Nutrient prices and concentrations in Midwestern agricultural watersheds

Abstract

This paper assesses the impact of nutrient prices on nutrient concentrations in agricultural watersheds. Specifically, we find that the price elasticity of nutrient emissions from agricultural watersheds is −0.17 to −0.34, suggesting that a 10% increase in nitrogen or phosphorus prices faced by farmers would lead to up to a 3.4% reduction in nitrogen or phosphorus emissions from a watershed. While this sounds modest, it is about the same size as estimates of the price elasticity of nutrient demand by farmers, a relationship which also is very inelastic. Our results suggest that when prices for nutrients rise, there is a direct effect on nutrient emissions from watersheds. Given recent concerns about phosphorus in Lake Erie, we assess the potential implications of applying a phosphorus usage fee to reduce phosphorus emissions there. We find that a 25% increase in phosphorus prices would reduce nutrient outputs from the three Lake Erie watersheds we modelled by 6.5%, or 210t phosphorus per year, and cost about $6ha−1yr−1. These costs are similar to estimates of the costs of reducing phosphorus through waste water treatment plants, and less than the costs of other widely used agricultural best management practices like cover crops.