Projects Funded for Wei Zhang

2012-2013

California's Air Quality Regulations on Dairies: Multiple Environmental Externalities and Interactions of Regulations

Abstract

Specific Objectives of the Project

We will study the economic effects of California's air quality regulations on dairies and provide insights into the future design of environmental policy related to the livestock sector. This research will make four contributions. First, we will identify consequences of local air quality regulations on dairies for ambient air concentrations of ozone and particulate matter. Second, we will estimate the economic cost of local air quality regulations borne by dairies in the South Coast Air Basin and San Joaquin Valley. Third, we will investigate the interactions between air quality and water quality regulations and empirically test whether these different regulations are complementary or incompatible. Fourth, our research will shed light on cost-effective approaches to regulate environmental extern alities from livestock.

Summary of Results

California dairy farms have experienced hard times in recent years. In addition to changes in market conditions in both input and output markets, the burden of environmental and other regulations has been mentioned as a culprit. This research examines the effects of a local air quality regulation on the costs of milk production for dairy farms in the San Joaquin Valley in California. Unlike previous analysis of the effects of environmental regulations on ag ricultural production, in this work it was possible to identify the realized operational changes associated with abiding by the regulation. Estimated adoption rates of different pollution-mitigation practices reveal that dairy farms have adopted labor-intensive production practices to comply with the air quality regulation. Using farm-level cost data on a panel of dairy farms, the effects of the regulation on the costs of milk production were estimated. Different from ex-ante analyses, my econometric results indicate that the air quality regulation has not affected the total costs of milk production. Estimates from different specifications indicate that the regulation may have reduced feed costs during some periods, perhaps because some pollution-mitigation practices can reduce feed fermentation. The regulation has increased the costs of hired labor by about $0.15 per hundredweight of milk, which is equivalent to an 11% increase in hired labor costs for dairy farms facing the regulation.