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Limitations of a Cost-Benefit Analysis


Throughout our report we attempted to quantify and estimate costs for several specific impacts of the hog industry on environmental and human health. In doing so, we explored the possibilities and limitations of a cost-benefit analysis. There are many controversial aspects involved in accurately placing dollar values on factors such as water quality or hog well-being. We will examine several economic techniques that can be used to estimate the human health costs from water. However, in light of our research findings, which revealed many limitations in the knowledge needed to perform an accurate cost-benefit analysis, we will also discuss the feasibility of a risk assessment involving the precautionary principle as an alternative approach.

According to Field (1995), one way to quantify the environmental and health costs is to construct an emissions damage function using the following steps:

1) measure emissions

2) determine the resulting ambient quality

3) estimate human exposure

4) measure impacts (health, aesthetic, recreation etc.)

5) estimate the values of these impacts

A dose-response function is often used to human exposure to a single or various pollutants and involves estimating the response in terms of human mortality or morbidity resulting from different levels of exposure. However, accurately measuring health damages caused by environmental pollution is very difficult. Human health is affected by many factors beside ambient pollution such as lifestyle, diet, genetic factors, and age. To implicate a pollutant suspected of causing disease, large amounts of accurate data on health effects of the pollutant and other possible causal factors are. Even when published studies on the effects of pollution on human health exist, it may not be appropriate to broadly apply the findings of a study group to the general. If accurate dose-response relationships can be established for a particular pollutant, then the standard procedure to estimate health damages from the pollutant involves measuring the increase in monetary expenditures on health care (hospitals, doctors, rehabilitation, etc.) and lost worker productivity (estimation of the cumulative worker production had an individual lived or not been sick).

There are many other costs that are associated with water pollution and human health that do not have an identifiable market value. To address this problem, economists often try to quantify an individuals ‘willingness to pay’ for abatement of effects or ‘willingness to accept’ the effects. There are three main ways in which ‘willingness to pay’ can be calculated (Field, 1995):

1) Determine the value people place on changes in the ambient environment byfinding cases where market goods are purchased to change a consumer’s exposure to the ambient environment. An example is the purchase of an air filtration system to minimize odour from a nearby hog farm.

2) Determine people’s willingness to pay for a certain environmental or healthcharacteristic through the price variations of goods or services associated with this characteristic. An example is the difference in property value of similar houses, one located near a hog farm and one far away.

3) Contingent valuation through a direct survey. This involves asking individualshow they would act if they were placed in certain circumstances, and what their choices would be if they were faced with a market for those characteristics.                                                 

There are many logistical and bias problems that prevent the practical implementation of a cost-benefit analysis. One problem is that people often fail to account for the future value of resources, such as, which cause their present valuation of resources to be underestimated. Another problem is the difficulty involved in estimating non-use values (values for resources that people don’t use or benefit from directly) such as existence values (i.e., what is the value of a species?) or option values (i.e., what is the value of a resource you do not use now, but might use in the future?). A cost-benefit analysis that attempts to include non-market and non-use values would be criticized for inaccuracy and illegitimacy, and would remain controversial at best. Due to the great amount of time and money required to begin to quantify all the costs associated with water use, water pollution and human health that are related to the hog industry, we recommend a risk assessment and precautionary approach as an alternative method.


Risk Analysis


A risk analysis considers quantitative costs and benefits as well as qualitative costs, risks and benefits. An advantage of the risk analysis method is that quantitative information is not required for all resources considered to have value. Risk analysis is composed of the following (AFRA):

1) Risk assessment involves identifying hazards or risks characterized inquantitative and qualitative terms. This includes the probability of the negative events occurring because of identified hazards, the magnitude of the impact of the negative event, consideration of the uncertainty of the data used to assess the problem and the impact components of the risk. 

2) Risk management involves identifying, evaluating, selecting andimplementing alternatives for mitigating risk.

3) Risk communication is a process for open exchange of information and opinion leading to better understanding of risks and risk related decisions.                                                                                     

However, a risk analysis still requires comprehensive knowledge and large amounts of data. If complete knowledge is not available, decisions and policies to prevent the risk are not made. In the case of environmental pollution and human health effects, there remains great uncertainty. As a result, a growing movement of scientists, citizens and policy makers are advocating a precautionary approach to complement risk analyses in decision-making.


Precautionary Principle


The Precautionary Principle states that when an activity raises threats of harm to human health or the environment, precautionary measures should be taken even if some cause and effect relationships are not fully established scientifically. The Wingspread Statement (1998) came out of a conference that brought forty-two international academics, scientists and activists together. It outlines four components of the Precautionary Principle (Raffenspringer, 1999):

1) preventative action should be taken in advance of scientific proof of causality,

2) the proponent of an activity, rather than the public, should bear the burden of proof of safety,

3) a reasonable range of alternatives, including a no action alternative (for new activities) should be considered when there may be evidence of harm caused by an activity, and

4) for decision making to be precautionary it must be open, informed and democratic and must include potentially affected parties.

Although a cost-benefit analysis is an efficient way to inform policy makers and the general public, it is not always the most appropriate or the most effective approach. The cost-benefit framework relies on large amounts of accurate, convincing data and a comprehensive, exhaustive methodology. However, environmental and human health issues inevitably involve externalities, uncertainty and limitations to knowledge, risks, and differing valuations. Consequently, a framework for assessing environmental and health issues needs to consider the quantifiable aspects as well as the qualitative costs, benefits and risks.

There is increasing public awareness and pressure on policy makers to involve precautionary approaches in their decisions. A public perception poll reported by Le Devoir (Francoeur, 1997) found that 97.7% of the population is in favour or strongly in favour of the government taking measures to reinforce protection of the environment. About half the population is of the opinion that the pollution of the rivers and lakes have increased in the last ten years and 75.6% believe that water pollution in Quebec is largely due to the raising of animals and the way that fertilizer is used for agricultural production (Gingras et al., 2000). There are also numerous citizens’ groups organizing in opposition to hog farming practices.

Governmental response will occur when there is enough citizen pressure and moral authority. There is already increasing governmental acknowledgment of the desire for precautionary approaches.This can be found in the government report entitled, "Risks Associated with Animal Production Activities in Quebec," (Gingras et al., 2000) which follows three basic principles: prevention, precaution and equality.

Risk analysis and the precautionary principle are recognized internationally in trade agreements and conventions. The General Agreement of Tariffs and Trade (GATT) and the North American Free Trade Agreement (NAFTA), formally recognize risk analysis and risk assessment as methods appropriate for identifying unacceptable risks to human, animal or plant health that may occur from trade in agriculture (AFRA). Also, international treaties, such as the U.N. Rio Declaration, bind many countries such as Canada, the US and the European Union to recognize the precautionary principle for environmental health protection.

Environmental and human health costs are by nature difficult to quantify economically, and this is one of the reasons why they are not included explicitly in current pricing systems.  It seems inevitable that a cost-benefit analysis of the hog industry will encounter problems with assigning dollar values to human health and the environment. Alternatively, a precautionary risk analysis would allow us to make transparent, informed decisions involving all affected parties, in particular the citizens of a region, the industry involved and the government, to mitigate risks to our environment and health.  In these decisions, we should take the advice of Fredrick Kirschenmann, "to avoid risk, rather than externalizing risk or weighing risk against the benefits"  (1999)



To more accurately place a dollar value on water pollution and health costs, it is necessary to:

1) Undertake a survey using contingent valuation to assess people’s true valuation of water.

2) Evaluate the pollution of the agricultural industry as a whole. A large proportion of the pollution is diffuse or non-point source pollution which makes it very hard to distinguish between industries or farms.

3) Survey residents in communities near hog farming operations following the methodology used in North Carolina (Wing and Wolf, 1999). Survey data would complement information gathered by health agencies.

4) Conduct more epidemiological research of populations consuming water with nitrate levels between 5 and 10 ng per liter. Anything greater than 2 ng per liter is considered to be due to anthropogenic sources and the maximum acceptable level for human consumption in Canada is 19 ng per liter (Gingras et al., 2000).

5) Expand and revise the list of notifiable to include all diseases that are transferable to humans from animals through the environment. One such parasite that is not included presently is Criptosporidium parvum.

6) Develop a province-wide database of water boiling that includes information on the microorganisms present in the water and the suspected source of the microorganisms.


Precautionary or Preventative

1) Soil conservation practices are not widely adopted by producers in some regions Programs and incentives to promote soil conservation practices would significantly reduce water contamination from nitrogen and phosphorous.

2) Regulations aimed at reducing non-point source pollution are ineffective because polluters who do not follow regulations for manure spreading continue to receive government subsidies. If environmental protection is considered a priority then subsidies should only be given to those industries that comply with regulations.

3) Economic, risk and impact assessment comparisons should be undertaken between vertical (specialized) production systems and integrated farming practices.

4) The self-regulation of manure and fertilizer applications in the PAEF legislation may not be successful unless properly regulated and enforced by the government, including fines and/or penalties for those who do not comply.  In addition, the government should invest in education programs and farm cooperatives so that producers can monitor themselves and each other.

5) There are currently incentives being developed to prevent pesticides from reaching the water table but the significant amount of pesticides in water indicate that this is not enough. Due to the potential threat to human health and as a precaution for those that may exist, we would suggest an education program that focuses on alternative methods of controlling pest populations, such as the integrated pest management (IPM) model, where you spray only when you need to, or adjust the spraying rates across fields to match the severity of infestation. 

6) Results of water surveillance should be communicated to municipalities so they are forewarned of declining water quality and alert to the possibility of implementing additional treatment. 

7) Public health problems resulting from agriculture need to be addressed from the perspective of prevention.