Economic Efficiency of Grazing Systems

Benefits and costs of implementing the specialized grazing systems on federal rangelands managed by the Bureau of Land Management (BLM) were studied. First only the direct benefits and costs were used to determine the internal rates of return on the Bureau of of Land Management investments in grazing systems. Secondly, the effects of theses systems on profits of private ranchers were determined. Finally the benefits and costs stream on the Bureau of Land Management and the changes in ranchers\u27 profits were brought together to find out the net gain to society from investing the federal funds in specialized grazing systems. The internal rate of return on the Bureau of Land Management investments over an area of approximately 695,024 acres in Idaho, Nevada and Utah is 2.37 percent which is less than half the rate federal investments are expected to return (as measured by the federal government\u27s cost of borrowing). More than half of the twenty four allotment plans have negative rates of return. Out of thirteen plans with negative rates of return only five had positive net returns and the rest have negative net returns. Specialized grazing systems have improved the aggregate profits of the private ranchers by $3.06 for each pound of livestock produced. Federal investment in specialized grazing systems may be justified if income distribution is considered a valid reason for such activities. If the stability and continuity of their operations is assured, ranchers may be able to pay increased grazing fees. In view of the fact that under public pressure the government has decided to withdraw rancher benefits in the form of grazing fees lower than market rates, income distribution appears to be poor grounds for justification of federal investment. Also, given the income benefits to ranch operations, ranchers themselves would undoubtedly want to invest in grazing systems on federal land. However, rancher investment is unlikely since the Bureau of Land Management is already discouraging private permanent improvements on public lands. From the point of view of the Bureau of Land Management as a proprietory agent, the real cost of obtaining an increase of a bundle of non-grazing benefits produced jointly with an animal unit month of increased forage production is $0.53. A grazing fee of $1.74 per animal unit month would be required for the Bureau of Land Management to break even on investments in grazing systems. This is in spirt of the fact that large federal investments in necessary range improvements already existed before the implementation of the specialized grazing systems. It appears the investments in grazing systems on unimproved ranges are not justifiable in terms of direct returns to the Bureau of Land Management. If the externality to the ranching segment of society is internalized, specialized grazing systems more than pay for themselves if future benefits are discounted at the public discount rate. Besides the positive change in public goods, society gains $3.42 for each additional animal unit month of grazing. Many questions are left unanswered such as quantifying and placing a dollar value on rangeland benefits claimed by the federal agencies