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September 22, 2014

Natural Resource Conservation Districts of Arizona c/o Bill Dunn

Dear Bill,

As requested by the members of several Natural Resource Conservation Districts in Arizona, the University of Arizona’s Department of Agricultural and Resource Economics Department (AREC) has conducted a review of the economic analysis of the Draft Environmental Impact Statement (DEIS) on the Proposed Revision to the Nonessential Experimental Population of the Mexican Wolf (Canis Lupus Baileyi). The comments below represent our assessment of the economic analysis and discuss how assumptions made in the analysis may impact the results. As AREC has not conducted primary research on the economic impact of the presence of Mexican wolves in the region, our assessment is limited to referring to the DEIS and existing literature. We provide comments on the overall methodology, as well as address specific components of the DEIS.

First and foremost, to analyze the economic effects of the presence of Mexican wolves, the DEIS relies primarily on a consultant’s report from 2005: Industrial Economics [IEc]. 2005. Mexican Wolf Blue Range Reintroduction Project 5-Year Review: Socioeconomic Component. Final Report. Cambridge, MA. 155 pages.

According to the IEC report, “The time frame for this evaluation is the initial five-year period for Mexican wolf reintroduction, from March 1998 to December 31, 2003.” [p. ES-1]. Thus, it appears that no new economic analysis or primary data collection has occurred for over a decade. This seems somewhat odd in program evaluation – to consider the effects of expanding a program from 2014 onward, without new analysis of effects from 2004 to 2014. While some economic values were updated in the DEIS, it appears that no primary data has been collected or assessed regarding effects of wolf reintroduction on ranchers and other groups. This lack of current data introduces a fair amount of uncertainty regarding the economic effects of the presence of Mexican wolves.

Native American Tribes

Page v., Figure ES-1: Fort Apache Indian Reservation, created by Executive Order in 1891, included the San Carlos Apache Reservation. An act of Congress in 1897 separated the two. Fort Apache Indian Reservation is now known at the White Mountain Apache Reservation. The San Carlos Apache Reservation borders the region referred to as “primary recovery zones” but

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the region of the San Carlos Apache Reservation is not referred to on the map for some reason. The impact of the Mexican wolf recovery program on the San Carlos Apache’s domestic livestock and trophy elk permits are probably just as great if not greater than for the White Mountain Apache Reservation.

Section 4.1, page 5, lines 34-39: Tribes do not have the opportunity to “choose to allow Mexican wolves to occupy their reservations.” The Mexican wolf does not recognize tribal boundaries or tribal livestock and tribes do not have the means to keep the Mexican wolf off their sovereign nation lands or keep the Mexican wolf population at or below any desired density level. If a tribe wanted Mexican wolves on their nation, they could in theory transplant some wolves on their land.

Section 4.4.2, page 46-49: The economic impact to the elk trophy hunts on the San Carlos Apache and White Mountain Apache tribes are not addressed. These permits sell for a big price tag ($40K+ each) and other local expenses are incurred by the hunters as well.

Ranching and Livestock Production

Section 4.4.1, page 24, Table 4-1: The DEIS noted possible direct and indirect effects on ranching operations. These are listed below with a notation of whether these effects were actually estimated in the DEIS.

Direct Effects: Lost value of depredated cattle (estimated, but used prices lower than current market prices or prices forecast by the USDA in analysis; see further discussion below).

Indirect Effects:

1. Non-lethal physiological impacts on ranch animals (estimated).2. Change in forage use (no data collected or estimation carried out).3. Need for additional labor (no data collected or estimation carried out).4. Increased expenditures on supplies (no data collected or estimation carried out).5. Positive impacts (no data collected or estimation carried out).

Property Value Impacts:

1. Ranchers have expressed concerns that disproportionately affected ranches may go out of business due to wolf depredation impacts (This analysis appears to be necessary to be in compliance with the “Regulatory Flexibility Act (RFA) of 1980 (5 U.S.C. 601 et seq) as amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA)”).

2. Ranchers have expressed concern that the market value of their ranches may be reduced due to wolf impacts (no data collected or estimation carried out).

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While the DEIS estimates the direct effects of lost value of depredated cattle, there are several items that warrant additional discussion. They are as follows:

Section 4.4.1, page 29, Table 4-5: Numbers presented on herd size for Arizona and New Mexico appear to include beef cattle on grazing land, cattle in feedlots, and milk cows. It is not clear why milk cows or cattle in feedlots are appropriate to include in the analysis. The DEIS stresses that the cattle losses are small relative to total cattle inventories in the state. It seems that including milk cows and cattle on feed (many of which come from out of state) are inappropriate to include to in the denominator. This inclusion artificially inflates the denominator and makes the effects of wolf reintroduction on cattle ranching appear less than it really is. It is argued that depredations represent a very small percentage of both the State and BRWRA herd sizes. Yet, the figures include dairy and feedlot cattle, which biases the reported estimate downward.

Additionally, it seems odd to divide the total number of cattle killed by AUMs and call this a percentage. The term percentage is only appropriate when the units of measure are the same for the numerator and denominator. Animals killed are not the same as AUMs. Presumably, if an animal is killed it reduces multiple AUMs from the land. This choice of measure understates the effects of depredation.

Finally, when analyzing the percent of depredations as a percent of the total herd it’s important to note that the large geographic scope of proposed alternatives minimizes the impacts. When analyzing at regional or state scale the economic impacts may seem insignificant, this may not be the case at the ranch-level.

Section 4.4.1, page 29, lines 4-8: The DEIS states, “Breck et. al. (2011) found that Mexican wolf cattle depredations were most likely to be younger calves.” Yet, the DEIS assumes that all the depredations were to calves when calculating their cost of depredation estimates. The DEIS acknowledges that older cattle that weigh more and sell for more money may also be killed and that assuming only assuming cattle killed biases their estimates of impacts of depredation downward. Given that it would be relatively straightforward to assume ratios of calves to other cattle lost (perhaps from the Breck et al. study itself), it is puzzling why an estimation choice was made that unambiguously biases estimates of impacts on ranchers downward.

Section 4.4.1, page 29, lines 18-19: Although the market is viewed at a very high price in 2012, current prices for 2014 are at least 50% more than the price levels provided (for example, see http://www.willcoxlivestockauction.com/market.php). Furthermore, the trend lines in real prices for cattle and hay are upward, suggesting we may expect higher prices in the future. Thus, estimates of the value of lost cattle and of lower weights appear to be understated by the choice of prices used.

The DEIS attempted to argue that 2012 was a relatively high price year, implying that such high prices were unsustainable and that the use of this “relatively high” price counterbalanced the

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downward bias of assuming only calves were killed. Since 2012, however, cattle prices have only risen further and are projected to remain high in nominal terms (Figure 1).

Figure 1. Nominal Prices Received for Calves(actual USDA NASS estimates and USDA Baseline forecast estimates).

Results from the latest USDA-NASS statistics show that recent cattle prices are substantially higher than the $167/cwt estimate used in the DEIS. As the DEIS, notes, cattle prices are volatile, but the USDA Baseline projections forecast nominal prices rising to just above$200/cwt. Even these USDA estimates have underestimated recent increases in cattle prices.

If one assumes rates of inflation for past value based on the same BLS source as used in the DEIS and a 2% rate of inflation each year in the future, values in Figure 2 can be re-expressed in constant (deflated) 2013 dollars.

Figure 2. Calf prices in constant 2013 prices, assuming a 2% annual rate of inflation.

$100

$80

Actual Price Received,Calves

USDA Baseline Projections

$240

$220

$200

$180

$160

$140

100

USDA BaselineProjection

140

120

Actual Price Recieved

240

220

200

180

160

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Even accounting for inflation at higher than current annual rates, real calf prices are projected by USDA to average about $10/cwt more from 2015 to 2023 than prices used in the DEIS. Thus, the prices used in the DEIS, rather than being an upper bound, as the DEIS implies, is quite possibly a lower bound price estimate. In this case, the assumption in the DEIS will understate impacts on ranches.

Section 4.4.1, page 31, Figure 4.4: This figure shows prices for Cattle GE 500 lbs. This price series primarily reflects the sale of fed steers and heifers rather than beef cows. While annual summaries are not as readily available, AMS/USDA (http://www.ams.usda.gov/AMSv1.0/marketnews) has more accurate price series available for the different classes of animals sold off the ranch. Clovis, NM is the nearest livestock market covered by AMS/USDA to the primary wolf recovery zones.

Section 4.4.1, page 32, lines 17-18 and pages 49-50: While New Mexico has laws in place that allow ranchers the ability to charge for private hunts, no such mechanism is in place for Arizona ranchers. Furthermore, in terms of tourism, given that virtually all the land in the primary recovery zones is federal land and accessible to the public for even hunting, it is hard to imagine that ranches would be able to charge for wolf viewing or tourism. More individuals on federal grazing allotments translates to more open gates and costs associated with keeping cattle in a given range allotment.

Section 4.4.1, page 33, lines 29-30: The DEIS is lacking in the discussion about the economic consequences of a concentration of impacts for individual ranches. Although it was noted that some ranches will be disproportionately affected, there is little analysis to determine where wolves are expected to concentrate and the resulting economic effects at the ranch-level.

Section 4.4.1, page 33, lines 33-34: Indirect effects such as “decreased weaning weights, decreased conception weights, and increased cattle sickness ….” are noted. It is unclear what is meant by “decreased conception weights”. In regard to this point, no estimates are provided regarding the costs or long-term economic viability of a ranch that is faced with lower fertility rates (i.e., stress factors noted) when wolves are present.

Section 4.4.1, page 33, Table 4-7: While the assumptions made in the DEIS may be representative of New Mexico, they are not representative of Arizona practices. Federal leases are typically for the entire year (12 months instead of 8 months), thus there would not be the expense on hay for that 4 month timeframe. Winter grazing ranges are typically at lower elevations, so that grazing can occur 12 months out of the year.

Section 4.4.1, page 36: The discussion on compensation programs provides little discussion on the reality of payments occurring. Furthermore, it makes no mention of the changes to the Agricultural Act of 2014 (2014 Farm Bill). This bill authorized the Livestock Indemnity Program (LIP) to provide benefits to livestock producers for livestock deaths in excess of normal mortality caused by adverse weather. In addition, LIP covers attacks by animals reintroduced

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into the wild by the federal government or protected by federal law, including wolves and avian predators. LIP payments are equal to 75 percent of the market value of the applicable livestock on the day before the date of death of the livestock as determined by the Secretary. The 2014 Farm Bill makes LIP a permanent program and provides retroactive authority to cover eligible livestock losses back to Oct. 1, 2011 (more information: http://www.fsa.usda.gov/Internet/FSA_File/lip_long_fact_sht_2014.pdf).

Section 4.4.1, page 37, Table 4-9: The hourly compensation rate for filling out wolf depredation compensation forms is only $11.61/hour, the rate given for the U.S. Department of Labor Statistics mean hourly wage rate for farm and ranch workers. This wage rate reflects more of a ranch hand or crop harvesting wage rate rather than a ranch manager’s wage, which would be the class of individual filling out the compensation form.

Other pertinent impacts (a majority of the indirect impacts) are not estimated at all. The DEIS states,

Section 4.4.1, page 39, lines 9-12: “While ranchers have described instances in which they have hauled livestock to different grazing areas or purchased additional land, estimates do not exist regarding the frequency or nature of these actions across the BRWRA. Therefore, this analysis is unable to quantify the economic impacts of modifying grazing activities in response to the reintroduction of Mexican wolves into the BRWRA.”

The DEIS does not explain why “estimates do not exist” or why they are “unable to quantify” these effects. It appears in the 16 years of the program operation, USFWS collected no data from ranchers on these impacts, or if they did, they are not reporting it. Not collecting data on costs is not the same thing as there being zero costs. Basic estimates of moving cattle should be available from various cooperative extension experts in the West. Such cost estimates could be matched with information on the number of times cattle were moved to mitigate depredation.

The DEIS states:

Section 4.4.1, page 40, lines 9-13: “Credible data or studies however were not identified to quantify the economic impacts of additional hired labor or labor input from ranchers and family members or decreased time for other activities throughout the study area. Consequently, the analysis only calculates the economic impact of the estimated time that ranchers spend on the compensation process for depredation losses.”

Again, it appears that in 16 years of program operation, no attempt has been made to collect data on these effects. The DEIS in effect reports that because data on impacts were not collected, there were no impacts.

Furthermore, Ashcroft, et. al. (2010) identifies additional costs to replace predated cattle, particularly cows. First and foremost, “animals are often selected and bred for specific traits,

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including birth weight, confirmation, disposition, and acclimation to terrain and climate, that are not easily replicated in purchased animals” (p.6). These purchased animals add a degree of additional risk to ranch operations. Additionally, depending on the time of the depredation of a cow and the time of replacement, there may be additional input costs for another year in order for the replacement cow to produce a calf (a saleable product).

Section 4.4.1, page 41, Table 4-11:This table is not an accurate representation of the total economic impacts of Mexican wolves on cattle ranching operations. It only includes: 1) the market value of confirmed and unconfirmed depredations and 2) the economic cost of compensation claim preparations for confirmed kills. It does not include any estimation of potential losses in market value due to weight losses.

Although the effects of non-lethal physiological impacts on ranch animals were estimated, these effects were not combined with the estimated direct effects from depredation and other indirect effects (impacts that have not been estimated). Again, not collecting data on costs is not the same as there being zero costs. Thus, the total economic impacts as described in this table are simply not the cumulative economic impacts to ranchers.

This is a particularly important point when examining the section on Compliance with Federal acts and executive orders. Here, the DEIS states:

Section 4.8.1, page 91, lines 23-29: “Regulatory Flexibility Act (RFA) of 1980 (5 U.S.C. 601 et seq) as amended. The purpose of the RFA, as amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA), is to fit regulatory requirements to the scale of the businesses, organizations, and governmental jurisdictions subject to the regulation. The RFA requires that agencies determine, to the extent feasible, the rule's economic impact on small entities, explore regulatory options for reducing any significant economic impact on a substantial number of such entities, and explain their ultimate choice of regulatory approach (emphasis added)”.

The section assessing effects on Model Operations (Table 4-10 on page 38) appears to start such an analysis on small entities. It reports estimates of lower sales weights on representative ranches. In the following section, it reports more aggregate impacts of depredation. The DEIS does not however provide analysis of the combined effects of depredation and weight loss on the three representative ranches. At minimum, an analysis that considered multiple impacts in a comprehensive way is needed to comply with the Regulatory Flexibility Act. There is nothing to prevent the USFWS from considering the dual effects of depredation and weight loss. They just did not do this. By splitting up analysis of depredation and cattle weight losses into separate sections and tables, the DEIS obscures economic impact on small entities as call for under the RFA.

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Section 4.4.1, pages 43-46: Tables 4-13, 4-14, and 4-15: Although the analysis discounts the benefits and costs using seven percent per the OMB circular A-94 guidelines, it is recommended that the DEIS conduct a sensitivity analysis using a variety of discount rates.

Finally, the DEIS does not account for any impacts to the local economy as a result of changes in ranching practices (either positive impacts from increased economic activity or negative impacts from a reduction in cattle production). To the extent that individual ranch operations are so negatively affected that they go out of business, there may be impacts on small, rural economies.

Respectfully,

Ashley KernaEconomic Impact Analyst

Russell TronstadProfessor and Extension Specialist

George FrisvoldProfessor and Extension Specialist