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Role of economics in developing fertilizer best management practices

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  • Asci, Serhat
  • Borisova, Tatiana
  • VanSickle, John J.

Abstract

To reduce agricultural water quality impacts, many US states and other countries rely on agricultural best management practices (BMPs). Although fertilizer BMP rates are supposed to ensure the economic viability of agricultural production, BMPs are frequently based on agronomic, rather than economic, research; moreover, some producers resist BMP adoption, citing profit reductions. In this study, we examine the effect of production and market risks, as well as producers’ risk aversion, on producers’ fertilizer rate and BMP adoption decisions. We focus on potato production in the Lower St. Johns River Basin, northern Florida. Using historical data, we estimate the linear stochastic plateau production function that explicitly incorporates production risks related to weather. We develop a financial model and use Monte Carlo simulation and empirical fertilizer and potato sale price distributions to estimate the distributions of ten-year net present values (NPVs) for alternative fertilizer rates. The results show that the preferred fertilizer rate depends on the assumption about potato sale prices and producers’ risk aversion levels. Risk-neutral producers prefer lower fertilizer rates than do risk-averse producers to avoid the downward risk caused by the high fertilizer expense and low yields. BMP adoption can also lead to profit loss when the BMP is designed for a low price scenario while market conditions are favorable. Hence, BMP development should be based on comprehensive analysis of production and market risks, as well as producers’ risk perceptions. It should also be recognized that to achieve water quality targets, BMP adoption may lead to reductions in profits if a subset of possible production and/or market conditions are realized. Insurance-type policies to compensate agricultural producers for the profit losses may be developed.

Suggested Citation

  • Asci, Serhat & Borisova, Tatiana & VanSickle, John J., 2015. "Role of economics in developing fertilizer best management practices," Agricultural Water Management, Elsevier, vol. 152(C), pages 251-261.
    • Handle: RePEc:eee:agiwat:v:152:y:2015:i:c:p:251-261
    DOI: 10.1016/j.agwat.2015.01.021
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    2. Silva, Andre Luiz Biscaia Ribeiro da & Zotarelli, Lincoln & Dukes, Michael D. & van Santen, Edzard & Asseng, Senthold, 2023. "Nitrogen fertilizer rate and timing of application for potato under different irrigation methods," Agricultural Water Management, Elsevier, vol. 283(C).
    3. Traxler, Emilia & Li, Tongzhe, 2020. "Agricultural Best Management Practices, A summary of adoption behaviour," Working Papers 305271, University of Guelph, Institute for the Advanced Study of Food and Agricultural Policy.
    4. Lutengano Mwinuka & Khamaldin Daud Mutabazi & Frieder Graef & Stefan Sieber & Jeremia Makindara & Anthony Kimaro & Götz Uckert, 2017. "Simulated willingness of farmers to adopt fertilizer micro-dosing and rainwater harvesting technologies in semi-arid and sub-humid farming systems in Tanzania," Food Security: The Science, Sociology and Economics of Food Production and Access to Food, Springer;The International Society for Plant Pathology, vol. 9(6), pages 1237-1253, December.

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