1An earlier version of this paper was presented at the Symposium on Sustainable Cropping: Implications of Crop Residue Management and Conservation Tillage as part of the Agricultural Institute of Canada Conference, July, 1994, Regina, Saskatchewan and a more technical version is forthcoming in the Canadian Journal of Crop Science.
2 Associate Professor, Assistant Professor, and Research Associate (respectively), Department of Agricultural Economics, 51 Campus Drive, University of Saskatchewan, SASKATOON, Canada, S7N 5A8
The reduced tillage/direct seeding technologies, which are now being rapidly adopted in many areas of western Canada, have made a significant contribution to the sustainability of the soil resource. As a measure of economic viability of these practices this study uses the Top Management Model to simulate the five-year ending net worth given variable prices and yields for a consensus farm in central Saskatchewan. Simulations are used to compare a reduced tillage/direct seeding system to a more conventional tillage/seeding system. At 1994 crop and input prices, and a 10% yield advantage, reduced tillage/direct seeding systems compared favourably with conventional tillage/seeding systems. The relative crop yield and glyphosate price are key determinants to the short-run profitability of adopting reduced tillage/direct seeding technologies with fuel price having a smaller influence. When the switch to adopting reduced tillage/direct seeding allows a net reduction in machinery stock, this simultaneously increases the profitability, and reduces the financial risk for the producer. We conclude that in areas of Saskatchewan where reduced tillage/direct seeding systems provide a yield advantage, producers will continue to adopt these systems as an economically viable means of sustaining their soil resource.
Key Words: adoption, reduced tillage, direct seeding, economic determinants, herbicide prices, risk.
There have been many studies that have examined the economics of reduced tillage/direct seeding farming systems (e.g. Zentner et. al. 1992; Driver and Josephson, 1992; Malhi et. al., 1988). Key factors that have been identified include: long-term agronomic benefits, yield differential, soil conservation, herbicide requirements, fuel use, machinery use, investment requirements, and knowledge and management requirements. For the purpose of discussion it is useful to divide these factors into two categories: those factors that influence short-run profitability, and those which produce long-term agronomic benefits improving the viability of the farming in the long-run.
Reduced tillage/direct seeding technologies enhance soil quality in two ways. The switch from tillage to chemical summerfallow and the reduction in soil disturbance with less tillage and during seeding reduces soil erosion. Soil erosion is a major source of organic matter loss, and this, in turn, has resulted in a loss of soil fertility and reduced water infiltration (Sparrow 1984; P.F.R.A. 1983; Economic Council of Canada 1988). Secondly, if reduced tillage/direct seeding management makes longer rotations more economically viable, this will reduce soil salinity and organic matter loss associated with chemical summerfallow in a rotation. Although these long-term benefits have not yet been quantified, they are often cited as the prime motivations in both the development and the adoption of much of the reduced tillage/direct seeding technology.
Short-run profitability, to a large extent, is determined by gross income minus cash expenses. Adoption of a reduced tillage/direct seeding cropping system affects both parts of this equation. Revenue is affected by the price of the products, the crops grown, the frequency of cropping and crop yields. The most controversial of these factors, and perhaps the most important, is the relative yield achieved when switching from a conventional system of seeding and tillage to a reduced tillage/direct seeding system.
Yield Differences - There have been several studies that have measured the difference in yield achieved with reduced tillage/direct seeding technologies. Overall, the evidence would suggest some yield advantage in reduced tillage/direct seeding systems. A report that summarizes several years of Agriculture Canada Research Station research in Saskatchewan indicates that 5% to 25% yield advantages were found at Melfort, 0% to 18.5% yield advantages were found at Indian Head, and an 11.4% advantage for wheat versus a 5.7% yield disadvantage for oilseeds were found at Scott (Government of Canada and Saskatchewan 1993). These results show large variability from year to year and from station to station and could overstate some of the advantages given that the sample period included the late 1980's when the province was suffering from a drought. Anecdotal evidence suggests that in the wet and cool growing seasons, reduced tillage/direct seeding yields were closer to conventional-tillage yields.
Variable Cash Costs - Reduced tillage/direct seeding systems, by definition, require less tillage and, in general, more herbicide than conventional systems. The cost of tillage and the price of herbicide are key factors in the short-run viability of the reduced tillage/direct seeding option. Tillage costs are reduced considerably through savings in fuel expenditures and machinery expenditures. If short-run profits are to increase, then the increase in yield, combined with the reduction in tillage costs, must be sufficient to offset an increase in herbicide costs.
Herbicides have generally become more effective and less costly. Glyphosate is used extensively with reduced tillage/direct seeding systems for both chemical summerfallow and pre-emergent burn-off. One of the factors that has changed most in the last ten years has been the price of glyphosate. Kowal (1993) reported that the price of glyphosate decreased from almost $30 per liter in the mid-1980s to less than $10 per liter in the 1990's. The relative price change of glyphosate with respect to fuel have allowed reduced tillage/direct seeding to become more economically competitive with conventional tillage.
Machinery Costs - Conversion to a reduced tillage/direct seeding system can require some investment in specialized machinery. The amount of investment will depend, to a large extent, on the existing farm practices and machinery complement. If a farm is currently in a A50-50" rotation with hoe drills and limited harvesting capacity, a switch to a continuous-cropping, reduced tillage/direct seeding system could require a large investment in seeding, spraying, and harvesting equipment. On the other hand, a producer who already has compatible air seeding, spraying and harvesting equipment, or who must replace obsolete equipment in any case, the conversion to reduced tillage/direct seeding can be much less costly.
On the benefit side, a complete conversion to a reduced tillage/direct seeding system can remove the need to own cultivators, tandem discs and harrow-packer drawbars. The primary mechanical saving comes from a reduction in the time required to complete summerfallowing, field preparation, and the seeding operation. Seedbed preparation and seeding time can be reduced by as much as 50%, leading to a saving in required tractor time and machinery depreciation. These savings can manifest themselves in several different ways depending upon the farm situation. In some cases one tractor can be sold, keeping a second for seeding. It may allow a producer to expand the land base farmed or to earn some revenue from custom seeding for neighbors. It may allow the producer to seed more acres and extend the cropping rotation. In other cases, the existing machinery is still used but requires far less annual maintenance and the frequency of replacement is reduced.
Labour and Time Saving - Reduced tillage/direct seeding systems require fewer tractor hours for the same rotational type. Herbicide application replaces tillage and no harrow-packing is done. The value of the time saved will vary considerably from producer to producer. In some cases, the time saved can be used to earn income, such as an expansion of the farm or through custom seeding, or off-farm employment. In other cases, the time saved can be valued as an opportunity cost of time spent in recreation or with family members. Given that the savings may be in the order of 100-300 hours per year, this could play a significant role in the decision to adopt the technology. When the switch to a reduced tillage/direct seeding system is accompanied by a switch to a continuous-cropping system, the effects on labour requirements are ambiguous. In this case, the overall labour requirements will increase (primarily due to spraying and harvesting) while some labour used in the summerfallow operation may be saved.
The economic viability of the reduced tillage/direct seeding technology can be examined by modeling the adoption decision as a business investment. The Top Management Farm Business Simulator (Schoney 1991) was used to simulate the effect of this investment decision on the profitability of a representative farm over a five year period. The effects of the economic and physical factors were investigated by examining the impact of changing each of these variables on both the average five-year ending net worth and the variability of this net worth.
The representative farm chosen for the analysis was a consensus farm at Lanigan, Saskatchewan. A small group of producers was asked to construct a typical 650 ha. (1600 acre) grain farm and then agree on what the typical yields, farm operations and expenses would be. Table 1 shows the cropped area, the average yields and the average prices of the crops grown in each year of the simulation. The simulation that represented the existing farm practice is referred to as the Conventional simulation.
Four additional simulations were run to examine the viability of the reduced tillage/direct seeding system. In order to make the switch to reduced tillage/direct seeding, the farm was modified by changing the machinery complement; it was assumed that an existing seeder was traded in for a used air seeder with packers for an additional cost of $20,000. Weeds were controlled by the use of herbicides in the summerfallow area, which made up 18% of the rotation. This option was referred to as the Incremental 1 simulation. A third option involved a more complete move to a reduced tillage/direct seeding system. In this case unneeded tillage equipment was sold, generating $40,000 in additional cash. Herbicide rates were reduced by 25% from the recommended rates reflecting more accurate and effective application being achieved by some producers. This is referred to as the Specialized l simulation. The herbicide and machinery operating cash costs for each of these three simulations are shown in Table 2.
The yields for these reduced tillage/direct seeding simulations were assumed to be 10% higher on average, which is close to the average of the relative yields that have been achieved at three Agriculture Canada research stations in Saskatchewan (Government of Canada and Saskatchewan, 1993). There was even less information available on the relative variation in yields. After consultation with several agrologists we assumed that the reduced tillage/direct seeding had a 10% lower variation in yield (as measured by the standard deviation) than those for conventional tillage. This reduction in variation is consistent with the anecdotal evidence that reduced tillage/direct seeding systems tend to perform relatively better in drought conditions and relatively less well in cool wet conditions. Finally the reduced tillage/direct seeding systems were both simulated assuming no yield advantage or reduction in variation over the conventional-tillage systems. These are referred to as the Incremental 0 and the Specialized 0 simulations. These assumptions for these five simulations are outlined in the Table 3.
Each crop had a set of machinery operations and a set of cash costs as arrived at by consensus for both the conventional and reduced tillage/direct seeding farms. To allow for comparison these are assumed to be constant over the years of simulation. The conventional tillage system relied extensively on triflurilan for grassy weed control. The reduced tillage/direct seeding system relied heavily on glyphosate for chemical fallow and for pre-emergent burn-off. Post-emergent grassy weed herbicides also contributed significantly to the reduced tillage/direct seeding herbicide costs. Total machinery operating costs, including fuel are $21.52/ha ($8.71/acre) for conventional tillage versus $16.82/ha. ($6.81/acre) for reduced tillage/direct seeding reflecting fewer tillage and other field operations.
Prices and yield were assumed to fluctuate consistent with historic data around the averages presented in Table 1. The farm was simulated over 100 equally likely futures. Each possible future generated a different net worth at the end of five years. The farm had a beginning net worth of $494,000 for each simulation. As shown in Table 4, the net worth of the farm in the Conventional simulation increased to an average net worth of $506,000 in the five year period. The Incremental 1 simulation had a very similar outcome with an average net with of $504,000 with slightly more variation in net worth. The Specialized 1 simulation performed somewhat better with an ending net worth of $540,000. The reduced tillage/direct seeding simulations where the yields were equal to conventional till both resulted in a decline in ending net worth; $488,000 for the Specialized 0 simulation, and $442,000 for the Incremental 0 simulation.
Clearly, for the farm modeled, the adoption of reduced tillage/direct seeding under the present market conditions is dependent upon a yield advantage over conventional tillage yields. Figure 1 shows the ending net worth of the farms given a range in relative yields. Unfortunately, given the technology is relatively new and still improving, there a lack of data on relative yields for most locations in the province. Because relative yields are so important for the economic viability of reduced tillage/direct seeding systems, many producers may wait to invest until more information about relative yields for their location becomes available.
Often new technologies are far more risky than existing technologies. This limits adoption to those producers who are less risk averse. The simulations indicate that given the 10% decrease in variation of yield, Specialized 1 had less resulting variation in net worth than Conventional. As shown in Figure 2, the technology with highest average net worth also has lower variance in ending net worth. Thus even risk averse producers may adopt this technology as a means of reducing risk. The Conventional and the Incremental 1 were similar to one another with regard to risk.
These results hinge on two assumptions. It was assumed a 10% reduction in yield variation with a reduced tillage/direct seeding system. If the variation in yield is larger with reduced tillage/direct seeding systems, financial risk could be factor blocking adoption. Secondly, for the Specialized it was assumed that producer was able to sell unneeded machinery creating a cash surplus in the process of adoption. If a substantial investment were required to make the conversion this would reduce the profitability and increase the risk of the Specialized.
Reduced tillage/direct seeding technologies required less expenditure for machine operation and fuel consumption. If energy prices were to increase this would affect conventional tillage relatively more. As shown in Figure 3, as the price of fuel increases, reduced tillage/direct seeding systems become relatively more feasible. A removal of the farm-fuel tax rebate, or an energy cost increase would push producers in the direction of reduced tillage/direct seeding technologies. It should be pointed out that these effects are small unless the increase in energy cost is very large. Even a 50% increase in fuel increased only increased the relative profitability of the specialized reduced tillage/direct seeding farm by about $1,000 per year.
Glyphosate herbicide cost makes up a large proportion of the additional cash costs of reduced tillage/direct seeding technology. An increase in the price of glyphosate had a dramatic effect of the relative profitability of reduced tillage/direct seeding versus conventional. As shown in Figure 4, even the Specialized 1 becomes less profitable that the Conventional when glyphosate prices exceed $23 per liter. For this particular representative farm, the reduced tillage/direct seeding technology would not be adopted if glyphosate prices had remained at the 1986 levels. This clearly illustrates the dependence of the technology on the existence of a particular herbicide at a reasonable price. Changes that would make this herbicide expensive, or ineffective, could place this whole cropping system in jeopardy. As Kowal (1992) points out, either herbicide suppliers recognized that the demand for glyphosate was so sensitive to price that it paid the company to lower prices, or the expiration of the patent meant they faced the threat of competition. It is very unlikely that the price will return to previous levels.
The decision to adopt a reduced tillage/direct seeding system is a complex investment decision with both short-run and long-run consequences. This paper used the Top Management Farm Business Simulator (Schoney 1991) to examine the short-run economic viability of the decision to adopt reduced tillage/direct seeding technologies on a consensus farm at Lanigan Saskatchewan. The simulations showed that a profitable move is dependent on an increase in yields and a limited expenditure on new machinery. The model also shows that the reduction in glyphosate prices has significantly contributed to the economic viability of reduced tillage/direct seeding systems.
Relative yield has to be a key variable in a producer's decision to adopt a reduced tillage/direct seeding system. Many studies of reduced tillage/direct seeding systems have shown an increase in average yield over conventional systems. There are however, some studies that have shown a yield reduction in reduced tillage/direct seeding systems. Further adoption will occur only when producers are confident that they have the soils, climate and knowledge to achieve yield increases.
Machinery and investment costs also affect the adoption of the reduced tillage/direct seeding system. While it is generally true that a specialized reduced tillage/direct seeding producer will have less machinery than a comparable conventional tillage operator the reduced tillage/direct seeding system requires different equipment. If the investment cost is large enough, it may not pay to switch to the zero- tillage system even if some yield advantage exists. Borrowing large amounts of capital when interest rates are volatile could expose the farm operation to financial risk. If, in the short-run, it is not feasible to switch to a reduced tillage/direct seeding system, producers should continue to modify their operations to make a future transition easier. This includes not only shifting the pattern of machinery investment, it may require commitment to begin learning more about reduced tillage/direct seeding systems long before the changeover is made.
Given the need to develop more sustainable cropping systems and the potential for reduced tillage/direct seeding to make a contribution to this process, more research is required to continue to improve the technology. This analysis suggests that, given a consensus farm, in Central Saskatchewan the adoption of reduced tillage/direct seeding technologies is somewhat economically feasible even in the short-run. If technologies improve and lower costs further, or increase relative yields, producers will be even more likely to adopt reduced tillage/direct seeding systems. The final factor crucial to the adoption of this technology is the knowledge that reduced tillage/direct seeding systems offer long-term soil conservation benefits that should be included as part of the investment decision. More agronomic and economic research is required to measure these long-term benefits.
Driver, H.C. and Josephson, R.M., 1992. An Economic Evaluation of Reduced tillage/direct seeding Compared to Conventional Tillage Farming Practices--A Pilot Study Report. Department of Agricultural Economics and Farm Management, University of Manitoba, Winnipeg. Working Paper No. 92-3.
Economic Council of Canada, 1988. Handling the Risks: A Report on the Prairie Grain Economy. #EC22-154/1988E. Ottawa, Canada.
Government of Canada and Government of Saskatchewan, 1993. "Soil Works". manuscript. Produced by the Canada-Saskatchewan Agreement on Soil Conservation. Regina, Canada.
Kowal, D.T., 1993. Welfare Implication to Western Canadian Farmers from Non-Tariff Barriers to Trade in Selected Herbicide Products. M.Sc. thesis. Department of Agricultural Economics, University of Saskatchewan. Saskatoon, Canada.
Malhi, S.S, Mumey,G., O=Sullivan, P.A. and Harker, K.N., 1988. An Economic comparison of barley production under zero and conventional tillage. Soil Tillage Res., 11:159-66.
P.F.R.A., 1983. "Land Degradation and Soil Conservation Issues on the Canadian Prairies". Soil and Water Conservation Branch. Regina, Canada.
Schoney, R.A., 1991. Top Management Farm Business Simulator and Forward Planning Manual. Department of Agricultural Economics, University of Saskatchewan. Saskatoon, Canada.
Sparrow, H.O., 1984. Soil at Risk. Report of the Senate Standing Committee on Agriculture. Ottawa: Supply and Services Canada.
Zentner, R.P., Tessier, S., Peru, M., Dyck, F.B. and. Campbell, C.A., 1991. Economics of tillage systems for spring wheat production in southwestern Saskatchewan. Soil and Tillage Res., 21:225-242
Table 1: Base Area, Yields and Prices of Lanigan Consensus Farm.
| Crop |
Area
ha |
(acres) |
Average
Yields t/ha |
(Bu/ac) |
Average
Prices ($/t) |
| Canola | 121.5 | (300) | 1.57 | (23) | 330.00 |
| CPS Wheat | 40.5 | (100) | 2.15 | (32) | 128.60 |
| HRS Wheat | 263.2 | (650) | 1.88 | (28) | 146.98 |
| Barley | 60.7 | (150) | 2.69 | (50) | 91.86 |
| Oats | 40.5 | (100) | 2.10 | (55) | 81.05 |
| Summerfallow | 81.0 | (200) |
Source: Lanigan Consensus Farm Data, Department of Agricultural Economics, University of Saskatchewan.
Table 2: Selected Cash Expenses Used in Simulations of Consensus.
|
Conventional
$/ha |
($/ac) |
Incremental
$/ha |
($/ac) |
Specialized
$/ha |
($/ac) | |
| Total Herbicide | 18.08 | (7.32) | 47.84 | (19.37) | 35.88 | (14.53) |
|
Total Machinery
Operating |
21.52 | (8.71) | 16.82 | (6.81) | 16.81 | (6.81) |
Source: Lanigan Concensus Farm Data, Department of Agricultural Economics, University of Saskatchewan.
Table 3: Simulation Assumptions.
| Simulation Name | Price | Yield | Variation | Machinery |
| Conventional (C:o) | base | base | base | base |
| Incremental 1 (I:1) | base | 110% | 90% | buy $20k |
| Specialized 1 (S:1) | base | 110% | 90% | sell $40k |
| Incremental 0 (I:0) | base | base | base | buy $20k |
| Specialized 0 (S:0) | base | base | base | sell $40k |
Source: Author=s modeling assumptions.
Table 4: Simulated 5 Year Ending Average Net Worth and Variation (Standard Deviation).
5 Year Ending Net Worth
|
Average
$ k |
Variation
(Standard Deviation) $ k |
|
| Conventional (C:0) | 506,000 | 35,200 |
| Incremental (I:1) | 504,000 | 39,800 |
| Specialized (S:1) | 540,000 | 31,600 |
| Incremental (I:0) | 442,000 | 39,300 |
| Specialized (S:0) | 488,000 | 38,000 |
Source: Top management Farm Business Simulator (Schoney 1991) and based on Author=s modeling assumptions.
Figure 1: Relative Yields and Five Year Ending Net Worth for Conventional and Reduced Tillage/Direct Seeding Systems.
Source: as calculated from simulations.
Figure 2: Mean-Variation (Standard Deviation) Trade-off for Five Year Ending Net Worth for Conventional and Reduced Tillage/Direct Seeding Systems
Source: as calculated from simulations.
Figure 3: Fuel Prices and Five Year Ending Net Worth for Conventional and Reduced Tillage/Direct Seeding Systems
Source: as calculated from simulations
Figure 4: Glyphosate Prices and Five Year Ending Net Worth for Conventional and Reduced Tillage/Direct Seeding Systems.
Source: as calculated from simulations.