Title: The Economics of On-site Conservation Tillage - NRCS - USDA

West National Technology Support Center Technical Note: Econ 101.01 Title: The Economics of On-site Conservation Tillage Date: September, 2006 Keywords: conservation technology analysis; tillage economics; conservation
tillage; minimum tillage, no-till; tillage profits and costs; crop
production; agricultural resource conservation; Author: Kevin P. Boyle, Agricultural Economist, USDA, NRCS, WNTSC
USDA, NRCS, WNTSC (West National Technology Support Center)
1201 NE Lloyd Blvd
Suite 1000
Portland, OR 97232
phone: 503-273-2411
fax: 503-273-2401
email: Kevin.Boyle@por.usda.gov
sites: ssiapps.sc.egov.usda.gov Abstract:
Growers adopt conservation tillage because, in the short-term, the
technology can reduce operating costs and make better use of labor and
land. In the long run, growers adopt because allocated overhead costs go
down, investment in machinery is less, and synergies improve between
natural, and economic, resource stocks. Outline
Introduction - page 2.
The on-site economics of conservation tillage - page 3.
Natural resource improvements - page 3.
Economic resource improvements - page 4.
Input and operating cost reducing - page 4.
Investment return increasing - page 8.
Risk and return stabilizing - page 11.
Overall economic efficiency and net returns - page 12.
Tillage case study - page 13.
Summary - page 13.
References - page 15.
Appendix A. Basic economics of conservation tillage - page 18.
Appendix B. Typical Conservation Tillage Comparisons -corn and soybean
rotations - page 20.
Introduction
The Conservation Technology Information Center (CTIC) shows that the number
of acres in the United States where conservation tillage (Figure 1) has
been adopted has increased from 99.3 million acres in 1994 to 112.6 million
acres in 2004, a 13.3% increase. Notably, 2004 appeared to show a 'break
out' from the slumping, or stagnant, acres shown in previous years.
[pic] CTIC points out that no-till, in particular, has seen strong gains. Figure
2 shows that the number of acres in the United States where no-till has
been adopted has increased from 38.9 million acres in 1994 to 62.4 million
acres in 2004, a 60.4% increase. The adoption rate in 2004, a 7.1%
increase, was more than double the 3.3% average of previous years. [pic] Despite these gains, 60% of United States crop acres still do not use no-
till, and about 40% still use conventional tillage. What are some of the
factors influencing these adoption rates? Economics looks to on-site
resource stock management for answers. The on-site economics of conservation tillage Appendix A explains the general economics of conservation tillage. In
summary, growers invest in conservation tillage because of:
1. Short-term expectations of higher profits: Conservation tillage allows
them to overcome resource constraints and use inputs more productively
(lower cost per unit of output) and with higher economic efficiency
(lower cost per dollar of output).
2. Long-term expectations of higher returns on investment. Over time,
better stocks of soil, nutrients, carbon, weed and water lead to
better, or no worse, yields. Better natural resource stocks improve
the performance of complementary inputs used for weed control and
nutrient management. Overhead costs decrease because less machinery is
needed, it's needed for fewer hours, and economies of scale (lower
average cost per unit of output) may be realized. The on-site economic benefits of conservation technology come from: Natural resource improvements: The Conservation Technology Information
Center points out that conservation tillage can improve soil tilth,
increase organic matter, sequester large amounts of carbon, trap soil
moisture to improve water availability, reduce soil erosion, reduce
sediment and nutrient runoff, increase wildlife cover, and reduce dust and
smoke emissions. Martens (2002) literature review documented such beneficial effects as 6.5
fold decreases in soil erosion, 60% to 70% decreases in soil erodibility, 9
to 58 fold decreases in water runoff, 29 fold increases in soluble solids,
3.4 fold decreases in carbon mineralization, 2 to 6 fold increases in soil
biological agents, and 54% increases in available nitrogen. Many of these
benefits accumulate to produce substantial off-site benefits, including
higher water quality and less sediment damages. The off-site economics of
conservation tillage, such as the benefits of improved water quality, will
be covered in a different fact sheet. Economic resource improvements: While conservation tillage has substantial,
positive, natural resource effects, its effect on crop production (on-site
yields, inputs, assets, and returns) is more variable. Soils, weather,
custom, skill, machinery, and markets intertwine in ways that make
generalities difficult. Uncertainties aside, researchers and farmers find that conservation tillage
can increase yield, decrease labor, save fuel, and help growers do a better
job of weed, water and nutrient management. These changes to economic
resources can be understood as 'input-reducing', 'stock and output-
enhancing', and 'risk-reducing'. Farm businesses interpret these changes as
being, respectively, 'operating cost-reducing', 'investment returns-
increasing', and 'net return-stabilizing'. Their full economic effect can
be measured in terms of 'net returns', 'economic efficiency', and 'land
appreciation'. Evidence for improvements in economic resources include: Input and operating cost reducing: Conservation technology uses less
machinery for fewer hours. When combined with some alternative nutrient
management methods, such as the substitution of spring fertilization for
fall, fewer nutrients need to be applied. The largest savings can come from
using more productive weed control inputs, especially herbicide-tolerant
seeds with glyphosate. Without herbicide-tolerant crops, weed control costs
increase but are offset by savings in tillage costs. Evidence for these
effects includes: Better machinery management: Zenter et al. (2002) explain that
conservation tillage requires fewer trips across the field, allows two
or more activities to be combined into one, or permits the use of
machines with greater capacity and lower draft. The evidence for
savings in machinery-related operating costs include:
Better machinery: Lindwall et al. (2000) attribute much of the
success of no-till in the Canadian prairies to improvements in
the air-seeder machinery industry. They also note that
improvements continue to be made in conservation tillage's first
and most important operation -combining and residue spreading.
Eppin et al. (2005) believe that the availability of improved no-
till grain drills and air seeders will remove a chief impediment
to the adoption of no-till on winter wheat in Oklahoma. In the
past, conservation tillage equipment was known to cause poor
crop stands.
Decreased labor costs: Chase and Duffy (1991) found that no-
till, under Iowa corn-soybean crops, saved 3 tillage operations
and .4 hours/acre of labor. Harper (1996) showed that no-till,
under Pennsylvania corn production, cut labor by 20% (0.33 hours
per acre) for minimum tillage and 54% (0.86 hours per acre) for
no-till. Johnson et al (1986) found that reduced tillage, under
Kansas wheat rotations, cut labor between 29% (.29 hours/acre)
and 31% (.12 hours/acre)
Parvin and Martin (2005) reported that no-till, under
Mississippi cotton production, cut tractor hours per acre by 49%
and labor hours by 43%. They found profits increased by more
than $47 per acre. They anticipated that new harvesting
machinery (which can also be used for planting and spraying)
will increase these savings to 74% for tractor hours and 64% for
labor hours. Decreased fuel costs: The Conservation Technology Information
Center cites fuel savings for corn-soybean production of 2
gallons per acre for minimum till and 3.2 gallons acre for no-
till. Parvin and Martin (2005) found 20% (4.4 gallons/acre) to
30% (6.44 gallons/acre) diesel fuel savings for conservation
tillage systems in cotton. Decreased machinery repair and maintenance costs: Johnson et al
(1986) found that reduced tillage, under Kansas wheat rotations,
cut machinery repair costs between 19% ($1.60/acre) and 22%
(.$1.11/acre). Parvin and Martin (2005) found that reduced
tillage, under Mississippi cotton production, cut machinery
repair costs between 10% ($2.61/acre) and 18% ($4.62/acre).
Massey (2005) found that switching from conservation tillage to
no-till, in Missouri , could save 19% ($2.33/acre) for corn and
18.5% ($2.12) for soybeans, but that overall net returns didn't
justify the switch. Better Weed control: Fawcett and Towery (2002) cite a 2002 American
Soybean Growers Association survey of soybean farmers that found
better weed control accounted for 75% of their reasons for adopting
conservation tillage. The biggest factor (54% of the total reasons)
related to herbicide-resistant seeds. These growers found that
applying Round-up to herbicide-resistant soybeans was their best weed
control strategy. The authors find that almost all of the growth in no-
till acreage in recent years can be attributed to herbicide-tolerant
crops. Lower weed management operating costs (with herbicide-tolerant
crops): Eppin et al. (2005) point out that, when the patent on
glyphosate expir