Helen Shane
03-15-2011, 12:23 PM
BIASED, EXAGGERATED FROST PROTECTION IMPACTS REPORT
By Jane Nielson, Sebastopol Water Information Group
In October of 2010, SSU Professor Robert Eyler released the report Economic Impact of Frost Protection Regulation in California: Russian River Watershed that estimated a very large negative economic impact from imposition of a proposed State Water Resources Control Board (SWRCB) rule on Sonoma County and Mendocino County wine growers. The proposed SWRCB rule addresses use of stream water in the Russian River watershed for agricultural frost protection, to prevent future dewatering events in small streams that have killed young salmon/ steelhead hatchlings. In collaboration with winegrowers and SWCRB officials, the Sonoma County Board of Supervisors created an ordinance for local implementation of this rule.
A detailed review of the Eyler report by Dr. Wesley Silverthorne and Mr. Stephen Fuller-Rowell, has found significant flaws in the study methods and its conclusions, however. Having earned his Ph.D in economics from U.C. Santa Barbara, for 27 years Dr. Silverthorne served as Region Economist for the National Marine Fisheries Service's Southwest Region, and has authored more than a dozen scholarly articles in peer-reviewed journals and professional publications. Mr. Fuller-Rowell is a graduate of Cambridge University (England) and California State University San José, and co-founder of the Sonoma County Water Coalition.
In its Executive Summary the Eyler Report states "the social cost of this regulation outweighs its benefits." This implies that Prof. Eyler had evaluated all the costs and benefits of implementing the proposed rule. The reviewers' examination of the report reveals that the study approach does not provide a cost-benefit analysis or estimates of social costs and benefits, and that the report exaggerates the economic impact of the proposed rule. They also found that without citing, quoting, or otherwise specifically characterizing the rule, Prof. Eyler assumed it will effectively prohibit the use of water for frost protection in the Russian River watershed. As a result, the report's conclusions are not clearly relevant to either the proposed SWRCB rule or to the newly adopted Sonoma County frost protection ordinance, according to the reviewers.
What Cost-Benefit Analysis?
The principal analytic tool that Professor Eyler applied in the study is a commercial (or "off the shelf") model (IMPLAN), which crudely estimates economic inputs and outputs. Such models have very rigid assumptions built into them that limit their application. For example, they assume that expanding or contracting production outputs always requires the same proportional growth or contraction of inputs from all economic sectors. Noted the reviewers, "The model calculations do not include market effects, like changing prices in response to changed demand for resources, or innovations or other changes in business practices."
Although IMPLAN calculations yield a set of costs they do not assess benefits, which in many cases can justify or reduce the impacts of certain costs. "Nowhere in the entire report did Professor Eyler make any attempt to measure, or even characterize, the potential benefits of the proposed rule." This must be considered a major study flaw, leading to the misleading conclusion that a 10% percent reduction in wine grape acreage would highly impair Sonoma and Mendocino County tourism. The reviewers added, "A little reflection suggests that the assumed 10% reduction in wine grapes-in the few bad frost areas and marginal vineyards where low water flows already imperil salmonid spawning, rearing, and passage-would not have a lasting effect on the beauty of the two counties or on the number of wine tasting facilities, or on the sales proceeds from hotels and restaurants. This suggests that such a small reduction in grape production would not have a significant effect on tourism."
Bias and Exaggeration
While the Eyler report suggests that the estimated costs of complying with the frost protection rule will drive large negative financial impacts, the reviewers assert that it presents no basis for this suggestion. The cost estimates are based only on Prof. Eyler's unsupported assumption that vineyard acreage and grape production would decrease by 10% and 30%, but giving no justification for those numbers. "Why not 1%?" they ask.
Among other flaws, figures in one table demonstrate that the total of annualized cost estimates amounts to 4% of the total revenue reported in a different table, but nowhere does the report explain how that change in added cost causes a decline in the quantity produced. There is also a potential that the cost estimate itself is an exaggeration.
Adding to the negative impacts estimate, Prof. Eyler apparently interpreted the proposed rule as requiring all vineyards to stop using any water for frost protection, even though the County's ordinance would impose limits only to the extent needed in particular locations, based on monitoring of diversions and stream flows.
The report also substantially exaggerates the costs of converting vineyards to wind frost protection by adding in all Mendocino County's vineyard acreage and 49% of vineyards in Sonoma County. While adding Sonoma Valley, Los Carneros, and Anderson Valley acreage to the Russian River watershed for no apparent reason, Eyler also does not account for vineyards that already use wind protection.
The reviewers did not check the report's math, but noted some odd discrepancies. An example is the clash between the total number of 17,230 vineyard and winery jobs for the two counties given on one page, and the statement elsewhere that "over 8,000 jobs would be lost in these two counties in vineyard and winery business with just a 10% crop loss…." and "…over 26,000 jobs may be at stake if annual crop losses are 30% of their current levels." This conclusion apparently projects job losses more than 50% greater than the number of jobs actually in existence!
Since the Eyler report bases most of its negative conclusions on the idea that vineyards will have to contract to meet the estimated cost increases, its results rely significantly on assumptions of which economic sector might bear or share the regulation's costs. But even though the introduction recognized the possibility that vineyards and wineries will pass on much of the cost of conversion to the consumers, Prof. Eyler's calculations do not include that possibility.
In addition, the Eyler report's tables show average number of employees per "vineyard operation" and "winery operation," suggesting that the vineyards and wineries are mostly small businesses. Yet a great many vineyard and winery "operations" in the two counties are owned by a few large companies. In fact, 82% of US wine is produced by seven very large corporations (E. J. Gallo, The Wine Group, Constellation Wines, Foster's Wine Estates, Bronco Wine Co, Trinchero Family Estates, and Jackson Family Wines) with holdings in Mendocino and Sonoma Counties.
Not Relevant to Sonoma County Ordinance
It is clear that the SWRCB rule will be enforced without local winegrower input if the County does not sufficiently protect salmon and steelhead in the Russian River watershed. The difference between adopting or not adopting the County's ordinance seems more likely to boil down to differences in administrative costs of monitoring stream flows and possibly restricting diversions. The substance of the rules will in all likelihood be the same in either case. Since Prof. Eyler's report did not address these kinds of costs, the reported impacts have no direct relevance to the County's proposed ordinance.
The reviewers concluded that the Eyler Report's restricted approach, and its biased or unsupported assumptions, exaggerations, and significant omissions, make it inapplicable for assessing the potential impact of frost protection regulations to protect both grapes and stream flow levels in the Russian River watershed.
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By Jane Nielson, Sebastopol Water Information Group
In October of 2010, SSU Professor Robert Eyler released the report Economic Impact of Frost Protection Regulation in California: Russian River Watershed that estimated a very large negative economic impact from imposition of a proposed State Water Resources Control Board (SWRCB) rule on Sonoma County and Mendocino County wine growers. The proposed SWRCB rule addresses use of stream water in the Russian River watershed for agricultural frost protection, to prevent future dewatering events in small streams that have killed young salmon/ steelhead hatchlings. In collaboration with winegrowers and SWCRB officials, the Sonoma County Board of Supervisors created an ordinance for local implementation of this rule.
A detailed review of the Eyler report by Dr. Wesley Silverthorne and Mr. Stephen Fuller-Rowell, has found significant flaws in the study methods and its conclusions, however. Having earned his Ph.D in economics from U.C. Santa Barbara, for 27 years Dr. Silverthorne served as Region Economist for the National Marine Fisheries Service's Southwest Region, and has authored more than a dozen scholarly articles in peer-reviewed journals and professional publications. Mr. Fuller-Rowell is a graduate of Cambridge University (England) and California State University San José, and co-founder of the Sonoma County Water Coalition.
In its Executive Summary the Eyler Report states "the social cost of this regulation outweighs its benefits." This implies that Prof. Eyler had evaluated all the costs and benefits of implementing the proposed rule. The reviewers' examination of the report reveals that the study approach does not provide a cost-benefit analysis or estimates of social costs and benefits, and that the report exaggerates the economic impact of the proposed rule. They also found that without citing, quoting, or otherwise specifically characterizing the rule, Prof. Eyler assumed it will effectively prohibit the use of water for frost protection in the Russian River watershed. As a result, the report's conclusions are not clearly relevant to either the proposed SWRCB rule or to the newly adopted Sonoma County frost protection ordinance, according to the reviewers.
What Cost-Benefit Analysis?
The principal analytic tool that Professor Eyler applied in the study is a commercial (or "off the shelf") model (IMPLAN), which crudely estimates economic inputs and outputs. Such models have very rigid assumptions built into them that limit their application. For example, they assume that expanding or contracting production outputs always requires the same proportional growth or contraction of inputs from all economic sectors. Noted the reviewers, "The model calculations do not include market effects, like changing prices in response to changed demand for resources, or innovations or other changes in business practices."
Although IMPLAN calculations yield a set of costs they do not assess benefits, which in many cases can justify or reduce the impacts of certain costs. "Nowhere in the entire report did Professor Eyler make any attempt to measure, or even characterize, the potential benefits of the proposed rule." This must be considered a major study flaw, leading to the misleading conclusion that a 10% percent reduction in wine grape acreage would highly impair Sonoma and Mendocino County tourism. The reviewers added, "A little reflection suggests that the assumed 10% reduction in wine grapes-in the few bad frost areas and marginal vineyards where low water flows already imperil salmonid spawning, rearing, and passage-would not have a lasting effect on the beauty of the two counties or on the number of wine tasting facilities, or on the sales proceeds from hotels and restaurants. This suggests that such a small reduction in grape production would not have a significant effect on tourism."
Bias and Exaggeration
While the Eyler report suggests that the estimated costs of complying with the frost protection rule will drive large negative financial impacts, the reviewers assert that it presents no basis for this suggestion. The cost estimates are based only on Prof. Eyler's unsupported assumption that vineyard acreage and grape production would decrease by 10% and 30%, but giving no justification for those numbers. "Why not 1%?" they ask.
Among other flaws, figures in one table demonstrate that the total of annualized cost estimates amounts to 4% of the total revenue reported in a different table, but nowhere does the report explain how that change in added cost causes a decline in the quantity produced. There is also a potential that the cost estimate itself is an exaggeration.
Adding to the negative impacts estimate, Prof. Eyler apparently interpreted the proposed rule as requiring all vineyards to stop using any water for frost protection, even though the County's ordinance would impose limits only to the extent needed in particular locations, based on monitoring of diversions and stream flows.
The report also substantially exaggerates the costs of converting vineyards to wind frost protection by adding in all Mendocino County's vineyard acreage and 49% of vineyards in Sonoma County. While adding Sonoma Valley, Los Carneros, and Anderson Valley acreage to the Russian River watershed for no apparent reason, Eyler also does not account for vineyards that already use wind protection.
The reviewers did not check the report's math, but noted some odd discrepancies. An example is the clash between the total number of 17,230 vineyard and winery jobs for the two counties given on one page, and the statement elsewhere that "over 8,000 jobs would be lost in these two counties in vineyard and winery business with just a 10% crop loss…." and "…over 26,000 jobs may be at stake if annual crop losses are 30% of their current levels." This conclusion apparently projects job losses more than 50% greater than the number of jobs actually in existence!
Since the Eyler report bases most of its negative conclusions on the idea that vineyards will have to contract to meet the estimated cost increases, its results rely significantly on assumptions of which economic sector might bear or share the regulation's costs. But even though the introduction recognized the possibility that vineyards and wineries will pass on much of the cost of conversion to the consumers, Prof. Eyler's calculations do not include that possibility.
In addition, the Eyler report's tables show average number of employees per "vineyard operation" and "winery operation," suggesting that the vineyards and wineries are mostly small businesses. Yet a great many vineyard and winery "operations" in the two counties are owned by a few large companies. In fact, 82% of US wine is produced by seven very large corporations (E. J. Gallo, The Wine Group, Constellation Wines, Foster's Wine Estates, Bronco Wine Co, Trinchero Family Estates, and Jackson Family Wines) with holdings in Mendocino and Sonoma Counties.
Not Relevant to Sonoma County Ordinance
It is clear that the SWRCB rule will be enforced without local winegrower input if the County does not sufficiently protect salmon and steelhead in the Russian River watershed. The difference between adopting or not adopting the County's ordinance seems more likely to boil down to differences in administrative costs of monitoring stream flows and possibly restricting diversions. The substance of the rules will in all likelihood be the same in either case. Since Prof. Eyler's report did not address these kinds of costs, the reported impacts have no direct relevance to the County's proposed ordinance.
The reviewers concluded that the Eyler Report's restricted approach, and its biased or unsupported assumptions, exaggerations, and significant omissions, make it inapplicable for assessing the potential impact of frost protection regulations to protect both grapes and stream flow levels in the Russian River watershed.
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