Modelling risk, trade, agricultural and environmental policies to assess trade-offs between water quality and welfare in the hog industry

Abstract

To assess the trade-offs between water quality and welfare in North Carolina and in Quebec under different trade, agricultural and environmental policies in the pork sector, an economic model is linked to an environmental model. The economic model is a spatial mathematical programming model of US and Canadian swine industries. It is a partial equilibrium model, which is dynamic, regional and incorporates a risk variable. The objective function maximizes market welfare defined as the Marshallian measures of producer and consumer surpluses plus government payments. The objective function does not maximize social welfare, which includes the economic benefits derived from water quality, because economic values for improved water quality do not exist for the areas of interest. The objective is to maximize the area under each region's pork demand function, adding government payments and subtracting all production, slaughter, processing, storage and distribution costs. The Erosion Productivity Impact Calculator (EPIC) is the environmental model used in concert with the economic model. Nitrates and phosphates are the environmental indicators. Phosphates being less soluble than nitrates, are lost mainly in runoff and erosion, and hence affect surface water, while nitrates are lost in runoff and leachate contaminating ground and surface waters. The accumulation of phosphates accelerates the eutrophication process while high levels of nitrates in drinking water have been associated with maethemoglobinea, a potentially lethal blood disorder affecting infants under 6 months of age. Since welfare measures are calculated at the regional level, and water quality occurs at the local level, the trends rather than the magnitudes of water quality and welfare changes, are compared to determine if economic and environmental objectives conflict. There are four scenarios: two trade scenarios encompassing important liberalization endeavors and two environmental scenarios simulating potential nutrient management plans. In three cases out of eight, there are trade-offs between welfare and water quality. In the Southeast, including North Carolina, regional welfare decreases due to increased manure disposal costs imposed under both nutrient plans. Welfare decreases are partly compensated by decreases of nitrates and phosphates in runoff. In Quebec, the elimination of the ban on US live hog imports in Canada allows imports of hogs from the Midwest into Quebec, which accompanies a decrease of hog inventories in Quebec. The welfare change is negative and the change in water quality with respect to nitrogen is positive.