Purdue News

August 1999 Fertilizer taxes are poor way to reduce chemical use WEST LAFAYETTE, Ind. -- Taxing agricultural inputs such as pesticides and fertilizer is often mentioned as a way to control the amount that farmers use. But Stephen Lovejoy, professor of agricultural economics at Purdue University, and graduate student Chyi-lyi Liang found little correlation when they investigated how much taxation was needed to actually change farmers' habits. "Taxes on inputs are a possibility that we often hear about," Lovejoy says. "Iowa already has a small fertilizer tax, and of course governments like to use taxes to control behavior, so this is something worth looking into." The Purdue study examined the amount of tax needed to change farmers' use of the fertilizers nitrogen and phosphorus and found that a 500 percent tax would cut on-farm use by 8 percent. The study used computer models that used real-world data about crop prices, stocks and price elasticity to predict the effect of the green taxes. "Although the models predicted an 8 percent reduction in fertilizer use, the environmental benefits would be even less than that," Lovejoy says. "An 8 percent reduction in fertilizer use isn't going to mean that there is a direct 8 percent improvement in water quality. The environmental benefits from that amount of input reduction would be very small." On the other hand, the researchers say that such a large tax would have a large effect on the agricultural economy. "Our model indicates that a 500 percent tax on fertilizer would cause a 30 percent to 50 percent reduction in agricultural labor, capital and land value," Lovejoy says. "However, the impacts in other sectors were extremely small, suggesting that major changes in the agricultural sector do not reverberate through the U.S. economy." CONTACT: Lovejoy, (765) 494-4245; lovejoy@agecon.purdue.edu Compiled by Steve Tally, (765) 494-9809; tally@aes.purdue.edu Purdue News Service: (765) 494-2096; purduenews@purdue.edu To the Purdue News and Photos Page