States averaged $46 per acre in 1994, custom operations averaged $10 per acre, and total variable cash expenses averaged $147 per acre. Capital replacement on corn averaged $33 per acre (Economic Research Service, 1996).

The central characteristic of precision agriculture is the use of detailed information to reduce the impact of heterogeneity of production conditions on output by allowing producers to calibrate inputs according to conditions at the subfield scale. For example, growers can combine tensiometer information on soil moisture at subfield levels with prediction of evapotranspiration derived from weather forecasts hourly or daily, so that producers can vary irrigation water application to match water demand at the subfield level. Similarly, variable-rate applicators combined with fertility mapping allow producers to vary fertilizer application rates in response to natural variations in soil fertility. Calibrating inputs according to conditions at subfield levels is likely to result in increased yields. For example, diminishing marginal productivity of nutrients suggests that yields obtained under variable-rate fertilizer application will generally exceed those obtained under uniform application calibrated according to average soil fertility. Within variable-rate application, areas within a field having higher than average fertility should receive lower fertilization than under uniform application, while areas having lower than average fertility will receive higher fertilization than under uniform application. Yields in areas with higher-than-average fertility will be lower under variable-rate application than under uniform application, while yields in areas with lower-than-average fertility will be higher. As long as low-fertility areas account for a sufficiently large share of the field, variable-rate fertilizer application will result in an increase in yield for the field as a whole.

The preceding discussion suggests that precision agriculture is likely to have a greater profitability advantage than current farming methods in areas where production conditions are more heterogeneous and in areas where input costs are higher, because cost savings from more precise input application are likely to be greater in such cases. Similarly, precision agriculture is likely to have a greater profitability advantage than current farming methods for higher-value crops because yield increases resulting from more precise input application (should they occur) are worth more in such cases.

The handful of peer-reviewed, published economic assessments have examined the relative profitability of varying fertilizer application rates on small grains in response to differences in natural soil fertility. These studies thus involved relatively low-value crops and inexpensive inputs, conditions under which precision agriculture technologies should have relatively small profitability advantages. Carr et al. (1991) obtained mixed results when comparing profitability of wheat and barley grown in central Montana between fields where nitrogen, phosphorus, and potassium were applied uniformly and those where application rates of these nutrients were varied to meet recommended application rates for yield goals on different soil types. Returns net of variable costs were significantly higher under variable-rate applications than under uniform-rate applications in



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