Economic Impact of Fusarium Head Blight in Malting Barley: Blending Margins and Firm-Level Risk

FHB and DON present significant challenges to producers, grain elevators, and the brewing industry. Yield reductions and price discounts incurred by producers in North Dakota, Minnesota, and South Dakota averaged about $45.3 million annually during the years 1998 through 2000. Losses are more substantial when secondary economic impacts are considered. For every $1 of scab losses incurred by the producer, $2 in losses are incurred in other areas of rural and state economies. One way of mitigating these losses is to blend barley with DON and barley without DON. Results from the grain blending model show a sharp decline of DON discounts and losses after blending. The average discount fell from $0.57/bu to $0.17/bu in 1998, $0.48/bu to $0.14/bu in 1999, and $0.38/bu to $0.15/bu in 2000. However, producers may not benefit from blending margins (gains from improved quality less blending costs) because these margins are the primary source of revenue for grain elevators. It should also be noted that the aggregate costs of DON to grain handlers are difficult to estimate because DON is subject to an unusual amount of measurement uncertainty, and penalties for excess DON pose an unusual level of risk.