Ohio State University Extension Fact Sheet

Ohio State University Extension

Agricultural Economics

2120 Fyffe Rd., Columbus, Ohio 43210


The Economics of Vegetative Filter Strips

AE-0006-99

Megumi Nakao, Graduate Student
Brent Sohngen, Assistant Professor

Agricultural, Environmental, and Development Economics
The Ohio State University

Larry Brown
Associate Professor and Extension Agricultural Engineer
Food, Agricultural, and Biological Engineering
The Ohio State University

Rob Leeds
Extension Agent, Agriculture and Natural Resources
Ohio State University Extension
Delaware County

Introduction

A vegetative filter strip is an area along a ditch, gully, stream, pond, lake, or sink hole that is covered permanently by vegetation such as grass, hay, or timber. The vegetation reduces or removes sediments, chemicals, nutrients, and organic materials carried in runoff (Chesapeake Bay Program 1995). While these filter strips appear costly to install, in some circumstances they may provide economic benefits to offset the lost profits from growing corn and soybeans. Before beginning construction, however, landowners should understand the economic tradeoffs. Benefits of vegetative filter strips need to be compared with the installation and maintenance costs. This publication provides general background on economic considerations associated with installing vegetative filter strips. As such, it is an update of a previous OSU Extension fact sheet entitled "Vegetative Filter Strips: Economics" (AEX-468). It is intended for farmers and landowners, as well as technical and regulatory agency personnel. For additional technical information, please consult "Vegetative Filter Strips: Application, Installation and Maintenance" (AEX-467), a fact sheet available through your county Extension office. This fact sheet begins with a general discussion of the potential benefits (social and private) and costs of filter strips. Contemporary data on benefits and costs are included to help farmers assess the financial aspects of filter strips. Four particular options are considered in this fact sheet: grass and legumes, hay, low managed timber, and high managed timber. The financial aspects of these options are then compared using average benefit and cost data for Ohio. More in-depth economic information about these and other best management practices can be found at http://www-agecon.ag.ohio-state.edu/Faculty/bsohngen/bmp/bmpinfo.html.

Social Benefits of Filter Strips

The social benefits considered here are environmental, where the public downstream obtains benefits through reduced sediment flows, improved stream water quality, additional fish and wildlife habitat, and better scenery along streams. While the economic value of social benefits is difficult to measure, economists have developed several techniques to estimate these values. This section assesses some of these benefits, and presents data on the economic value of the benefits.

One of these benefits is improved wildlife habitat. For example, along streams that have been heavily modified by human activity, branches from tree plantings can provide shade for streams, reduce sunlight intensity, and consequently reduce water temperature to more natural conditions. During the summer, forested filter strips may keep streams from reaching temperatures that are lethal to aquatic organisms. Other benefits may include improved stream channel morphology, a richer aquatic food chain, and more species diversity (Chesapeake Bay program 1995 and Welsch 1991).

An improved fish habitat also can improve fishery production, catch rates, and recreational fishing opportunities. A 1998 study of the Great Lakes trout and salmon fishery by Lupi and Hoehn suggests that a 10% increase in catch rates could lead to a $3.4 million increase in recreational value for sport anglers. In addition, MacGregor (1988) found that Ohio boaters would benefit $0.01 to $9.00 per one ton reduction in sediment, and Bejranonda (1996) found that house values near Ohio lakes could increase $0.04 to more than $25.00 per ton.

Ohio dredges a large number of lakes and harbors. One study in the Toledo harbor found that reducing soil erosion could reduce these costs by $0.87 per ton of gross soil erosion (Sohngen and Rausch 1998). Forster, Bardos, and Southgate (1987) estimate that sediment added an extra $0.32 per ton to water treatment costs, and suggest that a 10% reduction in annual gross soil erosion could lower annual water treatment costs by 4%. When considering all Ohio communities, a 25% reduction in the amount of sediment entering surface water supplies could save $3.2 million per year in water treatment costs. Another potential economic benefit is a reduction in ditch maintenance and cleaning costs. The cost of ditch maintenance in western Ohio counties averages $450 per mile per year. Over the approximately 3,817 miles of open ditches under county maintenance programs in the western half of Ohio, total maintenance costs exceed $1.7 million per year (Atherton 1998). Based on an estimate by Forster and Abrahim (1985), each 10% reduction in soil erosion could reduce these costs by 11%.

Private Benefits of Filter Strips

For farmers, the private benefits resulting from harvesting and marketing the vegetation are most important. Two examples of revenue producing filter strips-hay and timber-are considered in this fact sheet. For hay, the average price for alfalfa in Ohio in 1996 was $134.58 per ton, and for other hay it was $75.42 per ton (Ohio Department of Agriculture Annual Report 1996). The example in this fact sheet uses a mixture of Birdsfoot Trefoil and Kentucky Bluegrass planted with a no-till system. Using a conservative price of $75 per ton, the annual returns for years 1 and 2 are $225, in years 3 and 4 they are $375, and in year 5 they are $338. Harvesting costs of $35 per ton must also be included. Note, however, that some logistical problems caused by baling small areas, or safety problems associated with baling a long, narrow filter strip along a stream or ditch bank, may cause relatively high costs for baling.

Turning to timber, average stumpage prices for species acceptable for filter strip use in Ohio during September-November 1997 were $0.39 per board foot for walnut, $0.32 per board foot for white oak, and $0.23 per board foot for soft maple (Ohio Agricultural Statistics Service 1998). Higher prices accrue to larger "sawlogs." Sawlog prices range from $0.05 per board foot to $0.80 per board foot. The highest value occurs with logs used for veneer. Walnut veneer prices range from $1.50 per board foot to $5.00 per board foot. These prices can be updated periodically by Ohio Department of Natural Resources Service Foresters, or the publication "Ohio Timber Prices" published twice a year by the Ohio Agricultural Statistics Service.

Although timber production brings revenue, tree planting requires the landowner to have a longer time horizon than the other options because the benefits occur 60 to 80 years in the future. Further, total revenue will vary depending on site quality, and on the effort placed on timber management. For this reason, we consider low and high managed timber options. The low managed timber option assumes that landowners plant heavily with oaks, but do not manage the stand during the growing period (other than mowing grass during the first three years). Under these conditions, the stand is worth $6,080 after 80 years of growth.

For the high managed option, thinning and pruning increase the value of stands at harvest. While thinning reduces the number of trees on each acre, it increases the size of each tree, and larger trees often bring higher prices for landowners. Landowners can also produce veneer by pruning the lower 17 feet of trees when they are young. Some walnut stands may achieve as much as 30% high-value veneer at harvest time. The high managed option is assumed to be planted with walnut, and it is managed with thinning and pruning during the growing period to produce 30% veneer wood. With high management, the stand is worth $20,323 after 80 years of growth and management.

The Costs of Filter Strips

The costs of installing and maintaining filter strips on cropland include: (1) land rental costs, (2) seed and fertilizer costs, and (3) equipment and labor costs. Some costs, such as seed and fertilizer, will occur only when the filter strip is installed, while others, such as land rental, equipment, and labor, may occur throughout the life of the filter strip to maintain it. Although estimates of these costs are shown in this fact sheet for "typical" farms in Ohio, these costs will vary from place to place, depending on soil fertility, planting and management systems, and the intended use of the vegetative material in the filter strip.

Land Rental Costs

Land rental costs are an important component of the overall cost of a vegetative filter strip, in fact, they may be the most important component. Land rental costs recognize the lost opportunity of not continuing to produce crops on the land used for the filter strip. For most farmers, removing land from production involves a loss of profits, and it is these profits that are included as the land rental cost.

Our typical examples assume that land rental costs are the return from a corn or soybean crop above variable costs. Because fixed costs remain the same whether the land produces corn, soybean, forage, or vegetative filter strips, fixed costs are not relevant to the land rental costs of the alternative practice.

The dominant crop rotation in Ohio is a corn-soybean rotation for which the five-year average yields are approximately 120 bushels per acre for corn and 40 bushels per acre for soybean. Ohio State University Extension estimates the average returns above variable costs in Ohio to be $124 per acre for a 120 bushel per acre corn yield, and $133 per acre for a 40 bushel per acre soybean yield when a conventional tillage system is used. Because farmers are not likely to use the most productive land for filter strips, the examples in this fact sheet use a slightly lower value of $120 per acre for land rental costs.

If the annual returns from a vegetative filter strip project are greater (less) than the rental costs of land, the vegetative filter strip is generating financial returns (losses) relative to a corn and soybean rotation. If land to be used for the filter strip is highly productive, removing the land for filter strips is likely to be costly to the farmer. If, however, land to be used for the filter strip is difficult to manage for crops (for example, the soils are too wet for machinery or they are at a field-edge where it is difficult to turn large machinery), it may not be costly to remove land from production.

Table 1 shows the variability in land rents for different crops and land productivity classes typical in Ohio. Crop rotation, management system, and the local crop market may also affect these values, and should be considered in certain circumstances. These costs should be included when productive land is to be used for the filter strip. Examples are presented below to show how the economic considerations change when land rental costs are not important. For more information on opportunity cost and crop production budgeting, contact your county Extension office.

Table 1. Land opportunity costs for alternative crops.
Crop types NotesProduction Levels
LowMediumHigh
Corn-SoybeanrotationConventional tillage$85/acre
(90-30 bu/ac)*
$128.50/acre
(120-40 bu/ac)
$179.50/acre
(150-50 bu/ac)
No-till$74/acre
(90-30 bu/ac)
$117.50/acre
(120-40 bu/ac)
$168/acre
(150-50 bu/ac)
WheatGrain & stem harvested$52/acre
(45 bu/ac)
$84/acre
(60 bu/ac)
$117/acre
(75 bu/ac)
Wheat-Soybean Double Grain only$93/acre
(45 bu/ac)
$119/acre
(60 bu/ac)
$143/acre
(75 bu/ac)
OatsGrain & stem harvested$11/acre
(50 bu/ac)
$50/acre
(85 bu/ac)
$83/acre
(120 bu/ac)
Sunflower$35/acre
(1200 lbs/ac)
$126/acre
(2000 lbs/ac)
$191/acre
(2600 lbs/ac)
Canola$121/acre
(40 bu/ac)
$162/acre
(50 bu/ac)
$201/acre
(60 bu/ac)
*The first number represents the production level of corn and the second number represents
the production level of soybeans (Source: Farm Custom Rate Paid in Ohio, 1995).

Seed and Fertilizer

In general, establishing a grass or hay vegetative filter strip is similar to establishing a pasture or meadow. Additional information on pastures and meadows may be obtained from the Ohio Agronomy Guide. Some information relating to filter strip applications is summarized in AEX-467, with emphasis on the selection of the vegetation for the filter strip, and fertilization.

Cool-season grasses are generally more desirable for sediment removal than warm-season grasses. Periods of primary production of cool-season grasses are spring, summer, and fall, and they reach maturity relatively soon. On the other hand, the period of primary production of warm-season grasses is summer, and it takes them a very long time to reach maturity. The Ohio Agronomy Guide (1995) recommends mixing legumes with grasses. The mixture results in higher yields, higher quality, and more uniform seasonal production. Mixing legumes also reduces the need for nitrogen fertilizer in the filter strips.

Costs of seed will vary with the choice of vegetation. Prices for cool-season grasses and legumes suitable for filter strips in Ohio range from $0.45 per pound for tall fescue to $4.45 per pound for reed canary grass. Table 2 presents grass mixture and seeding rates, and Table 3 provides a summary of average cost information on cool-season grasses and legumes.

Table 2. Alternative grass mixtures and seeding rates.
Legumeslb/acreGrasseslb/acre
a Alfalfa10Timothy or1-2 (fall) 4 (spring)
Orchardgrass or2-4
Smooth Bromegrass or5-7
Perennial ryegrass3-4
b Alfalfa and Red clover7Timothy or1-2 (fall) 4 (spring)
3Orchardgrass or2-4
Smooth Bromegrass or5-7
Perennial ryegrass3-4
c Red clover8Timothy or1-2 (fall) 4 (spring)
Orchardgrass or2-4
Smooth Bromegrass or5-7
Perennial ryegrass or3-4
Reed canarygrass or4-6
Tall fescue8-10
d Red clover and6Orchardgrass or2-4
Ladino clover or1/2-1Perennial ryegrass or3-4
Alsike clover2Reed canarygrass or5-7
Tall fescue8-10
Garrison grass4
e Birdsfoot trefoil6Timothy or2-4
Orchardgrass or2
Smooth Bromegrass or5-7
Reed canarygrass4-6
f Birdsfoot trefoil6Kentucky bluegrass2
g Ladino clover1Orchardgrass or6-8
Tall fescue or8-10
Reed canarygrass or8-10
Smooth Bromegrass6-8
(Source: Ohio Agronomy Guide 1995)


Table 3. Cost of cool season legumes and grasses in Ohio.
SpeciesPrice/
pound ($)
SpeciesPrice/
pound ($)
Alfalfa (average)2.68Perennial Ryegrass1.10
Birdsfoot Trefoil3.50Reed Canarygrass4.45
Red Clover1.90Smooth Bromegrass3.00
Ladino White Clover2.80Tall Fescue1.00
Kentucky Bluegrass1.35Timothy0.45
Orchardgrass1.15Switchgrass2.70
(Source: OHIGRO, Inc., 1998)

Once the type of vegetation is selected, soil fertility should be evaluated, and the seeding method selected. The amount of fertilizer nitrogen, phosphorus, potassium, and lime to be applied to the filter strip should be determined through a soil analysis. A cost estimate for each of these nutrients is: $0.24 per pound for nitrogen; $0.23 per pound for phosphorus; and $0.13 per pound for potassium (Duvick 1995). If soil pH needs adjustment, a reasonable cost estimate for lime is $13.50 per ton (Duvick 1995). These prices may vary under yearly and local pricing conditions. Local farm supply dealers should be able to provide current price estimates applicable to your area.

For individuals interested in planting trees in filter strips, the Ohio Department of Natural Resources estimates that the price of tree seedlings ranges from $0.15 to $0.50 per seedling. To have the seedlings planted, the average cost, including the cost of seedling itself, is approximately $0.70 per seedling in western Ohio and $0.52 per seedling in eastern Ohio.

Equipment and Labor

The type of tillage system used in seeding the filter strip will affect equipment and labor costs. Two types of tillage systems generally are used when seeding grass and hay filter strips: conventional and no-till seeding. The recommended steps for the seeding of a filter strip are summarized in AEX-467.

To seed and apply fertilizer properly using a conventional tillage system may require three tillage passes: fertilizer application, seedbed preparation, and planting. A no-till system requires only a fertilizer spreading operation and a no-till drill operation. Estimates of equipment and labor costs for both a conventional and no-till system using Ohio 1995 custom rates are presented in Table 4. The average total cost for seeding a filter strip using a no-till system is $21.50 per acre (see Table 4) compared to $32.50 per acre for the conventional system.

Table 4. Comparison of equipment and labor costs for conventional
and no-till seeding of vegetative filter strips.
OperationRate per Acre
Range ($)Typical ($)
Conventional Tillage System
Lime Application3.00-17.506.00
Broadcast Fertilizer2.00-8.003.50
Incorporate Fertilizer5.00-12.007.00
Finn Seedbed5.00-10.006.00
Drill Seed6.00-20.0010.00
Total Equipment and Labor Costs21.00-67.5032.50
No-till Management System
Lime Application3.00-17.506.00
Broadcast Fertilizer2.00-8.003.50
No-till Drill Seed6.00-20.0012.00
Total Equipment and Labor Costs11.00-45.5021.50
(Source: Farm Custom Rate Paid in Ohio, 1995)

Equipment and labor costs will also occur during the life of the filter strip when maintenance is performed. To maintain maximum filter-strip efficiency, the grasses should be mowed or hay should be removed to maintain a moderate vegetation height. An approximate mowing cost for Ohio is $25 per acre, and mowing may be necessary twice a year.

Additional maintenance and costs that are not explicitly considered above may include land grading or other soil surface preparations to ensure proper filter-strip establishment and operation (see AEX-467). In some cases (drought, for example), germination of the seed and establishment of the vegetation in the filter strip may require irrigation. If these types of operations are required, the associated costs should be considered and included in the analysis.

Incentive Programs

Cost-share programs have been established in Ohio to help pay costs of installing best management practices, such as vegetative filter strips. In the case of hay filter strips, however, these incentive programs may not be used if the landowner expects to obtain returns through harvests. OSU Extension fact sheet AE-1-97, "Incentive Programs for Improving Environmental Quality," provides information on a wide range of such programs. Some examples include the Conservation Reserve Program (CRP), Wetland Reserve Program (WRP), Environmental Quality Incentive Program (EQIP), and Forest Incentive Program (FIP). The Conservation Reserve Program appears to be the most economically feasible option for farmers, although the economic results may vary depending on the farmer's specific conditions and needs. Under Conservation Reserve Program, farmers are reimbursed up to 50% of establishment costs, and 50% of rental rates for the life of the contract. For more information on incentive programs, contact your local Natural Resources Conservation Service, Soil and Water Conservation District, or Farm Service Agency office.

Economic Summary of Four Options

A summary of the typical benefit and cost values used in our analysis, including the years in which they occur, is given in Table 5. A summary of the net present value of these benefits and costs is then given in Tables 6 and 7. More detailed information about these calculations, as well as spreadsheet templates for some options are available on the World Wide Web at: http://www-agecon.ag.ohio-state.edu/Faculty/bsohngen/bmp/bmpinfo.html.

Table 5. Data used to calculate vegetative filter strip benefits and costs per acre.
Item Grass and LegumesHay Low Managed Timber High Managed Timber
Benefits
Harvests None Harvest in years
2, 7 = $225
3, 8 = $225
4, 9 = $375
5, 10 = $375
6 = $338
Harvest in year 80 = $6,080 Thin in year 30 = $655
Thin in year 55 = $1,853
Harvest in year 80 = $20,323
Incentive Payments CRP (50% of
establishment and
land rental payments
for 10 years)
None CRP (50% of
establishment and
land rental payments
for 15 years)
CRP (50% of
establishment and
land rental payments
for 15 years)
Costs of Establishment (all in year established)
Seeds$20$20$378$378
Fertilizer and Lime$37$37$0$0
Labor and
Equipment
No-till planting = $22 No-till planting = $22 ncluded in seed cost Included in seed cost
Periodic or Annual Costs
Mowing
(Timber:
Pruning and
Thinning)
$50 (2 times per year) Cutting and baling
in years
2, 7 = $105
3, 8 = $105
4, 9 = $175
5, 10 = $175
6 = $158
Mowing = $125 (5 times
per year, first 3 years)
Mowing = $125 (5 times
per year, first 3 years)
Thinning = $90 in year 12
(thinning costs for years
30 and 55 included in benefits)
Pruning = $130 in years 10
and 25
Land Rent$120$120$120$120

Both land rent and cost-share program benefits are included in these examples to show economic impacts when land is productive. Since the benefits and costs shown in Table 5 occur over more than one year, future values must be discounted to the present. The following examples use traditional techniques to discount these future values. For example, a $10 benefit 10 years from now is discounted back to present value terms in order to calculate the net benefits of the project. The values presented in Tables 6 and 7 are the present value of each item for one acre. Because the interest rate will affect the discounted value of any future benefit or cost, Table 6 presents values with a 5% interest rate and Table 7 presents values with a 10% interest rate.

Table 6. Profitability of a one-acre vegetative filter strip-5%
interest rate case (values given in $ per acre).
Types of Vegetative Filter Strips
ItemGrass and LegumeHayLow TimberHigh Timber
Discount rates5%5%5%5%
Life of project10 years10 years80 years80 years
Length of contract10 years15 years15 years
Benefits
Revenue$0.00$2036.77$122.68$688.24
Cost share$500.69$ 0.00$802.78$802.78
Costs
Land rental costs$926.61$ 926.61$2351.58$2351.58
Seed/seedling$20.00$ 20.00$378.00$378.00
Fertilizer & lime$37.00$ 37.00$0.00$ 0.00
Labor & equipment$406.56$970.97$340.41$508.72
Profit (loss)($889.48)$82.19($2144.52)($1747.28)
Annual profit (loss)($115.19)$ 10.64($109.43)($89.16)
Internal rate of return0%12%0%0%


Table 7. Profitability of a one-acre vegetative filter strip-10%
interest rate case (values given in $ per acre).
Types of Vegetative Filter Strips
ItemGrass and LegumeHayLow TimberHigh Timber
Discount rates10%10%10%10%
Life of project10 years10 years80 years80 years
Length of contract10 years15 years15 years
Benefits
Revenue$ 0.00$1558.52$ 2.97$57.27
Cost share$404.36$0.00$ 628.18$628.18
Costs
Land rental costs$737.35$737.35$1199.41$1199.41
Seed/seedling$ 20.00$20.00$ 378.00$378.00
Fertilizer & lime$ 37.00$37.00$ 0.00$ 0.00
Labor & equipment$326.77$746.86$ 310.86$401.65
Profit (loss)($716.77)$17.31($1257.12)($1293.61)
Annual profit (loss)($116.65)$2.82($ 125.77)(129.42)
Internal rate of return0%12%0%0%

Tables 6 and 7 are constructed as follows. The interest rate for discounting and the project life are given first. These depend on the example. The expected private benefits of the filter strip are then presented, followed by the benefits from a cost-share program. The cost-share program is not considered for the hay example because cost share is not available for landowners who chose to harvest hay from filter strips. For the other examples, the Conservation Reserve Program is used because it appears to be the most lucrative for farmers. It is nevertheless important to note that other programs exist that may suit the farmer's needs better in a particular situation.

The benefits in Tables 6 and 7 are followed by the private costs. These values represent average or typical values for Ohio based on the most current information available at the time of printing. We assume that typical land rental costs are $120 in each example. Profit is then given as the net present value of benefits minus costs. The row for profits (losses) represents the economic impact of the filter strip on the farmer's financial situation for that acre over the life of the project. Positive (negative) profits indicate that the net returns are above (below) land opportunity costs.

Because it is useful to see how filter strips will affect the annual profitability of farms, annual profits (losses) are also given in the tables. Annual profits (losses) allow farmers to assess how filter strips will affect their economic situation in each year of the project. The internal rates of return for the project are then presented in order to give landowners an idea of the relative returns from filter strips compared to other land uses.

There are a couple of interesting results from these two tables. First, hay appears to be the most profitable for landowners. While hay filter strips enhance environmental benefits above continued plowing on the same land, they typically do not provide environmental benefits as large as undisturbed grass or timber filter strips. Grass and legumes provide no profits because there are no revenues. The timber options appear costly because harvests occur so far in the future, and the benefits of these harvests are consequently discounted heavily. For example, future revenues from timber harvests in the high timber case are approximately $20,000 per acre, while the current value of those benefits is only $688 at a 5% interest rate.

Three Special Considerations

The Effect of Cost-Share Programs

Table 8 compares annual profits with and without cost-share payments from the Conservation Reserve Program. Hay is not considered in Table 8 because programs like the CRP do not allow land to be managed during the life of the contract, while timber is included because harvests will occur after the contract has ended. Land used for the filter strip is assumed to be productive and rental costs are $120 per acre per year. The annual benefit of the cost-share program is the difference between losses with and without the cost-share program. Cost-share programs provide annual benefits of $40 to $65 per acre.

Table 8. The effect of cost-share payments on average annual profits
(losses) from alternative filter strip installations. The benefit of
cost-share payments is calculated as the difference between annual
costs with and without Conservation Reserve Program cost-share payments.
Grass and LegumesLow TimberHighTimber
($ per acre per year)
5% interest rate
With cost-share(115.91)(109.43)(89.16)
Without cost-share(179.68)(149.48)(129.21)
Cost-share benefit64.6440.0540.05
10% interest rate
With cost-share(116.65)(125.77)(129.42)
Without cost-share(181.61)(185.18)(188.84)
Cost-share benefit64.9659.4159.42

The Effect of Land Rent

Landowners should carefully consider land rental costs associated with vegetative filter strips. High land rental costs, such as the $120 assumed above, are likely to occur if the land used for the filter strip is a productive part of the farm field. If the land used is not as productive, landowners need not be as concerned about land rental costs. To see how land costs affect the decision to install a filter strip, Table 9 presents average annual profits (losses) without including land rent. Positive (negative) values imply that benefits from harvesting and cost-share payments are larger (smaller) than installation and maintenance costs.

Table 9. Average annual profits (losses) from the alternative filter
strip options. These values do not include land opportunity costs.
Types of Vegetative Filter Strips
Grass & LegumeHayLow TimberHigh Timber
($ per acre per year)
Interest rate = 5%
Annual profits (losses)
4.81130.6410.5730.84
Interest rate = 10%
Annual profits (losses)
3.35122.82(5.77)(9.92)

Profits are positive in all cases, except both high interest rate timber cases. The costs of planting and managing trees are emphasized in the high interest rate case so that losses occur. This confirms the results in Tables 6 and 7 above that landowners with longer time horizons, low land opportunity costs, and lower interest rates can profit from planting timber. When land rent is low, timber filter strips can do as well or better than grass filter strips.

If land rent is lower than the returns shown in Table 9, landowners benefit from installing a filter strip. For example, if land is highly productive, and lost opportunity costs are $120, landowners will do a little better than break-even in the hay example, but lose money in the other examples. If, however, land is not that productive, and the lost opportunities are $0, landowners obtain the profits shown in Table 9.

Timber Returns with Shorter Time Horizons

One of the primary decisions landowners make concerning land use involves their planning horizon. The planning horizon is particularly important for landowners who are considering the timber alternative for the filter strip. Shorter time horizons have two important effects on tree volume and value. First, tree volume will be smaller the less time a tree grows. Second, the average value of the trees may be smaller because smaller trees typically bring lower prices. Lower prices occur because fewer trees can be used for veneer or sawtimber, and more trees may consequently move into pulpwood production. Pulpwood prices are generally lower than sawtimber prices.

To give landowners some idea of the consequences of choosing shorter time horizons for timber production, we present average annual profits (losses) for our 80-year time horizon above and a 60-year time horizon in Table 10. With 60 years, it is likely that most trees will be used for sawtimber in the low management case, and that 30% can still be used for veneer in the high management case. Shorter time horizons are not investigated here because they would likely reduce the proportion of sawtimber, and hence the value of the trees.

Table 10. Average annual profits (losses) for the two timber options
under 80-year and 60-year rotations. These values do not include land
opportunity costs.
Low Timber High Timber
($ per acre per year)
Interest rate = 5%
80-year average annual profits (losses)10.5730.84
60-year average annual profits (losses)15.5442.11
Interest rate = 10%
80-year average annual profits (losses)(5.77)(9.92)
60-year average annual profits (losses)(4.80)(6.74)

As can be seen in Table 10, the profits from timber production in the 5% interest rate case are higher with the lower planning horizon, although these differences are not dramatic. The losses in the 10% interest rate case are reduced slightly as well. The shorter time period thus improves the financial picture for the landowner. If landowners are interested in reducing the time horizon even further, they should work closely with state foresters to develop management plans that capture the ability of the site to produce merchantable timber.

References

Antherton, Bruce. 1998. "Drainage improvement assessment methods and subsurface drainage practices in Ohio." Mimeo. Department of Food, Agricultural, and Biological Engineering. The Ohio State University.

Bejranonda, Samskaow. 1996. An Assessment of the Soil Erosion Impacts on Lakeside Property Values in Ohio: A Hedonic Pricing Method (HPM) Application. Ph.D. diss, The Ohio State University.

Chesapeake Bay Program. 1995. Water Quality Function of Riparian Forest Buffer Systems in the Chesapeake Bay Watershed. The U.S. Environmental Protection Agency for the Chesapeake Bay Program. Annapolis, MD.

Denny, Guy. 1975. Ohio's Tree. The Ohio Department of Natural Resources.

Duvick, Richard D. 1995. Farm Custom Rates Paid in Ohio, 1995. Ohio Agricultural Research and Development Center. Ohio State University Extension.

Forster, D. Lynn, and G. Abrahim. 1985. Sediment deposits in drainage ditches: A cropland externality. Journal of Soil and Water Conservation 40:141-143.

Forster, D. Lynn, C. P. Bardos, and D. D. Southgate. 1987. Soil erosion and water treatment costs. Journal of Soil and Water Conservation 42:349-352.

Leeds, Rob, Larry Brown, M. Sulc, and L. VanLieshout. "Vegetative Filter Strips: Application, Installation, and Maintenance." AEX-467. Ohio State University Extension.

Leeds, Rob, D. Lynn Forster, and Larry C. Brown. 1993. "Vegetative Filter Strips: Economics." AEX-468. Ohio State University Extension.

Lupi, Frank, and John Hoehn. 1998. "Great Lakes Recreational Fishing Case Study: The Michigan Recreational Angling Demand Model." Prepared for the National Oceanic and Atmospheric Administration and the Northeast-Midwest Institute.

MacGregor, D. R. 1988. The Value of Lost Boater Value Use and the Cost of Dredging: Evaluating Two Aspects of Sedimentation in Ohio's State Park Lakes. Ph.D. diss., The Ohio State University.

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Ohio State University Extension. 1995. Ohio Agronomy Guide. 13th ed. Ohio State University.

Rausch, Jon, and Brent Sohngen. 1997. "Incentive Programs for Improving Environmental Quality." AE-1-97. Ohio State University Extension.

Schnitkey, Gary, and Darrel Acker. 1995. "Ohio Enterprise Budgets, Grains-Forages 1995." Ohio State University Extension.

Sohngen, Brent, and Jon Rausch. 1998. "Soil Erosion in the Maumee River Basin: A Case Study Using Market Methods to Value Environmental Externalities." Prepared for the National Oceanic and Atmospheric Administration and the Northeast-Midwest Institute.

Welsch, David J. 1991. Riparian Forest Buffers. USDA-FS pub. No. NA-PR-07-91. USDA-FS, Radnor, PA.

Acknowledgments

We thank the following sources for their financial support of this publication: The Lake Erie Protection Fund, Ohio State University Extension, and the USDA-Natural Resource Conservation Service.

We also thank the following individuals for their assistance in developing this publication: Randy Heiligmann (Associate Professor, School of Natural Resources, The Ohio State University); D. Lynn Forster (Professor, Agricultural, Environmental, and Development Economics, The Ohio State University); Kathy Smith (Ohio Department of Natural Resources, Division of Forestry); and Bruce Atherton (Department of Food, Agricultural and Biological Engineering, The Ohio State University).


All educational programs conducted by Ohio State University Extension are available to clientele on a nondiscriminatory basis without regard to race, color, creed, religion, sexual orientation, national origin, gender, age, disability or Vietnam-era veteran status.

Keith L. Smith, Associate Vice President for Ag. Adm. and Director, OSU Extension.

TDD No. 800-589-8292 (Ohio only) or 614-292-6181



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