Alternative Agriculture (1989) / Chapter Skim
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4 Economic Evaluation of Alternative Farming Systems
4 Economic Evaluation of Alternative Farming Systems
Pages 195-244
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From page 195... ...
Wide adoption of alternative farming methods requires that they be at least as profitable as conventional methods or have significant nonmonetary advantages, such as preservation of rapidly deteriorating soil or water resources. Economic performance can be improved in several ways: Lowering ner unit expenditures on production inputs; ~ o r -- ~ -r ~ -- - r Increasing output per unit of input; Producing more profitable crops and livestock; Reducing capital expenditures on machinery, irrigation equipment, and buildings; Reducing natural crop and animal losses; Reducing income loss through commodity price fluctuations; and Making fuller use of available land, labor, and other resources.
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From page 196... ...
Such analyses are needed but wig be complex, involving a wide range of factors. Economic Stubbles of Farming Practices Economic analyses of single enterprises or their components usually employ partial budgeting techniques that estimate the change in production costs, profits, and risks accompanying a specific change in farming practice
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From page 197... ...
Perhaps the most important factor in adopting any management system or combination of crops is the net return to the farm family. The successful commercial farmer must assess the compatibility of proposed alternative practices with other practices already in place, taking into account a farm's physical and biological resources and anticipated changes in crop yields, livestock productivity, production costs, farm programs and policy, and labor and machinery requirements.
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From page 198... ...
The Transition to Alternatives Most economic studies of alternative production at the whole-farm level take a static approach, ignoring the year-to-year difficulties associated with the transition from one system to another. Moreover, the assumptions used generally ignore uncertainty stemming from the weather, crop yields, man
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From page 199... ...
Comparative Regional Cost of Production Production cost per unit of output is one of the most important shortterm measures of the economic performance of an agricultural operation, production system, or sector. Comparing per unit production costs for a given crop by region is a good indicator of regional absolute advantage or the inherent suitability of an area or farm for the profitable production of a given crop.
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From page 200... ...
The Corn BeltGreat Lakes region is highly suited to corn and soybean production in terms of rainfall, soils, and temperature, particularly in contrast to the Southeast region. Per acre production cost estimates, however, do not reveal this advantage as clearly as per unit production costs do; the total per acre variable costs are similar for these regions.
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From page 202... ...
To better understand the role and viability of specific alternative agriculture systems, however, far greater knowledge of regional differences in production costs, their variability, and their causes is needed. Such understanding will help · Explain how and why some farmers within regions and in different regions of the country can produce a given crop at markedly lower per unit costs than their neighbors or producers in other regions; · Identify the production cost advantages and disadvantages stemming from soil, water, weather, pests, and other natural factors; Target technologies, management approaches, and policy decisions that most effectively reduce these costs and make the most of regional advantages; and Better understand how commodity, conservation, regulatory, and other policies influence on-farm management decisions and production costs.
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From page 203... ...
These data are consistent with national average cost of production data for major crops (Table 4-6~. Alternative Agriculture and Production Costs Alternative production systems are designed to enhance beneficial biological interactions and improve economic performance through better nutrient management and pest control.
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From page 204... ...
Crop production costs Hired labor $ 4.02 $ 4.35 Repairs 8.90 14.92 Seed crop insurance 2.17 3.18 Fertilizer-lime 2.62 10.15 Machine hire 8.09 15.66 Storage-marketing 1.68 3.97 Fees-conservation-auto expenses 1.06 3.14 Gas-fuel-oil 6.91 9.99 Personal property tax 0.27 0.46 General insurance 0.45 1.13 Utilities 1.31 2.27 Herbicide-insecticide 1.19 6.47 Interest on operating costs (12%) 3.48 6.81 Interest on machinery investment (12%)
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From page 205... ...
and the committee's limited case studies indicate that the most profitable alternative and conventional farms are often those that successfully cut back on fertilizer, pesticide, and machinery expenses while sustaining high levels of crop production. The extent and causes of variability in production costs warrant careful study in assessing agricultural commodity, conservation, and regulatory policies.
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From page 206... ...
70.83 32.27 30.77 71.72 51.88 65.33 Totalvariable and fixed costs 189.57 91.52 75.13 314.57 103.92 258.52 Percentage of Total Variable Costs Pesticides and fertilizers 55 46 40 15 49 37 Pesticides and fertilizers 34 SOURCE: U.S. Department of Agriculture.
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From page 207... ...
agriculture. By reducing program crop acreage in high per unit cost regions or on high per unit cost farms and expanding production in low per unit cost regions or on particularly efficient farms, policy reform has the potential to Reduce average per unit production costs; Improve efficiency of input use; Reduce environmental consequences of inefficient input use; Lower federal program costs; and Cause farmers to abandon certain high-cost crops in certain areas.
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From page 208... ...
IPM {PM is a pest control strategy based on the determination of an economic threshold that indicates when a pest population is approaching the level at which control measures are necessary to prevent a decline in net returnsthat is, when the predicted value of the impending crop damage exceeds the cost of controlling the pest. In this context, IPM rests on a set of ecological principles that attempt to capitalize on natural pest mortality
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From page 209... ...
Few formal {PM programs for weeds have been developed because many alternative weed control strategies already exist and are currently practiced by farmers. In addition to focusing on increasing net farm income, the development of economic thresholds must take into account specific biological characteristics of the target pest and the long-term implications of current pest control actions.
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From page 210... ...
In some states, growers using IPM systems were the only group able, on average, to earn a profit from sale of those commodities studied (ADen et al., 1987~. The study's survey of 3,500 growers using {PM showed a $54 million increase in net return for these growers, compared with growers not using IPM (ADen et al., 19871.
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From page 211... ...
As a percentage of total cash operating costs, pest control costs for IPM users were quite variable, ranging from 2 to 22 percent for the nine crops studied. Many other studies have shown that IPM can result in fewer pesticide applications and lower pest control costs (Kovach and Tette, 1988; Office of Technology Assessment, 1979; Shields et al., 1984; Smith and Barfield, 1982~.
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From page 212... ...
Disturbance of endemic insect and disease populations because of pesticide use are partially responsible for these differences. Each case study farm using IPM reports substantial reductions in pest control costs.
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From page 213... ...
Nonetheless, they achieve far greater per acre savings from the adoption of IPM than do California growers. In the committee's case study, Florida producers who used IPM had direct pest control costs ranging from $200 to $300 per acre compared with $450 to $700 per acre for nonusers of IPM.
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From page 214... ...
Alternative Weect Control Practices Various combinations of cultivation, tilIage practices, cover crops, and rotations are widely used to control weeds and reduce or eliminate herbicide use. Five of the committee's case studies involve farms using various combinations of these methods for weed control in cash grain and livestock
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From page 215... ...
A common feature of farms using alternative production methods is the integration of individual practices, such as weed control, into the overall management of the farm. For example, controlling weeds by rotations, cover crops, and cultivation complements fertilization, erosion control, and animal forage and feed requirements.
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From page 216... ...
While per acre yields on the Thompson Farm are high and the per unit costs of production are low, the overall effect on net farm income cannot be simply derived from these figures. Rotations provide much of the weed control, plant nutrients, and input cost savings on the Thompson Farm.
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From page 217... ...
forage or hay crops during part of the rotation generally earns less gross income than cash crops. Accordingly, the economic performance of the Thompson Farm or other farms using rotations must be evaluated over the fuB life of the rotation.
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From page 218... ...
Such actions will most likely create further economic incentives for farmers successfully using nonchemical pest control methods. It may be necessary, however, to retain some uses of more hazardous compounds to
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From page 219... ...
As with many alternative practices, a broader range of biological control options and techniques are possible within diversified agricultural ecosystems (see Chapter 3~. There is a need for research on the specific effects of diversification in crop systems on pest populations and biological methods of control.
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From page 220... ...
Many biological pest control techniques can be used in IPM systems. These include the use of pest predators or parasites, selection of pestresistant plant cultivars, use of insect pheromones, release of sterile males, immunization of host plants, and use of bacterial insecticides.
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From page 222... ...
. Many of the committee's case study farms use some type of biological control as a strategy in highly successful pest management programs.
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From page 223... ...
The Paviches do not report pest control costs in a way directly comparable to the University of California (UC) accounting system applied to neighboring grape operations.
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From page 224... ...
Effective biological control systems must be carefully researched and tailored in light of seasonal weather patterns, crop conditions, and pest population trends and interactions. Public funds for the development and delivery of biological pest control products or systems to growers are often lacking, as are funds to adequately assess conditions on individual farms.
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From page 225... ...
For example, mastitis may cause an $1S,000 loss in a typical 100-cow herd (National Mastitis Council, 1987~. Two simple alternative approaches to mastitis control, postmilking teat disinfection and comprehensive nonlactating therapy, may provide excellent health and cost approximately $1,000 per year.
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From page 226... ...
Controlled-environment systems that typically involve confinement of animals in stalls, pens, or cages are widely used in the poultry, pork, and veal industries. Intensive animal production tends to have performance characteristics similar to intensive crop production.
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From page 227... ...
Alternative animal production systems have long existed. These modifications of traditional animal husbandry systems have been refined to take advantage of current knowledge of animal nutrition and health care.
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From page 228... ...
Alternative farming systems, particularly for farms producing coarse grain and oilseed crops, small grains, and forages, generally depend on crop rotations and a number of other diversification strategies. These strategies are often contrary to the specialization and intensification characteristic of most agricultural operations.
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From page 229... ...
Crop rotations using cover crops, such as leguminous
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From page 230... ...
Interplanting different crops in a given field has been known to suppress leaf diseases in cereal grain crops and powdery mildew in wheat (Wagstaff, 1987~. Many instances of the beneficial effects of polyculture have been reported, with documented reductions in insect damage and increases in crop yields and net returns (Dover and Talbot, 1987; National Research Council, 1987b)
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From page 231... ...
Whenever soil moisture is not a limiting factor, however, legumes in rotations with cash grains will increase yields and can supply some or all of the nitrogen needed by corn or small grains. During the drought years from 1933 to 1940, an experiment in Iowa involving continuous corn production estimated an average net return of $10.81 per acre (assuming 1940-1944 average prices)
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From page 232... ...
The study concluded that if the monetary value of the nitrogen fixed were ignored and if nitrogen fertilizer is assumed to be free, the most profitable cropping system in terms of current net returns over cash operating costs is continuous corn on about two-thirds of the acreage, with about one-third of the acreage in a 3-year corn-oats/alfalfa-alfalfa (C-O/A-A) rotation.
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From page 233... ...
The continuous cropping systems were found to require higher pesticide expenditures and be subject to greater year-to-year variation in yields and profits per acre compared with the various rotations (Helmers et al., 1986~. For specialized operations growing government-supported crops, off-farmpurchased inputs are a significant part of total variable input costs and total operating costs (that is, variable costs plus fixed costs such as insurance, overhead, and interest)
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From page 234... ...
In contrast to input costs, annual crop yields were similar during 2 trial years at three sites. PALS wheat yields averaged 62.6 bushels per acre compared with 60.3 bushels on the conventional plots.
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From page 235... ...
Under low-yielding conditions, the productivity of the conventional rotation is reduced to such an extent that, even assuming government support prices, the net income of the two systems is roughly equivalent. Assuming market prices and no government program payments or requirements, the PALS rotation is always more profitable.
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From page 236... ...
exports out of highly competitive world markets because federal support prices (the loan rates) were held rigidly high during a period of declining world market prices.
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From page 237... ...
Deficiency payments per bushel of established yield are the difference between the target price and market price or support price (loan rate) , whichever difference is less.
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From page 238... ...
This reduced variable production costs per acre to about half that of the conventional rotation, or $56.82 versus $129.40 per acre (Goldstein and
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From page 239... ...
But when market prices were used in calculating net returns, the positions were reversed. The PALS rotation returned an estimated $61.18 per acre over variable costs versus $46.60 for the conventional rotation (see Table 4-13)
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From page 240... ...
In recent years the feed grain program encouraged higher per acre corn yields, continuous corn production, and greater use of pesticides and nitrogen fertilizer. Duffy (1987)
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From page 241... ...
Diversification strategies such as crop rotations can decrease input costs and increase crop yields. Experimental results must be interpreted with caution, however, when used to project the results of widespread adoption.
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From page 242... ...
Pp. 361374 in Biological Control in Crop Production.
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From page 243... ...
1981. A comparison of swine production costs for pasture, individual, and confinement farrow-to-finish production facilities.
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From page 244... ...
Pp. 403-417 in Biological Control in Crop Production, Beltsville Symposia in Agricultural Research, No.
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