Comparative economics of alternative agricultural production systems: a review

Comparative Economics of AlternativeAgricultural Production Systems:A-Review

Glenn Fox, Alfons Weersink, Ghulam Sarwar, Scott Duff,and Bill Deen

The agricultural policy agenda in the United States,Canada, and in Western Europe has been increas-ingly influenced by concerns for the sustainabilityof agricultural production systems. National, state,and provincial governments in North America arebecoming increasingly sensitive to the environ-mental and human-health risks associated with cur-rent modes of agricultural production and policyactions, including restrictions on the use of certainagricultural chemicals and inducements to encour-age the use of alternative production practices. Manyrestrictions and inducements have been undertakenor are currently under consideration in many juris-dictions.

Unfortunately, many policy actions have beenanimated by high levels of political concern andsupported by an inadequate economic database.While it is often recognized that more stringentregtdation of production practices and of the useof certain inputs may have an impact on the prof-itability of farm businesses and on the competi-tiveness of the regional agricultural sector affected,conflicting views have been expressed as to thenature of those impacts. A rigorous assessment ofthe comparative profitability of different modes ofproduction is required. This assessment should in-clude an evaluation of comparative income risk aswell as expected profit levels since farmers, Iikeothers, are risk averse and may be willing to tradeexpected income for lower levels of uncertain y.

Also of concern in the development of policy isthe lack of information about the economic costsof environmental and other types of externalities

Glenn Fox is an associate professor, Alfons Weersink is an assistantprofessor, Scott Duff is a research associate, and Bill Deen is a graduatestudent in the Department of Agricultural Economics and Business, andGhulam Sarwar is a postdoctoral fellow in the George Morris Centre,all of the University of Guelph.

Research support from the Ontario Ministry of Agriculture and Food,from CIBA-GEIGY Canada Ltd., and from the Social Sciences andHumanities Research Council of Canada (SSHRC) is gratefully acknowl-edged.

associated with alternative production systems.While it has been generally recognized that trade-offs exist in the protection of human health andenvironmental quality, we have an inadequateknowledge about the nature of these trade-offs. Forexample, it has been well understood that certaincompounds used in pest-control products have beendetected in groundwater, leading to pressure to re-duce the use of those products. If, however, thisinduces farmers to adopt weed-control systems thatmore intensely use mechanical tillage, this can con-tribute to increased erosion and to higher levels ofoff-site damage as sediment deposition in surfacewater increases. This too has an environmental andhuman-health cost. The nature of this and othertrade-offs needs to be understood to facilitate thedevelopment of appropriate policy.

This paper provides a policy-oriented summaryof the contents of the annotated bibliography pre-pared by Fox et al. (September 1990). This bib-liographic survey of the published empirical literatureon the comparative performance of alternative pro-duction systems for crops and vegetables in NorthAmerica focused on results published between 1975and 1989. Studies were grouped into five catego-ries: (1) conservation tillage and soil erosion, (2)pest control, (3) the cost of environmental protec-tion in agriculture, (4) vaiuation of externalitiesgenerated by agricultural production practices, and(5) comparison of organic, alternative, and con-ventional production systems.

The purpose of this review is to synthesize thepublished economic research regarding the on-farmprofitability and off-farm impacts of agriculturalproduction systems. Efforts have been made toidentify areas where substantial agreement isemerging as well as areas where consensus has notyet been achieved. It is our hope that this exercisewill both place the development of environmentalpolicy regarding agriculture on a firmer footing andhelp to identify current and future research needs.

Fox, Weersink, Sarwar, Duff, and Deen Comparative Economics of Alternative Production Systems 125

Conservation Tillage and Soil Erosion

Conservation Tillage

Considerable effort has been devoted to the as-sessment of both the expected income and the levelof income risk associated with the use of soil-conserving tillage practices relative to tillage sys-tems thought to cause higher rates of erosion. Re-searchers have sought to determine whether erosioncontrol through the use of certain noninversion pri-mary tillage practices represents a net cost or a netbenefit to the farm operator in the short run and inthe long run. Several analytical techniques havebeen used, Multiperiod linear programming modelshave been popular. Simulation models, with andwithout assessment of risks, have also been used.Enterprise and whole-farm budgets for case-studyfarms or for hypothetical representative farms havebeen used in some studies.

The published evidence on the relative profita-bility and risk of soil-conserving tillage practicesis mixed. Berglund and Michalson, using a farm-level linear programming model for the Cow CreekWatershed in Idaho, found that farm income in thewatershed would be 8 percent less under a regimeof reduced tillage. Johnson and Ali found that whilesummer fallow, generally thought to underrate top-soil loss, is becoming less economically attractiveto wheat farmers in western North Dakota, it doesreduce income risk and generates more attractiveexpected net returns under commodity and inputprice conditions prevailing in the 1980s. Klemme(1983) compared tillage systems in corn. Mini-mum-till and conventional tillage produced equalreturns to land and management of $179 per acrecompared with $168 and $162 per acre of till-plantand no-till, respectively. Later, Klemme (1985)conducted a stochastic dominance comparison ofreduced-tillage systems in com and soybeans. Av-erage expected returns per acre were highest forthe conventional-tillage system and lowest for theno-till system. Introducing costs associated withannual soil loss, however, affected the stochasticdominance rankings. Domanico, Madden, and Par-tenheimer developed a linear programming modelof a 294-acre crop and livestock farm in easternPennsylvania. The conventional-tillage system wasfound to be the most profitable, but most erosivesystem. Mikesell, Williams, and Long evaluatedthe expected net returns and risk of alternative till-age systems as well as rotations and weed-controlregimes for a 640-acre hypothetical grain farm innortheastern Kansas. No-till production systems hadslightly higher expected incomes but were morerisky. Stochastic dominance analysis indicated that

risk-averse farmers would prefer conventional-tillage, continuous-grain-sorghum production.Dickson and Fox compared combinations of tillagesystems and rotations for three watersheds in south-western Ontario. Their findings indicate that con-ventional tillage (fall moldboard plowing) was moreprofitable than fall chisel plowing, no-till, or ridgetillage in the long run, Brown, Cruse, and Colvinevaluated production costs and yield for three till-age systems in corn and soybeans. The break-evenprice for com was significantly lower under a re-duced-tillage system due to reduced produ.>tionCOSGhowever, the higher yields of the conventional-tillage system gave it a slightly lower break-evenprice. No-till, due to higher pesticide costs, hadthe highest production costs. Siemens and Osch-wald compared seven tillage systems for producingcom and soybeans in terms of erosion control andcrop production. The six conservation-tillage sys-tems greatly reduced soil loss relative to fall plow-ing. Yields, however, tended to be lower withconservation tillage.

Several studies, however, have concluded thatless erosive tillage practices are in fact more prof-itable than more erosive ones. Doster et al. reportedthat on lighter soils in Indiana, reduced-tillage (till-plant and fall chisel plow) systems were more prof-itable than conventional tillage, even in the shortrun. Hesterman, Pierce, and Rossman found nosignificant differential in com yields in Michiganbetween conventional-tillage and no-till systems.Their results also indicated that the performanceof different com hybrids was unaffected by thechoice of tillage system. Keeling, Segarra, and Ab-ernathy report that conservation-tillage systems forcotton in the southern high plains of Texas weremore profitable than conventional-tillage systemsunder a range of associated cultural practices. Wil-liams, Johnson, and Gwin, and Williams (1988)found that conservation tillage in grain sorghumhad both higher expected net revenues and lowerrisk than conventional tillage. Fletcher and Lovejoyfound that no-till com produced net returns of$14-$18 per acre more than conventional tillage,depending on the previous crop. Ridge-till had ahigher return by $24 per acre than the no-till plots.Robillard, Walter, and Hexam concluded that aconversion from conventional tillage to reducedtillage increased farm income; however, a conver-sion to no-till resulted in only a slight increase infarm income. Tew et, al. determined that conven-tional-tillage systems had lower expected net rev-enues, but also lower variations in net income thanreduced-tillage systems. Harrnan et al. concludedthat dryland or irrigated sorghum was more prof-itable using no-till than conventional tillage.

126 April 1991 NJARE

Perhaps the largest number of published studies,however, report that the relative on-farm perfor-mance of soil-conserving tillage practices dependsona number of site-specific factors. The degree towhich farmers are risk averse, soil type, topsoildepth, choice of cropping system, level of man-agement, and local climate conditions have all beenidentified as important variables. Zentner and Lind-wall concluded that the use of zero tillage in wheatproduction in southern Alberta resulted in higheryields through improved moisture conservation.Labor, machinery, and overhead costs were re-duced with conservation tillage, but the attractive-ness of this production system hinged on the priceand efficacy of appropriate herbicides. Pollard,Sharp, and Madison found that chisel plowing wasmore profitable than moldboard plowing for a sam-ple of Wisconsin farms but that no-till generated alower net income per acre than the conventionalmoldboard system. Most of the differences in netrevenues were attributed to yield differentials.Fletcher and Featherstone evaluated four tillagesystems and found that the effect of choice of tillagesystem on timeliness of crop production activitiesand net returns was found to be unimportant undernormal weather conditions. Under adverse weatherconditions, however, ridge tillage was the preferredsystem, followed by conventional tillage, chiselplowing, and no-till, respectively. Fletcher ar,dLovejoy conducted a similar study to investigatethe effects of no-till and ridge-till systems on netreturns in actual field conditions when comparedto conventional-tillage systems. Yields and net re-turns for the no-till and ridge-till systems were higherthan for the conventional system. The extent towhich yields were higher was dependent on theprevious crop. Harman et al. compared conven-tional-tillage practices with no-till under an irri-gation and fallow system. Relative profits for eachsystem were dependent on the cost of energyrequired for irrigation. Walker reported that theprofitability of conventional tillage relative toconservation tillage depends on topsoil depth. Con-ventional tillage was more profitable than conser-vation tillage on deeper soils, while conservation wasthe preferred system on shallow soils. Taylor andYoung similarly concluded for an eastern Washing-ton Palouse area that the shallower the topsoil andthe longer the planning horizon, the greater theprobability of payoff for conservation tillage.

Pope, Bhide, and Heady emphasized the role ofyield differentials across tillage systems as a de-terminant of net revenues. Four representative farmswere studied and net returns to both conservationand conventional systems exhibited substantial var-

iability across farms, Jolly, Edwards, and Erbachcompared conventional tillage, strip tillage, slottillage, and a full-width tillage system for a com-soybean rotation in Iowa. The full-width systemhad the highest average returns and the least risk.Conventional tillage had the lowest average returnsbut exhibited less variability than the strip-till andslot-till systems. Setia’s study of the role of riskin conservation tillage in Illinois emphasized thatrisk-neutral individuals would tend to select a re-duced-tillage system, but that under certain cir-cumstances a conventional-tillage system would bepreferred by more risk-averse farmers. In a similarstudy, Setia and Johnson compared various till-age, rotation, and mechanical-practice systems usingthe Soilec model, and as in the previous study, thelevel of the farmer’s risk aversion impacted thetillage system chosen. Henderson and Stonehousefound that conventional tillage in the form of fallmoldboard plowing was more profitable in the longrun than spring moldboard plowing, fall chiselplowing, spring heavy off-set discing, and zerotillage on sandy loam and silt-loam soils for cornproduction in southern Ontario. Zero tillage waspreferred on loam soils. Williams, Llewelyn, andMikesell found that conventional tillage had lowerexpected returns than no-till in sorghum productionin northeastern Kansas, but that conventional till-age had a lower coefficient of variation. Stochasticdominance analysis indicated that risk-averse farm-ers would select conventional tillage. Similar re-sults were reported for west-central Kansas. Setiaand Osbom concluded that the predominant cul-tural system used in northern Missouri and southernIowa, a corn-soybean rotation with moldboardplowing and straight rows, was more erosive andless profitable than a continous-com no-till systemwith straight rows. Crop production systems thatwere less erosive than this continous-com systemwere less profitable. The marginal cost of reducingerosion beyond the level predicted with no-till con-tinuous-corn ranged from $2.38/ton/yr to $7.04/ton/yr across soil groups. Finally, Hinman et al.made a cost comparison of no-till, conventional,and conservation barley tillage systems. Conser-vation tillage and no-till had lower associated till-age costs, although the increased cost of chemicalsfor no-till partially or wholly offset this decreasein machine costs. Pagoulatos, Debertin, and Sjar-kowi determined that the optimal timing of con-version from conventional tillage to no-till wasdependent on output price, topsoil depth, discountrates, the capital cost of conversion, and the dif-ference between yield and net cost of alternativeproduction systems.

Fox, Weersink, Sarwar, Duff, and Deen Comparative Economic~ of Alternative Production Systems 127

The Costs and Benefits of ControllingSoil Erosion

This section summarizes those studies that haveestimated the costs and benefits of controlling soilerosion through the adoption of production sys-tems, specific cultural practices such as rotations,contouring, or terracing, or policy in the form ofsoil-loss restrictions or taxes and incentives. Linearprogramming and simulation models were the mostfrequently used techniques.

Barbarika and Dicks estimated the annualizedtreatment cost per acre of reducing erosion to atolerance level on highly erodible cropland inthe U, S. Costs, estimated as a function of er-odibilit y of land, level of treatment, type oferosion, and regional location, were as high as$667 million per year or $15 per acre. The im-pact of production systems and specific culturalpractices on soil erosion rates and on farm in-comes has been examined by various authors.Rosenberg, Knutson, and Harmon concluded thatthe cost of erosion control for farmers in thesouthern Iowa River basin exceeded the bene-fits, Use of cultural practices that would reducethe rate of topsoil loss was estimated to causea reduction in regional farm income in the rangeof $49 million to $97 million per year (1974constant dollars). Simulation analysis was usedby Setia and Osbom to compare net returns peracre and the estimated rate of soil loss for eightrotations, three tillage systems, and three cul-tural practices. Results indicated that the soil-conserving practices were less profitable thanconventional practices and also that the mar-ginal cost of reduced soil loss across soil groupsranged from $2. 38/ton to $7.04/ton. Bills com-pared the productivity of erosive New Yorkfarmland to that of less erosive land using theUniversal Soil Loss Equation. The comparisonssuggested that highly erosive cropland per-formed like much less erosive cropland whenused with a high level of management. Naray-anan concluded that the conventional crop pro-duction system used in the black soil zone ofAlberta generated higher farm income than aconservation-oriented system. The difference wasattributed to higher variable costs with the con-servation system Segarra and Taylor analyzedthe impact of up-and-down-the-slope cultivation,contouring, strip cropping, and terracing on soilloss and net present value of returns. These farmingpractices were analyzed under three technological-change scenarios. With no technological change,contouring yielded the highest optimal net present

value followed by up-and-down-the-slope cultiva-tion, terracing, and strip cropping. Terracing had thelowest rate of gross topsoil loss. Results indicatedthat rates of technological change had little impacton the relative ranking of the four farming practicesin terms of net present value of returns and soillosses. Christensen and Heady estimated that if soil-conserving practices were used to produce additionalgrain com for twelve billion gallons of alcohol forfuel, soil loss would not increase substantially.

The impacts of soil-loss restrictions and othersoil erosion control policies on producers and con-sumers were also examined in the literature. Alinear programming model was used by Forster andBeckar to estimate the impact of restrictions andtaxes on soil loss and a subsidy for the reductionin soil loss on farm income of a watershed in north-ern Ohio. Restrictions generated modest declinesin farm incomes. A tax/subsidy of $6 per ton ledto a net increase in the total of net farm incomeplus the net effect on the public treasury, Highersubsidies led to a reduction in this total. A modestreduction in soil losses was predicted. Seitz et al.utilized a static linear programming model to assessthe impacts of soil erosion control policies in theCorn Belt at regional and watershed levels of ag-gregation. A soil-loss tax of $2/ton, a soil-loss re-striction of 3 tons per acre, and a 3-ton-per-acresoil-loss restriction combined with a 50 percentsubsidy for the cost of terracing were evaluated.The $2/ton tax had the lowest social cost of $192million and reduced soil loss by 337 million tons.The 3-ton-per-acre soil-loss restriction producedneariy the same soil-loss restriction but had a socialcost of $480 million. Under the cost-sharing pol-icy, total soil loss was reduced by 360 million tonsbut had net social costs of $495 million. Significantvariation in economic impact among regions wasreported, mainly as a result of the difference inphysical characteristics of farms across regions.Nelson and Seitz used an intertemporal linear pro-gramming model to study the effects of topsoil lossand nitrogen-use restrictions on farm income andtopsoil loss. It was found that topography was animportant factor in the variability of effects andthat actions to control topsoil loss and to reducenitrogen use generally led to lower farm incomes.Zinser et al. evaluated soil-loss restrictions of10-, 5-, and 3-ton limits on average per acre soilerosion and sediment-abatement subsidy policiesof $1, $6, and $10 per ton per acre and concludedthat both policies resulted in a decrease in net farmincomes and also concluded that an increase inenergy prices reinforced the effectiveness of thesepolicies.


Summary

Five generalizations can be made from the studiesreviewed above.

1. On-farm performance of soil-conserving till-age systems varies with location, soil type, climate,level of management, and crop produced.

2. While some examples of soil-conserving till-age systems that are more profitable than com-monly used conventional tillage have been found,further gains of reduced erosion can generally onlybe obtained at the expense of farm income. At leastbeyond some point, the marginal cost of soil con-servation is a positive and increasing function ofthe amount of topsoil conserved.

3. In addition to average or expected net reve-nue, the riskiness of net revenues matters. In manysituations, conservation tillage has been found tobe a production system that is more profitable, onaverage, but also more uncertain.

4. The emphasis on the long-run productivityeffects of erosion has failed to acknowledge thevery real incentives to control on-site damage thatfarmers face. To the extent to which productivitylosses in the future depress future income, the cur-rent wealth of a farmer (measured in present-valueterms) falls. Self-interest on the part of the land-owner dictates that actions will be taken to protectcurrent wealth if the benefit of those actions ex-ceeds the cost. A growing empirical literature hasdocumented that there is an inverse relationshipbetween land prices and erosion rates as well ascumulative erosion (see Fox and Taff).

5. Conservation tillage, in isolation, is probablynot the answer to higher levels of soil conservationwithout income loss. Modifications to existing cul-tural practices, including rotations, pest-controlsystems, and crop choice, along with the evolvingtechnology of conservation tillage, show morepromise.

To determine the profitability of specific tillagesystems, it is necessary to determine the impact offactors such as soil type, climate, and crop pro-duced, and the interactions of these factors on theproductivity and soil erosion levels associated withthe particular tillage system. To date, the literaturehas not adequately quantified these relationships,and as a result, the profitability of conservation-tillage systems in the current literature is inconclu-sive. As previously mentioned, conservation till-age, in isolation, is probably not the answer tohigher levels of soil conservation without incomeloss. In order to determine optimum combinationsof tillage system, rotation system, pest-control sys-tem, and policy, it is again necessary that an un-derstanding of the interactions of such systems be

known. The uncertainty of the profitability of con-servation tillage also has not been adequately ad-dressed in the literature. The effect of this uncertaintyon the farmers’ decisions to adopt a conservation-tillage system requires further study.

The role of long-run productivity effects as anincentive for farmers to adopt conservation tillagehas been inadequately treated in the soil conser-vation literature. Future productivity losses due tosoil erosion and the impacts of these losses onfuture income and current wealth must be estab-lished in order to determine the extent to whichlong-run productivity effects provide incentives forthe farmer to adopt conservation-tillage systems.

Pest Control

Alternative Pest-Control Methods

The effect on yields and returns of a variety ofagricultural pest controls have been evaluated inthe literature. The pests studied range from insectsin apples to weeds in field crops. Control measuresconsidered encompass a host of alternatives. Re-gardless of the type of pest, the control strategiesevaluated for comparison can be generally classi-fied into an intensive pesticide-application system,a moderate or flexible system, and a biological orcultural control system.

Partial budgeting is the most common analyticaltechnique used in these studies. The raw data aregenerally collected through field trials, althoughsome studies have used biological simulation modelsto characterize the dynamics of the pest population.Other studies have used mathematical program-ming techniques to determine an optimal strategy.Linear programming is often employed, althoughrecent studies have used dynamic programming,which more readily incorporates the intertemporaland stochastic nature of the pest-control problem.

A small number of studies have documented thebenefits of intensive herbicide applications. Na-stasi, Frans, and McClelland evaluated eighteendifferent weed management systems to control grassin cotton and found total weed control costs withoutthe use of herbicides, which included cultivationand hoe labour, were significantly higher than onplots where single or combined applications of her-bicides were used. Highest net returns were ob-tained for over-the-top herbicides followed by pre-emergence applications.

The result found by the majority of the studieswas that the most profitable pest-control strategieswere generally flexible management strategies thatinvolved a combination of control measures. Mi-

Fox, Weersink, Sarwar, Duff, and Deen Comparative Economics of Alternative Production Systems t 29

ranowski evaluated three pest management strate-gies for corn rootworm: soil insecticides, pestmonitoring with insecticides used only when needed,and cultural control (no insecticides). The cultural-control system was found to yield the lowest returnsper acre under alternative price scenarios. Moni-toring was found to be more profitable relative tothe other strategies at higher energy prices as in-formation services were substituted for insecticideinputs. White and Thompson reported savings of$26 per acre for producers in a tree-fruit integratedpest management program in New York. However,Rossi, Dhillon, and Hoffman found integrated pestmanagement strategies for apple producers in NewJersey resulted in only small net savings in costwith no significant difference in yields when com-pared to conventional pest management practices,An econometric simulation model of productionand consumption of major U.S. agricultural cropswas used by Taylor et al. (1983) to measure theimpacts of alternative regional boll weevil eradi-cation and management strategies. Eradication,combined with integrated pest management strat-egies, had the highest social benefit, but also thehighest public costs. The optimal program de-pended on government budget priorities. A sto-chastic dynamic programming model was used byZacharias and Grube to determine optimal inte-grated management strategies for simultaneouscontrol of com rootworm and soybean cyst nem-atode in Illinois. The best soil-insecticide appli-cation strategy and crop rotation depended on productprices and the infestation levels of the pests. Liapisand Moffitt analyzed four alternative strategies forcontrolling cotton bollwonn. Results indicated thatbiological control of cotton bollworm was preferredto other integrated pest management strategies whenrisk aversion was an important characteristic ofproducer behavior. The yield and producer returnsof short-season cotton production systems were ex-amined by Masud et al. under integrated pest man-agement and typical pest management strategies.Producer returns were the highest for the short-season cotton varieties grown under integrated pestmanagement. The expected income and risk im-pacts of conventional pest management and threeintegrated pest management strategies were eval-uated by Greene et al. for a soybean-growing areain Virginia. The three integrated pest managementstrategies generated a greater expected income thanconventional systems and were ranked highest byrisk-averse farmers. Musser, Tew, and Eppersonanalyzed expected returns and income risk usingdata from alternate integrated pest management ex-periments conducted at the University of Georgia.Four pest management levels were analyzed. The

management level that included the application ofa herbicide, foliar fungicide, and use of an insec-ticide on the basis of scouting reports had the high-est income and was prefemed by producers,regardless of risk preference.

Beattie used field-plot data to calculate grossmargins on Ontario soybeans under different weed-control methods and found that a combination ofherbicides and cultivation produced significantlyhigher returns than both cultivation alone and her-bicides alone. Lybecker et al. compared a standardand herbicide-intensive weed management systemover a six-year period for two crop rotations inColorado. Returns were generally higher for thestandard weed management system, but higher out-put prices and a continuous-corn rotation favoredthe herbicide-intensive system. Monks found thatcultivation used in conjunction with herbicide ap-plications to control weeds in narrow-row snap beansproduced net returns significantly higher than forplots treated with herbicides and not cultivated. Abioeconomic model was developed by King et al.to evaluate four weed management strategies forcontinuous com in Colorado. The lowest annu-alized net returns were generally for the systemusing pre-emergent herbicides, while the highestreturns were found for the most flexible strategy,which could use both pre- and postemergent her-bicides, depending upon conditions.

Bridges and Walker evaluated the economic ef-fects of sicklepod control in Alabama. They foundintensive input systems consistentlyresulted in higherlevels of weed control regardless of the tillage prac-tice or tillage system. However, the resulting higheryields did not necessarily translate into increasedprofits, given the increased costs of herbicide ap-plications. The highest net returns were generatedthrough controlled densities of sicklepod. Wilcut,Wehtje, and Walker found that for peanut produc-tion in Alabama, the traditional weed-control sys-tem of cultivation and soil-applied herbicidesgenerated higher expected returns with less varia-bility than a system that employed postemergenceherbicides. They found that returns to weed controlin peanuts were highest for a combination of her-bicide and mechanical cultivation in comparison toeach system individually. Lybecker, Schweizer, andKing analyzed four weed management systemsranging from moderate to intensive use of herbi-cides over the different crops of a barley/corn/pintobean/sugar beet rotation in Colorado. The systemusing the least amount of herbicide had the highestreturn, but the results were sensitive to input andoutput prices. The herbicide-intensive system wasthe least risk-efficient. Snipes et al. used analysisof variance to test for differences among combi-


nations of cultivation, hand hoeing, a~dlor herbi-cide application in controlling weeds in cotton.Negative returns consistently occurred with culti-vation alone, although the addition of hand hoeingdid improve yields slightly. The results revealedthat herbicide application without cultivation wasthe most economical; however, it was the opinionof the authors that herbicides plus cultivation wasthe most reliable treatment and therefore the mosteconomical long-run system of weed control. Bald-win, Oliver, and Tnpp surveyed soybean farmersin Arkansas on their response to university rec-ommendations on herbicide application rates thatwere as low as one-fourth of label guidelines. Sav-ings to producers averaged approximately $7.70per acre, but concerns were raised about the lackof management skills to use the lower herbicidelevels on large acreages. Reichelderfer and Benderconducted a benefit-cost analysis of chemical, bi-ological, and integrated pest management controlsof Mexican beetle in soybeans, Biological controlyielded the highest return per dollar spent on pestcontrol at the producer level and was found to havethe highest social returns to expenditure.

Costs and Benejits of Pesticides

Numerous studies have been conducted to deter-mine regional and national costs and benefitsassociated with the use of pesticides. Linear pro-gramming, economic-surplus models, partial bud-geting, and maximization models have been used.It has generally been found that pesticide use rep-resents a net-income benefit to farmers.

Stemeroff et al. evaluated herbicide treatmentson Ontario corn and soybeans and found all treat-ments resulted in positive yield effects and net ben-efits to producers over control plots, The averagebenefit-cost ratio for all types of herbicide treat-ments was 2.61:1 for soybeans and 2.80:1 for corn.Fox (1990) estimated that quackgrass infestationsin major field crops in eastern Canada reduced totalfarm revenue by $42 million.

Considerable effort has been devoted to the studyof the impacts of restrictions on the use of pesti-cides on net farm income. Cashman, Martin, andMcCarl (1981) considered the effects of bans ofvarious herbicides on the net incomes of Indianacom and soybean farms. Bans of individual her-bicides were predicted to reduce yields and to leadto a fall in incomes of 32!%to 38’%0.A ban of alldinitroaniline, triazine, and amide herbicides wasprojected to reduce net farm income by 65%. Bur-ton and Martin determined that restrictions on theuse of single herbicides would not have a majoreffect on production levels or prices, as the banned

product would simply be replaced with its mosteffective substitute. When all herbicides used incom and soybean production were banned, how-ever, com, wheat, and soybean prices rose by 1390to 16% as output levels fell. Taylor, Lacewell, andTalpaz examined the effect of a total withdrawalof pesticides used in cotton production. A decreasein producers’ and consumers’ surplus of $774.6million would occur as a result of a total pesticidewithdrawal. The impacts of restricting Ridomil ontobacco prices, costs, producer revenues, and con-sumer expenditures were estimated by Norton andBernat. Results indicated that if Ridomil were un-available, net revenues would decline by as muchas 26’%0for flue-cured production and 8% for burleyproduction.

Studies of the effects of pesticide bans in Canadahave produced broadly similar results. Dunnettconcluded that the loss of Captan would lead toannual losses of $100 million to $150 million peryear to the Canadian economy. Krystenak esti-mated that the value of additional grain made pos-sible from use of 2,4-D was $176 million in 1979.If less effective herbicides were used in place of2,4-D, farm costs would rise by $66 million. Foxsuggested that the ban of Alachlor in Canada couldlead to a 159i0to 35% increase in the price of othergrass herbicides, which would reduce producers’surplus by $2.6 to $6.2 million per year if Alachloruse continued in the U.S. If the U.S. were to banAlachlor, grain prices could rise and actually makeOntario grain com and soybean producers betteroff.

Summary

Five general conclusions can be drawn from thestudies reviewed regarding pest-control strategies.

1. The use of pesticides provides a net benefitin terms of farm income.

2. A flexible control system that involves a com-bination of possible control measures, where thecontrol measure to be chosen depends on factorssuch as crop price or pest infestation, generallyproduced the highest net returns.

3. Complete control of the pest is not generallyeconomically efficient, but the optimal level oferadication increases with output prices.

4. Although complete biological control is fa-vored in on]y one circumstance, the incorporationof these methods into a flexible pest managementstrategy becomes more attractive when the analysisincludes the broader social effects of the alternativestrategies.

5. The cost associated with restrictions of pes-ticides varies with the nature of the pest-control

Fox, Weersink, Sarwar, Duff, and Deen Comparative Economics of Allernaiive Production .$ysterns 131

problem, the availability of substitute strategies,and the regional scope of the restriction.

Information is required on the development ofeconomic thresholds for pesticides. Considerableresearch has been conducted to determine eco-nomic thresholds (Getz and Gutierrez; Mumfordand Norton; and Pedigo, Hutchins, and Higley),However, much of this work has been conductedusing a static model with the assumption that pes-ticides offer the only form of pest control. Furtherresearch is required to determine the economicthresholds for pesticides under flexible control sys-tems. The many factors that have been identifiedby the summary to affect the degree of the costand benefit of pesticides, such as prices, multipe-riod effects, and weather, must be incorporated intothe calibration of economic thresholds.

The Cost of Environmental Protectionin Agriculture

Estimates of the value of externalities generated byagricultural production practices are rare. How-ever, many studies have calculated the costs tofarmers, consumers, and taxpayers of actions takento reduce those externalities. Studies in this sectionprimarily address the cost of policies intended toreduce contamination of groundwater by appliedfertilizer, pesticides, and manure. In addition, stud-ies estimating the cost of reducing sediment dis-position in surface water are also reviewed. Policiesexamined include restrictions on applications, tax-ation, and restrictions on per acre soil losses. Theimpacts of these policies on net farm income, foodprices, production costs, and producers’ and con-sumers’ surpluses have been reported. The majorityof studies in this section have utilized linear pro-gramming models to estimate costs. Interregional,multiperiod, static, dynamic, and aggregate effectshave been incorporated into a number of studies,

Several studies have evaluated the cost of ad-dressing the problem of nitrogen and phosphoruscontamination of surface water and groundwater.Palamini estimated the impact of nonpoint nitrogencontrol on agriculture for two counties in Illinois.Restrictions on nitrogen use reduced nitrogen pur-chases, whereas tax policies were found to haveno effect. Casler and Jacobs, using a linear pro-gramming model, determined that the cost to farme-rs of reducing phosphors deposition in CayugaLake in New York through changing from corn tohay was 10% of net farm income. Heady, Naga-devara, and Nicol concluded that actions to protectsoil or water quality would be difficult to imple-ment unilaterally in Iowa since action taken to re-

duce rates of topsoil loss or to limit nitrogenapplications caused aggregate net farm income tofall in Iowa and to rise in the rest of the U.S. Ina similar study Heady and Vocke used an interre-gional programming model to evaluate the impactsof control policies on soil erosion and nitrogenrunoff nationally. Under all the alternatives ana-lyzed, U.S. agriculture could still meet domesticfood needs with a 7.470 increase in food prices.Rathwell, Badger, and Tucker used an aggregatelinear programming model to study the effect ofrestricting nitrogen use on the amount of land neededto produce current quantities of wheat, grain-sorghum, and corn in the Texas-Oklahoma Pan-handle. An additional 696,000 acres would be neededin 1975 and 178,000 acres would be required in1990 to produce the output obtained from this re-gion in 1972. Homer used a multiperiod program-ming model to compare the income effects ofimposing an effluent charge on pollution-emittersor the use of a treatment plant to achieve specifiednitrogen pollution standards in subsurface irriga-tion return flows in the San Joaquin Valley of Cal-ifornia. Total annual income in 1970 dollars was$40,626,000 if no restrictions were placed ondrainage-water disposal. Using the effluent chargereduced total annual income to $40,101,000, whilethe use of a treatment plant reduced total annualincome to $39,267,000. Jacobs and Casler com-pared the impact of reducing phosphorus dischargefrom crop production in central New York usingeffluent taxes versus uniform reduction. For a 20%reduction in phosphorus discharge, social costs inthe watershed were $126,556 for effluent taxescompared to $132,748 for the uniform reductionpolicy. Pfeiffer and Whittlesey evaluated the effi-ciency and the impacts on agriculture in an easternWashington river basin of alternative water qualityimprovement policies. Policy alternatives rangedfrom a nitrogen-fertilizer tax, a per acre foot chargefor irrigated water, and a general reduction in waterrights. Net social costs ranged from a minimum of$9.7 million under a combined nitrogen-fertilizertax and an irrigation water charge to $16.6 millionfor a uniform reduction of water rights. The policywith the highest social cost had the least net pro-ducer cost of $16.6 million.

Other studies considered contamination by pes-ticides or sediment. Taylor and Frohberg, and Tay-lor, Frohberg, and Seitz studied the effects of erosioncontrols, herbicide bans, and limits on fertilizerapplications in the U. S. Corn Belt. The commodityprice effects of a herbicide ban were estimated toreduce consumers’ welfare by $3.5 billion per year.Producers’ surplus was projected to increase by$1.8 billion per year as a result of higher grain


prices. An insecticide ban was estimated to costconsumers $632 million per year while increasingproducers’ surplus by $531 million. Restricting ni-trogen use with a 100 lb/acre limit reduced con-sumers’ surplus by $231 million. A more stringentlimit of 30 lb/acre decreased consumers’ surplusby $3.3 billion. Producers were made better off by$21 million and $2.0 billion with 100 lb/acre and30 lb/acre limits, respectively. Baker analyzed thetrade-off between moundwater contamination anda viable farm economy for a potato farm using arecursive stochastic programming model. Subsi-dies for low-input crops offered farmers the highestreturn of any policy, but at a cost to local gover-nment. A ban on pesticides caused a decrease infarm income, but the reduction was small in com-parison to the improvement in environmental qual-ity. Dinan and Salassi examined the impact of twopotential Environmental Protection Agency (EPA)policy scenarios using the REPFARM model. Thefirst policy assumed past and current EPA actionsplus a conservative set of assumptions about futureactions, while the second scenario assumed pastand current actions plus an expensive set of as-sumptions about future actions. Net cash farm in-come declined by $270 and rose by $4,800,respectively, for the average Illinois com and soy-bean farm, and declined by $1,700 and $1,300,respectively, for the average cotton-soybean farmin Mississippi. Spurlock and Clifton investigatedthe equity and efficiency impacts of two alternativesediment-control policies for a river basin in Geor-gia. One policy restricted sediment delivery in eachof the seven resource groups in the basin to anaverage of one-half ton per acre. The second policyconstrained sediment delivery in the whole basinto an average of one-half ton per acre. Both policiesreduced net returns per acre relative to the situationin the absence of policy. The second policy cost$1.5 million less than the first to achievethe samelevel of sediment control. Shortle demonstrated thatthe uncertainty on flows of water pollutants fromagricultural sources from hydrological models wasnot neutral with respect to the optimal level andallocation of estimated abatement or with respectto the expected net benefits of alternative pollution-control policy instruments. Shortle and Mira-nowski (1983) suggest that the use of a dynamicmodel for erosion-control decision making that in-corporates the intertemporal interdependence be-tween cost and returns to agriculture at differentpoints in time may benefit future research.

The cost of reducing water contamination frommanure and manure runoff has also been addressedin the literature. Heimlich analyzed the economicand environmental effects of different manure-

handling systems for northeastern U.S. dairy farms.Reductions in phosphorus loading through the useof increased manure storage capacity was signifi-cant; however, investment in manure systems couldnot be justified by either nutrient conservation orlabor savings. Southgate et al. similarly concludedthat an annual subsidy of $7,000 per farm wouldbe required for northern Wisconsin farmers toadopt less-polluting manure-handling systems.McSweeny and Shortle examined the impact ofpolicies to reduce nitrogen losses on a mixed crop-livestock farm under various types of productionrisk. The policies included restricting nitrogen ap-plication, restricting animal densities, informationand education programs, and taxing either com-mercial fertilizer or total nitrogen application, Ap-plication rates and policy responses were sensitiveto the risk preferences of farm operators. Mandatedreductions in application cost less and accom-plished more than limiting animal densities.

Summary

The inelastic nature of demand for many agricul-tural commodities means that input-use restrictionsthat reduce output can lead to higher farm pricesand can increase farm incomes. Consumers’ wel-fare, however, falls. Regional effects are also im-portant since the demand elasticity faced by a singleregion depends on the supply elasticities of otherregions as well as the elasticity of total demand.In export markets, Canada faces relatively elasticdemand conditions, and variations in Canadian pro-duction have little effect on prices. As a result,unilateral bans of certain inputs and cultural prac-tices can reduce farm income.

Valuation of Externalities Generated byAgricultural Production Systems

While concern about the externalities associatedwith agricultural production practices is high, theknowledge base about the economic value of thoseexternalities is seriously limited in scope. Most ofthe available estimates of external costs relate tothe off-site damages caused by eroded sediment.These estimates indicate that the off-farm damagesof sediment impose substantial costs downstreamand that these costs dwarf the estimates of on-farmdamages from erosion. Once it leaves the farm,eroded topsoil has been linked to the degradationof fish habitat and spawning areas, to reduction inthe value of recreational and commercial fishing,to increased maintenance and dredging costs fornavigation channels, drainage and irrigation infra-


structure, and reservoirs, to deteriorations in qual-ity of beaches, and to increased water-treatmentcosts. Clark, Havercamp, and Chapman estimatedthat erosion from U.S. cropland causes $2.2 billion(1980 dollars) in off-site damage annually in theU.S. Ribaudo (1983), using the approach of Clarket al., estimated that for ten major categories ofoff-farm damages, the total annual off-farm costof erosion was $7.0 billion (1983 dollars). Holmesestimated the national cost of treating degradedsurface water resulting from agricultural runoff.The nationwide treatment costs to water-treatmentfirms were estimated to fall between $458.34 mil-lion and $1.37 billion per year. Ribaudo (1988)concluded that the use of buffer strips to reducethe rate of sediment deposition in streams adjacentto cropland would generate $67.70 of off-site ben-efits per acre of cropland. Moore and McCarl con-firm the large magnitude of off-site damage fromcropland erosion in Oregon. A gross benefit of $3.5million annually (U.S. 1988) for water quality im-provement was estimated for two lakes in SouthDakota by Piper, Ribaudo, and Lundeen. Dicksonand Fox (found under’ ‘General” in the references)concluded that the off-site benefits from the use ofconservation tillage on cropland in southwesternOntario range from $9.55 to $69.23 per hectareper year in selected watersheds. These estimatesare large compared to reported values of on-sitedamage. Given the questionable economic rele-vance of the available estimates of on-farm damagefrom erosion (van Vuuren and Fox; Fox and Taff),the overwhelming emphasis on on-site effects inthe design of soil conservation policy seems mis-directed.

Relatively few studies have estimated the valueof other types of externalities from agricultural pro-duction practices. Our survey has located only one.Siebert reported that unintended kills of honey beesfrom insecticide use cost California honey produc-ers about 470 of their annual income in 1975 andreduced the income of almond growers by about0.370.

Summary

Traditionally, soil conservation policy has been an-imated by concern for the future of productivity offarmland. Much attention has been focused on theso-called costs of erosion to farmers. Soil conser-vation as an environmental protection issue has notbeen emphasized. The economic literature suggeststhat a reorientation of priorities is in order. Soilerosion is a serious environmental problem in NorthAmerica. Treating it as such prompts considerationof policy instruments employed in other environ-

mental protection problems. This set of control in-struments includes the use of taxes and subsidies,standards and regulations, strengthening propertyrights, and other policies familiar to analysts ofenvironmental policy. Also, targeting criteria forsoil conservation efforts intended to address an en-vironmental protection agenda would likely differfrom criteria developed out of concern for long-run productivity effects. In general, no reliable cor-relation exists between the severity of the on-siteeffects of erosion and the economic costs of theexternalities generated by soil loss. As a conse-quence, policies directed at reducing the on-farmeffects of erosion are unlikely to be effective in-struments in the reduction of off-farm effects. Manystudies have found that conservation tillage is aneconomically attractive control strategy for reduc-ing sediment damages. It should be emphasized,however, that more attractive control strategies maybe available. Streambank rehabilitation, buffer strips,and the use of grass waterways may be capable ofgenerating benefits comparable to the gains fromwidespread adoption of conservation tillage at alower opportunity cost.

If the volume of published literature is any in-dication, study of the on-site productivity effectsof erosion and the mitigation of those effects throughconservation tillage has dominated the researchagenda on the economics of soil erosion. We knowvery little about the value of economic externalitiesgenerated by alternative crop production systemsin different regions. This is true not only for theoff-farm effects of sediment displaced by cultiva-tion, but also for the off-farm effects of herbicidesand nutrients deposited in surface water and leachedinto groundwater. This lack of information has se-rious consequences. While it is generally recog-nized that trade-offs exist in the protection of humanhealth and environmental quality, we have inade-quate knowledge about the nature of those trade-offs. For example, it is well understood that certaincompounds used in pest-control products have beendetected in groundwater, leading to pressure to re-duce the use of those products. If, however, thisinduces farmers to adopt weed-control systems thatmore intensely use tillage, it is also well understoodthat this can contribute to increased erosion and tohigher levels of off-site damage as sediment de-position in surface water increases. This too hasan environmental and human-health cost. The na-ture of this and other trade-offs needs to be betterunderstood to facilitate the development of effec-tive policy. It seems reasonable to presume, how-ever, that alternative production systems havedifferential effects on groundwater quality, sur-face-water quality, wildlife habitat, and long-term


soil productivity. Development of appropriate meansof protecting soil, water, and other resources fromadverse effects of food production requires a rec-ognition of the multiple dimensions of the effectsof alternative production systems and empirical in-vestigation of the nature of the trade-offs involved.

Comparisons of Organic, Alternative,and Conventional Production Systems

Several studies, in recognition of interactions ofcomponents within a crop production system, havesought to use a systems approach to compare theperformance of alternative modes of production.Below we compare the results of studies evaluatingorganic production systems against conventionalproduction systems. An organic production systemis defined here as any system that does not usesynthetic pesticides or fertilizers purchased fromsources off the farm, This is followed by a sum-mary of studies in which alternative crop rotationsand tillage systems were compared against summerfallow and conventional systems. The various pro-duction systems examined in these two sectionshave been compared in terms of cost, yield, netfarm income, income variability, and price effects.Enterprise and whole-farm budgets have been themost frequently used analytical procedure, butmultiperiod linear programming models have alsobeen used.

Organic vs. Conventional Systems

The relative profitability of organic versus conven-tional production systems has been compared innumerous studies. However, neither system hasconsistently outperformed the other. Klepper et al.and Lockeretz et al, compared the financial per-formance of fourteen matched pairs of organic andconventional farms in the U.S. Corn Belt for 1974and 1975. Farms in the study produced both cropsand livestock, and organic farms in the sample hadbeen managed without inorganic nitrogen fertilizer,activated phosphates, potassium fertilizer, or pes-ticides for six years prior to 1974, Yields werehigher on the conventional farms in 1974 and 1975,but average returns per acre were roughly the sameon conventional and organic farms. Procedures usedto select farms to be included in the study make itdifficult to draw general conclusions from the study.Shearer et al. followed up on this early work witha further performance comparison for a differentsample of farms in the Corn Belt for 1977 and1978. In 1977, which was judged to be a poor cropyear, returns on organic farms, expressed on a whole-

farm and on a per hectare basis, were comparableto conventional farms. In a better crop year, 1978,whole-farm income was higher on conventionalfarms. Berardi compared organic versus conven-tional farming methods in terms of economic costs,energy inputs, and yield for wheat. The averageprofitability for conventional farming was $59.50per hectare compared to an average of $14.55 perhectare for the organic methods. Conventionalfarming methods produced 29% higher yields thanorganic methods.

Dobbs, Leedy, and Smolik compared conven-tional, ridge-till, and an alternative production sys-tem for grain farms in South Dakota by conductingtwo field studies. No synthetic fertilizers or her-bicides were used in the alternative system. In onestudy, ridge tillage was the most profitable, fol-low~d bv a conventional svstem. The conventional.system generated almost t;ice the net farm incomeof the alternative system. In the second study, in-comes of all the svstems were substantially lower. .and differentials among the systems were smaller.The alternative system had the highest net farmincome in this project,

Goldstein and Young compared conventional andlow-input systems for grain and legume productionin the Palouse region of the northwestern U.S. for1986 vield mice and cost conditions. The low-int)ut

.1 .

system used no synthetic fertilizer and no pesticideson medic or winter wheat. Recommended rates ofpesticides were applied to peas. The low-input sys-tem was more profitable than the conventional sys-tem when crops were valued at current market prices,but when target prices were used, the conventionalsystem was more profitable. Medic was used inrotation in the low-input system to fix nitrogen forthe wheat crop to follow. Mends, Dobbs, and Smo-lik compared alternative, conventional, and ridge-till production systems under various rotations. Thealternative system did not use synthetic fertilizersor pesticides. Systems were compared over fouryears for row crops and also for small grains. Inboth cases, the alternative system had the lowestnet income in the first three years and producedthe highest net income in the fourth year, when adrought occurred. Rader et al. report the results ofa study undertaken in 1981 to compare the eco-nomics and production of conventional and organicpeach farming in Utah, Farm budgets indicated thatwhile organic inputs were more expensive, higherprices obtained from these products more thancom~ensated for itmut costs. Gross income per hec-tare ‘for organic ~eaches ranged from $~.64 to$29.60, and $6.90 to $18.50 for conventionallygrown peaches. Sahs, Helmers, and Langemeierexamined the profitability and net-return stability


of continuous com and five rotation systems andorganic vs. nonorganic systems. The net returnsfrom the rotation and organic systems were higherthan the net returns from continuous corn. Rotationalternatives had more stable net returns than or-ganic alternatives,

Dabbert and Madden used a multiperiod linearprogramming model to study the profitability of abeef/crop farm in Pennsylvania undertaking a tran-sition from conventional to organic productionpractices. After adjustment had been completed,net farm income had declined by 7. 3?k0.Largerlosses were incurred during the transition period.Stonehouse and Narayanan compared the costs ofa livestock-manure-based fertilizer system withcommercial fertilizer. The costs of the manure-based system were lower, but manure providedonly 959t0of the phosphorous and 70% of the po-tassium needs of the crops grown. Also, crops grownwith the manure-based system provided only one-third of the nutrients needed by livestock.

Olsen, Langley, and Heady, and Langley, Heady,and Olsen analyzed the aggregate effects of wide-spread adoption of organic production practices inthe U.S. Prices for wheat, corn, and other feedgrains were projected to be three times the pricelevel achieved under conventional practices. Costsrose somewhat under the organic production sys-tem, but not enough to offset the price increases,so overall farm-sector income doubled. Certain re-gions within the U. S., however, fared better thanothers under the organic production scenario.

Alternative Production Systems

Alternative production systems represent an inter-mediate step between conventional and organicsystems. Alternative rotation systems and alter-native systems to summer fallow have been thepredominant type of system evaluated. However,innovative crop rotation systems have also beenstudied. Similar to the comparison of profitabilityyof organic versus conventional production systems,one system has not consistently outperformed theother in the studies summarized in this section.

The use of summer fallow as a moisture-conservation and weed-control practice has beenextensive in grain production on the North Amer-ican prairies. Summer fallow has, however, beenidentified as contributing to erosion as topsoil isleft bare for extended periods of time. Schoney andThorson examined the profitability of using croprotations in place of summer fallow. Unless com-modity prices rise dramatically, or in the case ofexceptionally good management, summer fallowwas found to be more profitable. Young and van

Kooten demonstrated that flexible spring croppingsystems resulted in higher expected profits, but alsohigher profit variability than transitional winter wheatfallow rotations. Bole and Freeze compared thepredicted yields and economic returns for flexiblecropping systems with those of continuous barleyand rotations of barley fallow. Basing croppingdecisions on available soil moisture returned $14.33/ha more than continuous barley and $22.08/ha momthan a barley-fallow rotation. Income variabilitywas lowest for the barley-fallow rotation, followedby the flexible rotation and then continuous crop-ping.

Lazarus, Hoffman, and Partenheimer studied thereturns to farm operator’s labor and managementfor selected cropping systems on dairy farms onbetter cropland in Pennsylvania, Continuous-cornyields were 10% below yields of com grown inrotation with alfalfa. However, on small farms,continuous com was one of the most profitablerotations due to its low machinery costs per acre.For larger farms, the rotation of two years of comfollowed by three years of alfalfa gave the highestreturns. No-till com planting increased returns overconventional tillage where tillage equipment canbe eliminated or reduced in size. This may not bepossible, however, due to equipment requirementsof other crops.

Zavaleta et al. used crop enterprise budgets tocompare eighteen different treatments consisting ofthree levels of pest management (high, medium,and low) and two tillage systems (conventional orreduced) for continuous corn, continuous soy-beans, and corn-soybean rotations in Illinois. Man-agement alternatives were compared on expectedreturns, crop yields, and income variability. Gen-erally crop yields increased with increasing levelsof pest management when costs were not consid-ered. When costs of production were considered,average expected returns were highest for systemswith medium to low levels of pest managementregardless of the tillage system used. The com-soybean rotation under conventional tillage with alow level of pest management produced the highestaverage net return of $153.50/acre. However, acorn-soybean rotation under reduced tillage withmedium or low pest management produced averagenet returns of $150.77/acre and $150.43/acre, re-spectively. Corn and soybeans in rotation also pro-duced the least variability in returns regardless oftillage method under low and medium levels ofpest management.

Lazarus and White used a linear programmingmodel to investigate the economic impacts of croprotations on a typical Long Island potato farm.With potatoes limited to being grown one year out


of two, returns above variable costs were 61‘ZOofthe optimal plan with all acreage planted to pota-toes. McQueen, Shulstad, and Osbom found thatnet returns to Arkansas farmers would increase by28% by changing to crop rotations that lower soilloss. Helmers, Langemeier, and Atwood comparedthirteen cash-crop production systems character-istic of east-central Nebraska. Data were obtainedfrom experimental station trials from 1978-86. Netreturns per acre, adjusted for inflation, were com-puted for each system for each year. Seven of thesystems represented continuous-cropping systems.Various measures of income risk were constructed,including standard deviation, skewness, coefficientof variation, and the number of years that net re-turns fell below $100/acre. Rotation systems in-cluded com-soybean-com-oathweet clover rotationswith and without the use of synthetic fertilizers andherbicides. Corn-soybean and a grain sorghum–soybean rotation system dominated in terms ofexpected return and risk. Among the four-yearrotation systems, chemical treatments had little ef-fect on average returns or risk, but average returnswere less than two-thirds of those of the tom-soy-bean or grain sorghum–soybean rotations. Zentner,Lindwall, and Carefoot evaluated the economicsof producing winter wheat in two-year, three-year,and continuous-crop rotations for a seven-year pe-riod using zero tillage and two methods of con-ventional tillage. Zero-tilled treatments generallyoutperformed conventional tillage in years with be-low-normal rainfall and high prices. Under thesesame conditions, the two- and three-year rotationswere better than continuous wheat. Baffoe, Store-house, and Kay used a multiperiod linear program-ming model to compare the long-term profitabilityof erosion-reducing cropping systems and rotationsfor southwestern Ontario conditions, Continuouscom was fotind to be the most erosive, but alsothe most profitable system.

Crowder et al. used the Chemical Runoff andErosion from Agricultural Management Systems(CREAMS) model to estimate chemical and soillosses from a representative Pennsylvania dairy farm.The linear programming model optimized net farmincome subject to economic and environmentalconstraints. Three combinations of corn-alfalfarotations with conventional, reduced, and no-tillsystems were analyzed. Losses of soil, P, and N,were less for reduced tillage compared to conven-tional tillage, and for no-till compared to any othersystem. When no technical or environmental con-straints were imposed, a conventional and reduced-tillage system with continuous com give approxi-mately equal and highest returns, although P andN losses from the reduced tillage are substantially

less. With constraints imposed on soil, N, and Ploss, a corn-alfalfa rotation under no-till was themost profitable. In addition, returns from this sys-tem are equal to conventional tillage under no con-straints.

Summary

It is difficult to conclusively determine from thestudies summarized the relative profitability of con-ventional, organic, and other alternative productionsystems. Results of studies have depended on vari-ations in the production system studied, crops pro-duced, year-to-year variations in weather, soil type,and assumptions of price and cost structures. Stud-ies that have compared the performance of con-ventional and alternative production practices bychanging one component at a time have been crit-icized for failing to reflect the interactions amongelements of a crop production system. Studies thathave studied production at a system level, how-ever, have proven to be difficult to interpret. It isnot easy to determine what makes one system per-form better than another when many variables changeacross systems.

Conclusions

The published literature on economic dimensionsof the interface between agricultural productionsystems and environmental quality continues to ex-pand rapidly. This review, while seeking to be acomprehensive treatment of the North Americanliterature, has illustrated that while much has beendiscovered by economic researchers in this area,there is much that remains unknown. It is possible,however, to draw several general conclusions basedon our review of the papers included in the refer-ences that accompany this report.

We know much more about the costs of restric-tions on the production practices of farmers thanwe know about the value of environmental andhuman-health benefits obtained from these controlactions. This imbalance is a serious impediment tothe development of sound policy and suggests anurgent need for research on the benefits of envi-ronmental protection.

At the margin, there are trade-offs among com-peting environmental and human-health objectives,as well as between those objectives and the eco-nomic viability of farm firms and the standard ofliving of consumers of food. These trade-offs arenot well understood nor are they adequately doc-umented. They are also not recognized in many


policy actions. Many studies that have addressedthe on-farm impact of environmental protectionpolicies aimed at agriculture have failed to considerthe range of emissions-control policies that havebeen employed in other sectors (see Hahn or Bau-mol and Oates). In particular, much of this workhas neglected the relationship between property rightsand environmental protection (Dales) and the im-plications of changes in liability rules on incentivesto control emissions (see Rothbard). Most authorshave only considered the imposition of direct reg-ulatory control in the form of restrictions or outrightprohibitions on the use of particular inputs or pro-duction practices. Future work in this area wouldbenefit greatly from a broader appreciation of theenvironmental policy literature produced by econ-omists working in other sectors.

The financial performance of so-called altern-ativeproduction systems, relative to prevailing modesof production of agricultural commodities, dependson a number of site-specific and farm-manager-specific parameters and the level of commodityprices. Consequently, a production system de-signed with the intent to control pest populations,soil erosion, or water contamination while maxi-mizing profit will vary significantly from year toyear and location. Such a system generally doesnot consist of one particular production practicebut a combination of production practices. Deter-mining optimal production systems has been shownto be difficult since variables are not comparableover systems. Furthermore, the comparative in-come risk of alternative systems is an important,but often neglected dimension of their perfor-mance.

Much of the focus of policy actions to modifyagricultural production systems in North Americahas been on the long-term productivity effects oferosion. The value of environmental consequencesof eroded sediment has been neglected in relativeterms. As a result, the range of control strategiesand policies that have been considered as optionsfor addressing this problem has been too narrow.The available evidence suggests that the off-siteimpacts from erosion in North America are con-siderably larger than the on-site long-term produc-tivity effects. From an economist’s point of view,it is also important to emphasize the considerabledifferences in the incentives facing farmers re-garding off-site versus on-site effects of erosion,As Fox and Taff (Section 5 in the references) haveargued, farmers face considerably stronger incen-tives to worry about the on-site effects than theydo regarding off-site effects. These differences inthe nature of incentives have not been fully appre-ciated in many policy actions.

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Comparative economics of alternative agricultural production systems: a review

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