Economic instruments to control water quality degradation in the Lower Mainland

Nitrate pollution of ground and surface water can stem from the mismanagement and over-application of both inorganic and organic fertilizers. This results in the occurrence of non-point externalities, which infringe on the overall level of social welfare. Market based environmental policies, known as economic instruments, can be developed to curb the level of this non-point externality. Such policies directly affect the management decisions of agricultural producers, providing them with incentives to change their management practices. The overall objective of this study is to analyze an array of economic instruments which could feasibly curb water quality degradation resulting from the over-application and misuse of manure and inorganic fertilizers in agricultural production. The economic instruments are compared in terms of their relative effectiveness in decreasing nitrate water pollution and social damage. This thesis develops a three agent manure market model, wherein a vegetable producer and composter can purchase manure from a dairy producer or inorganic fertilizer from an exogenous fertilizer market. The production activities of each agent are modelled using real world production data. A non-linear programming technique is used. The imposition of a percentage manure tax was found to alter the vegetable producer’s derived demand for manure, and resulted in less manure being exchanged between the dairy and vegetable producers. The provisions of a percentage manure composting subsidy increased the quantity of manure demanded by the composter and decreased the amount of manure consumed by the vegetable and dairy producers. The imposition of an inorganic fertilizer tax increased the demands for manure fertilizer, as did the manure application limit. The effects on social damage are dependent on the leaching and surface run-off susceptibilities of each operation’s associated land base. The composting subsidy appeared to be the most efficient instrument for decreasing the overall level of social damage, when qualitatively analyzed. It induced decreases in the demand for manure by both the dairy and vegetable producers, while increasing the demand for manure of the composter. This results in an overall social benefit. There must be, however, financial justification for the implementation of such an instrument.Land and Food Systems, Faculty ofGraduat