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2003
Table of Contents |
Abstract: Analysis of 266 surveyed east-central Washington
farmers showed that 20% had tried no-till. Most had used this practice with
continuous spring cropping. The survey revealed that an NRCS-Extension soil
conservation educational program had boosted the adoption of no-till. A sample
of 11 successful long term PNW no-till growers used a variety of no-till transition
strategies. Some rented larger tractors needed only for drilling and some retrofitted
no-till drills in farm shops. Others shared no-till drills and tractors with
neighbors, timed purchases of drills and tractors during high cash flow years,
and shopped for low cost financing. Some farmers did custom no-till to help
pay for drills. Most retained their conventional equipment as a safety hedge.
Interviews were conducted with 10 no-till farmers from eastern Washington who
considered themselves in the transition from conventional farming. Although
the speed of conversion to no-till varied greatly, none of the farmers “backtracked”
in no-till acreage over five years. Most transition farmers custom hired or
rented a drill in years 1-3, but over half had purchased a drill by years 4
and 5. All but one of the drill purchasers reported having paid cash for their
no-till drills. Recommendations from using a farm management risk program revealed
that gradual adoption of no-till, graduating up to 30% of acreage in six years,
was least risky if no-till began with a 10% yield penalty. Large farmers with
the cash or financing should purchase a no-till drill early on. Custom and rental
drill acquisition in early years of the transition is recommended for small
farmers, especially for gradual no-till acreage expansion. Low equity farmers
should be careful about adopting no-till if they fear an initial yield penalty.
Small size low equity farmers may wish to wait until they can pay cash for a
lower cost no-till drill.
Introduction
Some past field research and farm case studies show that with good management
the economic and agronomic performance of no-till can sometimes be competitive
with conventional tillage in the PNW (Camara 1999a and 1999b). Furthermore when
the societal benefits of improved soil and water quality are included, the justification
for no-till is strong. Nonetheless, the Pacific Region, including the Pacific
Northwest (PNW), seriously lags the rest of the country in adoption of no-till
farming (CTIC 2000). Many earlier adopters of no-till in the PNW subsequently
abandoned the practice, in part due to difficulties in managing the large up-front
costs of purchasing no-till drills and appropriate tractors. These large investment
costs and attendant financial risks in the transition phase may be a major barrier
to adoption of no-till. These barriers have been magnified by low crop prices,
variable farm program payments, and depressed markets for used conventional
farm machinery during the late 1990's. Indeed PNW no-till farmers have shown
wide variation in their economic success depending on how the financial transition
to no-till was managed. The timing of no-till drill and tractor purchases, purchase
of new or used machinery, custom hiring of some no-till planting, renting or
leasing drills and tractors, management of repair and retooling costs, and combinations
of these approaches must be strategically tailored to the particular farm business
situation. A better understanding of the nature of the risks and returns for
different no-till transition strategies could lead to public policies and programs
that would accelerate adoption of no-till where it is suitable, and thereby
reduce financial stress and the economic and environmental losses from soil
erosion in the PNW.
Descriptions by individual
growers or by machinery company representatives of specific strategies for managing
(or surviving) the transition to no-till are a popular topic at tillage conferences.
While these personal histories are useful, there is a need for a comprehensive
and consistent review of the economic performance and risk of the portfolio
of no-till economic transition strategies. Furthermore, a review of how the
strategies should be modified to fit the risk-bearing capabilities of different
farm businesses is needed. Personal testimonials or commercial sales strategies
might give the impression that “one size fits all,” but this is
rarely true. Finally, a comprehensive analysis should use consistent measures
of profitability and risk so that all strategies are compared by the same criteria.
Results and discussion
This paper will (1) examine survey results from 266 east-central Washington
farmers to examine which ancillary conservation practices farmers use during
the transition to no-till, (2) examine the practices used by 11 experienced
no-till farmers for reducing machinery costs during their successful no-till
transition, (3) analyze the pattern over time of the no-till transition process
for 10 eastern Washington farmers, and (4) report results of a farm risk simulation
program to compute the risk of investment failure for several no-till transition
strategies for farms of different sizes and equity position.
A survey of 266 east-central Washington farmers showed that farmers making the transition to no-till often adopt other conservation practices simultaneously (Upadhyay et al. 2003). For example, 20.4 percent (8.3+9.8+1.5+0.8 percent from Figure 1) of the sampled farmers had used no-till to some extent, but most had used it jointly with one or two other erosion control practices. Some 11.3 percent had used no-till jointly with spring cropping (Figure 1), possibly to take advantage of moisture conservation advantages of no-till. Similar results were found in the conservation farming literature which indicated intensification of cropping permitted by no-till and min-till was a major factor in a 44 percent reduction in fallow in North America over the last three decades (Smith and Young 2000). The survey of 266 eastern Washington farmers also showed that participation in an NRCS-Extension educational program significantly boosted the adoption of no-till among farmers. The educational program provided research results on effective no-till technologies and highlighted the off-site costs of wind erosion.
Figure 1. Percentage of respondents by conservation practice adoption group. Note: 60.5 percent adopted no practices
Eleven long-term PNW no-till
farmers were surveyed to learn from their experience. This group was beyond
the transition and was no-tilling all or most of their farms. Several of these
farmers had purchased no-till drills and we compared their cost of drill ownership
to prevailing custom rates. Based on their annual acres no-till seeded each
year, the comparison showed that most were minimizing seeding costs by owning
their drills. They used a wide variety of strategies to economize drill ownership
and use costs. Some farmers rented larger tractors needed only for no-till drilling,
some bought used drills and retrofitted them, some assembled no-till drills
in farm shops. Others shared no-till drills and tractors with relatives or neighbors,
timed purchases of drills and tractors during high cash flow years, and shopped
for low cost financing for drill and tractor purchases. Some did custom no-till
planting to help pay for drills. These results indicate that success in the
no-till transition process requires adapting a strategy that suits the particular
business and agro-climatic situation of the farm.
We conducted comprehensive personal interviews with 10 no-till wheat and barley
growers from Whitman and Adams counties, WA who considered themselves still
in the transition process from conventional farming, but who had accumulated
about five years no-till experience. Each farmer provided information on the
farm’s size, financial position, and crop rotations at the initiation
of the transition. The farmer also described annual no-till drill acquisition
(custom, rent, lease, or purchase), annual no-till acreage expansion, and yield
experience during the transition period (Tables 1-3).
Table 1. The average, lowest and highest response to selected questions by 10 transition no-till farmers in eastern Washington, spring 2001
The ten farmers whose responses are summarized in Table 1 show great disparity in land tenure at year 1 of their no-till transition. The group includes farmers who rented all their land, who owned all their land but were still paying for it, and who owned all their land and had fully paid for it. This suggests that the no-till transition may not require one particular land tenure situation.
These survey results also suggest that eastern Washington farmers make the transition to no-till gradually. Although the speed of conversion to no-till varied greatly among the six farmers listed in Table 2, it is interesting that none of the six “backtracked” in no-till acreage over the five years. Each year the same or an increasing percent of acreage was no-tilled. The results in Table 3 indicate that most farmers began by custom hiring or renting a drill in years 1-3 of the transition. But over half of this group of eastern Washington growers had purchased a drill by years 4 and 5. All but one of the drill purchasers in this group reported having paid cash for their no-till drills which ranged in cost from $13,618 to $65,000. These results indicate that no-till farmers consider drill ownership a desirable goal for economic and agronomic reasons. However, most desire to reduce the investment risk by deferring no-till drill purchase until they can pay cash. The types of drills purchased included: McGregor, Yielder, Great Plains, Cross Slot, Palouse Zero Till, and Flexicoil Air Seeder. This diversity of equipment suggests that growers are buying models considered appropriate for their particular soils, topography and climatic conditions. The surveyed growers usually kept their conventional tillage equipment. This equipment was viewed as having a low sale value. It also provided a cheap “insurance” if it were necessary to revert to conventional tillage on some fields.
Table 2. Pattern of no-till expansion during transition years for six farmers in eastern Washington.a
a Sample includes
farmers providing complete information to relevant questions.
Table 3: Percent of nine farmers acquiring no-till drills by different means during the 5-year transition period
The “transition no-tillers” were asked to reply to the general question: “Would you have done anything differently to maintain a secure cash flow after switching to no-till?” Their responses appear to confirm that economic risk is a barrier to no-till adoption:
We used the Simetar farm management risk simulation program developed at Texas A&M University to assess the riskiness of different no-till transition strategies (Richardson et al. 2000, 2001). The program was applied to eastern Palouse wheat-barley-pea farms of different sizes and equity structures. The farm’s annual net after tax cash flow was simulated for 500 “draws” from risky weather and prices for each of the years of a six-year transition to no-till farming. We used historic crop price patterns to project future price fluctuations for wheat, barley and peas. Trends in average crop prices over the transition period were based on national forecasts. Yield risk with conventional and no-till wheat, barley, and peas was based on annual yield fluctuations of these crops in eastern Palouse field experiments. To reflect the “learning curve,” no-till yields were assumed to suffer a 10% penalty relative to conventional tillage in year 1 which gradually disappeared by year 6. The farm received government payments, as eligible, from the loan program, direct payments, and counter cyclical payments of the 2002 Farm Bill. Cash outflows included cash crop production expenses, debt repayments for machinery and other assets, property and income taxes, insurance, overhead, and family living withdrawals of $17,118 to $32,073 per year depending on farm size and equity. Owned land--20% or 80% of farmed land depending on equity position–was assumed paid for. Production costs were assumed to inflate at 3%/yr. Landlord share rents were 1/3 and 1/4 for grains and peas, respectively, with corresponding landlord contributions for crop insurance and fertilizer. Rental and custom hire rates for no-till drills were set at $12 and $20 per acre, respectively. The purchase price for a new no-till drill was $53,750 with 30% down and the balance amortized over the next five years at 8% interest.
The risk modeling exercise
yielded 500 x 6 years or 3000 annual cash flow computations for each of 39 no-till
transition strategies. This generated a total of 117,000 annual economic farm
cash flow performances. Using the 500 runs for each six-year no-till transition
strategy, we calculated the probability of “transition failure”
(probability = no. failures/500) for two different measures of failure. Table
4 presents results for “transition failure” defined as experiencing
two consecutive years of negative cash flow. This means the farmer is unable
to meet production expenses, debt payments, and family living from current year’s
crop revenues plus government payments for two years in a row. In agriculture,
variable incomes are expected so most growers were not considered likely to
“give up on no-till” after just one year’s cash flow shortfall.
However, we surmised that some growers would become disenchanted after two consecutive
years of negative cash flow. In contrast, Table 5 defines “transition
failure” as a negative cumulative cash flow balance at the end of the
six-year transition period. This criterion represents farmers who are willing
to “grit it out” for the full six years and consider the transition
a failure only if all the positive annual cash balances years fail to out balance
the negative ones and year 6 ends with a cumulative cash flow deficit.
Table 4. Simulated probability of no-till transition failure due to two consecutive
years of negative cash flow during the six year transition period for a WW-SB-pea
rotation in the eastern Palouse
Note: Gradual adoption
involves no-tilling 5%,10%, 15%, 20%, 25%, 30% of total acreage in years 1 through
6; Moderate adoption involves no-tilling 40%, 50%, 60%, 70%, 80%, 90% of total
acreage in years 1 through 6; Immediate adoption involves no-tilling 100% of
total acreage in years 1 through 6. LF is a large farm of 3000 acres, SF is
a small farm of 800 acres. The numbers 80 and 20 refer to the percent of cropland
owned outright as opposed to rented. In the first column, P is Purchase, R is
rent and C is custom hire no-till drill. P-6 means purchased for all six years;
R-1 means rent in year 1, then purchase for remaining years; C-4 means custom
hire for four years, then purchase for remaining years; and similarly for other
codes.
Table 5. Simulated probability of no-till transition failure due to a negative
cumulative cash flow balance at the end of the six-year transition period for
a WW-SB-pea rotation in the eastern Palouse
Note: Gradual adoption involves no-tilling 5%,10%,15%,20%,25%,30% of total acreage in years 1 through 6; Moderate adoption involves no-tilling 40%,50%,60%,70%,80%,90% of total acreage in years 1 through 6; Immediate adoption involves no-tilling 100% of total acreage in years 1 through 6. LF is a large farm of 3000 ac, SF is a small farm of 800 ac. The numbers 80 and 20 refer to the percent of cropland owned outright as opposed to rented. In the first column, P is Purchase, R is rent and C is custom hire no-till drill. P-6 means purchased for all six years; R-1 means rent in year 1, then purchase for remaining years; C-4 means custom hire for four years, then purchase for remaining years; and similarly for other codes.
The 39 no-till transition
strategies in Tables 4 and 5 represent all combinations between three speeds
of adoption of no-till over six years and 13 sequences in which a no-till drill
is acquired via custom hiring, renting, and purchasing. The exact definitions
of the strategies are explained in the footnote accompanying Tables 4 and 5.
As expected, Table 5 shows lower probabilities of no-till transition failure
than Table 4. The reason is that Table 5 employs a more lenient definition of
failure, or more tolerance for bad economic results, than does Table 4. However,
the pattern of risk results is similar between Tables 4 and 5. Strategies or
farm types that are high risk in Table 4 are also relatively high risk in Table
5.
In the following discussion, we will emphasize the results from Table 4, but,
as noted above, the general pattern of conclusions extends to Table 5. Only
highlights from the extensive tabular results are presented. With no-till beginning
with a 10% yield penalty, gradual adoption of no-till, reaching only 30% of
acreage after six years, was least risky. For large farms, with 80% of their
land owned, the probability of investment failure (defined as failing to meet
expenses two years in a row) was only 9-11 % for all drill acquisition options
(Table 4). In contrast, large farms with only 20% of their land owned incurred
a risk of investment failure of 41-44% over all options with gradual adoption.
Immediate adoption of no-till (100% of acres in year 1) elevated risk of investment
failure to 18-33% for high equity large farms and 57-79% for low equity large
farms (Table 4). Interestingly, immediate purchase of a no-till drill was less
risky than custom or rental options for the large farms which immediately converted
to no-till. The reason is that economies of scale made purchase cheaper than
custom or rental. In contrast, high equity small farms could cut risk of investment
failure from 35% to 20% by custom hiring no-till drill services versus purchasing
a drill at the outset when no-till was gradually adopted. When these small farms
adopted no-till immediately, the probability of investment failure was about
the same for purchase, rental, and custom options. Overall, risks of investment
failure were higher for small than large farms under our assumptions of equivalent
yields for the two groups.
Conclusions and
recommendations
Several generalizations and recommendations for managing (and surviving) the
no-till transition emerge from the results in Tables 4 and 5.
The survey results from
actual farmers greatly enrich the modeling results in several ways. Advice from
experienced no-tillers goes beyond simply determining the pace of no-till adoption
and drill acquisition method. No-till farmers repeatedly emphasized that imaginative
tight fisted machinery cost management was a key to success. Some rented larger
tractors needed only for drilling and some retrofitted no-till drills in farm
shops. Others shared no-till drills and tractors with neighbors, timed purchases
of drills and tractors during high cash flow years, and shopped for low cost
financing. Some farmers did custom no-till to help pay for drills. Most retained
their conventional equipment as a safety hedge. Perseverence was also a common
attribute. Although the speed of conversion to no-till varied greatly, none
of the surveyed transition no-till farmers “backtracked” in no-till
acreage over five years. Most transition farmers custom hired or rented a drill
in years 1-3, but over half had purchased a drill by years 4 and 5. All but
one of the drill purchasers reported having paid cash for their no-till drills.
Personal adoption histories varied considerably indicating that adoption plans
must be strategically tailored to the particular farm business situation. Furthermore,
many farmers combined no-till with other new practices such as continuous spring
cropping. New no-tillers sought out information aggressively from extension,
industry, and neighbors who were using no-till.
References
Camara, O.M., D.L. Young, and H.R. Hinman. 1999a. Economic case studies of eastern Washington no-till farmers growing wheat and barley in the 8-13 inch precipitation zone. Farm Business Management Report. EB 1885. Cooperative Extension. Washington State University. Pullman, Washington.
Camara, O.M., D.L. Young, and H.R. Hinman. 1999b. Economic case studies of eastern Washington and northern Idaho no-till farmers growing wheat, barley, lentils, and peas in the 19-22 inch precipitation zone. Farm Business Management Report. EB 1886. Cooperative Extension. Washington State University. Pullman, Washington.
CTIC (Conservation Tillage Information Center). 2000. Web site http://www.ctic.purdue.edu
Richardson, J.W., S.L. Klose, and A.W. Gray. 2000. An applied procedure for estimating and simulating multivariate empirical probability distributions in farm level risk assessment and policy analysis. J. Agric. and Applied Econ. 32(2):299-315.
Richardson, J.W., K. Schumann, and Paul Feldman. 2001. Simetar: simulation for excel to analyse risk. Agriculture and Food Policy Center. Department of Agricultural Economics, Texas A&M University, College Station.
Smith, E.G. and D.L.Young. 2000. The economic and environmental revolution in semi-arid cropping in North America. Annals of Arid Zone. 39(3): 347-361.
Upadhyay, B.M., D.L. Young, H.H. Wang and P. Wandschneider. 2003. How do farmers who adopt multiple conservation practices differ from their neighbors? Amer. J. Alternative Agric.18(1): in press.
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