6.10   Economic Advisory Aids for Precision Agriculture Users

Investigators

Steve Isaacs, Agricultural Economics, sisaacs@ca.uky.edu
Carl R. Dillon, Agricultural Economics, cdillon@ca.uky.edu

Introduction

            Producers often get started with precision agriculture technology through the use of yield mapping.  Once the maps are generated, the farmers find themselves then asking the question “Now what?” Assistance is needed in providing decision tools that can utilize this yield map data in conducting economic analysis to improve managerial decisions.  Ultimately, a farmer’s decisions are based upon the underlying economic consequences of actions being considered. In turn, the economic consequences are determined by the underlying production responses.  Therefore, economic results drive a producer’s decisions while the physical relationships (e.g., agronomic, engineering, pathological) provide the foundation for the economics.  Successful producers must consider the multifaceted aspects of their decisions, relying upon appropriate analysis that adequately reflects the interrelationships of their cropping system.

            Given this decision-making framework, the basic yield map can serve as a critical foundation in the development of a profit map, or more correctly a net returns map.  Such a graphical depiction highlights areas of varying degrees of profitability that in turn provides additional worthwhile information for decision-making processes.  Areas that deserve additional attention are depicted.  Thus, areas with the potential for enhanced profitability may be identified. Likewise, areas that are unprofitable may be designated for removal from crop production if they possess problems that cannot be resolved profitably.

            Net returns maps can help in a basic decision regarding the very fundamental question of whether or not to produce. Some areas of a field may be unable to economically justify production because of low yield, high operating costs, or unfavorable lease terms. Furthermore, qualifying land can be entered into the Conservation Reserve Program (CRP), thereby earning income from an alternative other than crop production.  Decision aids to help answer these fundamental questions are needed.  The net returns map can serve as a primary and critical piece of information in making this evaluation.  The methodology to develop these profitability maps and the data requirements for the decision tools will need to be determined.

            The net returns map can also be expanded to address risk management.  Risk mapping has not been addressed in current precision agriculture technology.  However, incorporation of yield variability allows introduction of production risk into an economic map. Such information would visually depict the relative level of risk the producer faces in different areas of the field. Greater and lesser levels of risk would be graphically displayed to help a producer determine where to concentrate risk reduction strategies.

Objectives

The underlying purpose of this project is to provide Kentucky crop producers with the means of using yield maps for economic analysis of profitability, risk assessment, and CRP enrollment potential.  Specifically, the objectives of this research program are to:

1.       Identify and develop procedures for generating net returns maps, risk maps and CRP enrollment recommendation maps,

2.       Establish economic advisory services to extend these methods to producers who provide yield maps and base economic data, and

3.       Determine the feasibility of providing these selected economic advisory services to farmers on a fee basis much like current soil testing services.

Background

Two primary issues of relevance to this research project are discussed next.  First, a general overview of basic literature related to the economics of precision agriculture is presented. Following this, a review of studies germane to the CRP is examined.

The economic feasibility of precision agriculture is a common underlying question of producers considering its adoption.  While the literature regarding the economic issues in precision agriculture is rich with numerous studies, they are generally broad based and address philosophical discussions rather than quantitative evaluations.  General philosophical discussions have included such dimensions as descriptive (e.g.- Lowenberg-DeBoer; Sonka and Coaldrake), political (e.g.-Wolf and Buttel), social (e.g.-Nowak) and research opportunities and challenges (e.g.-Weiss).  Lowenberg-DeBoer and Swinton conducted a review of the economics of precision agriculture, finding that economic feasibility is dependent upon several factors including many components of the underlying economic, agronomic and engineering environment.  Precision agriculture, depending on the crop, inputs and conditions being considered, has been shown to be profitable (e.g.-Fiez et al.; Lilleboe; Malzer; Schnitkey et al.), not profitable (e.g.-Lowenberg-DeBoer et al., Wibawa et al.; Beuerlein and Schmidt) or inconclusive with mixed results (e.g.-Carr et al.; Snyder et al.; Oriade et al.; Wollenhaupt and Wokowski).

The literature is replete with studies investigating various aspects of CRP.  These include research that has studied economic impacts (e.g., Konyar and Osborn, Taylor et al.), environmental impacts (e.g., Kalaitzandonakes and Monson), interrelations with agronomic aspects such as tillage (Phillips et al.), policy considerations (e.g, Boyd, Konyar and Uri, Osburn), farm management issues (Setia and Piper) and breakeven analysis (Siegel and Johnson).  However, studies providing basic decision rules and management techniques for producers evaluating precision agriculture choices are lacking.

Procedures

To accomplish the first objective, ArcView^ã combined with Excel^ã spreadsheet templates will be used to implement farm accounting principles in calculating net returns for each cell on a yield map.  Yield variability as estimated from multiple years of yield maps (when available), or from historical farm level yields otherwise, will be incorporated for the risk mapping procedure.  Consequently, net returns variability maps will be developed depicting the variance, standard deviation or coefficient of variation of net returns.  Also, risk adjusted net returns maps could be developed.  These maps would penalize areas with high risk and could generate maps based on low, medium and high levels of risk penalty reflecting the farmer’s tolerances of risk.

Partial budgeting techniques will be combined with breakeven analysis to the level of returns that justify enrollment in CRP.  Maps highlighting these areas of optimal CRP enrollment will be developed.  Yield maps from Kentucky producers will be used to develop these procedures and to provide example maps depicting profitability, net income variability (i.e. risk), and CRP enrollment potential.

The second objective entails making these economic advisory services available to Kentucky farmers.  Promotion and access will be through College of Agriculture internet sites. Research results and educational materials will be disseminated through the internet sites and in conventional Extension publications.  A procedure requesting the necessary data, including yield maps and economic data, will be developed pursuant to the results of objective 1.  These will be mailed (preferably electronically) to farmers who request economic advisory services.  Upon receipt of yield maps and data at UK, economic maps will be generated and returned to the producer. This information interchange will ideally take place over the internet with farmers submitting and receiving information via UK web sites.  Services will be performed as requested but will be limited by personnel available.  In the research and development stages of this project these services will be offered at no cost.  It is also possible that permission to use this data for research purposes be requested but not required.

An estimation of the potential for offering these services, at different fee levels will be made based on the demand observed in Objective 2.  An estimation of the costs to perform these economic advisory services will also be made.  A simple cost benefit analysis will be made in evaluating the potential for continuation of the program.

Expected Benefits

This project is designed to research, develop, and extend farm-level economic advisory services based on farmer’s yield map information.  It will address several key questions.  Where in my field am I producing at a profit?  Where am I unprofitable?  What parts of my field are most profitable? What parts of my field the riskiest?  Where is the risk the least?  Where should I put in a CRP filter strip?  Consequently, this research will provide insights into the establishment of practical, simple decision rules that will be used to develop economic maps for producers to make managerial decisions.

This research project will help farmers use yield map data provide information that will help enhance profitability and/or reduce risk.  Dissemination of the decision rules and study results is anticipated through web pages, popular articles, Extension materials, presentations and field days.

Deliverables

Several deliverables are anticipated from this research.  Methods for generating net returns maps and risk maps will be established and communicated.  Methods for generating maps depicting CRP enrollment recommendations will be established as well.  To make this useful to farmers with yield map data, protocols for receiving farm-level yield data, analyzing the data, and returning results to the farmers will be established.

Refereed journal articles, popular articles including materials for web pages, presentations and Extension materials including items suitable for field days and decision support tools are the physical deliverables anticipated from the project.  These different outlets are used in order to gain the greatest exposure to different audiences: other researchers and Extension specialists, county agents, and producers.  Precision agriculture is based on electronically stored information (and lots of it); therefore, it is necessary to receive and provide information via the Internet.  This will be done through web sites at the University of Kentucky College of Agriculture.   Presentations, professional meetings, and in-service training with county agents will be provided to facilitate dissemination of information directly to producers.  Furthermore, communication of results through extension newsletters, extension publications and field days is envisioned.