Agriculture, Ecosystems and Environment, 45 ( 1993) 1-11 1

Elsevier Science Publishers B.V., Amsterdam

On-farm costs of reducing nitrogen pollution

through BMP
Javier Fernandez-Santos a, Slim Zekri b and A. Casimiro H e r r u z o c
"Department of AgriculturalEconomics, Universityof Crrdoba, Crrdoba, Spain
bDepartment of AgriculturalEconomics, ESAM, Tunisia
CDepartment of AgriculturalEconomics, Universityof Crrdoba, Crrdoba, Spain
(Accepted 23 November 1992)

ABSTRACT

Fernandez-Santos, J., Zekri, S. and Casimiro Herruzo, A., 1993. On-farm costs of reducing nitrogen
pollution through BMP. Agric. EcosystemsEnviron., 45:1-11.

This study presents a methodology to assess on-farm costs of reducing nitrogen leachate through
'best management practices' (BMP). A simulation as well as a linear multi- objective programming
model was used linking environmental and economic data. The Non-Inferior Set Estimation method
is used to generate the extreme efficient pts for the problem considered. The BMP for every level of
admissible nitrogen pollution are elicited. Results show that the adoption of the BMP may lead to
considerable economic losses for farmers. This implies that the BMP will not be accepted by farmers
unless targeted subsidies are allocated to avoid their incurring losses. The methodology used in this
paper provides a powerful instrument to link economic to environmental objectives. However, the
sensitivity of the results to the type of crops considered as well as to weather and soil conditions should
be kept in mind.

INTRODUCTION

For many years agricultural policy has focused on higher production and
increased use of agrochemicals. This policy has produced many undesirable
environmental side-effects. Although agriculture related environmental prob-
lems emerged in the 1960s, the first economic studies of agriculture external-
ities (pesticide residues as D.D.T., nitrogen pollution, animal waste and soil
and water salinity) are not found until the late 1960s and early 1970s (Sto-
evener and Shulstad, 1975 ). This delay in tackling agricultural environmen-
tal spillovers can be attributed to three factors: ( 1 ) the inadequate qualitative
and quantitative information relating agricultural technologies to environ-
mental problems; (2) the lack of social consciousness on the need to preserve
the environment; (3) the scarce perception of agricultural economists of the
magnitude of these emerging problems. Fortunately, there is currently a grow-
Correspondence to: A. Casimiro Herruzo, Department of Agricultural Economics, University of
C6rdoba, Aptdo 3048, 14080 C6rdoba, Spain.

© 1993 Elsevier Science Publishers B.V. All rights reserved 0167-8809/93/$06.00

2 J. FERNANDEZ-SANTOSET AL.

ing number of studies relating the economic impacts of agricultural environ-

mental effects at the farm, sector and international levels.
This paper assesses on-farm economic losses due to the implementation of
'best management practices' to reduce nitrogen pollution in surface waters.
The increased concentration of nitrate in ground and surface water has nega-
tive impacts on both human health and environment. Different studies have
linked the excessive nitrate levels in drinking water to stomach cancer and to
methaemoglobinaemia, a health problem caused by oxygen starvation in bot-
tle fed infants. Although no strong evidence is yet available on the upper limit
of nitrate concentration in drinking water capable of causing these relevant
health hazards (Hanley, 1990), it is recognized that health hazard effects of
nitrate concentration can be particularly serious to populations who depend
on groundwater for their drinking. Groundwater is slowly renewable and a
nitrate load appears to persist for decades. The most important burden of
nitrogen pollution on the environment is river, lake and sea eutrophication
caused by an excessive growth of algae, followed by the depletion of dissolved
oxygen. Nitrogen channelled by freshwater from agricultural land to the del-
tas and coastal waters enhances algae growth in marine waters (Kofoed, 1985;
Silvander and Drake, 1991 ). Therefore, even if pollution of surface water has
no direct spillovers on human health, environmental risks should be treated
with as much importance as reducing human health risks.

I N C E N T I V E S TO R E D U C E N I T R O G E N P O L L U T I O N

A number of approaches have been suggested to reduce non-point water

pollution (Shortle et al., 1989). These are:
( 1 ) Advice and education, based on the premise that farmers will volun-
tarily adopt nitrogen pollution control practices if they are informed of their
desirable environmental effects. This approach appears impractical as few
farmers, if any, will voluntarily adopt less harmful technologies which are less
productive a n d / o r more expensive.
(2) Design standards, which implies the reduction of nitrogen losses through
the imposition of the level, timing and forms of applications. The major
drawbacks of this approach are the difficulty in passing and enforcing appro-
priate legislation and the rigidity in inputs use which may translate in higher
production costs.
(3) The performance standards approach consists of setting regulations on
observable outcomes of the polluter's decisions. The problem is that the out-
come of nitrogen pollution is not easily observable. Besides, when it is possi-
ble to observe, it is extremely difficult to determine which farmers are pollut-
ing, as nitrogen passes to the rivers or groundwaters through drainage water
from a wide array of lands.
(4) The economic incentive approach which can be applied to farmers ac-
REDUCTION OF NITROGEN POLLUTION USING BMP 3

tions or outcomes. Imposing a tax on nitrogen fertiliser responds to the first

scheme. Two major problems arise because: (a) the demand for nitrogen is
price-inelastic and (b) the price incentive can produce inefficiency as in many
cases least-polluting crops are penalized more heavily than crops from which
nitrate leaching is proportionately greater. Furthermore, a political consensus
on this matter is quite difficult to reach. In this sense, Roberts and Lighthall
( 1991 ) cited an example of how agrobusinessmen and commercial farmers
in Iowa opposed even a 1% tax on pesticide sales arguing that this tax could
lead to a deterioration of their competitiveness on national and international
markets, let alone 150% increase in nitrogen cost to achieve a 30% reduction
in its use (Burrell, 1989 ). Taxes on farmers undesirable outcomes would have
been the best policy if these outcomes were observable and responsibilities
easily determined.
This paper concentrates on the adoption of BMP to reduce surface water
pollution from an irrigated area near C6rdoba, Spain, under current techno-
logical conditions at farm level. Current EC legislation related to nitrate water
pollution stipulates two kinds of action that will be undertaken within the
next 4 years. Mandatory measures are being considered for the environmen-
tally sensitive areas (nitrate concentration in water higher than 50 mg 1-1
a n d / o r eutrophication problems) concerning the quantity of fertilizer used
(a maximum of 170 kg N h a - l ), soil management and animal waste manage-
ment. For the rest of the areas, a preventive approach via the development
and diffusion of the BMP is to take place within a context of voluntary imple-
mentation (Sebillotte, 1991 ).

THE PROBLEM

The area selected for this study has 2 000 ha of irrigated land. The irrigation
water is elevated from the Guadalquivir river. The presence of a shallow im-
permeable layer makes the drainage return flow divert to the Guadalquivir
river. Current nitrate concentration in the Guadalquivir river (flowing
through the considered area) is around 18 mg 1-1 (Agencia de Medio-Am-
biente, 1990). Following the EC classification, Villafranca de C6rdoba has a
nitrate level in its waters below 50 mg 1-1 and is therefore not considered as
an environmentally sensitive area. The aims of this paper are two-fold, first a
mathematical multi-objective programming model is constructed in order to
choose the BMP among those available and, second, the losses due to the
implementation of the BMP are estimated. The fundamental weaknesses of
the BMP approach are it's voluntary nature, and the economic losses that
farmers may incur. In many cases the earnings from the more efficient use of
fertilizer do not offset the cost of splitting nitrogen and yield reductions. Un-
der such circumstances, it is almost certain that farmers will not be motivated
by BMP implementation. It is widely known that a given technology will be
4 J. FERNANDEZ-SANTOS ET AL.

adopted only if it offers significant advantages for the adopters. BMP are not
only economically less advantageous but the improvement of the water qual-
ity is a social benefit that farmers do not directly perceive. In response to
these weaknesses, governments can introduce an economic incentive, a tar-
geted subsidy, for those farmers who adopt a given BMP. The mathematical
model permits the estimation of the amount to be paid to farmers in order for
them not to incur in losses.

METHODOLOGY

Several papers have tackled the nitrogen pollution problem at the farm level.
Most of them use linear programming models and analyze the impacts of ris-
ing nitrogen prices and imposing quantity restrictions on farm incomes and
cropping patterns. Abrams and Barr (1974), cited in Hanley ( 1991 ), linked
a linear programming model to an environmental submodel relating nitrogen
application to nitrate levels in water in order to assess the effects of tax and
transferable permit systems on reducing nitrogen application. More recently,
Johnson et al. ( 1991 ) linked the CERES crop simulator model, a dynamic
optimization model and a linear programming model. The dynamic model
was aimed to optimize daily applications of water and fertilization, under the
assumption of gross margin maximization for each crop, based on CERES
outputs. The linear programming model maximized the gross margin under
different policies on farm-level nitrate pollution rates. Cohon et al (1979)
developed the Non-Inferior Set Estimation (NISE) method to analyze the
conflict between water quality and income in a river basin planning problem.
The method allows the generation of extreme efficient pts for problems with
two or three objectives. Zekri and Romero (1992) used the NISE method to
assess the costs of reducing salt load into drainage water via the investment
in more efficient irrigation technologies. In this paper the NISE method is
used to assess the losses due to the adoption of BMP. One of the advantages
of using the NISE method is the ease of integration into the analysis of more
than one objective. The decision makers here are interested in two objectives:
reducing nitrogen pollution and maximizing farmers income. Moreover, the
NISE method allows the estimation of the trade-offs between any two objec-
tives. To complement the NISE method, the compromise programming
method is used in order to reduce the number of solutions. The compromise
programming method was first proposed by Yu ( 1973 ) and started up from
the postulate that the decision maker prefers solutions as close as possible to
the ideal point.
In order to generate the nearest solutions to the ideal the compromise pro-
gramming method uses the following family of distance functions:
REDUCTION OF NITROGEN POLLUTION USING BMP

n
MinLp(w) = [ ~ w~ { (Z~ -Z~(x))/(Z~,.-Z.;)} p] 1/p
i=1

subject to X~F
where wi is the weight attached to the i-th objective, Z;* is the ideal solution
for the i-th objective, Z.; is the nadir solution for the i-th objective p is the
parameter and X~F is the set of constraints for the problem considered.
By calculating the LI (p= 1 ) and Loo (p--,oo) bounds, the compromise set,
that is the set of solutions closest to the ideal is obtained (Romero and Reh-
man, 1989).

THE MODEL

A mathematical multi-objective mixed programming model is designed for

a representative farm of 40 ha. Three crops are considered: corn, cotton and
sunflower. For each of these crops a variety of management practices are sim-
ulated using the nitrogen, tillage and crop-residue management (NTRM)
(Schaffer and Pierce, 1987 ) simulation model with 1990 weather conditions.
The simulations are essentially based on the timing and levels of nitrogen
applied as well as on the amount of irrigation water. It is assumed that high
nitrogen fertiliser rates together with inefficient irrigation systems are the main
cause of water quality degradation by high nitrate concentration. The reduc-
tion of nitrogen quantity and the increase in the number of split applications
are certain to lead to a considerable reduction of nitrate leached. For more
details concerning the assumptions underlying the simulation model see
Schaffer and Pierce (1987). Although the timing of irrigation is a key vari-
able in reducing nitrogen pollution, it is not considered in this study, as under
the current irrigation system farmers can irrigate their lands only every 10
days. In this sense, 234 management practices are simulated for cotton, 71 for
sunflower and 64 for corn. Results from the NTRM model linking nitrogen
fertiliser application, water use, yields and nitrogen leachate are considered
as technical coefficients in the mathematical multi-objective model. Two ob-
jectives are considered in the analysis: ( 1 ) the maximization of gross margin
expressed in pesetas and (2) the minimization of nitrate leachate expressed
in kilograms of nitrogen losses.
Mathematically the model is expressed as follows:
234 71 64
Maximize: ~ GMiCOTi + ~ GMjSs + k~=lGMkCORk
i=1 j=l

234 71 64
Minimize: ~ NITi COT,. + ~ NITjSs + ~ NITk CORk
i= ! j= 1 k= 1
0 J. F E R N A N D E Z - S A N T O S ET AL.

subject to
234 71 64
~, w,mCOr, + ~., wjmSj + ~, WkmCOgk ~AVWm (1)
i=1 j=l k=l

234 6 71 6 64 6
~, E w,,,,cor~ + E E wj,,,Sj + ~, ~, WkmCORk <~TOTW (2)
i= lm= l j= lm= 1 k= lm= l

234 71 64
.E COT, + Z Sj + ~, CORk <.%40 (3)
t=l j=l k=l

7| 64
Sj <<.~, CORk (4)
J=l k=l

X~ - COT, <~0 (5)

COTi - 26)(,. < 0 (6)
234
ZX,<l (7)
i=1

5-s:<.o (8)
Sj-2OY/<0 (9)
71
Z <l (lO)
j=l

Zk -- C O R k <~0 (ll)
C O R k - 2 4 Z k <. 0 (12)
64
(13)
ZIZk ~ 1
Where GM~ is the gross margin for the i-th management practice (pts h a - ~),
COT~ is the area of i-th management practice for cotton, Sj is the area ofj-th
management practice for sunflower, CORk is the area of k-th management
practice for corn, NIT~ is the nitrogen leachate of i-th management practice
(kg h a - ~), W~mis the water requirement for i-th management practice during
m-th m o n t h (m 3 h a - ~) m = 1...6; 1 = March..4 6 = August, A VWm is the water
available during the m-th m o n t h (m 3 ha-1 ), TOTWis the total available water
during the irrigation season (m3 h a - l ) , X~ is a zero/one variable= 1, if and
only if COT~> 0, Yj is a zero/one variable = 1, if and only if Sj> 0 and Zk is a
zero/one variable = 1, if and only if CORk> 0
The first two constraints refer to monthly and irrigation season water limi-
tations, respectively. Constraint (3) represents the total available area to be
cultivated. Constraint (4) is an agronomic restraint that expresses the fact
REDUCTION OF NITROGEN POLLUTION USING BMP 7

that sunflower can be grown only after corn. Constraints (5) and (6) express
the fact that if cotton is to be chosen in the crop mix the minimum area must
be 1 ha and the upper bound must be 26 ha (Schrage, 1986). The upper bound
is a restraint on individual crops for reasons related to diseases and weed
control (Rae, 1977 ). Constraint (7) expresses the fact that only one manage-
ment practice for cotton can be chosen at a time. Constraints (8), (9), (10),
( 11 ), ( 12 ) and ( 13 ) express the same as Constraints (5) - (7) for cotton,
sunflower and corn.

RESULTS

The results from the linear multi-objective programming model using the
NISE method are shown in Table 1. Eight extreme efficient pts are obtained.
The gross margin varies between 8.5 million Pts and 10.8 million Pts. The
nitrogen losses in drainage water vary from 762 to 2 205 kg. For the first six
solutions, the crop mix is the same with 26 ha allocated to cotton, 7 ha allo-
cated to sunflower and 7 ha allocated to corn. In the last two solutions, the
area allocated to corn increases at the expense of sunflower and reaches 9.5
ha. The optimal amount of irrigation water for cotton is 5 000 m 3 h a - 1 in the
first solution and 6 000 m 3 ha-~ for all remaining solutions. The quantity of
nitrogen recommended for cotton is 300 kg h a - ~in the first solution and 275
kg h a - ~ for the rest of the solutions. In all cases the nitrogen is split into four
applications. For sunflower, considering solutions A and B, the optimal quan-
tity of nitrogen is 100 kg applied at one time. However, for the same crop and
for solutions C to H the nitrogen must be split into three applications with a
total quantity of 125 kg h a - ~. For corn the quantity of nitrogen applied varied
widely (between 150 kg h a - 1 in the three first solutions to 400 kg h a - ~in the
last solution). In all the solutions the nitrogen must be split into five appli-
cations and the amount of water applied must be 6 500 m 3 h a -
The efficiency of nitrogen use, expressed as the ratio of nitrogen applied
minus nitrogen leached to nitrogen applied during the crops cycles, decreases
from 90% to 80% for the solutions A to H. Nitrogen losses due to volatiliza-
tion as well as denitrification are not accounted for as the NTRM model does
not allow for their estimation.
Fig. 1 shows the transformation curve between the two objectives consid-
ered (gross margin and nitrogen leachate). The slopes of the segments con-
necting the extreme efficient pts correspond to the opportunity cost of reduc-
ing nitrogen losses via the implementation of different management practices.
As the earnings from reducing nitrogen application do not offset yield reduc-
tions plus the cost increase of nitrogen splitting, the decrease of nitrogen
leached leads to economic losses for those farmers who adopt management
practices aimed at the reduction of nitrogen pollution. The reduction of 1 kg
of nitrogen leached within the segment 1TG reduces the gross margin by 220
8 J, FERNANDEZ-SANTOS ET AL.

~.= Z ~

~ 06 o6 06 r-: ~
O', OO OO OO OO OO

¢'4 O~ ~ ',~ t~ tt~ ~t~

~ ~ o

-.~ ~ "~ 7

Z ~'--
t"4

g g ~
"T
¢,q

t¢3
• °
r--- t--- r.-- r--. r-. ~ ~ ~1"
e~
¢,q k, ~ t.~ ¢"q t.~ t"q ~. ¢'q t., t',,I t., t'Ni t.~ ~r~ ( ' q t., t¢3 e~
t~
E e~
e~
a ~ o
e~

0
g~z
¢-q oo ¢q e.

.~. ¢'q oo

5~ e~
0

e*
0,2
o6 ~ d o ~ c5 o c/

2
.1 8

II II
REDUCTION OF NITROGEN POLLUTION USING BMP 9

Ideal solution H
10.8

10.4 D f Trade-off = 0.22' 10 -3

COMtmOMIS[ . ~ ~-,~ L t (1070 ; 10.294)
SET
C -,e./j[,
~ Lm (1028 ; 1 0 1 2 4 )
•~- 10.0 -de-------- T r a d e - o f f = 3.98 . 10 -3

_z
~ 9.6

m
o3 ~-~ .... T r a d e - o f f = 6.62. 10 -3
0 9.2
o~
0

8.8

A
8.4 I I u I [ I ' I n I n I = I ' I n I
500 700 900 I 1O0 1300 1500 1700 1900 2100 2300

NITROGEN LEACHATE (Kg/year)

Fig. 1. T r a d e - o f f c u r v e , nitrate leachate-gross margin.

Pts. The move from Point H to Point G implies only the reduction of the
quantity of nitrogen applied for corn by 100 kg ha -1. The crop mix and the
management practices remain the same for cotton and sunflower. Hence, the
cost of replacing the management practice for corn is 116 000 Pts, or 2 900
Pts ha- 1. This is the lowest cost along the trade-off curve. The highest cost is
attained when moving within the segment ~ where the cost of reducing 1 kg
of nitrogen lost is 6 200 Pts.
Solutions C and D constitute the bounds of the compromise set when the
same importance is given to the objective gross margin and nitrogen leachate.
In other words, when the decision maker gives the same weight to both objec-
tives the set of solutions closest to the ideal point is segment CD. Solutions C
and D are very close both in terms of gross margin and nitrogen leachate as
the move from D to C causes a decrease of only 170 000 Pts. of gross margin
vs. a reduction of 42 kg of nitrogen leachate. Along segment, the reduction of
1 kg of nitrogen leachate implies an economic loss of 4 050 Pts.
However, if we assume that farmers are profit maximizers, then the move
from point H to point C (lower bound of the compromise set) implies an
economic loss of 16 700 Pts ha -1. [ ( 1 0 . 7 9 2 - 1 0 . 1 2 4 ) / 40]. This figure is
the minimum amount that should be paid to farmers to make them adopt
management practices, thus, allowing a more efficient use of nitrogen fertil-
izer. If policy makers go a step further and want to reduce at maximum nitro-
gen pollution then the solution that must be adopted is the one corresponding
to point A. In this case the economic losses rise to 57 000 Pts ha- 1, which is
l0 J. FERNANDEZ-SANTOS ET AL.

the m a x i m u m a m o u n t that could be paid to adopt the management practices

corresponding to solution A.
Finally, the last column of Table 1 indicates the average use of nitrogen
fertiliser per hectare which varies from 223 kg ha -1 to 288 kg ha -1. If the
study area were a sensitive area the limitation of fertilizer quantity to 170 kg
h a - 1 would only lead to a decrease in economic returns with no improvement
on nitrogen pollution. In other words, under current soil and water condi-
tions, the mandatory measure concerning nitrogen fertilizer quantity would
lead to a non-efficient solution in terms of gross margin and nitrogen leachate.

CONCLUSIONS

The most important weaknesses of BMP are their voluntary approach and
the economic losses that farmers may run into if these BMP are adopted. The
adoption of more efficient management practices, to reduce nitrogen pollu-
tion, require that they, at least, be as profitable as current management prac-
tices. In this study it has been shown that if decision makers give the same
importance to the preservation of water quality as to economic returns of
farmers, a targeted subsidy of at least 16 700 Pts h a - 1 must be paid to moti-
vate t h e m to adopt BMP and thus avoid economic losses. Besides the targeted
subsidy, policy makers must create mechanisms to control farmers applica-
tions of the BMP once voluntarily accepted. The use of nitrogen fertilizer
under 206 kg h a - 1 may lead to inefficient solutions with drastic decreases of
farmers income without any improvement of nitrogen leachate under current
water, soil and crop conditions.
Finally, it is worth mentioning that the results obtained in this study heav-
ily depend on the crops considered and on the availability of irrigation water.
That is, the consideration of other crops a n d / o r the variation of the amount
of irrigation water used may considerably alter the amounts to be paid to
farmers as well as the crop mix and the nitrogen leached. However, the meth-
odology presented can easily be applied to estimate the economic losses for
different kind of enterprises under different water, crop and weather
conditions.
The investment on alternative available technologies could lead to consid-
erable reduction on nitrogen losses with respect to the results obtained. How-
ever, for farmers to adopt these technologies the target subsidy have to be
substantially higher than the figures estimated. Therefore, research invest-
ments to generate improved less costly technologies is necessary if a wide
adoption of BMP is to be achieved.

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