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Generalization of economic results
Posted by damiller51 on 05 Nov 2012 at 18:36 GMT
In your economic analysis of the compared cropping systems, you indicate you used current NASS reported crop values. While this assumption will hold for an individual case or for minimal adoption of the cropping rotation, it definitely would not hold for large-scale adoption as the acreage of corn and soybeans would be dramatically decreased and the acreage of oats and alfalfa significantly increased if there were, in fact, large scale adoption of the longer rotations. Given that a 3-year rotation reduces annual acreage of corn and soybeans by 33% each, and increases acreage of the small grains and alfalfa by large percentages, if even the state of Iowa adopted this production system, there would be large negative economic reactions. This should have been pointed out in the discussion, particularly since there is media pick-up of the article suggesting that "all farmers" could adopt this type of farming system with "no adverse economic impacts"
The authors of this study work for either the USDA or public land grant universities, conducting research and then extending that research to a wide range of audiences; that is our mission. The economics portion of the study focused on answering the question: “can a farmer integrate alternative cropping systems that would gain environmental benefits and at the same time be profitable?” To answer that question, costs such as those for field operations conducted, inputs applied, and labor required were assessed for each cropping system included in the research. In essence, enterprise budgets were developed like a farmer would develop to determine profitability for each aspect of his or her operation for each crop, each year. The individual budgets were then aggregated over a designated time period. This procedure is very common among agricultural economists as a way to compare economic returns over different crop rotations, tillage systems, and fertility regimes, among many other research questions. It is a way for farmers to do an initial feasibility study of adopting a practice or an alternative cropping system without taking the risk of conducting it on their own farm. This approach is designed to illustrate to an individual farmer whether an alternative has the potential to be profitable. Whether the answer is yes, it is profitable, or no, it is not profitable, has policy implications.
If society determines that the pursuit of environmental benefits is warranted but that practices that promote environmental benefits may not be profitable to an individual farmer, then a set of incentives, disincentives, or some type of rules and regulations are likely needed to have the farmer change his or her behavior. Changing farmer behavior to attain societal goals has been a part of farm policy since the mid-1930s (e.g., cost share for terraces, the Conservation Security and Stewardship Programs, the Conservation Reserve Program, and many others). If an alternative system, perhaps similar to the systems researched here, can be implemented to attain societal environmental goals and be profitable at the farm level, then the level of incentives, etc. needed to change behavior might be lessened.
The focus of the present research study was at the farm level (are the alternative cropping systems profitable?). One question often raised is what would happen if a sudden and widespread adoption of these alternative systems occurred? As part of that scenario the argument is that the assumptions on prices (and therefore revenues) for the current research are no longer valid.
If the alternative cropping systems outlined in this study were widely and suddenly implemented there would be economic shocks throughout the system. Changes in amount and location of livestock (particularly cattle), type of infrastructure, and other factors would all likely occur and result in complex feedback loops and other shocks. If the amount of land used for oat and alfalfa production increased with concomitant reductions in corn and soybean production, oat and alfalfa prices would likely decrease, corn and soybean prices would likely increase, and the profitability of the cropping systems would change. A new equilibrium between the amounts supplied and demanded for the various crops would arise, resulting in a different set of crop prices and revenue projections.
How farmers would react to this sudden shift in profitability depends upon whether society feels the change meets its environmental goals. If the answer is yes, then a set of policies would be implemented to compensate farmers for attaining the goals set by society. This would be no different than paying land owners to put highly erodible cropland into grass cover for 10 years (i.e., the Conservation Reserve Program) or allowing farmers to receive different payments based on the field operations and rotations implemented on their land (i.e., the Conservation Security Program). If the answer is no, cropping patterns would change as farmers react to profit signals.
To correctly analyze the potential impacts of changes in cropping patterns and policies at landscape levels we would need to develop a macroeconomic model. Modeling would be a method to determine what policy changes would be needed to attain different environmental goals given different levels of adoption of alternative cropping practices. Modeling major structural changes would seem to be a logical next step, as both farm and macro level analyses are important. However, our expertise does not lie within the macro-economic modeling realm. Rather, we are trained to work with farmers at the farm level and the assumptions and methodologies outlined in the paper are consistent with that emphasis.
For additional reading on the interaction between farming practices and policy, the interaction between farming practices and land use change, how changes in commodity prices affect policy implementation, and how environmental benefits can be measured economically, we suggest the following list of USDA publications. These publications are only a small subset of USDA and refereed journal articles on these subjects.
Claassen, R. 2012. The Future of Environmental Compliance Incentives in U.S. Agriculture: The Role of Commodity, Conservation, and Crop Insurance Programs. United States Department of Agriculture, Economic Research Service, Economic Information Bulletin 94.
Hansen, L., and M Ribaudo. 2008. Economic Measures of Soil Conservation Benefits: Regional Values for Policy Assessment. United States Department of Agriculture, Economic Research Service, Technical Bulletin 1922.
Hellerstein, D., and S. Malcolm. 2011. The Influence of Rising Commodity Prices on the Conservation Reserve Program. United States Department of Agriculture, Economic Research Service, Economic Research Report 110.
Johansson, R., M. Peters, and R. House. 2007. Regional Environment and Agricultural Programming Model. United States Department of Agriculture, Economic Research Service, Technical Bulletin 1916.
Lubowski, R., et al. 2006. Environmental Effects of Land-Use Change: The Role of Economics and Policy. United States Department of Agriculture, Economic Research Service, Economic Research Report Number 25.
Ribaudo, M., et al. 2011. Nitrogen in Agricultural Systems: Implications for Conservation Policy. United States Department of Agriculture, Economic Research Service, Economic Research Report 127.