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Alternative Agriculture (1989)

Chapter: 4 Economic Evaluation of Alternative Farming Systems

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Suggested Citation:"4 Economic Evaluation of Alternative Farming Systems." National Research Council. 1989. Alternative Agriculture. Washington, DC: The National Academies Press. doi: 10.17226/1208.
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Suggested Citation:"4 Economic Evaluation of Alternative Farming Systems." National Research Council. 1989. Alternative Agriculture. Washington, DC: The National Academies Press. doi: 10.17226/1208.
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Suggested Citation:"4 Economic Evaluation of Alternative Farming Systems." National Research Council. 1989. Alternative Agriculture. Washington, DC: The National Academies Press. doi: 10.17226/1208.
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Suggested Citation:"4 Economic Evaluation of Alternative Farming Systems." National Research Council. 1989. Alternative Agriculture. Washington, DC: The National Academies Press. doi: 10.17226/1208.
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Suggested Citation:"4 Economic Evaluation of Alternative Farming Systems." National Research Council. 1989. Alternative Agriculture. Washington, DC: The National Academies Press. doi: 10.17226/1208.
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Suggested Citation:"4 Economic Evaluation of Alternative Farming Systems." National Research Council. 1989. Alternative Agriculture. Washington, DC: The National Academies Press. doi: 10.17226/1208.
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Suggested Citation:"4 Economic Evaluation of Alternative Farming Systems." National Research Council. 1989. Alternative Agriculture. Washington, DC: The National Academies Press. doi: 10.17226/1208.
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Suggested Citation:"4 Economic Evaluation of Alternative Farming Systems." National Research Council. 1989. Alternative Agriculture. Washington, DC: The National Academies Press. doi: 10.17226/1208.
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Suggested Citation:"4 Economic Evaluation of Alternative Farming Systems." National Research Council. 1989. Alternative Agriculture. Washington, DC: The National Academies Press. doi: 10.17226/1208.
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Suggested Citation:"4 Economic Evaluation of Alternative Farming Systems." National Research Council. 1989. Alternative Agriculture. Washington, DC: The National Academies Press. doi: 10.17226/1208.
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Suggested Citation:"4 Economic Evaluation of Alternative Farming Systems." National Research Council. 1989. Alternative Agriculture. Washington, DC: The National Academies Press. doi: 10.17226/1208.
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Suggested Citation:"4 Economic Evaluation of Alternative Farming Systems." National Research Council. 1989. Alternative Agriculture. Washington, DC: The National Academies Press. doi: 10.17226/1208.
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4 Economic Evaluation of Alternative Farming Systems | NTEREST IN AUERNATIVE FARMING SYSTEMS iS often motivated by a desire to reduce health and environmental hazards and a commitment to natural resource stewardship. But the most important criterion for many farmers considering a change in farming practices is the likely economic outcome. 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 re- sources. 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. Several economic analyses of alternative farming systems were conducted in the 1970s. A review found most of these studies were methodologically flawed, however, and used prices, technologies, and policies that are of limited relevance today (Lockeretz et al., 1984~. In particular, energy and land values have fallen, real interest rates have risen, inflation has slowed, cash market commodity prices have generally declined beginning in 1982, and a wide range of government policies have exerted greater influence on farmer decision making. These factors are dynamic and constantly influence agricultural producers and policies. Nonetheless, a growing body of contemporary data supports the eco- 195

196 ALTERNATIVE AGRICULTURE nomic viability of alternative farming practices and systems. The committee reviewed and interpreted available literature on the economics of alternative methods and systems, focusing on the general areas of pest control, ~liver- sification, nutrient sources, and the effect of government and market price structures on the adoption of alternative practices. Economic findings from the case study farms are presented in this chapter. ECONOMIC ASSESSMENTS OF ALTERNATIVE METHODS Understanding the overall economic implications of alternative farming systems requires research at several levels, including individual components of crop and livestock enterprises, whole-farm studies, and national and international analyses. Traditionally, most evaluations of the economic impact of adopting alter- native farming practices have focused principally on the cost and returns of adopting a specific farming method. For example, many studies at the farm level have estimated the economic benefits of integrated pest management (IPM), crop rotations, and manure management options. Such studies gen- erally assume no other changes in the farm operation, input or output, or prices. These studies fall into a broader literature on farm management that employs partial budget analysis techniques. Fewer studies have considered the impact of alternative farming systems on the economic performance of the whole farm. At the aggregate level, the committee could identify no useful studies of the potential effects of wide- spread adoption of alternative agricultural systems. Most aggregate studies are flawed in their methods and assumptions regarding the effectiveness of alternative systems and the impact of com- modity policy on farm management. The common approach has been to compare conventional farming practices with the economic performance of a similar farm, assuming total withdrawal of certain categories of farm inputs. These studies usually assume or project substantial reductions in per acre yields in many crops and then project the effect of these reductions in the context of strong export demand and limited commodity supplies. These assumptions and conditions often result in projected food production shortfalls that do not accurately reflect the constant change of markets or the production capabilities of many available alternative systems. The com- mittee could identify no aggregate studies that compare the costs and benefits of conventional agriculture with successful alternative systems. 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 em- ploy partial budgeting techniques that estimate the change in production costs, profits, and risks accompanying a specific change in farming practice

ECONOMIC EVALUATION 197 (BoehIje and Eiuman, 1984~. Results are often expressed as a change in the net return over cash production costs per acre or per unit of output. Meth- odologicaBy, partial budget studies focus on short-term net returns, includ- ing labor, and generally do not take into account off-farm impact or long- term changes in the productivity of the natural resource base. They also assume no change in farm size, enterprise combinations, prices of commod- ities or inputs, or other variables. Despite these limitations, this method is practical and easy to understand. Partial budget Study findings can be augmented by drawing on additional analyses from specialists in biology, ecology, and physical science. In recent years, biological, physical, and social scientists have made much progress in their collaborative research efforts in developing new methodologies for estimating the economic consequences of farming systems and practices. Partial budgeting is reported to be the most widely used method of estimating changes in income of an indiviclual farm as a result of adopting IPM (ADen et al., 1987; Osteen et al., 1981~. The landmark research on the economics of crop rotations by Heady (1948) and Heady and Jensen (1951) was based essentially on the partial budgeting approach, because the only aspect of the farm operation assumed to vary was the crop rotation. Con- temporary research that includes a greater consideration of biological and . ~ ~ ~ · , . · . . . . · . · . — · , ~ . . . . . economic factors IS presented later in this discussion (molested and Young, 1987; Helmers et al., 1986~. The review by Allen et al. (1987) of the agricul- tural, economic, and social effects of TPM is another example of the multi- disciplinary approach to partial budgeting analysis. Whol - Farm Analysis of Alternative Methods Frequently, a farming method that appears profitable when analyzed at a component level may prove less attractive from the perspective of the whole farm, particularly in relation to other possible practices or combinations of practices. Analysis at the whole-farm level recognizes that a farmer's decision to aclopt one or more farming practices is not made in isolation from the rest of the farm enterprise. 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 pro- grams and policy, and labor and machinery requirements. These and other factors will strongly affect the farm operator's cash flow and the farm's profitability and long-term economic viability. Whole-farm studies typically use one of two approaches: linear budget (risk programming) or overall farm surveys. Both approaches attempt to examine the effect of different farming practices or production systems at the farm level, taking into account aD components of the farming system

198 ALTERNATIVE AGRICULTURE and operation, such as land-use patterns, pest control practices, and nutri- ent management. Microeconomic programming or planning models analyze farm decision making based on particular resource and financial assumptions as wed as estimated relationships between management choices and crop or animal production levels. The usefulness and validity of these models depend on the availability of reliable experimental or empirical data on input and output relationships in specific agricultural systems. When such data are ~ , ~ _ . . . ~ . · . . · a ~ present, whole-tarm planning models can analyze tne economic conse- quences of a wide range of alternative production systems. A principal objective of the committee's research recommendations is the development of such a knowledge and information base (see the Executive Summary). Partial- and whole-farm analyses can take a short- or long-term perspec- tive. For short-term analyses, some resources and technologies are assumed fixed, and management decisions are made among existing alternatives. Long-term studies are more complex and difficult because many more vari- ables are changeable, including technologies and policies. A critical need identified by the committee is expanded multidisciplinary research on Tong- term technological trends and policy changes and how these trends and changes are likely to influence the relative costs and benefits of various farming systems. For example, the committee suspects that biotechnology will greatly increase technological options in support of alternative agricul- tural systems, and that society's environmental and public health goals will tend to support producers successfully adopting these technologies. The committee cannot go further in quantifying these trends, however, because the necessary knowledge base and analytical framework do not exist. Farm surveys are based on empirical measures of the performance of agricultural production systems. It is often difficult to draw cause and effect inferences from surveys, however. For example, farm operators' (echnologi- cal choices and management abilities greatly influence profitability. But it is difficult to separate the contribution of technology from that associated with managerial skis. Nonetheless, the performance of agricultural systems as captured in well-designed surveys implicitly reflects the interaction of these factors. Experimental data on alternative agricultural systems are clearly lacking, and relatively few weD-designed surveys have been undertaken. The literature is beginning to grow, however, and a number of solid studies have reached conclusions indicating the prospective economic benefits of alternative production systems. 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-

ECONOMIC EVALUATION 199 agement skills, prices of inputs and products, government policies, and other variables. As a result, these studies must be interpreted cautiously. Several whole-farm studies have examined the financial impact of chang- ing from conventional to alternative farming practices (Hall, 1977; Osteen et al., 1981; Reichelderfer and Bender, 1979~. These studies recognize that a farm's economic performance can change significantly during a multiyear evolution from conventional to alternative practices (Dabbert and Madden, 1986~. Many factors can influence the economic performance of farms during the transition to alternative practices. The use of certain kinds of pesticides and fertilizers may have disrupted natural predators and other biota. Reesta- blishing these populations and the balance among them can occur quickly or require several years (Koepf et al., 1976; U.S. Department of Agriculture, 1980~. Although crop rotations will generally increase yields, decrease pes- ticide costs, and, in the case of legumes, decrease fertilizer costs, the full benefits of crop rotations may take several years to materialize. Depending on the prices of farm commodities and inputs, adoption of a rotation some- times reduces net farm income, particularly during the initial years of a transition (Dabbert and Madden, 1986~. For example, including a forage legume in a rotation may not sufficiently decrease production costs and increase the yields of cash grain crops to compensate for the reductions in their acreage especially when cash grain prices are supported far above market levels (Duffy, 1987; Goldstein and Young, 1987~. Farmers may also need a few years of experience to acquire the additional knowledge and management skills necessary for more diversified operations. The economic impact of a farmer's decision to change from conventional to alternative farming methods on all or part of a farm operation will vary depending on factors such as climate, soil type, crops and livestock produced, cropping history of the farm, the farmer's skills, and many other considerations. Because of these factors, most farmers adopt alternatives gradually. A1- though the transition may be difficult, successful alternative systems tend to reduce variability of net returns (Helmers et al., 1986~. The consistency of yield and return to the farm family is a potential benefit of alternative agriculture that deserves further study. Comparative Regional Cost of Production Production cost per unit of output is one of the most important short- term 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. Another common measure production costs per acre is widely used in comparative analyses. This measure, however, differs significantly from per unit production costs. Per acre costs do not take into account the actual

200 ALTERNATIVE AGRICULTURE TABLE 4-' Regional per Bushel and per Acre Production Cost Estimates and Yields, 1986 Crop Corn Belt- Great Lakes Southeast Corn Total variable costs (dollars) Per bushel 0.93 1.81 Per acre 118.68 120.15 Yield/acre (bushels) 126 66 Soybeans Total variable costs (dollars) Per bushel 1.31 3.15 Per acre 49.93 67.89 Yield/acre (bushels) 37 21 NOTE: The Corn Belt and Great Lakes region includes Minnesota, Wisconsin, Michigan, Iowa, Missouri, Indiana, Illinois, and Ohio. The Southeast region includes Kentucky, Tennessee, Alabama, Georgia, South Carolina, North Carolina, and Virginia. SOURCE: U.S. Department of Agriculture. 1987. Economic Indicators of the Farm Sector—Costs of Production, 1986. ECIFS 6-1. Economic Research Service. Washington, D.C. yields harvested; they reflect the level of inputs applied on a per acre basis. Consequently, per acre production costs do not as accurately reflect the productivity of a cropping system or an area for a particular crop. Likewise, high per acre costs for fertilizer and pesticides do not necessarily indicate high per unit costs or low productivity. For example, farmers in highly productive corn-growing regions generally use more fertilizer and other inputs per acre because they can afford it based on the high yields they will achieve, not because the area is unsuited to corn production. This is partic- ularly true when market or government support prices are high. In contrast to the limitations of per acre costs, per bushel costs are good indicators of an area's suitability for production of a given crop. The exam- ple in Table 4-1 shows this and indicates the superiority of per unit produc- tion cost figures in defining the productivity of regions. The Corn Belt- Great 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. The same costs expressed on a per bushed basis, however, show that it requires far less cash expenditure to produce a bushel of corn or soybeans in the Corn BeTt-Great Lakes region than in the Southeast. Table 4-2 shows total variable costs and fertilizer and pesticide cost estimates per unit of production for various regions produc- ing corn, soybeans, and hard red winter wheat. Per unit production costs reflect what actually happens during a given growing season. Many things, such as too much or too little rain, cold

201 U) au o an o too U) ._ U) o U o ._ u o so - U) ~4 as in - ._ _ ~ o ~ ·— V be .= LU m in ~ U' = U. o UD Ct o in = ~ Z 0 Z U. ~ My oO on U 1 1 1 1 1 1 c`' ~ ° 00 ~ . . 1 1 1 1 1 1 ~ ~ ° d4 ~ d. ~ u~ c~ ~ . . . . ° 1 1 1 ~ ~ o ~ o . . ~D CN ~ ~ - . . ~' ~ 1 1 1 ~ ~ ~ ~ o ~ C~ ~ d~ . . · . . - ~ ~ o ~ ~ o ~ ~ o L~ . . ~ ~ ° 1 1 1 1 1 1 d4 L~ ~ ~ ~ . . . . o ~ ~ ° 1 1 1 o ~ oo ~ 1 1 1 ~ ~ ~ 1 1 1 —~ ~ O ~ o 9 cn ~ co o.9 _ cn =_ (U ~ — O° Y ,= _ ~ ~y c, ~g ~ E ~ ~ ~ ~ E ~ ~ ~- ~ ~ C~ .= G C .C O =~ E ~S o ~ o o ~ O m. ~ o ,t, o o _~. d =, ~ 4 9 3 a .~ · ,,, ~ ~ ~ `,, E ~ c ~ y ~ ~ ~ 2 ~ u ~ ~ a ~ z ~ u' ;, 0 ·~ 2 ~ .= ~ U ~ ~ U ~ 3 ~ ~2 ~- ~ ~ ~ ~ u 2 ~ =o ~ Z C U ~y a ~= ~ ~ ~ ~ ~ c; ;; ~ ~ ·- - z ~ ~ ~ ~ ~ u ~ ~ 0 ~ o u

202 ALTERNATIVE AGRICULTURE spells, pests, hail, or soil fertility problems, can affect productivity in farm- ing. These factors, as well as diverse soil types, climates, and levels of pest infestation, often account for large regional differences in per unit costs for a given crop, despite fairly similar per acre production costs. Increased efficiency and lower per unit production costs are essential for agricultural producers to remain competitive in domestic and international markets. Alternative systems can often help achieve these goals. 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 ad- vantages; and Better understand how commodity, conservation, regulatory, and other policies influence on-farm management decisions and production costs. methods for Comparing Production Costs A variety of farm accounting systems and methods can be used to calcu- late per acre and per unit production costs. Most farmers use some system of recor~keeping to track expenditures and determine profits and losses at the end of each season. Most states and the U.S. Department of Agriculture (USDA) collect and analyze farm budget data. A variety of private organizations have devel- oped recor~keeping systems that farmers can use for estimating cash flow, working with lenders, tracking returns to certain investments, identifying areas where profits could be increased, and preparing income tax state- ments. Some lenders require these records. Many of these recor~keeping systems are very sophisticated and have been used to study the distribution of per acre and per unit production costs for major commodities. The quality of individual farmers' recor~keeping, however, has a great effect on the quality of the data reported. The committee has reviewed several farm budget and cost of production studies, including Southwestern Minnesota Farm Business Management Association data, Southwest Kansas Farm Management Association data, and data compiled and published by the USDA. Reports by these and other organizations use a variety of different meas- ures, assumptions, and formats in collecting, analyzing, and reporting data. They are not random samples and do not generally employ sampling tech- niques. As a result, care must be exercised in drawing inferences from data

ECONOMIC EVALUATION 203 and findings associated with different data sets. To the extent possible, the USDA tries to use consistent definitions and accurate methods in its pub- lished reports on state average production costs. The level of aggregation reported, however, masks much of the variability within states in the costs incurred on incliviclual farms. Additional insights can be extracted from analyses of comparative pro- duction costs on particular groups of farms within a given region. A com- mon analytical approach is to separate a sample of farms producing a given crop into groups based on a given indicator or particular farm characteristic. The results of one such analysis of drylanct wheat farms in southwest Kansas are shown in Table 4-3. The sample of 3,000 farms was divided into quartiles by income. The first column in the table reports average yields, costs, and acreage for the 750 farms or 25 percent—reporting highest income; the second column reports the same information for the 750 farms reporting the lowest income. These data show Low-income farms incur per unit production costs nearly twice those of high-income farms ($3.66 versus $1.87 per bushel). The yields on low-income farms are about 9 percent less than on the high-income farms even though the per bushel production costs are almost double. All variable costs per acre were greater on the low-income farms. The per acre differential was greatest for machinery hire ($7.57), fertilizer ($7.53), machinery repair ($6.02), and herbicides and insecticides ($5.28~. Insights into the potential benefits of certain alternative production sys- tems arise from identifying the cost factors that tend to distinguish high- income low-cost producers from less profitable but otherwise similar farms. Some important factors contributing to higher per acre costs in Kansas wheat production and corn and soybeans grown in southwest Minnesota are summarized in Table 4-4. The difference in fertilizer and pesticide per acre and per bushel production cost for high-cost and low-cost corn and soybean farms in Minnesota are presented in Table 4-5. Per bushel fertilizer and pesticide costs were 144 percent greater for high cost soybean farms in 1986 and 60 percent greater on corn farms in 1987. Variable costs associated with machinery and repairs are also consistently high on low-income farms, in part because these farms are smaller on average and machinery costs are spread over fewer acres. 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 biolog- ical interactions and improve economic performance through better nutrient management and pest control. When successfully adopted, most alternative systems greatly influence fertilizer and pest management costs (see all case

204 ALTERNATIVE AGRICULTURE TABLE 4-3 Cost of Production for Dryland Wheat in Southwest Kansas, 1986 - 25 Percent of Farms 25 Percent of Farms with Highest Income with Lowest Income Costs (per acre) (per acre) 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%) 3.62 5.31 Total operating costs $ 45.77 $ 87.81 Depreciation Motor vehicles $ 13.01 $ 12.69 Machinery 3.98 9.13 Buildings 1.50 5.01 Total depreciation $ 18.49 $ 26.83 Total production costs $ 64.26 $114.64 Total production costs/bushel $ 1.87 $ 3.66 Management, labor, and land costs Management chargea $ 4.17 $ 3.81 Operation, unpaid labors 10.12 20.44 Land charge' 27.82 25.40 Total management, labor, land costs $ 42.11 $ 49.65 Total management, labor, land costs/ bushel $ 1.23 $ 1.58 Total costs $106.37 $164.29 Total costs/bushel $ 3.10 $ 5.24 Wheat acres 1,482 734 Wheat yield/acre (bushels) 34.35 31.36 . . as percent of yield per acre times $2.43 per bushel. b$15J000 per operator divided by wheat acres. C33.33 percent of yield per acre times $2.43 per bushel. SOURCE: B. L. Flinchbaugh, Kansas State University, correspondence, 1988.

ECONOMIC EVALUATION TABLE 4-4 Major Inputs Resulting in Higher per Acre Costs: High-Cost Farms Versus Low-Cost Farms, Selected Studies 205 Difference In Variable Costs Between High- and Low-Cost Farms Year Dollars/ Percentage of Total Location/Crop Input Acre Difference 1985 Repairs 4.46 20.9 Kansas/wheat Machine hire 2.65 12.4 Fertilizers 1.59 7.5 Pesticides 0.99 4.6 1986 Machine hire 7.57 18.0 Kansas/wheat Fertilizers 7.53 17.9 Repairs 6.02 14.3 Pesticides 5.28 12.6 1986 Pesticides 5.09 24.1 M~nnesota/soybeans Repairs 3.01 14.2 Fertilizers 0.24 1.1 1987 Repairs 19.37 36.3 Minnesota/corn Fertilizers 8.00 15.0 Pesticides 4.61 ~ ~ SOURCES: Kansas Cooperative Extension Service. 1987. The Annual Report—Management Information—Kansas Farm Management Associations. Manhattan, Kans.: Kansas State University; Olson, K. D., E. J. Weness, D. E. Talley, ~ A. Fates, and R. R. Loppnow. 1987. 1986 Annual Report, Revised. Southwestern Minnesota Farm Business Management Association. Economic Report ER8724. St. Paul, Minn.: University of Minnesota; Olson, K. D., E. J. Weness, D. E. Talley, F! A. Fates, and R. R. Loppnow. 1988. 1987 Annual Report: Southwestern Minnesota Farm Business Management Association. Economic Report ER88-4. St. Paul, Minn.: University of Minnesota. studies). Regional cost of nrodllotinn Ctil~i~ hack an Err rm~nr~l~c~i-~ ~ -or or- we'd ~~ ~~llt,5~ systems (Goldstein and Young, 1987; Kansas State University, 1987; Olson et al., 1981, 1986, 1987) 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. High target prices, deficiency payments, and disaster provisions that compensate farmers for crop losses are principal causes of inefficient input use. Current farm programs base payments on historical per acre yield levels, multiplied by a per bushed deficiency payment rate. The per bushel deficiency payment is the difference between the government-set target price and loan rate or the market price, whichever difference is less. When deficiency payments are large, during periods of protracted low crop prices, farmers have greater incentive to apply fertilizers and pesticides in greater amounts to produce the most bushels per acre and collect the

206 ALTERNATIVE AGRICULTURE TABLE 4-5 Fertilizer, Pesticide, and Total Variable Costs for Minnesota Corn and Soybeans (in dollars) Fertilizer and Year Total Variable Costs Pesticide Costs Location/Crop Per Acre Per Bushel Per Acre Per Bushel 1986 M~nnesota/soybeans Average high-cost farm 70.24 2.62 17.67 0.66 Average low-cost farm 49.10 1.07 12.34 0.27 Difference 21.14 1.55 5.33 0.39 1987 Minnesota/corn Average high-cost farm 153.88 1.24 55.64 0.45 Average low-cost farm 100.58 0.65 43.03 0.28 Difference 53.30 0.59 12.61 0.17 SOURCES: Olson, K. D., E. J. Weness, D. E. Talley, 1? A. Fates, and R. R. Loppnow. 1987. 1986 Annual Report, Revised. Southwestern Minnesota Farm Business Management Association. Economic Report ER87-4. St. Paul, Minn.: University of Minnesota; Olson, K. D., E. J. Weness, D. E. Talley, P. A. Fates, and R. R. Loppnow. 1988. 1987 Annual Report: Southwestern Minnesota Farm Business Management Association. Economic Report ER88-4. St. Paul, Minn.: University of Minnesota. TABLE 4-6 National Average Cost of Production for Selected Inputs, 1986 Grain Input Corn Sorghum Wheat Rice . ~~:~' Dollar Cost per Acre Custom operation 6.70 3.49 5.38 49.06 3.77 14.19 Seed 16.82 3.92 5.97 24.14 8.54 8.16 Fertilizers 45.51 17.88 14.30 31.20 6.41 20.14 Pesticides 19.21 9.27 3.25 5.73 18.93 50.32 Fuel 9.52 10.73 6.06 26.67 4.80 18.71 Subtotal 97.76 45.29 34.96 136.80 42.45 111.52 Totalvariable costs 118.74 59.25 44.36 242.85 52.04 193.19 Fixed cash costs (interest, insurance, and overhead) 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. 1987. Economic Indicators of the Farm Sector—Costs of Production, 1986. ECIFS 6-1. Economic Research Service. Washington, D.C. Percentage of Total Variable and Fixed Costs 30 23 12 25 27

ECONOMIC EVALUATION 207 highest payments. Between 80 and 95 percent of major commodity produc- ers currently participate in federal commodity programs. (For a further discussion of loan rates and target prices, see "The Power of Policy" section in Chapter 1.) Farm programs strongly influence input use, planting decisions, and the use of marginal lands in generally productive areas. The effect of these programs on input use differs greatly by region. Two basic tees calf ineffi- ciency can arise from federal commodity programs: -a r ~ 1. Excess input use to achieve higher yields and maximize government program payments, and 2. Use of inputs to expand crop production onto marginal lands, or to support the production of crops in regions poorly suited to a particular crop. In areas well suited to the production of a crop (for example, corn in the Corn Belt), high government payments encourage excessive and inefficient input use (Olson et al., 1981; Randall and Kelly, 19871. In areas where production of a crop is inherently more difficult (for example, corn in the Mississippi Delta), government payments often subsidize the production of crops that would not otherwise be profitable (see Tables 4-1 and 4-2~. There are sound correlations, although complicated and often poorly documentecl, between the economic and environmental performance of farming systems. Efficient systems generally are associated with fewer en- vironmental problems because cropping patterns, fertility, and pest control practices are matched to the strengths and limitations of the resource base and follow sound biological and agronomic principles. Both types of ineffi- ciencies identified above can lead to environmental problems, such as water pollution, soil erosion, or loss of wildlife habitat. For example, when Corn Belt farmers overapply nitrogen fertilizer, the result can be nitrates in sur- face water and groundwater. When western farmers produce cotton or other crops with irrigation in the face of inherent environmental, resource, and climatic limitations, the result can be salinization of soils and water and depletion of aquifers. The adoption of policies that reduce or remove incentives for these inef- ficiencies would reduce environmental damage and enhance the competi- tiveness and profitability of U.S. 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 effi- cient 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.

208 ALTERNATIVE AGRICULTURE Production cost analyses can yield important insights into the economic and environmental performance of farming systems. Studies based on ac- tual farm records for operations within a given region appear particularly promising. More in-depth assessments designed to distinguish features of low-cost farms, in contrast to high-cost farms, could guide agricultural researchers and extension specialists toward the most important technical and managerial factors underlying profitability. Production system and technology changes designed to attain environ- mental and public health goals must also help to reduce costs. The unique and highly variable interrelationships among resources, management, pol- icy, and economics must be much better understood and quantified so that reliable and realistic estimates can be provided to policymakers regarding the tradeoffs, costs, and consequences inherent in policy choices. The case studies and the committee's review of available cost of produc- tion studies support a number of important conclusions that warrant fur- ther exploration and analysis. . Within a given region for a specific crop, average production costs per unit of output on the most efficient farms is typically 25 percent less, and often more than 50 percent less, than average costs on less efficient farms. There is a great range in the economic performance of seemingly similar or neighboring farms. Average production costs per unit of output also vary markedly among regions, although not as dramatically as among individual farms. High-income and low-cost farms are often larger. The causes and effects of this, however, deserve study. Certain variable production expenses machinery expenses, pesticides, fertilizers, and interest charges (excluding land) account dispropor- tionately for differences in per unit production costs. ALTERNATIVE PEST MANAGEMENT STRATEGIES Successful alternative pest management strategies include a range of methods. Examples include traditional IPM insect control systems, systems based primarily on cultural practices such as rotations and short growing seasons, and biological control systems that use no synthetic chemical pes- ticides. 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 returns- that 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

ECONOMIC EVALUATION 209 factors; pest-predator relationships; genetic resistance; and the timing and selection of a variety of cultural practices, such as tilIage, pruning, plant density, and residue management. In practice, however, IPM is generally based on scouting fields to determine pest or disease populations or infes- tation levels, more precise timing and application of pesticides derived from scouting, better knowledge of consequences of various levels of pest and predator populations, rotations, and more precise timing of planting. To further advance IPM systems, more research is needed into the develop- ment of economic threshoIcis and agroecosystem pest biology (Frisbie and Adkisson, 1985~. Individual farmers generally determine economic thresholds based on individual objectives and experience. Farmers producing the same crop are often willing to accept different levels of pest damage prior to the imple- mentation of control measures. Most economic thresholds determine the most profitable short-term pest control strategy, taking account of the prices of the crop or livestock and the cost of the proposed control action. Other factors in developing thresholds and IPM methods include population trends of the target pest and its natural enemies, anticipated damage under various scenarios (including taking no action), potential increase in value of the crop, possible costs of adopting rotations, cost of pest scouting, probable effectiveness of chemical or nonchemical control techniques, and changes in pesticide application costs. For insect control, most IPM systems rely on precise application of specific pesticides. In some instances, the number of pesticide applications per acre actuaBy increases with scouting because a threatening pest population is discovered that would otherwise be missed, and more selective materials are used in the hope of minimizing the disruption of ecological balance in other pest species. The total volume of pesticides applied usually declines, however, because of more precise timing and selective applications of pes- ticides (ABen et al., 1987~. For disease control, the use of rotations, planting dates, weather monitor- ing, and resistant varieties are the most common components of IPM pro- grams. 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 character- istics of the target pest and the long-term implications of current pest control actions. For example, it may be profitable in a given season to tolerate a certain number of weeds in a field; but from a long-term stand- point, increased weed pressure from weed seeds in the soil may become a serious problem (Coble, 19851. Long-term adverse implications can also arise from recurrent use of the same or related pesticides. The emergence of pesticide-resistant pest populations is a particularly worrisome phenom- enon (National Research Council, 1986b). Neglecting pest resistance may lead to higher volume or more frequent applications of pesticides, with

210 ALTERNATIVE AGRICULTURE TABLE 4-7 Percentage Differences in Yields, Crop Values, Pesticide Applications, and Pest Control Costs for IPM Users Compared With Nonusers Dollar Value/ Pest Control Unit of Pesticide Costs/Acre Crop/State or Region Yield/Acre Production Applications (including scouting) Alfalfa seed/Northwesta +17 +3 +107 NS Almonds/California + 118b NA NA NA Apples/Massachusetts +12 -8 -4 -23 Apples/New York +21 +3 +15 -6 Corn/Indiana + 10 +4.5 +41 +45 Cotton/Mississippi' +20 NS NA +32 Cotton/Texas +30 +5 NA +40 Peanuts/Georgia +11 NS +10 -11 Soybeans/V~rginia +9 +4 +38 +23 Stored grain/Kentucky NR NS NA -14 Tobacco/North Carolina +0.5 NS -17 NS NOTE: This study surveyed 3,500 growers. NA = Not available. NR = Not relevant. NS = Change not significant, less than 1 percent. aNorthwest includes Washington, Idaho, Oregon, Montana, and Nevada. Three-year average. CCompared with low IPM users. SOURCE: Adapted from Allen, W. A., E. G. Rajotte, R. F. Kazmeirczak, M. T. Lambur, and G. W. Norton. 1987. The National Evaluation of Extension's Integrated Pest Management (IPM) Programs. VCES Publication 491-010. Blacksburg, Va.: Virginia Cooperative Extension Service. serious economic consequences for the individual farmer, the industry, and even the nation (Hueth and Regev, 1974~. Human health risks, environmen- tal impacts, and water-quality degradation are other serious concerns. Several studies have estimated the farm level and aggregate monetary benefits and costs associated with development and adoption of IPM pro- grams (Osteen et al., 1981~. A 1987 evaluation of the Extension Service's IPM programs for insects on nine crops in 10 individual states and 5 states in the Northwest is the most comprehensive review to date (Table 4-7~. The results show higher average per acre yield in every case for IPM users over nonusers growing the same crop in the same state. In 13 of the 15 cases, O . -A - - ~rowers using IPM received the same or higher prices for their crop. Only one case reported a lower per unit price; the other did not report these data. In every case the net return per acre was higher for IPM users versus nonusers, primarily as a result of increased yields and prices received by =~rowers using IPM systems. 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 grow- ers using {PM showed a $54 million increase in net return for these growers, compared with growers not using IPM (ADen et al., 19871. In most cases reported by Allen et al. (1987), IPM resulted in more pesti- cide applications per growing season. In nine cases growers made more v

ECONOMIC EVALUATION 211 applications, in two cases less, and in four cases growers did not report the data. In four of the cases with significant changes in pest control costs (including scouting), costs increased; in four cases control costs decreased; in six cases costs remained about the same; and in one case they were not reported. Although pest control costs often increase or remain constant with {PM, growers nearly always profit from higher yields and improved fruit quality (ADen et al., 1987~. 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~. Although IPM users sometimes make more applications, they generally achieve a higher degree of control using a smaller volume of pesticide. This observation is reinforced by a review of 42 IPM studies. In every case, pesticide use or the cost of production or both decreased with IPM. Twenty- four cases reported increased net returns, 2 cases reported no change, and 16 cases made no report (Allen et al., 19871. This review of the Extension Service's {PM program estimated that the adoption of IPM for the nine commodities in 15 states would result in an estimated $578 minion in additional returns for producers of these crops. This result was obtained using an enterprise budgeting approach, based on data obtained from farmers in telephone interviews regarding pesticide costs and changes in yields. The study assumed that prices of pesticides and farm commodities would not change as a result of adoption of IPM. Effects on consumers or producers of possible reductions in commodity prices that could accompany increases in crop yield were not examined, nor were the secondary economic and environmental benefits likely to follow from widespread adoption of IPM. The same study also estimated the gross revenues of the private pest management consultant industry at about $400 minion per year. The economic benefits associated with the expansion of this industry were not included in the total estimate of economic benefits related to wider use of {PM. Several studies have gone beyond the farm level to project regional eco- nomic implications of {PM adoption. Frisbie and Adkisson (1985) reported a variety of regional and statewide economic assessments of IPM systems. Studies on cotton in Texas reported regional economic benefits ranging from $63 million to $192 million, which translated into estimated overall statewide economic benefits of $92 minion to $305 million (Frisbie and Adkisson, 1985~. Massachusetts apple growers using IPM systems reported increased net returns of $98.00 per acre; a separate study of northeastern apple producers reported increases of $25.00 per acre. Increased net returns of $28.00 per acre with a 75 percent reduction in pesticide use for alfalfa IPM in the North Central region were observed (Frisbie and Adkisson, 1985~. Because IPM programs are grounded in economic threshold principles,

212 ALTERNATIVE AGRICULTURE they nearly always result in increased returns for growers. They generally achieve this through better knowledge of pest and predator populations; more accurate, precisely timed, and better measured pesticide applications that reduce overall pest control costs; and use of improved crop varieties. Together, this results in higher yields and improved crop quality. In certain cases, notably cotton and alfalfa, {PM programs have resulted in dramatic decreases in applications and the volume of pesticides used. This is because IPM programs incorporate newer pesticides that are effective at far lower rates, and previously used pesticides are used with greater precision (see the Florida fresh-market vegetable case study). In other cases, applications remain constant or even increase while the volume of pesticide applied declines. Most current insect IPM systems make only modest use of cultural and biological pest control methods. They focus primarily on scouting and optimizing pesticide use. (Prominent exceptions are the control of corn rootworm through rotation and control of pink bollworm with short-season cotton.) In contrast, most {PM systems to control plant disease take advan- tage of rotations and cultural practices. One common example is the control of wheat root pathogens through rotations. The possible economic and environmental benefits of biological and cultural pest control techniques may become more compelling as biological and genetic pest control meth- ods are improved. The case study farms that use IPM the Kitamuras' processing tomato operation in California and the Florida fresh-market vegetable operations- demonstrate the effectiveness of IPM. They also demonstrate the differences in pest control needs in different regions of the country. Disturbance of endemic insect and disease populations because of pesticide use are par- tially responsible for these differences. Each case study farm using IPM reports substantial reductions in pest control costs. Insect and disease pres- sures, however, are generally greater in Florida than in most regions of California. Growers in Florida, therefore, report greater savings per acre even though they continue to apply far more pesticides than either the Kitamura Farm or the majority of California processing tomato growers using {PM. The Kitamura Farm uses cultural practices including irrigation, rotations, and sanitation; monitoring; and pesticides as a part of an IPM program that has decreased pest control costs by more than $45.00 per acre. On 160 acres of processing tomatoes the Kitamuras report a savings of $7,313. Their savings, however, are well above the average $7.70 savings per acre for California processing tomato growers using IPM (Antle and Park, 19861. One reason for this is their virtual elimination of insecticide applications, compared with an average reduction from 1.7 to 1.5 sprays per season for other growers. The Kitamuras' success is an indication of the degree to which management, innovation, and increased knowledge can influence the success of alternative systems. Improved control and quality with comparable yields ensure the profita- bility of {PM in processing tomatoes. California processing tomato growers

ECONOMIC EVALUATION 213 Farmers use plastic mulch on staked tomatoes in Florida to seal in soil fumigants, control weeds, conserve soil moisture, and reduce nitrogen fertilizer leaching. Laser-guided machinery levels fields to a uniform slope of 0.15 percent. This helps to control irrigation and improves water efficiency. Buried pipes at the end of the rows supply water. Wide rows permit pesticide applications from elevated tractors. Credit: Will Sargent. using {PM had virtually none of their tomatoes rejected for insect damage; non-IPM growers had a rejection rate of 5.6 percent. The yield on the Kitamura Farm is equal to or just below the historic county average. In 1986, however, their yield was 35.5 tons per acre, 6.3 tons per acre above the county average, with essentially no insect or mold damage. In the hot dry climate of California's Central Valley, where there is virtually no rainfall between April and October, the Kitamuras are able to nearly eliminate fungicide and insecticide applications. In contrast, the hot humid climate of south Florida has an average year-round daily temperature of 74° and an average rainfall of 54 inches. These factors make it an excellent environment for insects, fungi, ant! other pests. Even Florida vegetable growers using IPM continue to need substantial quantities of pesticides. 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. Scouting and better timing of pesticide applications that reduce the need for subsequent applications are primarily responsible for savings. A Univer-

214 ALTERNATIVE AGRICULTURE A vacuum sucks insects off strawberry plants. This newly developed machine may enable farmers to forgo several insecticide applications for certain pests on certain crops. In field trials on strawberries, populations of Iygus bugs were effectively controlled. Spider mite populations decline because lady bugs, which prey on the mites, avoid the vacuum and return later to feast on the mites. Credit: Richard Steven Street. sity of Florida study of 40 tomato farms using IPM programs indicated that growers reduced insecticide inputs by about 21 percent (K. Pohronezny, University of Florida, interview, 1986~. While generally effective at reducing insecticide applications, {PM in Florida has not yet been effective at reduc- ing soil fumigant applications or the use of bactericides. Without rotations, soil fumigation will remain necessary. Reductions in fungicide use are gen- eraDy far less than decreases in insecticide use under IPM. Even a marked increase in research and development investments in the development of IPM programs for Florida commercial vegetable production will not elimi- nate the need for several insecticide, fungicide, or nematocicle treatments per season for many years to come. Yet, such a goal is clearly within reach in other regions. Alternative Weect Control Practices Various combinations of cultivation, tilIage practices, cover crops, and rotations are widely used to control weeds and reduce or eliminate herbi- cide use. Five of the committee's case studies involve farms using various combinations of these methods for weed control in cash grain and livestock

ECONOMIC EVALUATION 215 operations. These include the Spray, BreDahT, Sabot Hill, Kutztown, and Thompson farms. 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 ani- mal forage and feed requirements. This method of weed control also re- duces pest problems caused by certain insects, plant pathogens, and nem- atodes. Farm size can limit the practicality of some of these methods on some crops, however. To switch from herbicides to these methods, sole operators of large row-crop farms (over 2,000 acres) will have to hire farm help with new knowledge, change cropping patterns, and acquire new management skills. The Spray brothers plant 400 acres in a corn-soybeans-small grain-red clover hay rotation. They have not used herbicides for 15 years. They attrib- ute this success to a program of rotations, tilIage, cultivation, rotary hoeing, and the timing of planting. Many farms with successful alternative produc- tion systems, such as the BreDahI, Thompson, and the Kutztown farms, use a similar combination of techniques to control weeds. The Sabot Hill Farm, on the other hand, has adopted a unique approach to weed control. The operators were faced with a $26,000 annual bill to control Johnsongrass with herbicides on 500 acres of corn and soybeans. They decided to alter their enterprise from cash grain farming to forage production, incorporating the Johnsongrass into a mixed forage hay crop. The objective of the operation was changed to maximize food and feed output with a minimum of purchased inputs. In the process, a problem weed requiring costly annual control was converted into a crop. Corn and soybeans are now grown on only 325 acres, and weed control expenses have been cut to $6,000. The hay crop is fed to their own livestock and sold to area farmers. The Kutztown Farm controls weeds almost exclusively through rotations and cultivation. Corn is usually rotary-hoed once and then cultivates} sev- eral times. No specific weed control measures are needed on any of the small grain crop acres. However, wet seasons and muddy conditions can interfere with cultivation, resulting in severe weed problems. This is a characteristic difficulty of weed control based on traditional cultivation tech- niques. Animal manure that is used as fertilizer can also contain weed seeds and may increase weed problems, a problem that has occurred on the Kutztown Farm. It illustrates the need to continually assess, refine, and take advantage of the interactions of farm management practices in this case, sustaining fertility through manure applications relative to the ease of weed control. The Thompson Farm has successfully addressed the shortcomings of cultivation-based weed control strategies with a combination of modified ridge-tilIage planting, rotations, and cultivation. Conventional or modified ridge-tillage planting generally makes cultivation for weed control more

216 : ~~ : ::: : ~ ~.~ A. ~ :.- -~.~-~.~ it. ~ .: ~ ~~ ~ : ~ ~~ ~~ ~ ~~: .~ ~ :: ~ .~ ~ ~ mar A cultivator kills weeds between rows during the first cultivation of ridge-tilled corn on the Thompson farm. To be effective, cultivation must be done at the proper time in the grow- ALTERNATIVE AGRICULTURE ing season and with care to avoid damage to growing plants. Credit: Dick Thompson, the Thompson Farm. effective and provides far more control than cultivation without ridge tilling (see the Thompson Farm case study). The Thompsons also include small grains and a hay crop in the rotation with corn and soybeans. This rotation appears to provide additional weed control through competition, allelopa- thy, or a combination of the two. The Thompsons' per acre costs of production for corn are $96.20 less than the costs for the production practices reported by Iowa State University (ISU); the Thompsons' costs for soybeans are $44.45 less per acre (see the Thompson Farm case study). Eighty dollars of the savings for corn produc- tion are from reduced fertilizer use and the elimination of herbicides. The Thompsons' average per acre yields are 140 bushels of corn and 50 bushels of soybeans well above the county average of 124 bushels of corn and 40 bushels of soybeans. The Thompsons also derive a slight savings in fuel costs from fewer (seven or eight) trips across the fields. ISU reported nine trips using conventional methods. 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. However, the Thompson Farm rotation reduces total acreage planted with cash grain crops over their 5- and 6-year rotations. Acreage planted with

ECONOMIC EVALUATION Rotary hoeing is another weed control few inches. The hoe moves over the crop practice. The tightly spaced blades of the hoe rows, dislodging weeds that have just spin and cut weed seedlings just below the germinated and are shallowly rooted. The soil surface. This tillage tool is used very early deeper-rooted crop seedlings recover quickly. in the season, before crops grow more than a Credit: Dick Thompson, the Thompson Farm. 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. This rule is true when comparing whole-farm costs, returns, and profits per acre or per unit harvested. To evaluate the effectiveness of ridge tilIage for a conventional corn and soybean enterprise, the Thompsons have analyzed three systems of weed control for the common corn and soybean rotation: ridge tiBage without herbicides, ridge tillage with preplan" application of the herbicide metolach- lor, and conventional tilIage without herbicides. The performance of con- ventional tillage without herbicides has clearly demonstrated why farmers have so widely adopted herbicides. On these plots, the weather has often interfered with cultivation; weed infestation has increased over time and yields have declined. In contrast, the two ridge-tilIage systems have resulted in similar yields. Significantly, however, broadleaf weed infestation has increased in the her- bicide-treated area. But in the absence of herbicides, there has been no increase in weeds (see the Thompson Farm case study). Ridge tilIage is also a form of reduced tilIage that provides other benefits, such as reduced erosion and a warmer seedbed for more rapid germination. It is clear that the economic and environmental advantages of controlling weeds through

218 ALTERNATIVE AGRICULTURE ridge tillage planting may be of significant value to many midwestern corn and soybean farmers. Quantifying the Benefits of Pesticides Under the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA), the U.S. Environmental Protection Agency (EPA) must weigh the benefits and risks of pesticides. The agency is required to determine whether the risks presented by each use of a pesticide are reasonable in light of associ- ated benefits. Accordingly, pesticide regulatory assessments are an impor- tant source of information on the economics of chemical pest control strat- egies. Since the reform of FIFRA in 1972, the EPA has issued a number of formal policy statements describing acceptable methods for assessing human health risks from exposure to pesticides. The scientific basis for risk assessment has evolved steadily over the past 17 years. There is, moreover, a great deal of research under way in the public and private sectors to identify the toxicologic potential of pesticides. In contrast, considerably less effort is directed toward estimating pesticide benefits. Neither the EPA nor the USDA has developed a set. of formal guidelines for calculating the benefits of pesticides under regulatory review. Nor are data on pesticide efficacy, an ingredient in any benefit assessment, routinely gathered and reported to the EPA. Benefits calculations for pesticides often employ different methods and assumptions. Pesticides that meet the EPA's risk criteria may be subject to a special EPA regulatory review. Formal benefits assessments are conducted only during this review and do not generally contain detailed economic analyses of alternative nonchemical or IPM strategies (U.S. Congress, 1988; U.S. Envi- ronmental Protection Agency, 1982, 1985, 1986~. The effect of this practice is to assume that the economic value of nonchemical or integrated control strategies is near zero. Consequently, benefits assessments tend to overstate the economic benefits of the individual pesticide under review as well as the impact of pesticide cancellation (U.S. Congress, 1988~. The thoroughness and quality of benefits assessments under FIFRA are an important public policy issue in the context of the economic and regula- tory incentives or disincentives for adoption of alternative agriculture. A1- ternative production systems generally reduce reliance on pesticides and hence reduce the benefits associated with their use. As alternative produc- tinn Vim and nonchemical control options are developed, refined, and more fully incorporated into pesticide risk and benefit assessments, the balance between acceptable risks and benefits is likely to change. In turn, more pesticides may be subject to regulatory restrictions aimed at reducing risks. 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

ECONOMIC EVALUATION 219 control occasional outbreaks of certain pests. For this purpose a prescriptive use category for pesticides used in IPM programs could be developed. While IPM and other alternative systems often require fewer pesticides on a per acre basis, pesticides wiB remain routine and occasionally invalu- able production inputs in most crops for the foreseeable future. Progress toward wider adoption of alternatives, however, wiD continue to raise meth- odological issues for pesticide risk-benefit balancing. Alternative systems typically reduce reliance on pesticides through a complex combination of practices, including land-use decisions, rotations, cultural practices, selec- tion of genetically resistant cultivars, and IPM programs. Benefits assess- ment techniques must be developed to take aD these factors into account. The EPA and the USDA should jointly develop and formally adopt a set of improved procedures for assessing the economic value of pesticides in the context of risk-benefit decision making already required by federal law. The benefits of a pesticide should be characterized as the difference be- tween the total value of harvested commodities and the total value of the same crop using the next best alternative, which may involve an alternative cropping sytem that requires little or no pesticide use. Consideration of the costs of health and environmental risks of pesticides should be included in these analyses. The Economics of Biological Methods of Pest Control Most insects, pathogens, and other pests are kept from reaching clamag- ing levels by natural enemies (see Chapter 3~. Manipulations of a crop or populations of its natural enemies are important biological methods of pest control. Scientists have identified successful and cost-effective biological methods of control for many crops, typically by breeding resistant varieties, augmenting natural enemies, or introducing new predators or parasites. Nonetheless, a wide range of crop pests remain virtually impossible to control without the use of pesticides, particularly in certain regions and when farmers do not use crop rotations. Some remain largely uncontroll- able even with pesticides. As with many alternative practices, a broader range of biological control options and techniques are possible within diver- sified 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. Several studies have examined the economic impacts and cost-benefit ratios associated with the development and dissemination of natural biolog- ical controls (Osteen et al., 1981; Reichelderfer, 1981~. Reichelderfer (1981) lists six factors important to the success of biological control strategies. 1. The target pest consistently occurs, causes light or moderate damage, and is the major pest species of a high-value crop. 2. The biological control agent is effective and relatively risk free. Its effect on the pest population is not highly variable.

220 ALTERNATIVE AGRICULTURE 3. The price of the biological control agent, if it is marketed, is low. The research costs to develop the agent are justified by the economic impact of the target pest. 4. The biological control use or enhancement costs or both are low. Low costs can directly result from ease of use or be a function of economies of scale realized from the applicability of the method over large areas of use. 5. By net benefit criteria, the biological option compares favorably with available nonbiological control alternatives. This can be the result of its lower cost or its greater effect on yield or both. 6. Institutional arrangements exist or can be made easily to facilitate regional implementation, if necessary. Many biological pest control techniques can be used in IPM systems. These include the use of pest predators or parasites, selection of pest- resistant plant cultivars, use of insect pheromones, release of sterile males, immunization of host plants, and use of bacterial insecticides. Some suc- cessful efforts using biological techniques are listed in Table 4-~. These include insect control by other insects, plant disease control by viruses, reproductive suppression by release of sterile males, and disease and insect control by the breeding of resistant strains. More than 100 host-specific insects have been introduced for the control of weeds. Plant-feeding insects or pathogens now partly or completely control at least 14 weed species. Currently, however, the viability of such techniques in agriculture is ex- tremely limited because plant-feeding insects often damage crops. Even though the process of developing an effective biological technique is sometimes expensive, the ratio of monetary benefits to costs can be very high (Batra, 19811. A study of the effects of introduction of six parasitic species for biological control of alfalfa weevils in the 11 northeastern states found that 73 percent of the alfalfa acreage in the region no longer requires the use of insecticides for protection against alfalfa weevils. This acreage was expected to increase as the six species become more prevalent in the region. More than a dozen additional natural enemies have been released; the incidence of reports of severe weevil infestation has declined steadily since 1962 (Day, 1981~. This is one of the most successful examples of biological control of pests in crops. A study of the potential economic impact of the introduction of the parasite Bathyplectis curcuZionis for biological control of alfalfa weevils in the eastern half of the United States concluded that $44 million per year could be saved in reduced crop loss and expenditures on insecticides. Insecticide use could be reduced by 1,100 tons. Total production of alfalfa would in- crease by only 1 percent as a result of biological control, thus avoiding any serious impacts on the market price of alfalfa. The greatest reductions in yield loss and insecticide application were estimated in the southern states, where insect pests are more severe because of warm winters (Zavaleta and Ruesink, 19801. Classical plant breeding to develop new varieties is the nest successful

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222 ALTERNATIVE AGRICULTURE biological method of pest control. Genetic engineering promises to acceler- ate breeding for pest resistance. Disease and insect resistance have been bred into many major grain and field crops, often with significant economic payoffs. Federal, state, and private agencies spent $9.3 million developing wheat resistant to the Hessian fly and wheat stem sawfly, alfalfa resistant to the spotted alfalfa aphid, and corn resistant to the European corn borer. Benefits to farmers in increased yields are estimated at several hundred million doDars annually, not including savings from reduced pest control expenditures (National Research Council, 1987c). Many of the committee's case study farms use some type of biological control as a strategy in highly successful pest management programs. Gen- erally, these control methods are just one feature of an integrated produc- tion system. The Ferrari and Pavich case studies describe a high degree of classical or natural biological control; the Thompson case study provides insights into novel and highly successful strategies to manage weeds. The Pavich Farm operation grows grapes on about 1,125 irrigated acres in California and Arizona. A combination of complementary biological and cultural practices control weeds, insects, mites, and diseases. Weeds are controlled with a permanent cover and occasional mowing of perennial rye grass and the occasional use of hand labor to pull weeds from among the vines. The Paviches believe that this permanent ground cover also provides the necessary habitat for many beneficial predators and parasites that feed on potentially damaging pests. Soil fertility was maintained until recently with a permanent leguminous cover crop and now is accomplished with the application of compost. Some evidence suggests that the compost is also helpful in controlling rootknot nematodes, although additional re- search is needed to understand more fully how compost affects nematode populations. The Paviches recently removed the legume cover crop from the vineyards because too much nitrogen was being fixed. This caused excessive foliar growth, which shaded the berries and provided a favorable pest habitat. Trace elements are applied aerially as a foliar spray at least once a year or on occasions when pest infestations are high, in the belief that they improve plant health and the ability to fight pests. High levels of calcium relative to nitrate are maintained in the soil, in the belief that this also reduces disease and mite populations. The Paviches cite expert vine dressing, proper soil nutrient balances, a permanent ground cover supporting a population of beneficial insects, and the advice of qualified field entomologists as practices that effectively con- tro] insects, mites, and diseases. The Paviches rarely use insecticides. In 1986, they applied none to their Arizona vineyard and made one application of the broad-spectrum insecticide methomyl to 23 percent (142 acres) of their California crop. The Arizona vineyard is relatively isolated, which reduces pest pressure and the immigration of secondary pests, such as spider mites, from other fields. The California operation, on the other hand, is surrounded by vineyards that are regularly treated with pesticides for infestations of leafhoppers and spider mites. Nonetheless, the Paviches

ECONOMIC EVALUATION 223 rarely spray for leafhopper and have only sprayed once on 40 acres in 15 years to control spider mites. The Paviches use no synthetic chemical fun- gicides to control grape diseases; however, sulfur is applied several times per season for this purpose. The Paviches do not report pest control costs in a way directly comparable to the University of California (UC) accounting system applied to neighbor- ing grape operations. The committee estimated production costs to be roughly equivalent at $2.14 per box for the UC system and $2.20 for the Paviches. The yield on the Pavich operation, however, is well above the UC average, at 653 boxes versus 522 boxes per acre. While the effectiveness of the Pavich system in profitably producing high-quality grapes with little or no pesticide treatments is evident, how and why the system works remains largely unknown. Research essential to understanding the interactions of the important cultural, pest control, and other practices on the Pavich Farm or similar farms has never been undertaken. As a result, agricultural re- search and extension personnel are not yet able to identify how and under what circumstances other producers might successfully apply some or all of the methods used on the Pavich Farms. The Ferrari Farm produces conventional and certified organic tree fruits in California. The organic acres use a variety of biological control methods, including pheromones to control oriental fruit moths, the coaling moth granulosis virus (CMGV), and the release of predacious mites. These meth- ods effectively control the oriental fruit moth and mites. CMGV costs about the same as conventional miticide applications at $25.00 per acre. For the Ferraris, CMGV is effective in apples. It holds damage to between 1 and 3 percent, although more applications are necessary than with a conventional insecticide. CMGV control has not been effective in walnuts, however, al- though refinements in application technology are expected to improve control. The breeding and use of pesticide-resistant predacious mites in almond groves has also been very successful. California almond growers have adopted the use of these mites, developed at the University of California at Berkeley, with great economic benefit. The per acre saving for all aspects of control using predacious mites versus chemical control is calculated at $34.00 per acre. Approximately 67 percent of all almond growers in California now use these beneficial mites, with an estimated economic benefit expressed as a net value of about $24 million. The ratio of agricultural benefits to research cost is estimated at about 30 to 1 (Hoy, 1985~. Genetic engineering tech- niques promise to provide plant breeders with important new tools to breed genetically resistant crop cultivars and beneficial insects for use in biological systems. In spite of these and other successes, biological control remains underre- searched and underused relative to its potential- even as many economi- cally important pests, notably soil-borne pests and insect pathogens, are not effectively controlled by chemical or other means in many regions and important crops (National Research Council, 1987a, 1987b). One reason for this lack of support is that the availability of relatively

224 ALTERNATIVE AGRICULTURE inexpensive, effective pesticides has clearly dampened interest in biological control. Another constraint has been the sporadic nature of publicly funded research and education efforts toward the adaptation and implementation of biological control systems in the field. Biological control is dependent on public sector research and development for two principal reasons. First, some effective control techniques decrease the need for purchased inputs and, hence, undermine future commercial market potential. Ironically, the more effective and long term a biological system of pest control is, the more difficult it can be to interest a private company in making the necessary investments in bringing the product to the marketplace (Booth, 1988~. Sec- ond, biological control research is often location and management system specific. 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. Private and public research and development expenditures for chemical control technologies in the United States have been estimated as at least five times greater than those spent for biological control (National Research Council, 1987b). As a result, sci- entific opportunities to research new biological control methods remain largely unexploited. In general, a relatively modest effort has been made to fully use those biological control systems that have been discovered. Public and private sector collaboration is needed to improve delivery of successful experimental results to growers (National Research Council, 1987a). The Technology Transfer Act of 1986 is a constructive step toward this goal. It will encourage the research and marketing of biological pest control products at public research institutions by sharing profits more equitably from the commercialization of products flowing from public sector research. In the first year under this law, the Agricultural Research Service (ARS) received 28 licenses valued at $33 million. ALTERNATIVE ANIMAL DISEASE PREVENTION STRATEGIES There are two principal costs associated with animal disease. The first is that associated with decreased production. Death or losses in milk, body weight, or eggs sharply reduce or eliminate the profitability of the sick animal. Second, the cost of treatment is incurred. This cost can be com- pounded by ineffective treatments and the recurrence of disease. Because of growing market awareness of animal disease, animal welfare, and the potential for drug residues, there may be additional costs for market dis- criminations, incentives and disincentives, and regulatory fees. In addition, the new trace back provisions of the Food Safety Inspection Service moni- toring may improve enforcement of food safety regulations. Animal death and disease losses cost billions of dollars each year. Deaths of beef and dairy cattle are estimated to cost $4.6 billion. This figure has

ECONOMIC EVALUATION 225 not changed significantly in 10 years. For the dairy industry alone, losses from the mammary disease mastitis are estimated at $180 per cow or $2.0 billion annually (National Mastitis Council, 1987~. These losses arise from medical costs, decreased milk production, and death. Losses due to respi- ratory infections in cattle and swine are estimated at $800 million per year (National Research Council, 1986a). When these costs are combined with the losses that result from the condemnation of animals and the discount- ing of price for moribund, poor-quality animals, the cost of animal disease increases further. Production losses from most chronic and subclinical dis- eases of most food-producing animals, however, are virtually impossible to measure. Veterinarians, universities, drug companies, and regulatory agencies gen- erally address animal health by treating infected herds or animals primarily with prophylactic feeding of and therapeutic treatment with antibiotics. Disease management systems not reliant on antibiotics are not widely used, although they are being increasingly emphasized in research. Producers generally seek advice on how to treat a clinically diseased animal instead of how to manage for lower disease incidence. Veterinarians who are able to charge clients for their treatment services and public and private research reinforce this approach to animal health. Although recent research has focused on management systems to reduce disease, the current animal health system reflects the fact that until lately, universities tended to re- search causes and cures to satisfy the demands of producers. Regulatory agencies continue to approve drugs with little consideration of the costs and benefits of alternatives. Because intensive confinement facilities gener- ally increase the risk of disease, the animal industry appears, at best, to be holding its own in terms of combating disease (Council for Agricultural Science and Technology, 1981~. Yet, in almost every instance of clinical animal disease, it is more cost-effective to prevent the disease than to attempt to treat it. As a result of research that links udder health to economic criteria, the dairy industry is currently evaluating the economic impact of mastitis pre- vention and control. For example, mastitis may cause an $1S,000 loss in a typical 100-cow herd (National Mastitis Council, 1987~. Two simple alter- native approaches to mastitis control, postmilking teat disinfection and comprehensive nonlactating therapy, may provide excellent health and cost approximately $1,000 per year. An additional $1,000 per year should be included for labor and management. In a 2- to 3-year period, these methods can reduce mastitis losses by more than 95 percent. These rough approxi- mations indicate that preventative mastitis control expenditures have a cost- benefit ratio that exceeds ~ to 1 (Barbano et al., 1987~. The producer will receive additional benefits through premiums for milk quality. The proces- sor will realize greater returns in cheese yields. The consumer will have a product with greater refrigerated shelf life and greatly reduced potential for antibiotic residues (Barbano et al., 19871. Considerable systems research is needed in other diseases and species to

226 ALTERNATIVE AGRICULTURE determine the costs and benefits for subclinical and chronic disease preven- tion. Even though the marginal cost for disease prevention will exceed the marginal benefits at some point, most of the industry is far from that point. The industry can invest in disease prevention with confidence that it would be cost-effective. Major advances will have to be made in subclinical disease monitoring and modeling, however, before the more thorough cost-benefit analyses necessary to convince producers of the economic benefits of dis- ease prevention will be available. Support for this work will have to come from public research institutions and the Congress. Veterinary health main- tenance organizations may also provide an alternative economic and health maintenance philosophy needed to reorient producers from disease treat- ment and its attendant costs and risks to one of disease prevention. Alternative Animal Production Systems A number of studies have documented the profitability and productivity of alternative animal production systems. These systems are generally char- acterized by less confinement of animals, greater use of pastures, a lower incidence of disease, and, consequently, less use of antibiotics. Controlled-environment systems that typically involve confinement of an- imals in stalls, pens, or cages are widely used in the poultry, pork, and veal industries. Intensive animal production tends to have performance charac- teristics similar to intensive crop production. Capital, technology, and chemicals are substituted for labor and management, resulting in systems that are productive and profitable under favorable economic conditions but more vulnerable to routine fluctuations in input and output prices. Inten- sive systems also present greater potential health and environmental haz- arcs (Kliebenstein and Sleper, 1980~. Confinement systems are further crit- icized on animal welfare grounds and because animals in confinement usually exhibit greater incidence of disease (Friend et al., 1985; Kliebenstein et al., 1981~. The subsequent treatment with antibiotics creates additional costs and may contribute to antibiotic residues in animal food products. The principal advantages of controlled-environment systems are that they permit a larger operation and greater control of the animal's environment and feeding so that more of the animal's feed intake is converted into body weight. In most species, these systems are the most efficient in converting feed to body weight (Table 4-9) (Li~vall et al., 1980~. On the other hand, confinement systems require great capital investments to construct and generally involve higher maintenance and medical expenses. Before the Federal Tax Reform Act of 1986, capital-intensive animal confinement facili- ties or single-purpose agricultural structures enjoyed important tax advan- tages, including tax credits and rapid depreciation. These advantages helped to defer the expenses of the construction of these facilities, making them more affordable. The Federal Tax Reform Act of 1986 eliminated investment tax credits for single-purpose agricultural facilities. The act also lengthened depreciation for these facilities to 5 to 7 years. The depreciation period was

ECONOMIC EVALUATION 227 TABLE 4-9 Comparative Performance of Pasture With Hutch, Partial Confinement, and Total Confinement Swine Production Systems - Sw~ne Production System Pasture Partial With Hutch Confinement Performance Indicator Total Confinement Number of sows/system Conception rate (percent) Litters/sow/year Average live farrow/litter Average number weaned/litter Percentage of live births Wean weight (pounds) Average daily gain during finish period (pounds) Market weight (pounds) Days to 230 pounds Total feed required to produce 1 pound of pork (pounds) SOURCE: Lidvall, E. R. 1985. A Comparison of Three Farrow-Finish Pork Production Systems. Knoxville, Tenn.: University of Tennessee. 29.5 82 1.67 10.2 7.7 75 33.5 1.40 230 220 205 215 63.6 81 1.68 10.0 7.7 77 30.0 1.29 105.8 78 1.97 9.8 7.6 78 18.6 1.46 216 210 4.16 4.21 3.87 extended to 10 years in 1988. Controlled-environment confinement facilities are also thought to require less labor than pasture or low-confinement systems. Several studies have shown, however, that as these facilities and equipment age, labor costs for repair and maintenance increase, and total labor costs for these systems can equal the costs of alternative systems (Killingsworth and Kliebenstein, 1984~. Alternative animal production systems have long existed. These modi- fications of traditional animal husbandry systems have been refined to take advantage of current knowledge of animal nutrition and health care. Several major analyses of confinement versus pasture ant! hutch systems for swine have shown that confinement and pasture systems produce relatively equiv- alent returns (Kliebenstein and Sleper, 1980; Li~vall et al., 1980~. Nine years of data from an ongoing comparison of pasture with hutch, partial-confine- ment, and total-confinement hog production facilities in Tennessee are sum- marized in Table 4-9. Confinement facilities for swine production generally result in greater feed efficiency and the greatest return per unit of labor. Herds are often larger and produce more litters per year, thus producing greater gross income. Pasture or low-confinement systems, in contrast, require less capi- tal investment and provide the highest and most consistent returns per unit of input. They provide the highest returns when livestock prices are low or feed prices are high. This consistency of return is an important considera- tion in the long-term viability of these systems and their effect on net farm family income. Low-confinement systems usually provide the greater return per animal for all types of swine operations (feeder or farrow to finish). The

228 ALTERNATIVE AGRICULTURE animals generally exhibit less disease than those in total confinement facili- ties (Kliebenstein and Sleper, 1980; Lidvall et al., 1980~. Most poultry and egg production facilities in the United States are under controlled-environment and confinement conditions. The tight caging of birds allows more controlled feeding, climate, and production and de- creases space and labor costs. The day and night cycle of modern egg production facilities is altered to as much as 22 hours of light per 24-hour period to increase production. Lighting is sometimes dimmed to reduce fighting aggravated bv close canine. In contrast. alternative noultrv or ems ~ ~ OO ~ O 0 1 ~ TV production systems generally do not cage the birds and usually permit uncontrolled access to feed. Although alternative production systems are often profitable, these systems are relatively few in number because of the drive for uniformity in the vertically integrated poultry and egg industry. Animal science research at land-grant institutions has reinforced this trend, with little funding directed toward the understanding of alternative produc- tion systems. STUDIES OF DIVERSIFICATION STRATEGIES The trend toward more specialized, high-yield agricultural production systems is well established and reflects many technological and socioeco- nomic factors that are firmly embedded in recent history and agricultural policy. 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 strat- egies are often contrary to the specialization and intensification character- istic of most agricultural operations. Federal commodity programs have accelerated specialized production by greatly reducing the risks of produc- ing only one or two crops. Today's highly specialized farms would not be possible without federal program subsidies. Diversification, a basic alterna- tive concept, also reduces risks by spreading risks among a number of crops and animals. The result is more consistent overall farm yield among a number of crops and less need for federal income support. However, the precise extent of diversification's effects deserves further study. Integrates' Crop and Livestock Systems The most common diversification strategy remains the combination of crop and livestock enterprises. Many studies have documented the agro- nomic and economic benefits associated with the interaction of cropping and livestock enterprises on diversified farms (Heady and Jensen, 1951~. Further evidence of the potential for positive interaction is contained in the Spray, BreDahl, Sabot Hill, Kutztown, and Thompson case studies. Recent research has provided insight into whether livestock must be in- cluded as a farm enterprise in order to attain the economic benefits of crop- livestock interactions, particularly those related to soil fertility manage-

ECONOMIC EVALUATION 229 Diversification is a basic alternative strategy that can reduce production costs and help protect natural resources. Crop rotations in combination with contour strip cropping and conservation tillage can reduce erosion. Legumes on this Lancaster County, Pennsyl- vania, farm fix nitrogen for next season's wheat or corn crop. The triangular field hutches are used by hogs or calves. A nursery is shown in the upper right corner. Credit: Grant Heilman. meet. Analysis of a diversified crop-livestock farm in Pennsylvania esti- mated that, at 1978 to 1982 prices (which were relatively high), profits would have increased with liquidation of the beef herd, the purchase of manure at going market prices, and the sale of crops directly on the market rather than through the fee~ot (Domanico et al., 1986~. Similarly, the RodaTe Research Center conversion experiment (4 years of data from a 15-acre field with 72 replicated plots) indicated that although livestock manure could speed the conversion from chemical-intensive to reduced-input methods, comparable yields could be obtained without ma- nure after an adjustment period using legumes (Brusko et al., 1985~. Crop-livestock operations are well suited to the adoption of many alter- native practices. Crop rotations using cover crops, such as leguminous

230 ALTERNATIVE AGRICULTURE hays, are readily suited to livestock operations. These rotations reduce fertilizer and pesticide needs and provide a valuable feed source. Many legumes are quality hay crops. In crop-livestock operations, hay crops with a market value ordinarily Tower than cash grains have economic value as a feed source in addition to their value as a source of nitrogen. Keeping a portion of a farm's land in a cover crop may provide additional erosion control benefits and allow the planting of feed grains on more suitable land. Manure also becomes a valuable source of soil organic matter, nitrogen, and other nutrients such as potassium and phosphorus. Diversified crop-live- stock operations also have greater protection from input (feed) and output (animal product) price fluctuations. Crop Diversification Strategies Crop diversification methods, which include rotations, polyculture, inter- cropping, and double cropping, have been found to be profitable in many situations. The primary advantages of diversification include reduction or elimination of certain diseases and weeds, reduced erosion, improved soil fertility and filth, increased yields as a result of rotational effects, reduced need for nitrogen fertilizer (in cases using legumes in crop rotation), and reduction of financial risks resulting from changing crop prices. 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). The mixed grass and native weed ground cover used by the Paviches provide another example of the benefits of polyculture diver- sification (see the Pavich case study). Disadvantages can include increased machinery requirements and expense (for example, when forage crops are added); need for additional buildings, fences, and watering facilities when livestock or poultry are added; increased complexity of the farmer's man- agement of production and marketing; and reduction of acreage planted with government-supported crops. Crop rotations, in particular, are proven and used successfully in various regions of the country. Polycultures, intercropping, double cropping, and other techniques are far less common but used with various degrees of success in certain areas. These practices all have potential benefits for agri- culture. It is important, however, that data bases are developed to support their adoption. Most of these practices involve trade-offs and some may aggravate certain pest problems. Legume-Basec! Crop Rotations Legume-based rotations are one of the most common and effective diver- sification strategies practiced in U.S. agriculture. The total nitrogen fixed by

ECONOMIC EVALUATION 231 legumes currently grown in the United States has a potential value of $1.6 billion (Heichel, 1937) compared to the $4.3 billion spent on nitrogen fertil- izers in 1987 (National Fertilizer Development Center, 1988~. Leguminous nitrogen could be even more valuable if legume management and fertilizer application practices were improved. The inclusion of leguminous forages in rotations served as a primary source of nitrogen until the 1950s, when low-cost nitrogen became widely available. Studies in progress for more than 100 years in Great Britain, Illinois, and Missouri have demonstrated the capacity of legumes in rotations to sustain high levels of grain procluc- tion over long periods without the use of nitrogen fertilizers (Power, 1987~. Results of a series of rotation experiments conducted in various midwest- ern states during the 1930s and 1940s provided early evidence of the eco- nomic advantages of legume-based crop rotations (Heady, 1948; Heady and Jensen, 1951~. Analysis of data from experiments in Illinois, Iowa, and Ohio found a greater total volume of grain was produced per acre using certain rotations including clover or alfalfa compared with continuous corn produc- tion. The net return over variable cost was calculated for each of the rota- tions under a variety of pricing assumptions. In most instances, continuous corn was found to be less profitable than rotations with legumes and grains, even when the forage was assumed to have no monetary value. For exam- ple, analysis of data from an experiment in Ohio determined that a rotation of corn-corn-corn-wheat-alfalfa (C-C-C-W-A) provided a 12.6 percent higher net return over variable cost compared with continuous corn (C-C) from 1937 to 1943, even when the value of forage was assumed to be zero. These findings were based on the prices and technology prevailing in the 1930s and 1940s, when pesticides, low-cost fertilizers (particularly nitrogen), and modern cultivars were not available, and government programs had a much less dramatic effect on crop prices and farmers' land-use decisions. There are important regional distinctions associated with the use of leg- umes in rotations. The level of precipitation in a given area strongly influ- ences the usefulness of legumes. Alfalfa and other legumes can dry out the subsoil to a greater depth than corn. Consequently, in arid and semiarid regions or during drought conditions in subhumicI and humid regions, introduction of a deep-rooted legume in a rotation may suppress subse- quent yields of corn or other crops. 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 involv- ing continuous corn production estimated an average net return of $10.81 per acre (assuming 1940-1944 average prices), a return more than double the income earned by a corn-oats-clover (C-O-C1) rotation (Shracler and Voss, 1980~. During the more favorable weather of 1941 to 194S, however, the rotation earned $17.19 per acre compared to $0.42 per acre for continu- ous corn (Heady and Jensen, 1951~. Benefits from rotations in addition to nitrogen fixation have been notes! in Chapter 3 and are referred to as rotational effects (Heichel, 1987~. The

232 TABLE 4-10 Effect of Previous Crop on Corn Yield ALTERNATIVE AGRICULTURE Previous Crop Nitrogen Rate (poundslacre) Corn Soybean Wheat Wheat-Alfalfa o 40 80 120 162 200 SOURCE: Adapted from Lager, D. K., and G. W. Randall. 1981. Corn production as influenced by previous crop and N rate. Agronomy Abstracts. American Society of Agronomy. Madison, Wisconsin. p. 182. In Power, J. F. 1987. Legumes: Their potential role in agricultural production. American Journal of Alternative Agriculture 2(2):69-73. 70 92 102 108 116 119 109 129 137 142 148 148 Corn Yield (bushels/acre) 108 127 139 139 142 145 115 127 139 143 146 144 rotational effect is the increase in grain or other crop yields following the planting of the field with another crop. Much of this increase in yield is thought to stem from the well-documented pest control benefits of rotations (Baker and Cook, 1982~. Data reported by Power (1987) show that yields of a grain crop grown in rotation are 10 to 20 percent greater than those of continuous grain, regardless of the amount of fertilizer applied (Table 4-10~. A more recent study in southeastern Minnesota examined the nitrogen contribution and other benefits of legumes in a crop rotation with corn or soybeans or both (K0kenny, 1984~. A linear programming model projected results for a 400-acre farm with a 60-cow dairy herd. 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. As the assumed price of nitro- gen increases, the profit-maximizing crop rotations feature increasing pro- portions of legumes. With an assumed nitrogen price of $0.115 per pound (the 1980-1982 price), a corn-soybean rotation was found to be more profit- able than continuous corn. If the price of nitrogen increased to $0.69 per pound, however, the most profitable rotation shifts from corn-soybeans toward continuous soybeans on more of the acreage in combination with the 3-year C-O/A-A rotation. Continuous soybeans, however would proba- bly not be sustainable because of disease- notably, brownstem rot. An S-year experiment conducted recently by University of Nebraska sci- entists compared 13 cropping systems, including rotation, using only ma- nure for fertilizer and no herbicides or other pesticides. The crops, which included corn, soybeans, grain sorghum, and oats with sweet clover, were grown in various rotations and in continuous cropping systems. The results confirmed the findings of studies done in the first half of this century (Heady, 1948; Heady and Jensen, 1951) using more primitive cultivars and ~ v ~

ECONOMIC EVALUATION 233 no synthetic chemical pesticides: rotations can produce higher yields per acre than continuous monocropping systems. Different fertilization re- gimes, including manure only, were found to have little impact on yields and profitability. The continuous cropping systems were found to require higher pesticide expenditures and be subject to greater year-to-year varia- tion in yields and profits per acre compared with the various rotations (Helmers et al., 1986~. For specialized operations growing government-supported crops, off-farm- purchased 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). In 1986, the national average pesticide and fertilizer costs per acre were 55 percent of total variable input costs for corn, 46 percent for grain sorghum, 40 percent for wheat, 49 percent for soybeans, and 37 percent for cotton. These two inputs accounted for 34 percent of total operating costs for corn, 30 percent for grain sorghum, 23 percent for wheat, 25 percent for soybeans, and 27 percent for cotton. On farms using rotations, these costs may be markedly reduced or even eliminated (see the Spray, BreDahI, Sabot Hill, Kutztown, and Thompson case studies). Legume-based rotations are not without costs, however. There are the direct costs of establishing a stand as wed as the opportunity costs of foregoing the production of higher-value cash grain crops in certain years of the rotation. The costs and returns of a leguminous rotation, therefore, must be calculated over the length of the rotation. The Effect of Government Programs on Legume-Baseci flotations Comparing the profitability of a legume-cash grain rotation not enrolled in the federal commodity program with systems receiving federal per acre income and price support payments is complicated. Several provisions of the farm programs, notably the base acres and cross-compliance require- ments, can impose significant economic penalties in terms of lost federal payments to farmers incorporating certain rotations into their operation. As a result, the economic and ecological benefits of rotations are often foregone because of the financial incentives and rules of the federal commodity programs. These economic disadvantages seem to have been overcome by an alter- native rotation studied in the Palouse area of eastern Washington (Gold- stein and Young, 1987; Young and Goldstein, 1987~. This rotation, called the perpetuating alternative legume system (PALS), featured the biennial legume black medic, which has been observed to reseed itself for as long as 30 years following establishment. The PALS rotation is 3 years: spring peas plus medic in year one, medic in year two, and winter wheat in year three (P/M-M-W) (Table 4-11~. The only synthetic chemical applied during this rotation is an insecticide applied to the peas. The rotation controls almost all the weeds in wheat; harrowing during seedbed preparation provides adequate control of the rest.

234 ALTERNATIVE AGRICULTURE TABLE 4-11 Estimated Fertilizer and Pesticide Use for Conventional Management and PALSa Fertilizer (pounds/acre) Crop Pesticides N P S Rate Insecticide Rate Herbicide (units/acre) or Fungicide (units/acre) Conventionalb Winter wheat 130 30 25 Spring barley 80 0 0 Winter wheat 130 30 25 Difenzoquat methyl sulfate Bromoxynil Triallate Bromoxynil Difenzoquat methyl sulfate 3.0 pints Benomyl 1.5 pounds 1.5 pints 1.25 quarts 1.5 pints 3.0 pints Benomyl 1.5 pounds Bromoxynil 1.5 pints Spring peas O O O Triallate 1.25 quarts Phosmet 1.5 pounds D~noseb-am~ne 0.8 pounds PALS Peas + medic O O O Triallate 1.25 quarts Phosmet 1.5 pounds D~noseb-am~ne 0.8 pounds Medic 0 0 0 0 0 0 0 Winter wheat O O O O O O O Perpetuating alternative legume system. A low-input system with a three-year pea plus medic-medic-wheat rotation with pesticides used only on peas. Four-year wheat-barley-wheat-pea rotation with fertilizer and pesticide inputs each year. SOURCE: Goldstein, W. A., and D. L. Young. 1987. An agronomic and economic comparison of a conventional and a low-input cropping system in the Palouse. American Journal of Alternative Agriculture 2(Spring):51-56. A more common crop sequence in the Palouse is a 4-year rotation of wheat-barley-wheat-peas (W-B-W-P). In this rotation, it is necessary to use two herbicides as well as a systemic fungicide application for each crop. The pesticides applied to the peas include the same insecticide used in the pea crop year of the PALS rotation. Fertilizer applied to the conventional 4-year rotation includes 130 pounds of nitrogen, 30 pounds of phosphorus, and 25 pounds of potassium per acre. The barley receives 80 pounds of nitrogen per acre. No fertilizer is applied in the PALS rotation. Input costs per year are dramatically higher in the conventional system, at $129.40 per acre compared with $56.82 per acre for the PALS system. The majority of this difference is comprised of fertilizer and pesticide costs that are $57.52 per acre greater for the conventional system (Table 4-12~. 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. The largest differ- ences occurred during the drought of 1985; yields for the PALS experimen- tal plots averaged 83 percent more than those of the conventional plots. In 1984, when rainfall was close to normal, the PALS wheat yields were 3 percent less than the conventional yields.

ECONOMIC EVALUATION TABLE 4-12 Costs of Conventional and Alternative Rotations per Acre of Rotation per Year 235 Costs/Acre (dollars) Conventional PALSb Inputs (W-B-W-P)a (P/M-M-W) Fertilizers and pesticides 72.52 15.00 (application and product) Field operation 45.44 35.00 (tillage, planting, and harvest) Overhead and crop insurance 11.44 6.82 Total 129.40 56.82 Average yield of winter wheat 60.3 62.6 (bushels/acre) aFour-year wheat-barley-wheat-pea rotation with fertilizer and pesticide inputs each year. Perpetuating alternative legume system. A low-input system with a three-vear nea olus medic-medic-wheat rotation with pesticides used only on peas. - a--- r--r-~~ SOURCE: Goldstein, W. A., and D. L. Young. 1987. An agronomic and economic comparison of a conventional and a low-input cropping system in the Palouse. American Journal of Alternative Agriculture 2(Spring):51-56. In three out of four scenarios, including market price and government program price assumptions, the PALS rotation was equal or more profitable on a per acre basis than the conventional rotation. The conventional system is significantly more profitable than the PALS rotation only under high- yielding (good weather) conditions with government price supports (Table 4-13~. Profits are greater in this instance primarily because a greater per- centage of the acreage (75 percent of the total) produces government-sup- ported crops. Under low-yielding conditions, the productivity of the con- ventional 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. IMPACT OF GOVERNMENT POLICY Crops eligible for price and income supports are planted on more than 70 percent of the cropland in the United States. These include feed grains, wheat, cotton, rice, soybeans, and sugar. From 80 to 95 percent of the acres producing these crops are currently enrolled in federal programs. Dairy farmers also enjoy income protection through a price support program, import quotas, and marketing orders for milk. The marketplace has more of an influence on prices of other commodities such as fruits, vegetables, livestock, poultry, and hay and forage crops. However, many factors influ- ence the supply and demand for these commodities as well as practices used to produce a crop. Grading and cosmetic standards, for example, are

236 ALTERNATIVE AGRICULTURE TABLE 4-13 Gross Returns, Variable Costs, and Net Returns (dollars/acre of rotation/year) Under Conventional and PALS Management, High and Low Yielding Conditions, and Market and Target Prices, 1986 Conventionala PALSb High Yield Low Yield High Yield Low Yield 1986 Market prices Gross returns 176.00 136.00 118.00 93.00 Variable costs 129.40 129.40 56.82 56.82 Net returns 46.60 6.60 61.18 36.18 1986 Government target prices Gross returns 274.20 210.60 170.80 132.60 Variable costs 129.40 129.40 56.82 56.82 Net returns 144.80 81.20 113.98 75.78 aFour-year wheat-barley-wheat-pea rotation with fertilizer and pesticide inputs each year. Perpetuating alternative legume system. A low-input system with a three-year pea plus medic-medic-wheat rotation with pesticides used only on peas. SOURCE: Goldstein, W. A., and D. L. Young. 1987. An agronomic and economic comparison of a conventional and a low-input cropping system in the Palouse. American Journal of Alternative Agriculture 2(Spring):51-56. applicable to various fruit, vegetable, and meat products. These standards are basically designed to control supply and price of individual crops. Acreage reduction programs influence the amount of land available to pro- duce hay crone; water pricing policies affect costs of production on irrigated ~ · ~ ~ ~ ~ ~~ . . ~ ~1 ~ ~ ~ ~ · ~ crops. trade policies here and abroad attect tne row or farm commodes into and out of the U.S. market. Government price and income support programs can have significant unintended effects. During the early to mid-19SOs, the programs tended to price U.S. 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. The programs have also encouraged surplus production of certain commodities by reducing risks. They have provided economic incentives for farmers to continue to grow certain crops, even in periods of surpluses. Over the years, the programs also have contributed to soil erosion and surface water and groundwater pollution by encouraging the cultivation of marginal lands and subsidizing excessive and inefficient use of inputs. Further, producers pay no price for offsite environmental consequences of production. In many parts of the United States, producers now routinely strive for higher yields than those profitable in the absence of government programs designed to reduce risk. In other areas farmers grow crops with a high risk of failure from weather or pest conditions because government programs absorb all of the risk. The price support payment that a farmer receives per acre is based on the farm's historical yields, an average of the yield on supported crop acreage

ECONOMIC EVALUATION 237 in the previous 2 to 5 years (frozen at 90 percent of 1985 program payment yield in the Food Security Act of 1985), and the target price established by Congress and the USDA through legislation. 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. For many crops, the target price has been far above the market price for most of this decade (see Figures 1-30 and 1-33 in Chapter 1~. High target prices can promote higher levels of inputs, thereby contrib- uting to surplus production. This is illustrated by the theoretical example presented in Figure 1-30 in which a farmer will produce 19,000 bushels at the market price and 24,000 bushels at the target price (this example does not take into account annual set-aside requirements). It costs the farmer more to produce the additional 5,000 bushels than they are worth on the market. The additional 5,000 bushels cost taxpayers $10,000 in government payments ($2.00 per bushel x 5,000 bushels). Commodity programs also influence which crops are planted and the economic and environmental impacts associated with land-use decisions. The cross-compliance provision of the Food Security Act of 1985 is designed to control production of program commodities by limiting a farmer's ability to increase base acres. It also serves as an effective financial barrier to diversification into other program crops, especially if a farmer has no estab- lished base acres for those crops. Cross-compliance stipulates that in order to enroll land from one crop acreage base in the program, the farmer must not exceed his or her acreage base for any other program crop. The practical impact of this provision is profound, particularly if a farmer's acreage base for other crops is zero. For example, a farmer with corn base acreage and no other crop base acres would lose the right to participate in all programs if any land on his or her farm was planted with other program crops such as wheat or rye (oats are currently exempt) as part of a rotation. If a farm had base acreage for two or more crops when cross-compliance went into effect in 1986, the farm must stay enrolled in both programs each year to retain full eligibility for benefits from both programs. High government support prices also influence planting decisions. Throughout the 1970s, soybean prices averaged more than twice the corn target prices. In recent years, soybean prices have strengthened markedly in contrast to corn. Yet, soybean stocks have fallen to their lowest level in a decade, even though prospects for increased demand in the United States and abroad are very good. The total acres planted with soybeans are declin- ing because of high government support payments for other crops, most notably corn. Moreover, considerable acreage is now producing corn be- cause farmers must continue to plant their corn base every year to preserve their current level of eligibility for future corn program payments. Even though commodity prices may rise somewhat as a result of the 1988 drought, the programs will remain an attractive option to most growers. This is because target prices and deficiency payments are likely to remain substantial. Farmers have become more efficient, and interest and rents

238 ALTERNATIVE AGRICULTURE TABLE 4-14 Average Annual Target Prices as a Percentage of Total Economic Costs Crop 1978 - 1981a 1982 - 1985b 1986 - 1990C Corn 95 110 141 Cotton 82 107 111 Rice 106 125 153 Soybeans 82 85 91 Wheat 94 108 123 NOTE: Total economic costs cover all fixed and variable production costs for an operator with full ownership of the land and other capital assets. aCrop years covered by the Food Security Act of 1977. bCrop years covered by the Food Security Act of 1981. Forecasts under current legislation for crop years covered by the Food Security Act of 1985. Minimum target prices for grains and cotton and the minimum soybean loan rate under the Agricultural Act of 1949, as amended, were assumed for 1988-1990. Soybean loan rate as a percentage of soybean total economic costs. SOURCE: U.S. Department of Agriculture. 1988. Investigations of Changes in Farm Programs. 201-064/80069. Washington, D.C. have declined, making deficiency payments even more valuable (Table 4-14). The Effect of Rotations on Base Acres and Fecleral Deficiency Payments For farms currently participating in commodity programs, the transition from continuous cropping to rotations will decrease gross farm income by reducing a farm's acreage base eligible for federal deficiency payments. The magnitude of this reduction depends on the size of the deficiency payment. Table 4-15 illustrates the reduction in deficiency payments due to the loss of corn base acres resulting from the adoption of a corn-oats-meadow- meadow (C-O-M-M) rotation. When complete, the change from continuous corn to a C-O-M-M rotation on 1,000 base acres would cost this farm about $90,000 per year in deficiency payments. Overall farm income, however, depends on a number of factors, including the market for new crops, incor- poration of livestock into the operation, the possible increase in corn yield, and the type of rotation adopted. Nonetheless, the loss of current and future income from ineligibility for government programs presents a signif- icant obstacle to the adoption of alternatives. The previously discussed PALS studies of wheat farms in Washington and additional work on cash grain farms in Iowa further illustrate the strong economic influence of the target price and base acres provisions of the farm programs. Almost no pesticides or fertilizers were used in the PALS rota- tion. 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

ECONOMIC EVALUATION TABLE 4-15 Reduction of Deficiency Payments and Corn Acreage Base Following Change From Continuous Corn to C-O-M-Ma Rotation on 1,000-Acre Farm 239 Years Since Corn Corn Set- Corn Deficiency Adopting C-O-M-M Base Planted Asideb Yield Payments Rotation (acres) (acres) (acres) (bushels/acre)C (dollars) 0 1,000 800 200 147 142,296 4 550 250 110 173 52,332 8 250 250 50 173 52,332 aRepresents a corn-oats-meadow-meadow rotation. bAssumes 20 percent corn base set-aside. Based on Duffy, M. 1987. Impacts of the 1985 Food Security Act. Ames, Iowa: Department of Economics, Iowa State University. Corn production times 1987 deficiency payment ($1.21/bushel), ignoring the statutory $50,000 limit on payments. Young, 1987) (see Table 4-12). Wheat yields were nearly identical. PALS reduced pea yields about 10 percent from the conventional rotation yields, however, because of competition with the medic. The high support price for wheat greatly affects the comparative profita- bility of PALS and conventional rotations. When the revenue from sale of all crops in the rotation was based on government deficiency payments, favorable growing conditions, and subsequent high yields, the conventional rotation earned $144.80 per acre, compared with $113.98 per acre for the PALS rotation. These figures assumed 1986 target prices for wheat and barley that were 45 and 35 percent higher than market prices, respectively. 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). The cause of the disparity in net returns is that the PALS rotation pro- duced wheat, a price-supported crop, on only one-third of the acreage each year. PALS wheat yields averaged 62.6 bushels per acre, whereas conven- tionally produced wheat yields averaged 60.3 bushels per acre. The conven- tional rotation, however, produced program crops on 75 percent of the acreage each year (2 years of wheat, 1 year of barley in a 4-year rotation). But when less favorable growing conditions were assumed, the net returns of the conventional rotation declined dramatically, even assuming govern- ment price supports. Under government support and less favorable weather conditions, PALS earned only $5.42 less per acre than the conventional rotation. An analysis of five rotations in Iowa reached similar conclusions. Without government payments, continuous corn was found to be the least profitable of the rotations at $56.00 per acre average net return over variable cost compared with $90.00 for a corn-soybeans-corn-oats (C-B-C-O) rotation and

240 ALTERNATIVE AGRICULTURE TABLE 4-16 Returns per Acre by Nitrogen Fertilizer Application Rates, Rotation and Government Program Participationa Dollars/Acre Basic Participation No Program (20 percent Full Participation Rotation Participation set aside) (35 percents N (pounds/acre) C-C-C-C 56 979 221 240 C-C-C-O 61 187 186 180 C-B-C-O 90 177 175 120 C-C-O-M 64 151 150 120 C-O-M-M 67 113 112 40 NOTE: Crops in rotations are abbreviated by the following: C is corn; O. oats; B. soybeans; and M, meadow. aReturns over variable costs only. b35 percent includes 20 percent set aside and 15 percent paid land diversion. SOURCE: Duffy, M. 1987. Impacts of the 1985 Food Security Act. Ames, Iowa: Department of Economics, Iowa State University. $67.00 for a corn-oats-meadow-meadow (C-O-M-M) rotation (Duffy, 1987). But with government program payments and a 20 percent set-aside, contin- uous corn earned annually on average $222.00 per acre, compared with $177.00 and $113.00 for the C-B-C-O and C-O-M-M rotations, respectively. In recent years the feed grain program encouraged higher per acre corn yields, continuous corn production, and greater use of pesticides and nitro- gen fertilizer. Duffy (1987) incorporated prevailing input assumptions into his study: for continuous corn, 240 pounds of nitrogen per acre was ap- plied; for the C-B-C-O and C-O-M-M rotations, the application rates were 120 and 40 pounds, respectively. By encouraging high-yield, continuous corn production, the program has increased the corn surplus in spite of acreage set-aside requirements designed to reduce production, while exac- erbating the potential for surface water and groundwater pollution (Table 4-16) (Duffy, 1987). Impact of Research and Technology Transfer Alternative farming systems are based on better management and infor- mation rather than the use of commercial products. Hence, there may be fewer opportunities and incentives for current input producers to develop and market inputs for alternative farming systems. Markets may be created, however, for companies offering management advice on better crop rotation strategies, efficient manure use, IPM, and other such practices and technol- ogies. More resources should be allocated to collection of data about alter- native farming systems regarding costs and the value and variability of resource requirements, yields, and other performance measures ordinarily

ECONOMIC EVALUATION 241 incorporated into farm management budgets. A data base should be devel- oped to integrate findings from the various biological and physical sciences, financial analyses, and estimates of the impact of farm practices on human health, water quality, and the environment. SUMMARY Research has begun to demonstrate the economic benefits of alternative farming systems and how current policies impose incentives and disincen- tives for the selection of various types of farming systems. The committee's case studies provide examples of several profitable alter- native operations. Additionally, several farm surveys provide general infor- mation about the overall financial performance of farmers using low-input methods, such as those who practice organic farming. But many questions remain unanswered. Farm surveys do not provide conclusive evidence re- garding the advantages and disadvantages of different farming methods because many factors are randomized or not constant. Somewhat more systematic data are available regarding the economic performance of IPM programs. IPM has been highly successful in many instances. Farmers who use IPM usually reduce the amount of pesticides applied and increase their net returns compared with farmers who apply pesticides on a regular schedule. 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. Nonetheless, rotations have the potential to simultaneously increase farm income and reduce farm program expenses. Forage legumes in the crop rotation have the added advantage of supplying nitrogen. But when cash grain prices are supported far above the market level, many farmers would reduce their net farm incomes if they shifted from growing only price- supported crops, such as corn and soybeans, to legume-based rotations unless commodity program rules are reformed. Livestock are an essential component of some diversified alternative crop- ping systems. Many alternative farming systems, however, do not depend on livestock. Examples include perennial crop systems such as orchards and vineyards, and vegetable and other annual crop farms that use legumes as green manure crops or import organic residues from off the farm. Diversi- fication can reduce risks and variability of net returns to farm families. For these reasons, it should be studied in more detail. Ver,v little is known about the aggregate impacts of possible widespread adoption of alternative farming methods. Future economic research on al- ternative farming methods should examine social and aggregate costs and benefits. This research should be integrated with that of other agricultural disciplines, the Extension Service, and the private sector to apply the results at the farm level.

242 ALTERNATIVE AGRICULTURE REFERENCES Allen, W. A., E. G. Rajotte, R. F. Kazmeirczak, Jr., M. T. Lambur, and G. W. Norton. 1987. The National Evaluation of Extension's Integrated Pest Management (IPM) Programs. VCES Publication 491-010. Blacksburg, Va.: Virginia Cooperative Extension Service. Antle, J. M., and S. K. Park. 1986. The economics of IPM in processing tomatoes. California Agriculture 40~3&4~: 31-32. Baker, K. F., and R. J. Cook. 1982. Biological Control of Plant Pathogens. St. Paul, Minn.: American Phytopathological Society. Barbano, D. M., R. I. Verdi, A. I. Saeman, D. M. Gallon, and R. R. Rasmussen. 1987. Impact of mastitis on dairy product yield and quality. In Proceedings of the 26th Annual Meeting of the National Mastitis Council. Arlington, Va.: National Mastitis Council. Batra, S. W. 1981. Biological control of weeds: Principles and prospects. Pp. 45-59 in Biological Control in Crop Production. Beltsville Symposia in Agricultural Research, No. 5, G. C. Papavizas, B. Y. Endo, D. L. Klingman, L. V. Knutson, R. D. Lumsden, and I. L. Vaughn, eds. Totowa, N.~.: Allanheld, Osmun. Boehlje, M. D., and V. R. Eidman. 1984. Farm Management. New York: Wiley. Booth, W. 1988. Revenge of the "nozzleheads." Science 23:135-137. Brusko, M., G. DeVault, F. Zahradnik, C. Cramer, and L. Ayers, eds. 1985. What the research reports haven't told you. Pp. 20-28 in Profitable Farming Now!, M. Brusko, G. DeVault, F. Zahradnik, C. Cramer, and L. Ayers, eds. Emmaus, Pa.: Regenerative Agriculture Association. Coble, H. D. 1985. Development and implementation of economic thresholds for soybeans. Pp. 295-307 in CIPM Integrated Pest Management on Major Agricultural Systems, R. E. Frisbie and P. L. Adkisson, eds. College Station, Tex.: Texas A&M University. Council for Agricultural Science and Technology. 1981. Antibiotics in Animal Feeds. Report No. 88. Ames, Iowa: Council for Agricultural Science and Technology. Dabbert, S., and P. Madden. 1986. The transition to organic agriculture: A multi-year model of a Pennsylvania farm. American Journal of Alternative Agriculture 1~3~:99-107. Day, W. H. 1981. Biological control of alfalfa weevil in the northeastern United States. Pp. 361- 374 in Biological Control in Crop Production. Beltsville Symposia in Agricultural Re- search, No. 5, G. C. Papavizas, B. Y. Endo, D. L. Klingman, L. V. Knutson, R. D. Lumsden, and 1. L. Vaughn, eds. Totowa, Hi.: Allanheld, Osmun. Domanico, J. L., P. Madden, and E. J. Partenheimer. 1986. Income effects of limiting soil erosion under organic, conventional and no-till systems in eastern Pennsylvania. Ameri- can Journal of Alternative Agriculture 1~2~:75-82. Dover, M. J., and L. M. Talbot. 1987. To Feed the Earth: Agro-Ecology for Sustainable Devel- opment. Washington, D.C.: World Resources Institute. Duffy, M. 1987. Impacts of the 1985 Food Security Act. Ames, Iowa: Department of Econom- ics, Iowa State University. Friend, T. H., G. R. Dellmeier, and E. E. Gbur. 1985. Comparison of Four Methods of Calf Confinement. 1. Physiology. Technical article 18960. College Station, Tex.: Texas Agricul- tural Experiment Station. Frisbie, R. E., and P. L. Adkisson. 1985. Integrated Pest Management on Major Agricultural Systems. MP-1616. College Station, Tex.: Texas Agricultural Experiment Station. Goldstein, W. A., and D. L. Young. 1987. An agronomic and economic comparison of a conventional and a low-input cropping system in the Palouse. American Journal of Alter- native Agriculture 2~2~:51-56. Hall, D. C. 1977. The profitability of integrated pest management: Case studies for cotton and citrus in the San Joaquin Valley. Bulletin of the Entomological Society of America 23:267-274. Heady, E. O. 1948. The economics of rotations with farm and production policy applications. Journal of Farm Economics 30~4~:645-664. Heady, E. O., and H. R. Jensen. 1951. The Economics of Crop Rotations and Land Use: A

ECONOMIC EVALUATION 243 Fundamental Study in Efficiency with Emphasis on Economic Balance of Forage and Grain Crops. Research Bulletin 383. Ames, Iowa: Agricultural Experiment Station, Iowa State University. Heichel, G. H. 1987. Legumes as a source of nitrogen in conservation tillage systems. Pp. 29- 35 in The Role of Legumes in Conservation Tillage, I. F. Power, ed. Ankeny, Iowa: Soil Conservation Society of America. Helmers, G. A., M. R. Langemeier, and J. Atwood. 1986. An economic analysis of alternative cropping systems for east-central Nebraska. American Journal of Alternative Agriculture 1(4):153-158. Hay, M. 1985. Recent advances in genetics and genetic improvements in Phytosiidae. Annual Review of Entomology 30:345-370. Hueth, D., and U. Regev. 1974. Optimal agricultural pest management with increasing pest resistance. American journal of Agricultural Economics 56~3~:543-552. Kansas State University. Cooperative Extension Service. 1987. The Annual Report: 1987 Man- agement Information, Kansas Farm Management Associations. Manhattan, Kans.: Kansas State University. Kilkenny, M. R. 1984. An Economic Assessment of Biological Nitrogen Fixation in a Farming System of Southeast Minnesota. M.S. thesis, University of Minnesota, St. Paul. Killingsworth, M. L., and I. B. Kliebenstein. 1984. Estimation of production cost relationships for swine producers using differing levels of confinement. Journal of the American Society of Farm Managers and Rural Appraisers 48~2~:32-36. Kliebenstein, ). B., and I. R. Sleper. 1980. An Economic Evaluation of Total Confinement, Partial Confinement, and Pasture Swine Production Systems. Research Bulletin 1034. Columbia, Ma.: University of Missouri-Columbia. Kliebenstein, I. B., C. L. Kirtley, and M. L. Killingsworth. 1981. A comparison of swine production costs for pasture, individual, and confinement farrow-to-finish production facilities. Special Report 273. Columbia, Mo.: Agricultural Experiment Station, University of Missouri-Columbia. Koepf, H. H., B. D. Peterson, and W. Schaumann. 1976. Bio-dynamic Agriculture: An Intro- duction. Spring Valley, N.Y.: Anthroposophic Press. Kovach, J., and J. P. Tette. 1988. A survey of the use of IPM by New York apple producers. Agriculture, Ecosystems and Environment 20:101-108. Lidvall, E. R., R. M. Ray, M. C. Dixon, and R. L. Wyatt. 1980. A Comparison of Three Farrow- Finish Pork Production Systems. Reprint from Tennessee Farm and Home Science No. 116. Lockeretz, W., G. Shearer, D. H. Kohl, and R. W. Klepper. 1984. Comparison of organic and conventional farming in the Corn Belt. Pp. 37-48 in Organic Farming: Current Technology and Its Role in a Sustainable Agriculture, D. F. Bezdicek and J. F. Power, eds. Madison, Wis.: American Society of Agronomy, Crop Science Society of America, Soil Science Society of America. National Fertilizer Development Center. Tennessee Valley Authority. 1988. Unpublished data. National Mastitis Council. 1987. Current Concepts of Bovine Mastitis, 3d ed. Arlington, Va.: National Mastitis Council. National Research Council. 1986a. Animal Health Research Programs of the Cooperative State Research Service—Strengths, Weaknesses, and Opportunities. Washington, D.C.: National Academy Press. National Research Council. 1986b. Pesticide Resistance: Strategies and Tactics for Manage- ment. Washington, D.C.: National Academy Press. National Research Council. 1987a. Agricultural Biotechnology: Strategies for National Com- petitiveness. Washington, D.C.: National Academy Press. National Research Council. 1987b. Biological Control in Managed Ecosystems. Research Brief- ings 1987. Washington, D.C.: National Academy Press. National Research Council. 1987c. Regulating Pesticides in Food: The Delaney Paradox. Washington, D.C.: National Academy Press. /

244 ALTERNATIVE AGRICULTURE Office of Technology Assessment. 1979. Pest Management Strategies. Working Papers. Vol. 2. Washington, D.C.: Office of Technology Assessment. 169 pp. Olson, K. D., E. J. Weness, D. E. Talley, P. A. Fates, and R. R. Loppnow. 1986. 1985 Annual Report: Southwestern Minnesota Farm Business Management Association. Economic Re- port ER86-1. St. Paul, Minn.: University of Minnesota. Olson, K. D., E. J. Weness, D. E. Talley, P. A. Fates, and R. R. Loppnow. 1987. 1986 Annual Report, Revised: Southwestern Minnesota Farm Business Management Association. Eco- nomic Report ER87-4. St. Paul, Minn.: University of Minnesota. Olson, R. A., K. D. Frank, P. H. Grabouski, and G. W. Rehm. 1981. Economic and Agronomic Impacts of Varied Philosophies of Soil Testing. Nebraska Agricultural Experiment Station. No. 6695 Journal Series. Lincoln, Nebr.: Agricultural Experiment Station, University of Nebraska. Osteen, C. D., E. B. Bradley, and L. I. Moff*t. 1981. The Economics of Agricultural Pest Control: An Annotated Bibliography, 1960-80. Bibliographies and Literature of Agriculture No. 14. Economics and Statistics Service. Washington, D.C.: U.S. Department of Agriculture. Power, J. F. 1987. Legumes: Their potential role in agricultural production. American Journal of Alternative Agriculture 2~2~:69-73. Randall, G. W., and P. L. Kelly. 1987. Soil test comparison study. Pp. 145-148 in A Report on Field Research in Soils. Miscellaneous Publication No. 2 (Revised)-1987. St. Paul, Minn.: University of Minnesota Agricultural Experiment Station. Reichelderfer, K. H. 1981. Economic feasibility of biological control of crop pests. Pp. 403-417 in Biological Control in Crop Production, Beltsville Symposia in Agricultural Research, No. 5, G. C. Papavizas, B. Y. Endo, D. L. Klingman, L. V. Knutson, R. D. Lumsden, and J. L. Vaughn, eds. Totowa, Hi.: Allanheld, Osmun. Reichelderfer, K. H., and F. E. Bender. 1979. Application of a simulative approach to evaluat- ing alternative methods for the control of agricultural pests. American Journal of Agricul- tural Economics 61~2~:258-267. Shields, E. J., J. R. Hyngstrom, D. Curwen, W. R. Stevenson, l. A. Wyman, and L. K. Binning. 1984. Pest management for potatoes in Wisconsin—A pilot Program. American Potato Journal 61:508-517. ~ ~ v Shrader, W. D., and R. D. Voss. 1980. Soil fertility: Crop rotation vs. monoculture. Crops and Soils Magazine 7:15-18. Smith, l. W., and C. S. Barfield. 1982. Management of preharvest insects. Pp. 250-325 in Peanut Science and Technology, H. E. Pattee and C. T. Young, eds. Yoakum, Tex.: Amer- ican Peanut Research and Education Society. U.S. Congress, House. Committee on Government Operations, Subcommittee on the Envi- ronment, Energy, and Natural Resources. 1988. Hearing on Environmental and Economic Benefits of Low Input Farming, April 28, Washington, D.C. U.S. Department of Agriculture. 1980. Study Team on Organic Farming. Report and Recom- mendations on Organic Farming. Washington, D.C. U.S. Environmental Protection Agency. 1982. Ethylene Bisdithiocarbamates Decision Docu- ment: Final Resolution of Rebuttal Presumption Against Registration. Washington, D.C. U.S. Environmental Protection Agency. 1985. Captan: Special Review Position Document 21 3. Washington, D.C. U.S. Environmental Protection Agency. 1986. Alachlor: Special Review Technical Support Document. Washington, D.C. Wagstaff, H. 1987. Husbandry methods and farm systems in industrialized countries which use lower levels of external inputs: A review. Agriculture, Ecosystems and Environment 19:1-27. Young, D. L., and W. A. Goldstein. 1987. How government farm programs discourage sus- tainable cropping systems: A U.S. case study. Paper No. 15. Pp. 443-460 in How Systems Work, The Proceedings of the Farming System Research Symposium. Fayetteville, Ark.: University of Arkansas. Zavaleta, L. R., and W. G. Ruesink. 1980. Expected benefits from nonchemical methods of alfalfa weevil control. American loumal of Agricultural Economics 62~4~: 801-805.

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Alternative Agriculture Get This Book
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More and more farmers are adopting a diverse range of alternative practices designed to reduce dependence on synthetic chemical pesticides, fertilizers, and antibiotics; cut costs; increase profits; and reduce the adverse environmental consequences of agricultural production.

Alternative Agriculture describes the increased use of these new practices and other changes in agriculture since World War II, and examines the role of federal policy in encouraging this evolution, as well as factors that are causing farmers to look for profitable, environmentally safe alternatives. Eleven case studies explore how alternative farming methods have been adopted--and with what economic results--on farms of various sizes from California to Pennsylvania.

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