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Effects of uncertainty and farmers' risk aversion on optimal N fertilizer supply in wheat production in Germany

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  • Meyer-Aurich, Andreas
  • Karatay, Yusuf Nadi

Abstract

The role of nitrogen (N) fertilizer in mitigating economic risks in agriculture is under debate with contrasting views. This study contributes to an analysis of the economic response in wheat production to N fertilizer with respect to price premium structures for grain qualities from eight field experiments across Germany. Optimal N fertilizer levels were determined by different algorithms, based on average response, expected profit, and certainty equivalents with different attitudes toward risk aversion. The inherent uncertainty of yield response and crop quality response consistently resulted in higher expected profit with higher N rates than a management based on average response. Profit maximizing N rates based on maximum expected profit were substantially higher than economic optimal N rates based on average response data at 6/8 sites. Expected profit remained high over a large range of N fertilizer rates without a substantial downside risk and opportunity costs of deviating from optimal N rates within a range of 50 kg/ha. Protein price premiums reduce the riskiness of higher N rates and it is possible to apply higher N rates without increasing risk considerably.

Suggested Citation

  • Meyer-Aurich, Andreas & Karatay, Yusuf Nadi, 2019. "Effects of uncertainty and farmers' risk aversion on optimal N fertilizer supply in wheat production in Germany," Agricultural Systems, Elsevier, vol. 173(C), pages 130-139.
    • Handle: RePEc:eee:agisys:v:173:y:2019:i:c:p:130-139
    DOI: 10.1016/j.agsy.2019.02.010
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    3. Chai, Yuan & Pannell, David J. & Pardey, Philip G., 2022. "Reducing Water Pollution from Nitrogen Fertilizer: Revisiting Insights from Production Economics," Staff Papers 320519, University of Minnesota, Department of Applied Economics.
    4. Ellßel, Raphaela & Wüstemann, Friedrich & Offermann, Frank & de Witte, Thomas, 2022. "Impact of the War in Ukraine on Farm Profitability and the Attractiveness of Environmental Measures in Germany," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 71(03), January.
    5. Sergei Schaub & Nadja El Benni, 2024. "How do price (risk) changes influence farmers’ preferences to reduce fertilizer application?," Agricultural Economics, International Association of Agricultural Economists, vol. 55(2), pages 365-383, March.
    6. Lilin Zou & Xumin Zheng & Yongsheng Wang, 2022. "Spatial‐temporal evolution and influence factors of China’s agricultural non‐point source pollution discharge intensity in recent 40 years," Growth and Change, Wiley Blackwell, vol. 53(3), pages 1170-1189, September.

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