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Public Grazing in the West and "Rangeland Reform '94"
Abstract
Private grazing fees differ substantially and systematically across states in the West. In contrast, federal policy establishes
the same grazing fee on federal lands, regardless of location. We analyze locational differences in private grazing fees with
an econometric model. Differences in private grazing fees across states can be explained largely by economic forces consistent
with a competitive spatial market. A uniform increase in the federal grazing fee will lead to a large variation in economic
effects between states and across individual public lands ranchers. We propose the permanent transfer of public grazing rights
to the private sector.
... Rangeland Reform '94 consisted of three separate reform efforts, including (1) a series of amendments to the regulations and policies that govern grazing on federal land, (2) a proposal to add national standards and guidelines to the regulations in order to establish minimum acceptable ecological conditions for federal rangeland, and (3) a proposal to bring federal grazing fees closer to the fee charged for forage on private land (Nicoll, 2006). The proposed increase in grazing fee would have been based on locational differences, such as the nutritive content of the available forage, the quantity of forage available per unit area, the availability and proximity of livestock water to forage resources, and local market prices for livestock and substitute feed (LaFrance and Watts, 1995). ...
... There were strong political economy arguments against the fee increase. The political economy argument to maintain a uniformly low public grazing fee emphasized the importance of ensuring positive profit on low-productivity lands (LaFrance and Watts, 1995). If the proposed fee structure had been approved, it would have increased the grazing fee to $4.28 per AUM as opposed to the $1.86 per AUM charged in 1993 (Nicoll, 2006). ...
... Forest economics literature also identifies many of the weaknesses of the USFS timber sales program. A general perception is that bid prices on public lands are lower than bid prices on private lands in the same area 11 , and similarly the prices paid for public leases are substantially less than for private leases (LaFrance and Watts 1995 ). The potential for collusive bidding at government timber sales has long been recognized (Cassady 1967: 186). ...
Some resource economists and policy-makers believe that market mechanisms in general and timber pricing through auctions specifically are the only solutions for forest management in Canada. In this paper, simple economic concepts of mrket, economic efficiency, and social optimality are discussed, and the specific features of forest resources and sustainable forest management and their implications for optimal resource allocation through the market are highlighted. Economic theory behind competitive timber pricing in two geographical regions is presented to demonstrate that in a competitive setting, the prices of timber need not be the same in the two regions. Timber pricing mechanisms used by different countries are summarized, and auctions, their limitations, and some important outcomes of timber auctions by the United States Forest Service are discussed. Market performances of residual value and auction-based timber pricing are compared. On the basis of these discussions, it is inferred that sustainable forest management cannot be achieved either by the market or by government-controlled mechanisms only. An optimal-mix of the market and government-controlled mechanisms is the only answer to achieve sustainable forest management.
... Differences in private land lease rates between states and regions (Tittman and Brownell 1984, Van Tassel! and McNeley 1997, LaFrance and Watts 1995 and the widening difference between lease rates and public land grazing fees generated by using the PRIA grazing fee formula, have led researchers and policy analysts to different conclusions about how grazing fee policy should proceed. Nielsen (1972, p. 6) suggested that a competitive bid system would come closest to collecting full market value. ...
The federal grazing fee is currently set using the Public Rangeland Improvement Act (PRIA) fee formula established in 1978 and modified in 1986. The formula is adjusted annually using indices of private land grazing lease rates (Forage Value Index, FVI), prices received for beef cattle (Beef Cattle Price Index, BCPI), and costs of beef production (Prices Paid Index, PPI). The FVI tracks price movement in the private forage market and was the only index originally proposed to be included in the fee formula. Public land ranchers and the Interdepartmental Grazing Fee Technical Committee assigned to study grazing fee alternatives in the 1960s questioned the ability of the FVI to account for short-term demand, supply, and price equilibrium, and, for this reason, the BCPI and PPI were added to the fee formula. Nearly 40 years of data are now available to evaluate whether adding the BCPI and PPI did, in fact, help explain short-term market fluctuations. Analysis shows that if tracking the private forage market is the primary objective, the fee formula should have included only the FVI. Including the BCPI and the PPI has caused calculated grazing fees to fall further and further behind private land lease rates. Had the $1.23 base fee in the PRIA formula been indexed by only the FVI, the federal grazing fee would have been $4.36 AUM(-1) instead of $1.43 AUM(-1) in 2002. It is time to consider the feasibility of a competitive bid system for public lands, or, at the very least, drop the BCPI and PPI indices and adopt a new fee formula that generates more equitable grazing fees.
... Forest economics literature also supports many of the weaknesses of USFS timber sales program. A general perception is that bid prices on public lands are lower than bid prices on private lands in the same area 2 , and similarly the prices paid for public leases are substantially less than for private leases (LaFrance and Watts 1995). The potential for collusive bidding at government timber sales has long been recognized (Cassady 1967, p. 186). ...
Federal land grazing fees have been set by a formula that uses a base rate development from a 1996 study comparing total grazing costs on private and public lands. A similar market comparison was recently conducted in Idaho, New Mexico, and Wyoming. Total grazing costs were gathered through personal interviews from 258 ranchers using 245 public grazing permits and 149 private leases. Public land grazing permit values were also estimated in each state. This study demonstrated that many public land ranchers have been willing to pay more for grazing than the apparent value implied from the private forage market. With the 1992 grazing fee of $1.92/animal unit month (AUM), 34% of Bureau of Land Management (BLM) cattle producers, 62% of U.S. Forest Service (USFS) cattle producers, 605 of USFS sheep producers paid more for grazing public lands than did those grazing privately leased lands. Estimated forage values averaged $3.63.AUM for cattle grazing BLM land, and were negative for cattle using USFS lands and for sheep using both BLM and USFS allotments. Using a 3.35% interested rate to amortize permit value, the annual value of public land forage was estimated to be from $3 to $5/AUM. Doubts were cast about the standard assumptions that ranchers have profit maximization as their primary goal, that permit value measures only excess forage value, and that sufficient private leases are available for a valid comparison between private and public forage markets.
Private rangeland lease rates have been used historically an indication of the price of public grazing lease rates. The ability of these prices to adequately reflect short-term fluctuations in the rancher's ability to pay for forage has been questioned by policy makers and researchers. Multiple regression techniques were used in this study to evaluate how responsive private rangeland lease rates have been to short-term (yearly) fluctuations in market conditions. Independent variables included yearling prices, cattle numbers, hay prices, production cost index, land prices, forage condition index, and the previous year's lease rate. Yearling prices lagged 1 year, hay prices, production cost index lagged 1 year, and lease rates lagged 1 year statistically (P < 0.10) explained lease rates. The previous year's lease rate was the most influential explanatory variable, with more than half of the previous year's lease price reflected in the current year's rate. Statistically significant (P < 0.10) differences in lease rates were also found between western regions.
Computer simulation was used to determine the effects of wild elk (Cervus elaphus) on available forage, cattle herd size, and ranch gross margin in southwestern Montana beef cow-calf production systems. Data collected from 5 southwestern Montana ranches were used to develop input parameters for bio-economic models of elk forage harvest and beef production. Input parameters described ranch resources, animal inventories, and animal management. Cattle herd size ranged from 241 to 1147 head. Elk numbers varied by season within ranch and ranged from 49 to 421 head. Ranches were simulated as currently managed with elk present and with 10, 20, 30, and 100% of the elk removed. Simulated management scenarios were replicated 10 times. Data from each ranch were analyzed by one-way analysis of variance. Cattle herd size, gross margin, and available forage significantly (P < 0.05) increased when all elk were removed; however, the magnitude of these effects differed among ranches. Removal of all elk permitted cattle herd size to increase from 7 to 32% across ranches. Annual costs of elk on the 5 ranches (i.e., increase in gross margin from elk removal) ranged from $5,949 to $21,152. On an AUM basis, elk costs ranged from $8.55 to $14.51. Three management alternatives were evaluated for their potential to recover elk costs: Montana's Block Management Program, coordinated exchange of forage use, and leasing of hunting access. For each ranch, at least one of these management strategies could recover all estimated costs of providing elk habitat. Elk can significantly reduce profits for cow-calf ranches in southwestern Montana. Elk impacts on beef enterprise profits are closely associated with efficiency of resource use by cattle - i.e., ranches with lower unit costs of production lose more gross margin by providing forage for elk compared to ranches with higher production costs.
Economic impacts from federal grazing policy frequently figure in public debate about federal land in the American West. The spatial and economic level of aggregation at which impacts are estimated is a significant issue, both politically and methodologically. We present an input/output model incorporating spatial detail at the sub-county level. Seven community-level economies are portrayed and contrasted with the aggregated 2-county economy. Our argument is that economic dependencies, notably dependencies on the range cattle industry, differ significantly between communities and that this differentiation is completely masked when the 2 county area is examined as 1 economy. The sub-county breakdown illustrates the degree to which communities are differentially vulnerable to reduced cattle prices and a reduction in available federal forage. /// Los impactos económicos de las políticas federales de apacentamiento frecuentemente figuran en los debates públicos acerca de las tierras federales del oeste Americano. El nivel de agregación espacial y económico al cual los impactos son estimados es un problema significativo, tanto político como metodológico. Aquí presentamos un modelo de entrada/salida en el que se incorpora detalles espaciales al nivel de sub-municipio. Siete economías a nivel de comunidad se describieron y contrastaron con el agregado de 2 economías de municipio. Nuestro argumento es que las dependencias económicas, dependencias notablemente en la industria ganadera de pastizal, difieren significativamente entre comunidades, y que esta diferenciación es completamente enmascarada cuando las 2 áreas municipales se examinan como una sola economía. La separación en sub-municipios ilustra el grado al cual las comunidades son diferencialmente vulnerables a los precios reducidos del ganado y a una reducción del forraje federal disponible.
The value of public land forage has been of key interest since grazing fees were first established on federal lands. Additionally, knowing the value of rangeland forage is important for assessing the economics of range improvements, grazing systems, and alternative land uses. It is important for resource value comparisons and impact assessments when public land forage is allocated to other uses. In this synthesis paper, we review the various methods that have been used to value public land forage and discuss the advantages and limitations of each. We highlight that past valuation efforts have concentrated on the value of public land forage for livestock production and, consequently, underestimated total forage value and rancher willingness to pay for forage and grazing permits. These research efforts failed to recognize that amenity and lifestyle attributes from ranch ownership and forage leasing play important roles in the use and pricing of rangeland forage. We review the numerous studies conducted to estimate public land forage value and suggest modifications to improve future value estimates. Because lifestyle attributes of ranch ownership have so strongly influenced ranch values and what ranchers are willing to pay for grazing use on public lands, we find the market value of federal grazing permits and a modification of the standard contingent valuation method for valuing non-market goods to hold the greatest promise for valuing public land grazing.
Use of public resources for private economic gain is a longstanding, contested political issue. Public resources generate benefits beyond commodity uses, including recreation, environmental and ecological conservation and preservation, and existence and aesthetic values. We analyze this problem using a dynamic resource use game. Low use fees let commodity users capture more of the marginal benefit from private use. This increases the incentive to comply with government regulations. Optimal contracts therefore include public use fees that are lower than private rates. The optimal policy also includes random monitoring to prevent strategic learning and cheating on the use agreements and to avoid wasteful efforts to disguise noncompliant behavior. An optimal policy also includes a penalty for cheating beyond terminating the use contract. This penalty must be large enough that the commodity user who would gain the most from noncompliance experiences a negative expected net return.
Average grazing lease prices as tabulated in the 1985 federal grazing fee review and evaluation study were found to be significantly different between some pricing regions of the study. Comparing the federal study with a New Mexico state land grazing fee study indicated that lease prices were not homogeneous, even within pricing regions. This heterogeneity of data indicates that a variable federal grazing fee structure should be established if welfare of public land ranchers and collecting full market value of public land forage is important. Other factors, such as ease of fee administration and strong political support have been important considerations in setting the current single uniform fee. The current single-fee formula that sets one uniform grazing fee for all western states cannot be statistically defended. If grazing fees were significantly increased using the current single-fee formula, or any other single-fee formula, an inequitable distribution of impacts upon public land ranchers would arise; some would be subsidized while others would likely be damaged.
Costs and returns research on western cattle ranches invariably shows low or negative net returns. Yet ranch sale values, including the sale values of public grazing permits, remain at high levels. There appears to be confusion in either the facts or their evaluation. This confusion carries over into public-grazing-fee policy. The authors offer the hypothesis that not all "outputs" produced by an investment in a cattle ranch have been included in previous conventional analyses. Since these additional outputs are as much a part of the return on investment as is the output beef, they should be considered in evaluating use fees on public lands. Measurement of these extra marginal value products not directly associated with the utilization of grass is difficult. Therefore, the total MVP of the bundle of resources is estimated by the use of regression analysis with information on actual ranch sales as data. These estimates, when compared with data from other sources, give insights into the relative importance of several motives for purchasing a ranch. A policy conclusion is that change to a bidding procedure in setting use fees would be desirable.
The use of increasingly complex statistical models has led to heavy reliance on maximum likelihood methods for both estimation and testing. In such a setting, only asymptotic properties can be expected for estimators or tests. Often there are asymptotically equivalent procedures that differ substantially in computational difficulty and finite sample performance. In a maximum likelihood framework, the Wald, Likelihood Ratio, and Lagrange Multiplier (LM) tests are a natural trio. They all share the property of being asymptotically locally the most powerful invariant tests, and in fact all are asymptotically equivalent. However, in practice, there are substantial differences in the way the tests look at particular models. Frequently when one is very complex, another will be much simpler. Furthermore, this formulation guides the intuition as to what is testable and how best to formulate a model to test it. In terms of forming diagnostic tests, the LM test is frequently computationally convenient as many of the test statistics are already available from the estimation of the null. The application of these tests principles and particularly the LM principle to a wide range of econometric problems is a natural development of the field, and it is a development that is proceeding at a very rapid pace.
Incremental changes in grazing fees on Federal lands have not kept pace with private lease rates. The differential between Federal and private lease rates has fostered inflated capital values for grazing permits and base property. Raising fees on Federal grazing lands without compensating ranchers for their leasehold interest would be requiring them to pay twice for the same assets. Prospects are that changes in grazing fees will continue to be incremental.
In this paper a method of estimating the parameters of a set of regression equations is reported which involves application of Aitken's generalized least-squares [1] to the whole system of equations. Under conditions generally encountered in practice, it is found that the regression coefficient estimators so obtained are at least asymptotically more efficient than those obtained by an equation-by-equation application of least squares. This gain in efficiency can be quite large if “independent” variables in different equations are not highly correlated and if disturbance terms in different equations are highly correlated. Further, tests of the hypothesis that all regression equation coefficient vectors are equal, based on “micro” and “macro” data, are described. If this hypothesis is accepted, there will be no aggregation bias. Finally, the estimation procedure and the “micro-test” for aggregation bias are applied in the analysis of annual investment data, 1935–1954, for two firms.