect in certain states. In Michigan the Water Resources Commission has required Table 22. Impact of runoff control on two open lot housing systems. Before Policy ... ....} ' ---= Difference After Policy Item 80 cows 160 cows 80 cows 160 cows 80 cows Percentage Difference 160 160 cows 80 cows cows Dollars Total Investment 280,000.00 518,425.00 283,875.00 523,950.00 +3,875.00 +5,525.00 + Investment/Cow 3,500.00 3,240.16 3,548.45 3,274.69 Investment in Waste Handling Facilities 3,800.00 5,700.00 7,675.00 11,225.00 35.63 95.95 70.16 + 43,803.14 97,466.16 49,575.14 98,642.16 + 610.04 609,06 619.69 616.41 + 13,596.86 27,333.84 12,824.86 26,157.86 - 5.44 10.93 5.13 10.46 - 169.96 170.84 160.31 163.49 - Investment in Waste Hand1ing Faci1ities/Cow Cost of Milk Production3 Cost of Milk Pro­ duction/Cow Net Returns to Operator Net Returns/Hour of Operator Labor Net Returns/Cow Hired Labor (Hours) 2,415.9 6,755.8 2,447.9 6,819.9 48.45 + +3,875.00 +5,525.00 48.45 + 34.53 772.00 +1,176.00 + 1.4 + 1.1 +102.0 +97.0 102.0 97.0 + 1.6 + 1.2 7.35 + 1,6 + 1.2 772.00 -1,176.00 - 5.7 - 4.3 .47 - 5.7 - 4.3 7.35 - 5.7 - 4.3 + 1.3 + 9.65 + + .31 9.65 __b + 32 aRlso includes feed production, hired labor and machinery ownership. ^An additional 8 hours in April and May and 16 hours in October. Q 34.53 1.4 + 1.1 An additional 16 hours in April and May and 32 hours in October. 64C .9 161 runoff detention in several instances as a means of r e d u c ­ ing water pollution. It is not unrealistic to expect dairy producers with open lot housing systems to become subjected to similar controls, through authorized actions for existing legislation or through new legislation. If this type of runoff control were to take the form of a state regulation imposing u nif orm requirements on all producers, some 2,500 Michigan Grade A milk p r o ­ ducers could be affected. If runoff control is imposed through private litigation or as authorized by existing state legislation, via the Michigan Water Resources C o m ­ mission, expectations are that substantially fewer than 2,500 firms wo u l d be affected. For those firms wh ich may be required to control runoff, the above analysis indicates that investments in waste handling facilities could double from the present level. In addition, returns to operators' labor may be expected to decrease by approximately five percent. Required investments range from approximately $4,000 to $5,500; however, annual returns to operators' labor are reduced by $800 to $ 1 ,2 0 0 . Impact of No Winter Disposal Policy Two states have or are considering legislation w h ich w oul d prohibit the spreading of wastes during the winter months when the ground is frozen. Such 162 considerations have arisen from the concern about waste runoff from the land disposal sites, namely croplands. As previously noted, the majority of Michigan milk p r o ­ ducers currently employ waste handling systems which require daily waste hauling and spreading. climatic conditions, For Michigan this necessitates the spreading of wastes on frozen or snow-covered land during winter months. Wastes spread during these months are susceptible to runoff during the periodic thawing of the snow, and susceptible to flushing from frozen surfaces during w i n ­ ter rains. With the prevelance of waterways in many Michigan dairy areas, the potential of field runoff of wastes resulting in water pollution does exist. The degree of water pollution arising from winter spread dairy wastes depends on the nature of the disposal area— the slope, waterways. vegetation, soil type, and nearness to Until measures of these variables for all Michigan dairies are taken, the extent of water p o l l u ­ tion originating from winter spreading of dairy wastes will not be known. However, given M i c h i g a n 1s general climatic and topographical conditions, the problem is potentially serious and is being given research considera­ tion . Depending on the means of implementing a policy prohibiting w inter spreading of dairy wastes, a large majority of Michigan dairy producers could be affected. 163 Presently, few producers, other than those utilizing a liquid waste system, have waste storage facilities. Those wit h liquid systems generally have storage cap aci ­ ties for only three months. A policy prohibiting waste spreading from October 15 to April 15 would require the construction of new facilities or the addition to e x i s t ­ ing facilities on most Michigan dairies to provide waste storage capacity for this six-month period. A six-month storage period for dairy wastes alters the pattern of labor usage and changes milk p r o ­ duction costs and returns. The magnitude of these changes are analyzed separately for those systems h a n d l ­ ing w astes as a solid, facilities; analyzed, assuming no initial storage systems handling wastes as a liquid are also assuming an initial storage facility with capacity for wastes produced in three months. Impact on Solid Manure Systems Fa cility Requirements For the stanchion, open lot and cold covered ho using systems, a policy of no wi n t e r spreading requires the construction of n e w storage facilities with six months' capacity. The storage facility used in c o n j u n c ­ tion with the stanchion and open lot system is expected to resemble a bunker silo wi th paved floors and walls, 164 on three sides, constructed of concrete blocks, wooden planks, tilt-up concrete slabs or poured concrete. These systems require the use of a stacker to transport the wastes into the storage facility. The stacker is attached directly to the gutter cleaner when used with stanchion housing. In conjunction with the open lot system, the stacker is located adjacent to the storage facility and the wastes are scraped from the lot for loading. The storage facility expected to be used with the cold covered housing system is substantially differ­ ent from the facilities previously described. Typically, the storage facilities will consist of a roofed structure located at one end of the barn or somewhat removed from the barn if required by sanitation regulations. Wastes are scraped directly into storage from the concrete alleys. In all cases, a front-end loader and spreader will be used to empty the storage facilities. Therefore, an existing stanchion housing system is required to pur­ chase a front-end loader and scraper. Economic Impact The estimated investment requirements, changes in annual costs, and changes in labor requirements resulting from a policy prohibiting winter spreading of wastes are presented in Table 2 3 for systems handling wastes as a Table 23. Estimated investment requirements and changes in annual costs and labor requirements per cow resulting from a no winter disposal policy— alternative housing systems and herd sizes. stanchion Housing Item Investment Requirements a 40 cows 60 cows Open Lot Housing 80 cows 160 cows Cold Covered Housing 80 cows 160 cows Dollars Stacker Storage Scraper and Loader Total Investments 2.500.00 7.100.00 3,500.00 13,800.00 9,300.00 17,800.00 11,000.00 9,600.00 17,300.00 9,300.00 17,800.00 6.25 8.88 4.37 8,62 11.63 11.13 6.75 7.33 11.67 4.50 -.50 .38 -.83 .38 -1.06 .38 1.12 -1.50 -1.61 2.00 2.00 2.00 2.00 2.00 2.00 30.13 25.05 16.45 14.25 12.13 11.52 -.4 -.4 1.900.00 4.800.00 1.800.00 2 ,200.00 8,500.00 9.50 7,000.00 1,800.00 Annual Capital Costs/Cow Stacker13 Storage0 Scraper and Loader 12,00 Changes in Annual Cash Costs/Cow Tractor Power3 Utilities® Maintenance Net Change in Annual Costs/Cowe - .38 Hours Changes in Labor Requirements/Cow January -.4 -.4 -.4 -.4 February -.4 -.4 -.4 -.4 -.4 -.4 March -.4 -.4 -.4 -.4 -.4 -.4 April .7 .6 .7 •6 .7 .6 May .7 .6 .7 .6 .7 .6 June -.4 -.4 -.4 -.4 -.4 -.4 July -.4 -.4 -.4 -.4 -.4 -.4 August -.4 -.4 -.4 -.4 -.4 -.4 September -.4 -.4 -.4 -.4 -.4 -.4 October 1.4 1.2 1.4 1.2 1.4 1.2 November -.4 -.4 -.4 -.4 -.4 -.4 December -.4 -.4 -.4 -.4 -.4 -.4 Total -.8 -1.2 -.8 -1.2 -.8 -1.2 aSource: Ray Hoglund, "Labor Requirements, Investments and Annual Costs— Alternative Manure Handling Systems," unpublished paper, Department of Agricultural Economics, Michigan State University. jj Assumes an annual charge of 20 percent of investment. c Assumes an annual charge of 10 percent of investment. ^Assumes an annual charge of 15 percent of investment. £ Excludes hired labor costs. 167 solid. Substantial additional investment in waste handling facilities is required; ranging from $8,500 for the 40-cow stanchion system to $17,800 for the 160-cow cold covered system. Associated w i t h these investment outlays are changes in the level of cash costs. wastes, The cost of hauling reflected in the charge for tractor power, is reduced because of the effici enc y of hauling w astes twice annually rather than daily. However, utility costs are increased for the stanchion and open lot housing systems due to electrical requirements of the stacker. Annual costs of m ilk production increase sub­ stantially for all systems wh en winter storage of dairy w astes is required. Excluding changes in labor costs, these increases range from $30,13 per cow for the 40-cow stanchion system to $11.52 system. for the 160-cow cold covered These increased costs are offset only slightly by reductions in labor requirements. The reduced labor requirements accrue be cause of increased labor efficiency due to hauling wastes only twice annually rather than daily. However, labor requirements are increased during April, May and October, the months in wh ich the storage facilities are emptied. To illustrate the overall impact of a policy prohibiting winter spreading of manure, Table 24 presents changes in investment requirements, returns, annual costs, and hired labor requirements, annual for firms complying Table 24. Estimated changes in investments, costs, returns and hired labor resulting from a no winter disposal policy— alternative housing systems and herd sizes. Open Lot Housing Stanchion Housing item 40 cows Change Dollars 60 cows % Change Dollars 80 cows % Change Dollars Cold Covered Housing 160 cows % Change Dollars 80 cows % Change Dollars 160 cows % Change % Dollars Total 5. 11,000.00 4.8 3.3 9,300.00 8,500.00 9,600.00 3.4 17,300.00 3.2 17,800.00 3.4 Investment Investment/ 4.8 212.25 120.00 3.4 116.25 3.2 111.25 5. 183.33 108.13 3.3 3.4 Cow Investment in Manure 8,500.00 212.25 11,000,00 185.65 9,600.00 252.6 17,300.00 303.5 9,300.00 193.8 17,800.00 312.3 Handling Facilities Investment/ Cow in Manure 212.25 212.25 120.00 252.6 116.25 193.8 111.25 312.3 183.33 185.65 108.13 303.5 Handling Facilities Cost of Milk 1,113.40 3.9 1,287.00 3.1 1.7 1,124.00 2.3 1,702.40 778.40 1.6 1,267.20 1.3 Production® Cost of Milk Production/ 27.84 7.92 3.9 21.45 3.1 10.64 1.7 1.3 14.05 2.3 9.73 1.6 Cow® Net Returns ■1,113.40 -37.2 -1,287.00 -23.6 -1,124.00 -8.3 -1,702.40 -6.2 -778.40 -6.3 -1,267.20 -4.9 to Operator Net Returns/ Hour of -.44 -37.2 -.51 -23.6 -.45 -8.3 -.31 -6.3 -.51 -4.9 -.68 -6,2 Operator Labor Net Returns/ -21.45 -23.6 -27.84 -37.2 -14.05 -8.3 -7.92 -4.9 -10.64 -6.2 -9.73 -6.3 Cow Hired Labor -30.6 -64. -2.6 -2.5 -192. -3.3 -72. -3.1 -192. -2.8 -64. -2.8 (Hours)b a Also includes feed production, hired labor and machinery ownership. ^Increased hired labor requirements in April, May and October, decreased requirements for the remainder of the year, 169 wi th the policy. Investment requirements for the total dairy production process are only increased slightly (3.4-5 percent) through policy compliance. However, added investments are for waste handling facilities, representing increased investments in waste handling facilities of 185 percent to 212 percent. Costs of milk production are increased by a low of 1.3 percent for the 160-cow cold covered systems and a high of 3,9 percent for the 40-cow stanchion systems. As a c o n s e q u e n c e , reductions in net returns range from 4.9 percent to 37.2 percent. Summary Analysis results presented in Table 24 indicate the differential impacts of a policy prohibiting winter waste disposal. Investment requirements are similar for open lot and cold covered hou sin g systesm cow). ($108-$120 per However, due to greater ownership and operating costs associated with open lot facilities, net returns are reduced by approximately $350-$400 more than for the cold covered system. Net returns are reduced five to six percent for cold covered systems and six to eight percent for the open lot systems; returns are reduced proportionately greater for 80-cow herds. Impacts on stanchion housing systems are substan' tially more severe than for open lot and cold covered 170 systems. Investment requirements are increased by a pp r o x i ­ mately $200 per cow. This investment, while increasing costs of production by 3-4 percent, in returns to operators' labor of 24 percent and 37 p er­ cent for the 60- and 40-cow herds, result, induces a deduction respectively. As a the 40-cow herd is estimated to return only $.77 per hour to the operator for his labor and management and $1.67 per hour to operators w ith 60 cows. Assuming capital or credit is available to make the ne cessary investments, storing dairy wastes during the w i n t e r months increases milk production costs by only $.061-5.075 per hundredweight for cold covered housing systems and $.081-5.108 per hundredweight for the open lot systems. However, costs of milk production for stanchion housing are increased by $.165 per h u n d r e d ­ weight for 60-cow herds and $.215 per hundredweight for 40-cow herds. Impact on Liquid Manure Systems Facility Requirements For the warm enclosed housing system, a policy prohibiting wi n t e r disposal of wastes require the c on­ struction of additional storage facilities. of this study, For purposes two alternative methods of meeting this additional waste storage requirement are considered. 171 The first method supplements existing storage facilities with additional underground, liquid manure tanks. The second alternative requires construction of an outside storage pond. With this method, wastes would be pumped underground from existing storage facilities to the pond. For each alternative, facility requirements are assumed to be identical for the tractor-scraper, mechanicalscraper and slotted floor systems. Further analysis of the tractor-scraper system is conducted to determine the impact of installing a mecha­ nical scraper in conjunction with increasing waste storage capacity. As a result, four alternatives are analyzed for the tractor-scraper system: tank storage, storage, additional retain tractor scraper; additional tank install mechanical scraper; outside storage, retain tractor scraper; and outside storage, mechanical scraper {Figure 15) Tractor-Scraper System 1. Additional tank storage a. install Mechanical-Scraper System 1. Additional tank storage Retain tractor scraper 2. Outside storage b. Install mechanical scraper 2. Outside storate a. b. Slotted Floor System Retain tractor scraper 1. Additional tank Install mechanical scraper Figure 15. storage 2. Outside storage Alternative adjustments to required winter storage of wastes for warm enclosed housing s y ste ms. 172 Economic Impact Investment requirements, cost c h a n g e s , and changes in labor requirements for milk production for each storage alternative are presented in Table 25. Supplementary waste storage capacity with additional tank storage requires an investment of 3.0 to 3.5 times greater than associated with an outside storage pond. Even with higher operating c o s t s , addition of outside storage systems is economically superior to adding more tank st ora ge. Adding a mechanical scraper to a tractor-scraper system increases investment requirements; however, operating and labor costs are sufficiently reduced to make mechanical scraping more economically desirable than tractor scraping. Given the assumptions concerning the cost of labor and the availability of capital which have been made in this study, savings in annual costs asso­ ciated with the mechanical scraper almost offset the increased annual costs of additional storage associated with adding an outside storage pond. Although outside storage is the more economical means for supplementing existing storage, physical con­ siderations could preclude the use of storage ponds. Therefore, both tank and outside storage facilities are considered alternatives to the initial situation; these alternatives are compared with respect to investments, Table 25, Estimated investment requirements and changes in annual costs and labor requirements per cow resulting from a no winter disposal policy for those systems handling wastes as a liquid. Additional Tank Storage3 80 cows 160 cows Item Additional Tank Storage** 160 cows 80 cows 160 cows Dollars Outside Storage3 80 cows Outside Storage*1 80 cows 160 cows c Investments 4,000.00 3,000.00 — 13,200.00 — 2,000.00 24,000.00 — 3,500.00 2,800.00 2,000.00 2,000.00 4,000.00 4,000.00 3,500.00 4,800.00 7,000.00 15,200.00 27,500.00 6,800.00 11,500.00 5.25 5.00 — 3,75 3.75 -- 16.50 — 5.00 15.00 — 4.38 5.25 5.00 5.00 3.75 3.75 4.38 1.25 2,00 — 1.25 2.00 -4,25 2.40 2.00 -4.25 2.40 2.00 -4.25 2.40 2.00 -4.25 2,40 2.00 13.50 10.75 21.65 19.53 15.40 12.03 Storage Underground Pump Mechanical Scraper 13,200.00 — — 24,000.00 — — 2,800.00 2,000.00 Total Investment 13,200.00 24,000.00 16.50 — — 15,00 — — — Annual Capital Costs/Cow Storage3 Pumpe Mechanical Scrapere Annual Cash Costs/Cow Tractor Powerc Utilities0 Maintenance Total Annual Costs/ Cow* — 2.00 — — 2.00 18.50 17.00 0 0 -.4 -, 4 -- Change in Labor Requirements/Cow January February -- March April May June July August September October November December -.5 + .4 + .4 -.5 0 0 -.5 +. 8 0 -.5 -.8 + .2 + .2 -.8 -.4 -.4 -.8 + .4 -.4 -.8 Total -.4 -4.0 ♦Excluding hired labor costs. aFor mechanical-scraper, slotted floor and tractor-scraper systems. For conversion of tractor scraper to mechanical scraper. cSource: Ray Hoglund, "Labor Requirements, Investments and Annual Costs— Alternative Manure Handling Systems," unpublished data, Department of Agricultural Economics, Michigan State University. ^Assumes an annual charge of 10 percent of investment. Assumes an annual charge of 20 percent of investment. ^First figure is for all three systems and both herd sizes. Second figure is for conversion of tractor scraper to mechanical scraper, both herd sizes. 175 costs, returns, and hired labor requirements and 27). {Tables 26 Two additional alternatives are considered for the tractor-scraper system? one assumes retention of the tractor and scraper method of collecting wastes; the other assumes conversion to a mechanical scraper. If underground tanks are used to provide additional storage, total investments are increased by four to five percent, as contrasted with one to two percent for out­ side storage. This represents an added investment per cow of $150 to $190 for tank storage and $43 to $85 for outside storage. Additional storage increases costs of milk pro­ duction by $5 to $ 6 more per cow than if supplementary storage capacity is provided by an outside storage pond. Costs of milk production are increased approximately 2.5 to 2.8 percent when tank storage is used as compared to 1.5 to 2.0 percent with outside storage. When the tractor-scraper system is converted to a mechanicalscraper system in conjunction with the outside storage pond, costs of milk production are increased by only $.03 per cow, for the 16 0 -cow herd. The impact on returns to the operator of storing manure during the winter is dependent upon herd size and storage alternatives selected. For 80-cow herds, net returns are reduced approximately 11 to 11.5 percent with the addition of tank storage as compared to 7.9 to 8.4 Table 26. Estimated changes in investments, costs, returns and hired labor resulting from supplementing existing storage facilities with additional tank storage-warm enclosed housing. 80 Cows 160 Cows 80 Cows 160 Cows Item Change %a %b %c Dollars Change %a %b %c Change %a Dollars Dollars 4.3 4.3 4.2 24,000.00 4.3 4.3 4.2 15,200.00 165.00 4.3 4.3 4.2 150.00 4.3 4.3 4.2 190.00 13,200.00 80.0 71.4 80,0 24,000.00 89.6 79.2 89.6 15,200.00 165.00 80.0 71.4 80.0 150.00 89.6 79.2 89.6 190.00 92.1 1,384.00 2.7 2.8 2.8 2,528.00 2.5 2.6 2.6 772,00 1,5 17.30 2.7 2.8 2.8 15.80 2.5 2.6 2.6 9.65 -1,384.00 -11.6 -11.1 -11.1 -2,528.00 -10.1 -9.6 -9.6 -772.00 -.55 -11.6 -11.0 -11.4 -1.01 -10.1 -9.5 -9.6 Net Returns/Cow -17.30 -11.6 -11.0 -11.1 -15.80 -10.1 -9.5 -9.6 Hired Labor (Hours) -32. -64. Investment/Cow Investment in Manure Handling Facilities Investment/Cow in Manure Handling Facilities Cost of Milk Production Net Returns to Operator Net Returns/Hour of Operator Labor -1.5 -1.7 -1.7 aTractor-scraper system, retaining tractor scraper. ^Mechanical-scraper system, Q Slotted floor system. ^Conversion of tractor scraper to mechanical scraper. -1.0 -1.0 -1.1 5.0 27,500.00 4.9 5.0 4.9 171.90 92.1 27,500.00 102.6 171.90 102.6 1,204,50 1.2 7.53 1.2 -6.5 -1,204.50 -4.8 -.31 -6.6 -.48 -4.8 -9.65 -6.6 -7,58 -4.8 -320. 1.5 -14.5 -640. 176 Cost of Milk Production/ Cow %<* Dollars 13,200.00 Total Investment Change -10.1 Table 27, Estimated changes in investments, costs, returns, and hired labor resulting from supplementing existing storage facilities with outside storage— warm enclosed housing. 801Cows Item Change %a 160 Cows %b %c Change %a %b 80 Cows %c Dollars Dollars Change 1.6 1.6 1.5 7,000.00 1.3 1.2 1.2 6,800.00 60.00 1.6 1.6 1.5 43.75 1.3 1.2 1.2 85.00 4,800.00 29.1 25.9 29.1 7,000.00 26.1 23.1 26,1 6,800.00 Investment/Cow in Manure Handling Facilities 60.00 29.1 25.9 29.1 43.75 26.1 23.1 26.1 Cost of Milk Production 984.00 1.9 2.0 2.0 1,528.00 1,5 1.5 12.30 1.9 2,0 2.0 9.55 1.5 1.5 -984.00 -8,4 -7.9 -7.9 -.39 -8.3 -7.8 Net Returns/Cow -12.30 -8,3 Hired Labor (Hours) -32. -1.5 Investment/Cow Investment in Manure Handling Facilities Cost of Milk Production/ Cow Net Returns to Operator Net Returns/Hour of Operator Labor Change %e Dollars 2.2 10,500.00 1.9 2.2 65.63 1.9 41.2 10,500.00 39.2 85.00 41.2 65.63 39.2 1.5 272.00 .5 4.80 — 1.5 3.40 .5 .03 -1,528.00 -6.1 -5.8 -5.8 -272.00 -2.3 -4.80 -7.9 -.61 -6.1 -5.8 -5.8 -.11 -2.3 -.002 -.02 -7.8 -7.9 -9.55 -6.1 -5.8 -5.8 -3.40 -2.3 -.03 -.02 -1.7 -1,7 -64. a . , Tractor-scraper system, retaining tractor scraper. Mechanical-scraper system. Q %<* Dollars 4,800.00 Total Investment 160 Cows Slotted floor system. Conversion of tractor scraper to mechanical scraper. -1.0 -1.1 -1.1 -320. -14.5 -640. h -.02 10.1 178 percent w i t h outside storage. mately ten and six percent# herds. The reductions are a p p r o x i ­ respectively# for the 160-cow Although the absolute reduction in net returns is identical for all systems, the tractor-scraper system has the largest percentage decrease in net returns. If the tractor-scraper system is converted to a mechanically scraped system, however, net returns is not as severe. the decrease in Specifically, net returns are reduced by 2.3 p e r c e n t for the 80-cow herd and by .02 percent for the 160-cow herd if the outside storage alternative is selected. Under the assumption that each cow produces 13,000 pounds of milk annually, the impact of storing manure for the win ter months can be expressed in terms of increased cost per hundredweight of milk produced. If supplementary storage capacity is in the form of underground tank storage, m i l k production costs are increased by $.13 per hundredweight for the 80-cow herd and $ . 1 2 per hundred­ weight for the 160-cow herd. alternative, With the outside storage these costs are $.095 per hundredweight and $.07 3 per hundredweight for the 80- and 160-cow herds, respectively. Converting the tractor-scraper system to a mechanically scraped system in conjunction with addi­ tional tank storage increases milk production costs by only $.074 per hundredweight of milk produced for the 80-cow he rd and $.058 per hundredweight for the 160-cow 179 herd. Wi th the outside storage option, costs are increased by $ . 0 2 6 per hundredweight for the 80-cow herd, but remain approximately unchanged for the 160-cow herd. Impact of Subsurface Disposal Policy As previously cited, the Air Pollution Control Division of the Michigan Department of Public Health has received complaints of odors associated with the disposal of livestock wastes. It is expected that if prohibition on win ter spreading became a reality, with wa ste disposal will increase. may be attributed to two factors: the odor associated The increased odor (1 ) the increased quantity of wastes bei ng spread at one time and (2 ) the partial anaerobic decomposition of the wastes during storage. Furthermore, as previously indicated, it is not uncommon for farm and nonfarm residences to be located within one-half mile of fields used for w a s t e disposal. If the trend of increasing numbers of nonfarm, rural residents continues, the pr oblem of air pollution attributed to livestock wastes could become acute. One method of reducing the odors associated with land disposal of wastes is subsurface disposal. Although subsurface disposal does not control odors as wastes are taken from storage, this m ethod appears adequate for controlling odors d uring field disposal. 180 F aci lity Requirements For subsurface waste disposal to effectively control manure odors at the disposal site, winter storage facilities are necessary, the impacts of whi ch are d i s ­ cussed in the previous section. In addition, a soil injector must be added to systems handling dairy wastes as a liquid. The type of injector analyzed is one whi ch can be readily attached to existing liquid manure spreaders. The injector consists of "knives" mounted on the rear of the spreader. The "knives" are drawn through the soil and serve as the line to contain the flow of slurry from the tank to the soil. The injector is pivot mounted so that it can be raised during transport to and from the disposal site. For those systems handling manure as a solid, subsurface disposal implies immediate plow-down of wastes at time of spreading. This analysis assumes wastes are spread and plowed down twice annually, once in April and May before corn planting and once in October following the corn silage harvest. Economic Impact Al tho ugh subsurface disposal of solid wastes may require a change of timing in the plowing operation, of production are not expected to increase. costs It is assumed 181 that land in corn produc tio n must be plowed, either in the fall or spring, ties. regardless of waste disposal activi­ It is further assumed that the cost of plowing is the same in the fall of the year as in the spring. The impact of plowing down manure as it is spread i s , at most, to require fall p lowing that may have been delayed until spring. Therefore, it is assumed that subsurface disposal of manure will have no direct impact on the cost of production for those systems handling manure as a solid. 3 Subsurface disposal of liquid manure, requires an investment in a soil injector, an increase in annual costs of production however, resulting in (Table 28). Subsurface disposal requires an investment of $700 and 4 increases labor requirements by eight hours for an 80-cow herd and by 14 hours for a 160-cow herd. result, As a annual costs of m ilk production are increased by $208 and $288,80 for the 80- and 160-cow herds, respectively. This represents an increase in costs of less than one percent and a reduction in net returns of less than two percent. The cost of milk production is increased by $ . 0 2 per hundredweight of milk produced for the 80-cow herd and $.014 per hundred weight for the 160-cow herd. 182 Table 28. Estimated investment requirements and changes in annual costs and labor requirements per cow resulting from subsurface disposal of m a n u r e — two herd sizes. 80 Cows Item 160 Cows Dollars Investment Soil Injector 3 700.00 700.00 Annual Capital Costs/Cow • 1.75 00 00 Soil Injector *3 Annual Cash Costs/Cow Tr actor P owe r 3 Total Annual Costs/Cow* .55 .60 2 . 30 1.48 Changes in Labor Requirements January February Ma rch April May June July August September Oc tober November December 0 0 0 2 2 0 0 0 0 0 0 0 0 4 7 0 0 8 *F 3.5 3.5 0 0 _ Total 0 0 0 14 eluding hired labor costs. Source: Ray Hoglund, "Labor Requirements, Invest­ ments and Annual C o s t s — Alterna tiv e Manure Handling Systems," unpublished data, Department of Agricultural Economics, Mi chi gan State University. Assumes an annual cost of 20 percent of invest­ ment. 183 Impact of Three Pollution Abatement Policies The above analysis has considered, separately, the impact of three alternative pollution abatement policies. Those production systems affected by each p o l i c y are iden­ tified; the physical requirements of compliance are described; the economic impacts on the synthetic firms are examined. This section examines the combined economic impact of the three policies. The pollution abatement policies, outlined, w oul d require: as previously (1 ) all dairy producers to have a mi nim um of six months' waste storage capacity; (2 ) the open lot systems to provide facilities to collect runoff from the production site; all dairy wastes. and {3) subsurface disposal of The combined impact of these three policies on investments, annual costs and returns, and mo nthly labor requirements for twelve synthetic firms is pr esented in Table 29. systems, For the w a r m enclosed housing the impact of two alternative methods of supple­ m e n t i n g existing storage capacity are presented. Additional investment requirements resulting from pollution abatement controls are least for the w a r m enclosed housing systems using outside manure storage ($5,500 for the 80-cow herd and $7,700 for the 160-cow h e r d ) ; additional investments required are hig hest for w a r m enclosed housing systems using additional tank 184 Table 29. Estimated impact of three pollution abatement policies— alternative housing s y s t e m s , waste handling systems and herd sizes. Stanchion Housing Item 40 cows Investment Percentage In­ crease in in­ vestments Total Annual Costs Percent In­ crease in An­ nual Costs 8,500.00 5.0 1,113.40 4.0 60 cows 11,000.00 4.8 1,287.00 3.1 Open Lot Housing Cold Covered Housing 80 cows 160 cows 80 cows 160 cows 13,475.00 22,825.00 9,300.00 17,800.00 4.8 4.4 1,896.00 2,880.00 3.9 3.0 Cost/Cwt. of Milk Produced .214 .165 .183 Return/Hour of -.445 -.515 -.758 3.2 778.40 1.6 3.4 1,267.20 1.3 .075 .061 -.311 -.507 10. 5 6.3 4.9 -64,0 -64.0 -64.0 +104.0 +104.0 -64.0 -64.0 -64.0 -64.0 +208,0 -64.0 -64.0 -160.0 -32.0 -32.0 -32.0 +56.0 +56.0 -32.0 -32.0 -32.0 -32.0 +112.0 -32.0 -32.0 -64.0 -64.0 -64.0 -64.0 +96.0 +96.0 -64.0 -64.0 -64.0 -64.0 +192.0 -64.0 -64.0 -192.0 .138 -1.15 Labor Percent Decrease in Returns to Operators * Labor 36.8 28.6 13.9 Hours Hired Labor January February March April May June July August September October November December Total £ -15. 3 -16.0 -16.0 +28.0 +28.0 -16.0 -16.0 -16.0 -16.0 + 56.0 -16.0 -15.3 -30.6 -24.0 -24.0 -24.0 +36.0 + 36.0 -24.0 -24. 0 -24.0 -24.0 +72.0 -24.0 -24.0 -72 .0 -32.0 -32.0 -32.0 +60.0 + 60.0 -32.0 -32,0 -32.0 -32.0 +120.0 -32.0 -32.0 -48.0 First figure applicable to outside storage. to tank storage. Second figure applicable 185 Warm Enclosed Housing Tractor Scraper 80 cows 160 cowsA Mechanical Scraper 80 cows ( Slotted Floors 160 cows 80 cows 160 cowsa Dollars 5,500., 13,900. 7,700., 24,700. 5,500., 13,900. 7,700., 24,700. 5,500., 13,900. 7,700., 24,700. 1.8, 4,5 1.4, 4.4 1.8, 4.5 1.4, 4.4 1.8,4.5 1.3,4.3 1,192., 1,592. 1,816.00, 2,876.00 1,192., 1,592. 1,816.00 2,876.00 1,192. , 1,592. 2.3, 3.0 1.7, 2.7 2.3, 3.1 1 .8 , 2.8 2.3, 3.1 1.7, 2.8 .115, .153 .087, .134 .115, .153 .087, .134 .115, .153 .087, .134 -.46, -.62 -.69, -1.09 .46, ,62 -.69, -1.09 -.46, -.62 -.69, -1.09 9.8, 13.2 6.9, 10.9 9.2, 12.4 1,816.00, 2,876.00 6.5, 10.3 9.3, 12.5 6 .6 , 10.4 Hours 0 Q 0 0 0 Q 0 0 0 0 0 0 -40 +32 +32 -40 — 80 +64 +64 -80 -40 +32 +32 -40 -80 +64 +64 -80 -40 +32 +32 -40 -80 +64 +64 -80 0 0 0 0 0 0 0 0 0 0 0 0 -40 +64 -80 +128 -40 +64 -80 +128 -40 +64 -80 +128 0 0 0 0 0 0 -40 -80 -40 -80 -40 -80 -32 -64 -32 -64 -32 -64 186 storage ($13,900 for the 80-cow herd and $24,700 160-cow herd) and the open lot housing sy s t e m and $22,825 for the 80- and 160-cow herds, In percentage terms, for the ($13,475 respectively). the stanchion housing and 80-cow, open lot systems incur the largest investment increases. Increases in total annual costs range from $778.40 for an 80-cow cold covered s y s t e m to $2,880 for a 160-cow open lot system. Percentagewise, annual costs are in­ creased the least for cold covered h ous ing systems and w a r m enclosed housing systems using the outside storage alternative. The greatest percentage increases in costs are incurred by the 40-cow stanchion and 80-cow open lot systems. Annual costs per hundredw eig ht of mil k produced resulting from pollution abatement range from $.061 for a 16 0-cow cold covered s y s t e m to $.215 for the 40-cow 5 stanchion housing system. Returns per h o u r of operators' labor are reduced only $.31 for the 80-cow cold covered system as a result of compli anc e with the pollution abate­ ment policies.^ However, compliance for the 160-cow open lot system results in a re duction of $1.15 per hour of operator's labor. A reduction of only $.44 per h o u r for the operator of a 40-cow stanchion s ystem represents a 36.8 percentage decrease in hourly returns. Again, the col d covered 187 housing system has the smallest percentage decrease in returns to operator*s labor. Hired labor requirements are increased for all production systems during the months of April, May, and October--the months in which w a s t e storage facilities are emptied. Requirements are diminished or remain c o n ­ stant for the remainder of the months, resulting in a net decrease in total hired labor requirements for all production systems. Relationship to Economic Theory This empirical analysis of alternative pollution abatement policies requires a relatively rigid set of assumptions concerning the input-output relationships of milk production, the prices of inputs and outputs, and the type of production facilities used by M ich iga n dairy farmers. However, the synthetic firms which are developed approximate actual production conditions for a large number of Michigan milk producers. Those methods of compliance with pollution abatement policies, in this chapter, as described are methods whi ch would be required for those firms which are actually contributing to air and/or wa ter pollution from open lot runoff, w inter disposal of wastes, and/or surface disposal of dairy waste. This empirical analysis gives some insight into the discussion of the theoretical impact of pollution 188 abatement (Chapter III) the firm. Specifically, on the economic cost structure of some empirical evidence is p r o ­ vided as a basis for an swering the questions of: cost functions will change? functions move? ment on returns? In what d ire ction will these What is the effect of pollution abate­ will the firm comply w i t h pollution abatement policies? Although, the assumptions of the empirical analysis are somewhat restrictive, size, and, Which therefore, milk production, as herd are not allowed to change in order to avoid compliance or as a result of compliance, the following observations can be made. At the time the decision is made to comply or not to comply w i t h a pollution abatement policy, the cost of investing in additional waste handling facilities is a variable cost. However, if the decision is made to com ­ ply w ith the policy and the investment is made, this cost becomes a "fixed" cost. ment is made, That is, once an invest­ the cost of that investment does not change wi th the level of milk production. manner, 7 Vi ewe d m this compliance with those policies discussed in this chapter imply an increase in "fixed" costs for all firms analyzed. Each of the three policies analyzed has an impact on the variable costs of production. The control of r u n ­ off from open lot systems requires an increase in variable costs in the form of hired labor and the operation and 189 maintenance of the irrigation system. These costs are regarded as "variable" in the sense that the magnitude of these costs are a function of the level of mil k p r o ­ duction {i.e., number of cows). ment costs, In contrast to invest­ these costs can be eliminated by discontinuing milk production, A policy requiring winter storage of dairy wastes increases some variable costs of production utilities) and decreases others (maintenance, (tractor power, labor). For those systems handling dairy w astes as a solid, total variable costs are r e d u c e d , at the same level of output. For those systems han dling manure as a liquid, total variable costs are i n c r e a s e d , at the same level of o u t ­ put. In both instances, tion are increased. however, total costs of pr odu c­ (That is, for systems handling wastes in solid form, the magnitude of the decrease in variable costs is less than the magnitude of increase in fixed costs. For systems h and lin g wastes as a solid, fixed and variable components increase; both therefore, total costs are increased.) For those systems handling waste as a liquid, compliance w i t h a policy of subsurface disposal increases both "fixed" costs, as defined above, of production. Compliance and variable costs for those systems handling manure as a solid resulted in no change in the costs of 190 production, under the assumptions of the analysis. (This theoretical case is not dis cussed in Chapter III.) The overall impact of compliance with the pollution abatement policies is to increase the total costs of milk production, and reduce the level of returns for all firms at original levels of output. observations can be made. However, two other important One observation provides more in­ sight into question of w h e t h e r or not a firm will d isc on­ tinue production rather than comply with a pollution abatement policy. The o t h e r observation concerns the question of reorganizing the production process to some degree as a result of p o l l u tio n abatement policies. It will be recalled, from Chapter III, economic theory indicates that some "fixed" production wil l be wit hd r a w n becomes less than salvage v a l u e ) . labor (a "fixed" input) factors of from production if they have a higher earning value in other activities stanchion housing system, that (i.e., MVP In the case of the the returns to operators' is reduced substantially; to $.77 per hou r for the 40-cow herd and $1.67 per hour for the 60-cow herd. A l t h o u g h returns to operators' labor were relatively low for these systems before co m­ pliance, the reduced returns may be incentive enough for these systems to discontinue milk production rather than comply w ith pollution abatement policies. 191 The last observation to be made concerns the analysis of the impact of conversion of the tractorscraper system to a m ech ani cal-scraper system. Und er the assumptions of this study, the increased cost associated with the mechanical scraper and additional waste storage in the form of an outside pond, are almost offset by reduced labor costs. As a result, labor are decreased very little. returns to operator's Obviously, the c o n v e r ­ sion from a tractor-scraper method of collecting wastes to a mechanical scraper is profitable in the absence of any pollution abatement policies. However, the increased cost of pollution abatement provides an additional incen­ tive to make the investment in the mechanical scraper. A relatively small investment whic h may not have been made in order to increase returns, may be made in order to offset, or at least reduce, the amount by which returns are decreased, due to compliance with legal pollution abatement controls. Summary and Conclusions In this chapter, the impact of three pollution abatement objectives is analyzed for twelve synthetic firms. These firms represent alternative milk production technologies and herd sizes. designed to reduce The objectives examined are (1 ) w a t e r pollution from waste runoff at the production site, (2 ) w ate r pollution from runoff 192 at the disposal site, and of disagreeable odors, (3) air pollution, in the form at the disposal site. Achievement of these three objectives increases the investment requirements for all production systems. Additional investment requirements vary by production technology presently being used, by herd size and by waste storage alternatives selected, A 160-cow, warm enclosed housing system, selecting additional tank stor­ age, requires $2 4,700 additional investment. An 80-cow, warm enclosed housing system, using the outside storage alternative, requires only $5,500 additional investment. Percentagewise, the stanchion and the 80-cow, open lot systems require the largest additional investments. Achievement of the pollution abatement objectives increase costs of milk production by $.215 per hundred­ weight of milk produced for a 40-cow, stanchion housing system and by $.061 per hundredweight for a 16 0 -cow, cold covered housing system. "Fixed" costs are increased for all production systems. Variable costs of production are actually decreased for the stanchion and cold covered housing s ys t e m s . Open lot systems designed for 16 0-cows incur the largest decrease in returns per hour of operator's labor? $1.15. However, compliance with the policies only reduces returns to operator's labor by $.31 per hour for 80-cow cold covered systems. Returns are reduced sufficiently for the 40-cow stanchion housing system to raise doubts as to wh ether or not these systems would discontinue p r o d u c ­ tion rather than comply w i t h the pollution abatement policies. Because of the increased efficiency of disposing of manure only twice annually, hired labor requirements are reduced for all production systems. Chapter VII Footnotes Assumptions are based on a personal interview with Mr. Paul Koch of the Soil Conservation Service, East Lansing, Michigan. 2 Source: Philip Christensen, "Soil Conservation Assistance in Animal Waste Management," paper prepared for The Livestock Waste Management Conference, March 1-2, 1972, Champaign, Illinois. Soil Conservation Service, "Farm Waste Disposal System," Michigan Engineering Standard, Technical Guide, Section IV-G. 3Costs of production may be indirectly affected in terms of differing opportunity costs of labor at dif­ ferent times of the year and differing yields and manage­ ment practices associated with fall and spring plowed land. This possibility is recognized but not treated in this study. 4 Spreading operation is slower with a soil injec­ tor than without. g Based on the assumption of 13,000 pounds of milk produced per cow. g Assumes 2,500 hours of operator labor per year. 7 Furthermore, these inputs (detention ponds, diver­ sion embankments, storage facilities, irrigation equipment and soil injectors) are "fixed" according to the definition used in Chapter III. Once these inputs are purchased and pollution is abated, it isn't profitable to buy more of them and conversely as long as price and production rela­ tionships remain the same as at the time the decision was made, there is no economic incentive to sell these inputs or to divert them to other uses. 194 CHAPTER VIII CONCLUSIONS Summary of Analytical Models The purpose of this study was to determine the economic impact of potential pollution abatement policies on the Michigan dairy farming industry. Specifically, the objectives of the study were: 1. To determine the present and potential legal restraints wi thin whi ch Michigan dairy farmers must function in the management of animal wastes. 2. To identify those Michigan dairy operations which are potentially most affected by legal environmental quality controls. 3. To evaluate the effects upon representative dairy farms of adjusting existing dairy waste management systems for compliance w i t h applicable environmental quality controls. Pollution Control Constraints Two criteria were used in identifying potential environmental quality controls on Michigan dairy farms. 195 196 These criteria were: (1) actual or potential livestock waste management problems on Michigan dairy farms which may result in environmental pollution; and (2 ) the present and/or proposed legal constraints on livestock waste management in Michigan and in other states. The legal constraints examined w e r e : actual or proposed*legal statutes in Michigan and other states, selected cases of private litigation involving livestock waste management problems, and actions taken by the Michigan Water Resources Commission and the Air Pollution Control Division of the Michigan Department of Health in correcting individual pollution problems on Michigan livestock farms. Based on these two criteria, three hypothetical control measures specific to Michigan livestock producers were identified for analysis. These measures included: 1. Mandatory control of runoff from open lots. 2. Prohibition of winter spreading of dairy w a s t e s , and 3. Subsurface disposal of dairy wastes. Theoretical Considerations To develop a theoretical basis for analyzing these three pollution abatement measures, the economic impacts of pollution abatement on the firm cost structure were deduced from the economic theory of the firm with 197 explicit emphasis given to the consequences of asset fixity. Economic impacts were deduced relative to p r o d u c ­ tive input usage, product output levels, and returns to fixed factors of production. Synthetic Firm Analysis Empirical analysis of the hypothetical pollution control measures was facilitated by developi ng synthesized dairy firms, considering an array of s pec ified production technologies and dairy herd size combinations. Linear programming techniques were employed to determine returns to fixed factors and amount of hired labor required for each synthetic firm, before implementation of pollution abatement policies. Investment requirements were identi­ fied for each firm. The coefficients of the linear p ro­ gramming tableau were then adjusted to reflect compliance with the pollution abatement policies to determine the impact of compliance on ea ch of the synthetic firms. Specifically, effects of compliance on mil k production costs, hired labor requirements, investment requirements and returns to operator's labor and manage men t were determined. Industry Effects Ag gregate estimates were derived from the synthetic firm analysis (Appendix B ) . Estimates of the economic 198 impact, of compliance with the three pollution abatement policies were made. Considered were aggregate total in­ vestment requirements of all Michigan Grade A dairy farmers necessary for pollution policy compliance and the resulting effects on the average cost of Grade A milk production in Michigan. Empirical Findings Limitations of Analytical Procedures Recognition of the following limitations of this study is required for proper interpretation of the empiri­ cal findings: 1. Synthetic firms were not developed to repre­ sent all Michigan milk producing firms. Only twelve synthetic firms were developed to represent the more prevelant production technology-— herd size combinations currently in existence in Michigan. The results of the synthetic firm analysis were assumed to be applicable to those production technology— herd size combinations not explicitly included in the analysis. 2. Synthetic firms constructed for empirical analysis were designed to be "typical" and, 199 therefore, do not reflect all variations in actual production situations. 3. A ssumptions concerning the availability of capital and labor may be unrealistic for some Mi chi gan mil k producers. It was assumed that capital or credit was available in quantities sufficient to make the investments required for policy compliance. As indicated in C h a p ­ ter IV, this may not be true for all producers. It was further assumed that the "fixed" labor component for each of the synthetic firms con ­ sisted of one operator; additional labor was assumed hired on an hourly basis as required. For some mil k producers, additional family labor or full-time hired labor is available. This labor may be considered as part of the fixed component, reducing the amount of hourly hired labor requirements, 4. The empirical analysis of pollution abatement policies assumed that herd size and housing technology remain unchanged upon compliance. This type of analysis indicated the impact of policy compliance on milk production ^jsts and returns within the pre sent set of fixed assets of the firm. As a result, some in dic a­ tion was given of the differentiable impact 200 of policy compliance on alternative production technology— he rd size combinations, and the combinations w h i c h were more severely d i s ­ advantaged were identified. However, this type of analysis does not identify those firms that will or w i l l not comply w i t h pollution abatement policies or does it identify to what extent, if any, production technologies or herd sizes will be altered in response to these policies. Major Findings Under the assumptions specified, the empirical analysis of synthetic firms yielded the following major findings: 1. Runoff control from production facilities (applicable on ly to open lot housing systems) had the following economic effects: a. Investment economies accrued to larger herd sizes; that is, $4 8.45 additional investments per cow were required for 80-cow herds and $34.50 w e r e required for 160-cow herds, b. Slight increases in hired labor were required for both herd sizes. c. Total costs of milk production were in­ creased by $.057 per hundredweight of milk produced for the 160-cow herd and by $.075 per hundredweight for the 80-cow herd. d. Returns to operator's labor we re reduced by $.31 per hour for 80-cow herds and by $.47 per hour for the 160-cow herd. A control policy requiring six months' storage capacity had the following economic effects on systems handling wastes as a solid: a. Additional investment requirements, per cow, by housing type and herd size were: stanchion h o u s i n g — $212 for 40-cow herds and $185 for 60-cow herds; open lot housing- - $ 1 2 0 for 80-cow herds and $108 for 160-cow herds; cold covered hou sin g— $116 for 80-cow herds and $ 1 1 1 for 160- cow h e r d s , b. Hired labor requirements were reduced by approximately three percent for all three housing types. c. Increased milk production cost, per h u n d r e d ­ we ight of milk by housing type and herd size were: stanchion h o u s i n g - - $ .214 for 40-cow herds and $.165 for 60-cow herds; 202 lot h o u s i n g — $,108 for 80-cow herds and $,081 for 160-cow herds; cold covered ho using-— $.075 for 80-cow herds and $.061 for 16 0 -cow herds, d. Reductions in returns to operators' labor, per hour, by type of h ousing and herd size were: stanchion h o u s i n g — $.44 for 40-cow herds and $.51 for 60-cow herds; open lot h o u s i n g — $.45 for 80-cow herds and $ . 6 8 for 160-cow herds; cold covered housing— $.31 for 80-cow herds and $.51 for 160 cow herds. 3. Compliance w i t h a control pol icy requiring six months' storage capacity for dairy wastes ha d the following economic effects on systems ha ndl ing wa stes as a liquid: a. Additional investment requirements, per cow, by type of storage facility and herd size were: additional tank storage— $165 for 80-cow herds and $150 for 160cow herds; outside st or a g e — $60 for 80-cow herds and $43.75 for 160-cow herds. b. Hired labor requirements were reduced by one to two percent, c. Increased milk production costs, per hundredweight of milk produced, by storage 203 facility and he rd size were: additional tank s tor age — $.13 for 80-cow herd and $.12 for 16 0 -cow herd; outside storage-- $.09 5 for 80-cow herds and $.073 for 160-cow herds, d. Reductions in returns to operator's labor, per hour, by type of storage facility and herd si 2 e were: additional tank storage— $.55 for 80-cow herds and $1.01 $.39 for 160-cow herds; outside storage-- for 80-cow herds and $.61 for 160- c o w herds, 4. Compliance with a policy requiring subsurface disposal of dairy wastes had the following economic effect: a. No economic impact on those firms handling wa s t e s as a solid. b. Additio nal investments of $700 per firm for firms handling wastes as a liquid. c. V e r y slight increases in hired labor requirements for firms handling wastes as a liquid. d. Increased milk production costs of $.02 per hundredweight for 80-cow herds and $.014 per hundredweight for 160-cow herds handling wastes as a liquid. 204 e. Reduction in returns to operators labor of $ . 0 8 per hour for 80-cow herds and $.12 per h our for 160-cow herds handling wastes as a liquid. 5. If the three pollution abatement policies are implemented as state regulations (Appendix B ) , the resulting aggregate economic impacts were: a. Michigan Grade A dairy farmers wou ld be required to invest $65.5 million in a d d i ­ tional waste handling facilities if all Grade A producers remained in production and $4 8.5 million if all Grade A producers w i t h less than 30 cows ceased production and those with 30 or more cows remained in production at the current size. b. Total labor requirements on Michigan Grade A dairy farms wo uld be reduced by 270,000 hours annually if all producers remained in production and by 2 2 0 , 0 0 0 hours on those farms with thirty or more cows. c. The total cost of Grade A milk production w o u l d be increased by .17 5 per h u n d r e d ­ weight of milk produced if all producers remained in production and by $.16 6 per 205 hundredweight if those firms with less than thirty cows ceased production, d. Total Grade A milk supply wou ld be reduced by approximately twenty percent if all Grade A firms wi th less than thirty cows ceased production and the remaining firms did not change herd size. Implications The theoretical economic impacts deduced from firm theory and the empirical measures of these impacts have implications for dairymen, policymakers and other researchers. Dairymen The effects of compliance with the three pollution abatement policies analyzed in this study have several implications for Michigan dairymen: 1. Policy compliance requires additional i nve st­ ment in dairy w a s t e handling facilities. The magnitude of these investment requirements vary according to production technology. The warm enclosed housing systems utilizing o u t ­ side storage facilities have the lowest additional investment requirements per cow. The cold covered housing system has the second lowest investment requirement followed by the open lot housing system and the war m enclosed systems utilizing additional tank storage. The stanchion housing systems require the largest additional investment per cow. Investment economies accrue to larger herd sizes. The magnitude of these economies varies by production technology: stanchion housing--investments per cow are thirteen per­ cent lower for the 60-cow herd than for the 4 0-cow herd; open lot housing--investments per cow are fifteen percent lower for the 160-cow herd than for the 80-cow herd; cold covered housing--investments per cow are four percent lower for the 160-cow herd than for the 80-cow herd; warm enclosed housing-investments per cow are thirty percent lower for the 160-cow herd than for the 80-cow herd with the outside storage option and eleven percent lower with the tank storage option. Policy compliance increases total milk pro­ duction costs, at the present level of output, for all production technology-herd size com­ binations. Variable costs of production are reduced only for the stanchion and cold 207 covered housing systems. Total milk p r o d u c ­ tion costs are increased the least for the cold covered housing systems, and the most for the stanchion housing systems and the 80-cow open lot systems. 4. Policy compliance reduces returns to operator's labor by only five percent for 160-cow cold covered housing systems, but reduces returns to operator's labor by thirty-seven percent for 40-cow stanchion hou sin g systems. This implies that operators of smaller dairy herds, especially those with stanchion housing sys­ tems, may be economically disadvantaged by pollution abatement policies to the extent that they wil l discontinue milk production. 5. In order to minimize the investment r equ ire ­ ments and production costs associated w ith pollution abatement, Michigan dairymen planning to expand or construct n e w dairy facilities should consider: a. Covered housing systems as a means of minimizing runoff from the production site. b. Liquid manure systems utilizing an outside storage pond. c. Waste storage facilities with six months' capacity; investment requirements are 208 higher when existing facilities must be modified than if six months' capacity is provided initially, d. Labor saving devices, such as mechanical scrapers. 6 . All dairymen should be aware of the pollution potential of animal wastes and follow those waste management practices which minimize potential environmental problems lution control measures. and/or p o l ­ Producers planning to enlarge the size of their operations or planning to develop new operations are, in some i n s t a n c e s , required to check with the Wa ter Resources and Air Pollution Control Commissions. Dairymen should also be aware that federal funds are available, through the Agricultural Stabilization and C o n s e r v a ­ tion Service, to offset some of the i nve st­ ment requirements for approved w ast e handling facilities. Policymakers 1. Policymakers should be aware that pollution control policies require substantial i nve st­ ments by milk producers and increase total milk production costs. Furthermore, some producers may find that milk production costs are increased sufficiently to force them to discontinue m i l k production. Information on the economic impact of pollu­ tion abatement policies, in this study, of the nature presented should be combined wit h informa­ tion on the social benefit of abatement of environmental pollution from dairy wastes to fully evaluate the policies. That is, the incremental social benefit associated with pollution abatement should be greater or equal the incremental cost of abating pollu­ tion . Policymakers should be aware of the dif fer ent i­ able impacts and tradeoffs associated with alternative methods of implementing pollution abatement policies. As indicated by personnel of the M ich iga n Water Resources Commission, regulations requiring a given set of pollution abatement facilities for all milk producers are easier and less costly to administer than directives w h i c h establish and provide for enforcement of environmental quality standards. However, economic analysis indicates that the costs of livestock production attributable to abatement facilities and practices are 210 minimized when the operator is allowed to choose that abatement facility w h i c h most efficiently uses his existing resources. These types of tradeoffs, between costs of administration and enforcement and costs of a b a t e m e n t , should be considered in e val uat ­ ing pollution abatement policies. Further Research Subsequent research to more fully identify the economic impacts of pollution control policies on the structure of the Michigan dairy farming industry is needed. Researchable questions derived from the th eoreti­ cal and emperical findings of this analysis are: 1. To what extent wil l Michigan dairymen adjust h erd size in response to pollution abatement policies? 2. Wh at are the economics of changing production technologies to comply with po llution abate­ me nt policies? Specifically, is it economi­ cally preferable to convert an open lot housing system to a covered ho usi ng system rather than control runoff from the open lot? 3. Wh at is the availability of capital and/or credit for investment in cost increasing wa ste handling facilities? 211 4. What are the implications of alternative methods of implementing pollution abatement policies? Specifically# what are the costs and benefits associated with alternative means {regulations, directives# sidies) taxes# s ub­ of implementing pollution abatement policies. Not an economic question, but one that needs to be addressed is: 5. To what extent are alternative pollution abatement policies effective in reducing or eliminating environmental pollution from dairy wastes? APPENDICES APPENDIX A COEFFICIENTS FOR THE "MILK PRODUCTION ACTIVITY" USED IN THE VARIOUS RUNS OF THE MODEL AND BASIC LINEAR PROGRAMMING TABLEAU 212 Table Al. Coefficients for milk production activity reflecting twelve combinations of housing systems, manure handling systems and herd sizes for synthetic dairy firms. Item Stanchion Housing Unit 4 0 cows 60 cows 2,773.00 2,711.20 Open Lot Housing cows 16 0 cows 2,424.70 2,307.90 80 Cost Per Unit Dollars J a nuary Labor Hours 59.0 54.0 39.0 37.0 February Labor Hours 53.0 49.0 35.0 33. 0 Ma rch Labor Hours 59.0 54. 0 39.0 37.0 April Labor Hours 58.0 53.0 37.0 35.0 May Labor Hours 59.0 54. 0 39.0 37.0 June Labor Hours 58.0 53.0 37. 0 35.0 July Labor Hours 59.0 54.0 39.0 37.0 August Labor Hours 59.0 54. 0 39.0 37.0 September Labor Hours 58.0 53.0 37.0 35.0 October Labor Hours 59.0 54.0 39.0 37, 0 No vem ber Labor Hours 58.0 53.0 37.0 35.0 December Labor Hours 59.0 54. 0 39. 0 37. 0 Cropland Acres Milk Transfer Cwt, Corn Transfer -1,300 -1,300 -1,300 -1,300 Bu. 820 820 820 820 Corn Silage Transfer T. 120 120 120 120 Haylage Transfer T. 43 43 43 43 1 1 1 1 C o w Limit 10 cows 213 Warm Enclosed Housing Cold Covered Housing______ Tractor Scraper 80 cows 16 0 cows 80 cows 160 cows Slotted Floors Scraper________________________ 80 cows 160 cows 80 cows 16 0 cows 2,555. 70 2,377.40 2,733.30 2,539.70 2,754.80 2,552.10 2,760.80 2,562.90 30.0 32.0 30.0 32.0 33.0 35.0 38.0 40.0 27.0 29.0 27.0 30.0 29.0 32.0 34.0 36.0 40.0 38.0 39.0 37.0 36.0 34.0 36.0 34.0 38.0 36.0 34.0 32.0 31.0 29.0 31.0 29.0 40.0 38.0 35.0 33.0 32.0 30.0 32.0 30.0 38.0 36.0 38.0 36.0 35. 0 33.0 35.0 33.0 40. 0 38.0 35.0 33.0 32.0 30.0 32.0 30.0 40. 0 38.0 35.0 33.0 32. 0 30.0 32.0 30.0 38.0 36.0 38.0 36.0 35.0 33.0 35. 0 33.0 40.0 38.0 35.0 33.0 32.0 30.0 32.0 30.0 38.0 36.0 34. 0 32.0 31.0 29.0 31. 0 29.0 40.0 38.0 39.0 37.0 36.0 34.0 36.0 34.0 -1,300 -1,300 -1,300 -1,300 -1,300 -1,300 -1,300 -1,300 820 820 820 820 820 820 820 820 120 120 120 120 120 120 120 120 43 43 43 43 43 43 43 43 1 1 1 1 1 1 1 1 214 Table A 2 . Coefficients for milk production activity r e f l e c t ­ ing runoff control on the open lot housing systemtwo herd sizes. Item Unit 80 Cows 160 Cows 2,509.20 2,364.70 Cost Per Unit Dollars January Labor Hours 39.0 37. 0 February Labor Hours 35 .0 33.0 M a r c h Labor Hours 39. 0 37.0 April Labor Hours 38. 0 36.0 May Labor Hours 40.0 38. 0 June Labor Hours 37.0 35 .0 July Labor Hours 39.0 37.0 August Labor Hours 39.0 37. 0 September Labor Hours 37.0 35.0 October Labor Hours 41.0 39. 0 November Labor Hours 37.0 35. 0 December Labor Hours 39.0 37. 0 Cropland Acres Mi lk Transfer Cwt. -1, 300 -1,300 C o rn Grain Transfer Bu. 820 820 C o rn Silage Transfer T. 120 120 Haylage Transfer T. 43 43 1 1 Cow Limit 10 Cows T&hle A3. Coefficients for milk production activity reflecting winter storage and rinoff control-alternative housing systems and herd sizes. warm Enclosed Housing rten Stanchion Housing Unit 40 cows Cost Per Unit dols. January Labor hr*. 3,074.30 open Lot Housing Cold Covered Housing Tractor Scraper 60 cow* HO cows 160 cows 60 cows 160 cows 80 cows 2,961.77 2,673.70 2,507.2d 2,677.00 2,492.60 2 ,91fl.HO 80 cows slotted Floors ^e-'hanical Scraper 160 cows 160 cows 80 cows 2,709.70 2,657.20 2,9 39.80 80 cowc 160 cowti 160 cows 60 cows 2,889.80 2,722.10 2,65*1. bn 2,945.80 55.0 50.0 35.0 33.0 16.0 34.0 15.0 35.0 13.0 13.0 12.0 12.0 30.0 40.0 45.0 31.0 29.0 12.0 30.0 32.0 32.0 30.0 10.0 29.0 29,0 27.0 30.0 32,0 80 cows 160 cows 160 cows 2,894.80 2,732.90 2,670.70 32.0 30.0 30,0 29.0 29.0 27.0 March Labor hrs. 55.0 60.0 35,0 33.0 16.0 34.Q 34,0 34.0 32,0 32.0 11.o 11.0 29.0 29.0 31.0 31.0 29.0 29.0 April Labor hr*. 65.0 59.0 45.0 42.0 45,0 42.0 18.0 18.C 36,0 36.0 35,0 35,0 33.0 33.0 35.0 35.0 93.0 33.0 May Labor hr*. 65.0 60.0 47.0 44.0 47.0 44.0 19.0 39.0 37.0 37.0 36.0 36.0 34.0 34.0 36,0 36.0 34.0 14.0 June labor hrs. 54.0 49.0 33.0 11.0 34.0 32.0 33.0 13.0 31.0 91.0 30. o 30,0 28,0 26,0 30*0 30.0 28. 0 28.0 July Labor hr*. 55,g 50.0 35,0 31,0 16,0 34,Q 35.0 15.0 33,0 93,0 32,0 32,0 30.0 30.0 32,0 32.0 30.0 10,0 August Labor hrs. 55.0 50.0 35.0 13.0 16.0 34.0 35.0 35.0 13.0 13.0 32.0 12.0 10.0 10.0 32.0 12.0 30.0 30.0 Sept. labor hrs. 54.0 49.0 31.0 31.0 34.0 32.0 13.0 31.0 31.0 11.0 30.0 10.0 28.0 28.0 10,0 30,0 28.0 26.0 41.0 40.0 40.0 38.0 38.0 40.0 40.0 30.0 36.0 February Labor hrs ■ October tabor hrs. 72.0 66.0 55.0 51.0 54.0 50.0 43.0 41.0 41.0 Nov. labor hr*. 54.0 49.0 33.0 31.0 34.0 32.0 34.0 14.0 12.0 12,0 31,1 31.0 29,0 29.0 31.0 32,0 29.0 29.0 Dec. labor hrs. 55.0 50.0 15,0 33.0 36,0 34.0 35.0 95.0 93.0 33,0 31,0 31.0 29.0 29.0 11.0 31.0 29.0 29.0 Crop land acres Milk Transfer cwt. -1,300 “1,300 *1,300 *1,300 *1,300 -1,100 -1,100 -1,100 -1,300 -3,100 -1,100 -1,300 -1,300 C o m Grain Transfer bu. 820 620 S20 820 920 820 820 82 0 Sin 820 820 820 620 C o m Silage Transfer T, 120 120 120 120 120 120 120 120 120 120 120 120 120 Haylags Transfer Ti 43 43 41 41 43 43 43 43 41 43 43 41 41 Cow Limit 10 cows 1 1 1 1 1 1 1 1 1 1 1 I 1 KPlrst Listing for each herd sire is applicable to additional tank storage, the second for outside storage. -1,300 -1,300 *1,300 -1,300 *1,300 620 820 820 620 820 120 120 120 120 120 43 43 41 43 41 1 1 1 1 1 215 27.0 27.0 216 Table A 4 . Coefficients for the milk production activity reflecting winter storage and subsurface disposal of m a n u r e — liquid manure handling s y s t e m s ,3 Item Tractor Scraper Unit 80 Cows 80 Cows 160 Cows 160 Cows 2,941.80 2 ,891.80 2 ,724.50 2,662.00 Cost Per Unit Dollars Ja nuary Labor Hours 35. 0 35.0 33.0 33. 0 February Labor Hours 32.0 32,0 30.0 30.0 Ma r c h Labor Hours 34.0 34.0 32.0 32. 0 April Labor Hours 38.25 38.25 36.22 36.22 M a y Labor Hours 39.25 39.25 37.22 37.22 June Labor Hours 33.0 33.0 31. 0 31.0 July Labor Hours 35.0 35.0 33.0 33.0 Au g u s t Labor Hours 35.0 35.0 33.0 33.0 September Labor Hours 33.0 33.0 31.0 31. 0 Oc tober Labor Hours 43.5 43.5 41. 44 41. 44 No vem ber Labor Hours 34.0 34.0 32. 0 32.0 De cember Labor Hours 35.0 35.0 33.0 33. 0 Cropland Acres Mi lk Transfer Cwt. -1,300 -1,300 -1,300 -1,300 Corn Grain Transfer Bu. 820 820 820 820 Corn Silage Transfer T. 120 120 120 120 Haylage Transfer T. 43 43 43 43 1 1 1 1 Cow Limit 10 Cows aFirst listing for each herd size is applicable to additional tank storage, the second for outside storage. 217 Mechanical Scraper 80 Cows Slotted Floors 80 Cows 160 Cows 160 Cows 80 Cows 80 Cows 160 Cows 160 Cows 2,962.80 2,912.80 2,736.90 2,674,40 2,968.80 2,918.80 2,747.70 2 ,658.50 30.0 30.0 29.0 32.0 29.0 27.0 27.0 29.0 32.0 31.0 29.0 29.0 33.22 33.22 35.25 35.25 33.22 33.22 36.25 34.22 34.22 36.25 36.25 34.22 34.22 30.0 30.0 28.0 28.0 30.0 30.0 28.0 28.0 32.0 32.0 30.0 30.0 32.0 32.0 30.0 30.0 32.0 32.0 30.0 30.0 32.0 32.0 30.0 30.0 30.0 30.0 28.0 28.0 30.0 30.0 28.0 28.0 40.5 40.5 38.44 38.44 40.5 40.5 38.44 38. 44 31.0 31.0 29.0 29.0 31.0 31.0 29.0 29.0 31. 0 31.0 29. 0 29.0 31.0 31.0 29. 0 29.0 32.0 32.0 30.0 30.0 32.0 29.0 29.0 27.0 27.0 31.0 31.0 29.0 35.25 35.25 36.25 -1,300 -1,300 -1,300 -1,300 -1,300 -1,300 -1,300 -1, 300 820 820 820 820 820 820 820 820 120 120 120 120 120 120 120 120 43 43 43 43 43 43 43 43 1 1 1 1 1 1 1 1 Table A 5 . Basic linear programming tableau for synthetic dairy firms in southern Michigan. Item Cost Per Unit Unit Prod. Milk Prod, Prod. Corn Prod. Corn b Value Haylage (10 Cows + R) Grain (Acre) Silage (Acre) (Acre) b Dollars -78.50: -74.80 January Labor February Labor March Labor April Labor May Labor June Labor July Labor August Labor September Labor October Labor November Labor December Labor Cropland Hours Hours Hours Hours Hours Hours Hours Hours Hours Hours Hours Hours Acres Milk Transfer Corn Grain Transfer Corn Silage Transfer Cwt. Bu. T. 0 0 -1,300 820 0 120 T. 0 a 43 Haylage Transfer Cow Limit 10 Cows 220.7 199.4 220.7 213.6 220.7 122.0 213.6 220.7 213.6 220.7 213.6 220.7 0 .25, .20 .50, ,40 .62, .50 .50, .40 .12, .10 .12, .10 1.0 .25, 1.2 .37, .30 -1 -77.30 .50, ,62, .50, .12, .12, 2.5, 2.5, .25, -1 .40 .50 .40 .10 .10 2.0 2.0 .20 -63.00 .12, 1.3, 1.2, 2.5, .63, 1.8, .10 1.1 1.0 2.0 .50 1.5 -1 -92 -15 -4.2 1 ab values were 4, 6, 8 and 16 for the 40-, 60 -, 80- and 160-cow herds, respectively. bThe coefficients for the milk production activity varied according to herd size, housing system and pollution abatement policy. These coefficients are listed in Tables A1-A4. cThe first coefficient listed is applicable to the 40-, 60- and 80-cow herds; the second figure is applicable to the 160-cow herd. Table A5. Continued Jan. Feb. Mar. Apr. May June July Aug. -3.00 -3.00 -3.00 -3.00 -3.00 -3,00 -3.00 -3.00 Sept. -3.00 Oct. Nov. -3.00 -3.00 sell Dec. Milk (Cwt.) -3.00 6.00 -1 -1 -1 -1 -1 -1 -1 219 -1 -1 -1 -1 - 1 1 APPENDIX B A D E T A I L E D D I S C U S S I O N OF THE A G G R E G A T E I M P L I CAT ION S O F THE P O L L U T I O N A B A T E M E N T P O LICIES A N A L Y Z E D IN THIS STUDY 220 Industry Effects This analysis is directed p rim arily at firm level questions of adjustment through use of a "synthetic firm" technique. of 40, 60, is, Synthetic firms are developed for herd sizes 80 and 160 cows. The question approached here "What are the aggregate implications of this analysis for the Michigan dairy farming industry?" Aggregation of the synthetic firm data are used to address this question. Limitations of M eth od Basically, aggregation is accomplished by wei gh t i n g the impact of pollution abatement policies on each sy n t h e ­ tic firm by the number of firms represented by a p a r t i c u ­ lar synthetic firm. The limitations of these methods of aggregation are made ex pli cit for the reader's con sid era ­ tion : 1. Synthetic firms have not been developed to represent all Michigan dairy producing firms. Those dairy farms with less than thirty cows have not been considered. Furthermore, not all farms with more than thirty cows are included in the population defined by the synthetic firms ho using s y s t e m ) . (e.g., 40-cow, open lot 221 2. Data describing the distribution of dairy farms by size of herd and type of housing needed for weighting) (which are are only available for Grade A milk producers. 3. The price of milk and milk production per cow assumed for analytical purposes do not neces­ sarily reflect Grade B milk production. 4. Estimates reflecting crop yields, milk pro­ duction and labor requirements assume good to excellent management. 5. The synthetic firm analysis does not allow the synthetic firms to change production technology or dairy herd size (i.e., stanchion to cold confinement). 6 . The cost of pollution abatement facilities is assumed to be the same for all firms within a particular production technology--herd size combination. To the extent that the above restrictions limit aggregation, the results of this aggregation of empirical synthetic firm findings will not fully approach real world effects. Assumptions The following assumptions are made to facilitate the aggregation of empirical findings of synthetic firm analyses: Po llu tio n a b a t e m e n t pol ic i e s of state regulations, are in the form r e q u i r i n g all firms to ut ilize s i m i l a r facilities to abate pollution. O n l y Grade A herd s are considered. F i rm s do not c hang e milk p r o d u c t i o n te chn o l o g y (i.e., h o u s i n g system) or h e r d size as a re sul t of p o l l u t i o n a b a t e m e n t policies. E mpi ric al e s t i m a t e s of the c h a r a c t e r i s t i c s of the p r e v i o u s l y p res ent ed are r e p r e s e n t a t i v e of Grade A d a i r y firms. the empirical Specifically: (a) analysis of the syn th e t i c farm r e p r e s e n t a t i v e of 40-cow st anc hio n h o u s i n g s y s t e m is a s s u m e d r e p r e s e n t a t i v e of all stanchion h o u s i n g systems w i t h one to fifty cows, (b) the 60- cow s t a n c h i o n hou sing sy s t e m is assumed r e p r e s e n t a t i v e of all st anc h i o n h o u s i n g sy stems w i t h fifty or more cows, (c) the 8 0-c ow open lot h o u s i n g sys tem is a s s u m e d r e p r e s e n t a t i v e of all open lot s y s ­ tems w i t h less than 1 0 0 cows, (d) the 160-cow o p e n lot h o u s i n g s yst em is a ssu med r e p r e s e n t a ­ tive of all o p e n lot systems w i t h mo re than 100 cows, system (e) the 80-cow c o v e r e d h o u s i n g (cold c o v e r e d and w a r m enclosed) is as sum ed r e p r e s e n t a t i v e of all covered systems with 30-99 cows, (f) the 1 6 0 - c o w c o v e r e d 223 housing system (cold covered and w a r m enclosed) is assumed representative of all covered sys­ tems w i t h more than 1 0 0 cows. Two sets of aggregate estimates are presented. One set of estimates assumes all Grade A herds comply with the pollution abatement policies. The second set of esti­ mates assumes all Grade A herds with less than thirty cows discontinue production, rather than comply w i t h the pollu­ tion abatement policies. The second set of aggregative estimates is made for fworeasons: (1) data in C hapt er II indicates that the number of dairy farms with less than thirty cows have been declining rapidly in recent years; and (2 ) empirical findings of the synthetic firm analysis indicate p o l l u ­ tion abatement policies, may hasten the decline in number of small herds utilizing stanchion housing systems. (Approximately 88 percent of those Grade A herds with less than thirty cows utilized a stanchion ho usi ng system in 1970). Grade B herds are not included in the synthetic firm analysis or in the aggregate analysis. Grade B milk production accounted for approximately 4 3 percent of the dairy herds and 22 percent of the dairy cows in Michigan in 1970. However, by 1980, all milk production in Michi­ gan is expected to be Grade A. 224 Aggregate Implications To facilitate the estimation of the industry effects of pollution abatement policies, it is necessary to estimate the number of dairy cattle in each herd s ize — housing system stratum. Information on the size distribution of dairy farms and milk cows in 19 70 (Table 1, page 14) and informa­ tion on the distribution of Grade A herds size and housing system (1970) by herd (Table 3, page 22) are combined to provide the necessary estimate for each herd s i z e housing system stratum. The estimated number of Grade A dairy cows, by herd size and housing system, employed for aggregating the empirical findings of the synthetic firm analysis are presented in Table Bl. Table Bl. Estimated distribution of Grade A dairy cows by size of herd and type of housing. Type of Housing Stanchion Open Lot Cows Per Farm 30-49 50-99 100 or More 61,321 79,815 39 ,083 2,563 182,782 8,441 31,975 59 ,389 31,262 131,067 1,179 19 ,167 18,695 39,0 41 ,480 13,260 69,000 366.150 Under 30 Cold Covered — W a r m Enclosed — — Total 69,762 419 113,388 6 ,361 124 ,000 6 Totals 225 This e s t i m a t e d d i s t r i b u t i o n of d a i r y cows is us ed to w e i g h t the e m p i r i c a l findings of the synthetic fir m an al y s i s to p r o v i d e est ima tes of the a ggr e g a t e i mpa ct of p o l l u t i o n a b a t e m e n t pol i c i e s on: requirements, (2) m i l k production. (1 ) total inv est m e n t labor r e q u i rem ent s and (3) cost of These agg reg ate e sti mat es are p r e s e n t e d in Tables B2 and B3. A g g r e g a t e e sti mat es in Table B2 assume all Grade A herds w i l l c omp ly w i t h the p o l l u t i o n ab ate m e n t policies. A g g r e g a t e e s t i m a t e s p r e s e n t e d in Table B3 assume all G r a d e A firms w i t h less than th irt y cows will d i s c o n t i n u e m i l k production. Es tim ate s in Table B2 indicate re gul ato ry r unoff controls w o u l d require an ad d i t i o n a l i nve stm ent of $5.5 m i l l i o n on M i c h i g a n dairy farms and increase the cost of m i l k p r o d u c t i o n by an a verage of $.071 per h u n d r e d w e i g h t for open lot h ou s i n g systems, per hundredweight and by an average of $.025 for all m i l k produced. Lab or r e q u i r e ­ m e n t s are i n c r e a s e d by a p p r o x i m a t e l y 52,000 hours annually. W i n t e r storage of m a n u r e w o u l d re quire an e s t i m a t e d a d d i t i o n a l i n v e s t m e n t of $58.2 to $59.6 m i l l i o n by M i c h i ­ g a n milk p r o d u c e r s and increa se the cost of milk p r o d u c t tion b y an e s t i m a t e d $.148 to $.150 per h u n d r e d w e i g h t of m i l k produced. However, labor r e q u i rem ent s for the Table 82. Estimated aggregate effect of pollution abatement policies on the Michigan dairy farming industry— all Grade A dairy herds. Item Unit Stanchion Housing 1-49 Cows 50 or More Cows Open Lot Housing Cold Covered Housing Warm Enclosed Housing 1-99 160 or 30-99 100 or 30-99 Cows More Cows Cows More Cows Cows 100 or More Cows Total/ Ave. Runoff Control Dollars 48.45 34.53 45.12 16.16b Total Investments Million Dollars 4.8 1.1 5.9 .4 .4 .4 Labor/Cow Hours Total Labor Hours Annual Cost/Cwt. Dollars of Milk Ave. Annual Cost/Cwt. 39,922 12,505 ,075 .057 52,427 .071* Dollars .025* Ho Winter Disposal Investment/Cow Dollars 212.25 183.33 120.00 Total Investment Million Dollars 30.1 7.6 12.0 1.2 -.8 Labor/Cow Hours Total Labor Hours -.8 - 108.12 - 116.25 111.25 60-165.00 3.4 2.3 1.2 -.8 - 43,75150.00 158.62162.42 2,1 .4-1.1 .3-1.0 58.2-59.6 1.2 -.4 -.4 -189 -112,909 -49,975 -79,844 -37,514 -16,277 -22,434 -2,712 -2,593 -324,258 226 Investment/Cow *» $ -J J ^ Annual Cost/ Cwt. of Milk Dollars Ave. Annual Cost/Cwt. Dollars .215 .165 .108 .081 .075 .061 .095-.13 .073-.12 .148-.15 .148-.15 Subsurface Disposal Investment/Cow Dollars 8.75 4.37 Total Invest­ ment Million Dollars .06 .03 6.61 .24* .09 .088 .09 Hours .1 Total Labor Hours 678 Annual Cost/ Cwt. of Milk Dollars Ave. Annual Cost/Cwt. Dollars 385 .116 .273 ,085 Investment/Cow Dollars 212.25 183.33 168.45 142.66 Total Invest­ ment Million Dollars 30.1 7.6 16.8 4.5 2.3 Labor/Cow Hours -.8 -1.2 -.4 -.8 -.8 Total Labor Hours Annual Cost/ Cwt. of Milk Dollars 570 1,248 .02 .014 .0.7* .051 .018 .018 .00061 116.25 111.25 68.75173.75 48.12154.37 2.1 .46-1.06 .33-1.03 64.2-65.5 -1.2 -.3 -.312 -.76a .056 All Three Policies -112,909 -49,975 -39,922 -25,009 -16,277 -22,434 .215 .165 .183 ,138 Average of those herds affected by the policy. 3Average of all herds. ,075 .061 -2,034 .115-.15 -2,023 175.02178.82b -270,583 .087-.134 .174-.176 .174-.176 227 Labor/Cow Table B3. Estimated aggregate effect of pollution abatement policies on the Michigan dairy farming industry— Grade A dairy herds with thirty or more cows. Stanchion Housing Item Unit 30-49 Cows Open Lot Housing 100 or 50 or 30-99 More More Cows Cows Cows Cold Covered Housing 100 or 30-99 More Cows Cows Warm Enclosed Housing 30^99 Cows 100 or More Cows Total/ Ave. Runoff Control Investment/Cow Dollars 48.45 34.53 44.90 18.55b Total investment Million Dollars 4.4 l.l 5.5 .4 .4 Hours Total Labor Hours Annual Cos*/ Cwt* of Milk Dollars Ave. Annual Cost/Cwt. Dollars .4a 36,546 12,505 49.051 .075 .057 .07a .029b No Winter Disposal Investment/Cow Total Investment Dollars Dollars 212.25 183.33 120.00 108.13 116.25 16.9 7.6 11.0 3.4 2.3 1.2 -.8 Labor/Cow Hours Total Labor Hours -63,852 Dollars 215 Annual Cost/ n f M-i 1 Ir -.8 - 1.2 = ,8 - 111.25 60-165.00 2.1 - 1.2 -49,975 -73,091 -37,514 -16,277 -22,434 .165 .108 .081 .075 .061 43.75150.00 118.66153,41 .4-1.1 .3-1.0 44.0-45.4 -.4 -.4 -.91 -2,712 -2,593 -268,448 .095-.13 .073-.12 .136-.138 228 Labor/Cow AIHHM1 r-DST/ --------------------------------------------- cwt. Of Milk collars Ave. Annual Cost/Cwt. Dollars 215 .165 .108 J o e l .075.061 .095-.13 .073-.12 .l^-.!Sf .136-.138 Subsurface Disposal Investxnent/Cow Dollars 8.75 4.37 Total Investment Million Dollars .06 .03 6.61® .30 .09 Labor/Cow Hours -.1 .088 .09 Total Labor Hours 678 570 1,248 Annual Cost/ Cwt. of Milk Dollars .02 .014 Ave. Annual Cost/Cwt. Dollars .017a .0008b All Three Policies Investment/Cow Total Investment Dollars Million Dollars Labor/Cow Hours Total Labor Hours Annual Cost/ Cwt. of Milk Dollars Ave. Annual Cost/Cwt. Dollars 212.25 183.33 168,45 142.66 116.25 111.25 68.75173.75 48.121,561.37 167.50172.26b 16.9 7.6 15.4 3.5 2.3 2.1 .4-1.1 .3-1.0 48.5-49.9 -.8 -1.2 -.4 -.8 -.8 -1.2 -.3 .312 -.74 -2,034 -2,023 -63,852 .215 -49,975 -■36,545 -25,009 -16,277 -22,434 .165 .183 .138 aAverage of those herds affected by the policy. b Average of all heirds. .075 .061 -218, 149 .115-.15 -.087-. 134 ,1,66-.167 .166-. 167 to to vo 230 h a n d l i n g of w a s t e s are e s t i m a t e d to be r e d u c e d b y a p p r o x i ­ mately 32 5 ,000 h o u r s As annually. i n d i c a t e d in T a b l e 62, subsurface disposal of m a n u r e w o u l d r e q u i r e an e s t i m a t e d a d d i t i o n a l of $9 0 , 0 0 0 b y M i c h i g a n d a i r y production would hundredweight farmers. investment T h e c o s t of m i l k i n c r e a s e b y an e s t i m a t e d $ . 0 1 7 per for tho se s y s t e m s h a n d l i n g w a s t e s as a l i q u i d and by an a v e r a g e o f o n l y $.0006 p e r h u n d r e d w e i g h t for all m i l k p r o d u c e d . Compliance with an e s t i m a t e d a d d i t i o n a l all t h r e e p o l i c i e s w o u l d r e q u i r e i n v e s t m e n t of $64.2 t o $65.5 million by Mi c h i g a n Grade A milk producers. Labor require­ ments on M i c h i g a n dairy f a r m s w o u l d b e r e d u c e d b y an estimated annually. 270,000 hours The c o s t o f G r a d e A m i l k p r o d u c t i o n w o u l d i n c r e a s e by an e s t i m a t e d $.176 p e r h u n d r e d w e i g h t of milk. e m p l o y e d in o b t a i n i n g the Aggregate estimates c a t e th at if G r a d e A h e r d s of un cha nge d. p r e s e n t e d in T a b l e B 3 i n d i ­ of less t h a n t h i r t y cows d i s ­ c o m p l i a n c e w i t h t he abatement policies would assumptions a g g r e g a t e e s t i m a t e s , total G r a d e A m i l k s u p p l y w o u l d be continued production, U n d e r the $.174 to three pollution r e q u i r e an e s t i m a t e d investment $48.5 to $49.9 m i l l i o n b y M i c h i o a n G r a d e A m i l k p r o ­ ducers. mately L a b o r r e q u i r e m e n t s w o u l d be r e d u c e d b y a p p r o x i ­ 220,000 in p r o d u c t i o n . hours annually for those farms remaining T h e a n n u a l c o s t of G r a d e A m i l k p r o d u c t i o n 231 w o u l d increase by an e s t i m a t e d $.166 to $.16 7 per h u n d r e d ­ w e i g h t of milk produced. At the same time, a ppr o x i m a t e l y forty pe rcent of the M ich i g a n G r a d e A milk p r o d u c e r s w o u l d d i s c o n t i n u e production, r e s u l t i n g i n i t i a l l y in an e s t i m a t e d twenty p erc e n t r e d u c t i o n in the t ota l Grade A m i l k supply. It should be not ed that some of the facilities d e s c r i b e d in this study are e l i g i b l e for s ubs i d i z a t i o n t h r o u g h the federal c o s t —share a r r a n g e m e n t s of the Rural Environmental Assistance Program (REAP) a d m i n i s t e r e d by the A g r i c u l t u r a l Sta bi l i z a t i o n a n d C o n s e r v a t i o n Service.^Specifi cal ly, the cost-share a r r a n g e m e n t is au tho r i z e d for animal w a s t e storage facilities, liquid m anu re tanks, basins, holding p i t s o r ponds, s ettling basins, ou t l e t s piping, including: diversi ons , land shaping, n e e d e d to p ro t e c t the system, lagoons, c o l l e cti on channels, waterways, f e n c i n g and v e g e t a t i o n l e v e l i n g and filling, and p e r m a n e n t l y ins tal led eq uip m e n t n e e d e d as an integral p a r t of the system. To be eligible, the following items 1. A land o w n e r s must o b t a i n one of from the W a t e r Resources Commission: letter ind ica tin g t h a t his p r o p o s e d system does no t require the filing of a statemei t of n e w or inc re a s e d use of the w a t e r s of the State for was te d i s p o s a l p u r p o s e s ; or 232 2. A n Order of Determination setting forth t h e various requirements of his w ast e d i s p o s a l system. Cost-sharing is not authorized for (1) m e a s u r e s primarily for the prevention or abatement of air p o l l u ­ tion unless the measures also have soil and water c o n ­ serving benefits, or (2 } pumps, pumping equipment o r other portable equipment? buildings or m o d i f ic ati on o f buildings; or for spreading animal wastes on the land. Cost-sh ari ng is limited to fifty percent of t h e cost of facilities, per person. not e xce eding a m a x i m u m of $2,500 However, cost-sharing for low income farmers may be authorized up to eighty percent of the cost of each practice in the county program. For Michigan, $131,100 was authorized under REAP for construction of ninety-four animal waste handling structures in 1970. In 1971, $186,928 was 2 authorized for the construction of 132 structures. Conclusions This aggregate analysis of impacts of p o l l u t i o n abatement controls is conducted under a set of quite restrictive a s s u m p t i o n s . The estimates provided b y t h i s analysis represent an est im a t e d "upper bound" on the impact of pollution abatement policies on the M i c h i g a n dairy farming industry. 233 If the pollution abatement policies were i m p l e ­ me nte d by di rec t i v e s (in a manner similar to which the Michigan W a t e r Resources Commission currently requires dairy farm a cti on to remedy waste ma nag e m e n t problems) rather than by regulation, analysis, as assumed in this aggregate the total impact would be e x p e c t e d to be s u b ­ stantially less than the aggregates estimated, as e x p l a i n e d by the following judgments: (1) It is doubtful that all Michiga n m i l k producers are contributing to environmental pollution. Therefore, some firms would not be required to consider additi ona l pollution abatement facilities to be in c o m p l i a n c e w i t h legal pollution controls, (2 > For firms c o n t r i b u t i n g to environmental pollution, abatement may not require investment in facilities assumed in this analysis. ment, Some firms may find an improvement in m a n a g e ­ or 11h o u s e k e e p i n g ," practices sufficient to fulfill requirements of legal pollution controls. It sh oul d be emphasized, however, that feedlot runoff controls have been expressed in regulation form in other states. Furthermore, policies requiring w i n t e r storage of li ves toc k wastes have been considered in some states; tion, such requirements could be exp res sed as a r e g u l a ­ re quiring w ast e storage facilities producers. for all milk Implementation of such regulations in M i c h i ­ gan w o u l d require additional investments totaling $48 to $65 million. Un der such regulations, co sts of milk 234 p r o d u c t i o n w o u l d be i n c r e a s e d by an e s t i m a t e d $.166 to $.176 p e r h u n d r e d w e i g h t of m i l k p r o d u c e d w i t h a c o n c u r r e n t twenty percent r e d u c t i o n in the Mic h i g a n milk supply. It c ould b e e x p e c t e d that the i ncr eas ed c o s t of milk p r o d u c t i o n c omb i n e d w i t h a dec r e a s e in t o t a l m i l k supply w o u l d i n c r e a s e the p r i c e of milk. mates indicate r u n o f f c o n t r o l Aggregate esti­ for o p e n lot h o u s i n g s y s t e m s wo uld n o t be e x p e c t e d to h a v e a si g n i f i c a n t i m p a c t on the cost of milk p r o d u c t i o n or the total sup ply of milk. This p o l i c y w o u l d increase t he average cost of t o t a l milk p r o d u c t i o n b y an e s t i m a t e d $.025 to $.03 p e r h u n d r e d ­ weight. Under th e a s s u m p t i o n that p r o d u c e r s w i t h less than t h i r t y cows w o u l d d i s c o n t i n u e m i l k p r o d u c t i o n , the ef fec t of this p o l i c y w o u l d be an e s t i m a t e d tw o to three pe r c e n t reduction in total m i l k supply. for w i n t e r s torage of d a i r y wastes, mated t o have a s u b s t a n t i a l Requirements however, are e s t i ­ impact on the cost of m i l k p r o d u c t i o n and t o t a l milk supply. I nte r p r e t a t i o n of t h e s e a ggr ega te e s t i m a t e s should be t e m p e r e d by the r e s t r i c t i v e as sum pti ons n e c e s s a r y to f a c i l i t a t e computations. 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