An Economic Analysis of a Dairy Anaerobic Digestion (A.D.) System: Will Dairy Producers Invest in A.D. Technology to Reduce Potential Litigation Suits?

In many areas of the United States, dairy and livestock farmers are facing lawsuits due to a variety of externalities, such as odor and other forms of non-point source pollution, caused by Confined animal feeding operations (CAFO's). Complaints include: general illness, unpleasant odor, headaches, and property devaluation. However, state and national law requires all CAFO's to have some form of waste storage facility. These facilities, mainly lagoons, increase the potential of pollution and run-off into streams and other water sources. As a result, large producers are beginning to install anaerobic digestive (A.D.) systems, which are a new form of waste management practices that reduces negative environmental effects. Therefore, the purpose of this study is to determine the future value of an ordinary annuity of an anaerobic digestive system by analyzing the joint probability of being sued and losing a litigation case. The analysis will also factor in potential policy incentives such as 100% grants with guaranteed electric buy-back premiums to determine a producer's joint probability of losing a litigation case.