APPENDIX 17: EXPLANATION OF
ECONOMIC ANALYSIS METHODOLOGY
This appendix briefly explains the methodology used in Chapter 4 for calculating
the impact of AUM reductions on income and employment.
A review of the literature and discussion with both BLM and Forest Service
agricultural economists was conducted to identify the best possible methodology
for estimating the income and employment impacts of grazing reductions on
BLM land. Because a livestock operator has a number of options in response
to permit AUM reductions, an analysis of all possibilities would be very
lengthy and inappropriate for the present analysis. For the present assessment,
only the decision to reduce herd size to match allowable AUMs is analyzed.
This is a reasonable choice given the present high cost of supplemental
feed and the low prices for cattle. After it was discovered that almost
all of the projected AUM impacts would occur in two counties, the impacts
for the balance of the EIS study area were based on simple extrapolations
of the principal county impact factors to the numbers for the other counties.
The result is a better estimate than could be obtained through a large area
impact formula.
The principal county analysis focused on specific AUM reductions for specific
permits. This is the most accurate approach available because herd size
changes (and sales income lost) are directly related to AUM reductions for
a particular livestock operation. Based on discussion with county farm advisors
and BLM range conservationists, a 5.5 month season of use assumption is
used for herd size calculations. The impact of AUM reductions on herd size
uses the Constant Elasticity of Substitution (CES) model developed by researchers
at the Economic Research Service of the U.S. Department of Agriculture.
It is presented in the Rangeland Reform EIS, Appendix G, "Economic
Aspects of Supply and Demand for Livestock Forage on Public Lands (BLM 1994).
The CES model used data in the 1990 USDA Farm Costs and Returns Survey of
western livestock operations to model the tradeoffs between federal grazing
and other forage sources. The model permits a calculation of percent herd
size reduction from percent permit AUM reduction. In effect, this is a worst
case scenario. If the operator has access to surplus pasture or inexpensive
supplemental forage the herd size reduction could be less.
The income impact analysis is based on an average sale per cow-unit calculation
developed by Rick Delmas of the Modoc County Farm Advisor Office. The calculation
uses a 300 head cow-calf operation with 85 % calf crop, 2 % cow mortality,
20 % replacement and the following cattle prices: 450 # steers @ $74/100#,
425 # heifers @ $68/100#, 1,000 # cull cows @ $37/100#, and 1,600 # cull
bulls @ $47/100#. This produces an average sale price of $296 per animal.
This figure, of course, applies to only one point in time and no assumptions
can be made about future values.
Two research studies were conducted in northern California that provide
the total income and employment impacts of reduced livestock sales. The
first is a study by George Goldman, economist with the Department of Agricultural
and Resource Economics at the University of California, Berkeley. The other
study was by Brian Roach and John Loomis of the Division of Environmental
Studies at the University of California, Davis. Both studies analyzed the
economic impact of livestock sales on the total regional/local income and
employment. The total income multiplier of 1.40 used in this analysis is
an average of the research by Roach and Loomis who proposed an income multiplier
of 1.47 and George Goldman who proposed a multiplier of 1.3393. The employment
multiplier of 13.28 jobs per one million dollars in sales is used because
it is the most recent estimate.
Rangeland Health Standards & Guidelines EIS Appendix
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