Using
GPS Data to Optimally Allocate Land in Production to CRP Buffer Strips
Jeremy Stull, Carl Dillon, Steven Isaacs, and Scott Shearer
Stull is a graduate research assistant, Dillon is an associate professor, Isaacs is an associate professor in the Department of Agricultural Economics; Shearer is an associate professor in the Department of Biosystems and Agricultural Engineering, all at the University of Kentucky, Lexington.
Stull, J,
C.R. Dillon, S. Isaacs, and S.A. Shearer. 2000. Using
GPS Data to Optimally Allocate Land in Production to CRP Buffer Strips
Abstract
This research evaluates the economic benefit of
buffer strips on a diversified crop farm. Analysis includes breakeven computations permitting
development of a decision-making criteria for the selection of these strips
using historical yield monitor data. Results
suggest that there is potential for this process to increase overall net returns
for producers.
Keywords: global positioning systems (GPS), conservation
reserve program (CRP), geographic information systems (GIS), breakeven analysis,
yield maps, profit maps.
Introduction
Precision agriculture is a rapidly developing industry that continues to
be adopted at high rates. Skepticism
abounds as to its economic feasibility. The ability to alter management
practices so that investment costs are recovered concerns potential users.
Useful soil characteristics such as pH and fertility levels can be
obtained through site-specific farming. Many
operators adopting site-specific farming practices begin the process with yield
monitors. In 1997, about 17,000 combines in the U.S. were equipped with yield
monitors. Field mapping services
doubled in availability from 15% nationally in 1996 to 41% in 1997 (Lowenberg-Deboer
and Swinton). Relying on satellite referencing, these instruments generate
yield maps depicting actual yields for each reference point in a field.
Operators have the ability to analyze these maps and gain valuable
information on the production potential for certain areas of the field.
Those areas that possess less than desirable yields from an economic
standpoint may be more profitably managed.
Buffer strips enrolled through the Conservation Reserve Program (CRP) are
an alternative that have the potential for better management of these areas.
Buffer
strips are employed to offset erosion in areas that have high potential for soil
loss by removing these regions from production.
Often, these regions consistently produce yields that do not generate
favorable economic returns. Entering
these regions into the CRP program through buffer strips may help offset
economic losses in these areas. The
Federal Agricultural Improvement and Reform Act of 1996 allowed producers more
crop production flexibility, giving them the option to bring CRP land back into
production. The United States
Department of Agriculture (USDA) expressed concern as to what land would be
brought back into production, due to abolished production.
Concern is that marginal land will be cropped.
Results of this research will provide producers with a more concise
method for deciding on regions that can be better economically managed as buffer
strips.
Economic
and agronomic analysis will allow development of criteria for which producers
can use Global Positioning System (GPS) yield monitor information to designate
production regions to buffer strips. The
process by which these regions are selected satisfies the ultimate objective of
the CRP program. Low production
regions are often highly erodible regions that have little potential for
producing above-average net returns. By
selecting these regions to be left out of production, the regions are subjected
to less stress and erosion, and net returns are potentially increased.
To
accomplish the goals of this research, a process will be developed for selecting
regions of fields to be planted to CRP and non-CRP buffer strips based on
historical GPS yield monitor information and breakeven analysis. Criteria for buffer strip enrollment will allow areas of
fields eligible for this process to be identified.
Analysis will further assess the potential for increasing net returns of
production units through implementation of buffer strips in low production field
regions.
Relevant
Literature
Studies
investigating precision agriculture are growing in number in the current
literature. The National Research Council defines precision agriculture as “a
management strategy that uses information technologies to bring data from
multiple sources to bear on decisions associated with crop production” (p17). Other literature suggest similar definitions (e.g. - Vandan
Heuvel; Lowenberg-Deboer and Swinton; Sonka and Coaldrake).
This research depends heavily on the use of the yield monitor within
precision farming, which has also been the subject of other research for
precision farming analysis (e.g. - White; Walker; Atherton et al.).
Profitability of precision farming has been heavily analyzed.
Such research has determined factors to its profitability (e.g. - Batte;
Atherton et al.), as well as shown it 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.; Wollenpaut and Wokowski).
Many studies have suggested that the ability to gain information is not
the key factor for profitability, yet the ability to manage this information
will determine its effectiveness (e.g. - Sonka and Coaldrake; Vanden Heuvel;
Atherton et al.; Batte).
Breakeven
analysis as used in this study has also been heavily researched.
Definitions and rules of thumbs to consider for breakeven analysis have
been offered (Dillon). The
inclination of operators to base decision-making on short-term, justifying
variable costs use, has been studied (Silva) while methods for analyzing
breakeven procedures for a multi-period project have been presented (Kim and
Kim). The suggestion of government
payments for inclusion in breakeven analysis has also been suggested (Dillon).
The
literature is also very complete with research investigating the CRP program. Such research has described characteristics of CRP land as
well as CRP participants (e.g. - Leistritz).
Other research has addressed economic impacts (e.g. - Konyar and Osborn;
Taylor et al.), environmental impacts (e.g. - Kalaitzandonakes and Monson),
interrelations with agronomic aspects (Phillips et al.), policy considerations
(e.g. - Boyd et al.; Osborn), farm management issues (Setia and Piper), and
breakeven analysis (Siegel and Johnson). The
need for research evaluating whether to enroll in CRP or not is somewhat
incomplete, further justifying this research.
Data
and Methodology
Data
was obtained from on-going research on a farm-scale level at a cooperating
Shelby County, Kentucky farm. Detailed
production records and historic yield monitor information have been kept by the
operator. Production information,
both input and GPS yield data on a grid by grid basis, is used to generate maps
referencing net returns to all point within fields. Average payments generated from CRP enrollment is included in
the analysis. Recent agricultural
policy actions have also warranted that Agricultural Marketing Transition Act (AMTA)
payments as well as Loan Deficiency Payments (LDP) be considered in the
analysis. Kohl cited that in 1999,
these payments along with other agricultural government payments will represent
nearly 40 percent of total farm income.
Economic
data of input and output prices coupled with historical site-specific yield data
will provide the basis for generating breakeven information utilized to
establish a decision-making criteria for delineation of management zones which
would be suitable for conversion to CRP buffer
strips. Five-year average prices
for corn, soybeans and wheat were calculated. Variable operating costs were collected from the operator,
which were compiled in a manner consistent with standards of
the University of Kentucky Farm Business Management program.
Establishment and maintenance costs for buffer strips were determined
through actual costs that the cooperating producer experienced spread out over
the life of the buffer strip. A
process using average investment cost multiplied by an interest rate is used to
assess the cost of investing capital in the strips.
Average CRP payment rates for Kentucky , gathered from the Farm Service
Agency (FSA), are used in the analysis. Enterprise
and partial budgeting methods are used to create frameworks that can be used by
various producers to generate information specific to their operation and
conduct a comparative analysis. Endogeneous
variables that are yield-dependent are taken out of our equations by subtracting
or adding these costs or payments from commodity prices[1].
This allows only those costs that are not yield-dependent to be computed.
Buffer
strips must meet guidelines as set forth by the Natural Resource Conservation
Service (NRCS) in order to receive monetary payments.
These guidelines require that buffer strips be established within 150
feet of a wetland edge or stream/water body as measured from the top of the
bank. The maximum area for
enrollment cannot exceed 100 feet wide. The
presence of a trees precludes an area from inclusion in a buffer strip.
This should not affect this particular analysis as yields are being
investigated and an area of trees will not be cropped.
Using these general criteria, yield maps are manipulated to identify
areas that are below breakeven and meet these guidelines.
Data from one farm with several fields for the previous three years will be analyzed. Two years of field data (1997-98) are used to develop economic criteria for selecting buffer strip regions. Three strategies will be compared using the remaining “out-of-sample” year. The first is for the actual observed data with no buffer strips. The second strategy examines what would have happened if buffer strips would have been used, eliminating production in all management zones that meet NRCS guidelines. A third strategy examines implementation of buffer strips that meet both economic and NRCS guidelines. Thus, a comparison of net returns with and without buffer strips is conducted.
A notable assumption for this study is that the operator owns the land which is in production and being investigated. CRP payments are made to landowners, which in many cases is not the producer due to various landowner/tenant arrangements. This assumption allows our analysis to include these payments in the breakeven equation. Further analysis of this assumption is discussed in the conclusions. Another important assumption involves the net effect of total operated acres by any decisions to implement buffer strips. It is also assumed that putting areas in buffer strips frees up enough resources to reinvest to the point at which total land operated is unchanged, or a net effect of zero. Consequently, “fixed inputs” like machinery are unchanged and only variable costs are affected.
Conceptual Framework
Breakeven
analysis is used to calculate those levels at which a certain item of interest
will generate net returns of zero. General
formulas for breakeven analysis have constantly been used as decision criteria
for producers. Breakeven analysis
can be used make decisions at all phases of the production season, ranging from
which crops should be planted or whether the crop should be harvested (Dillon).
Prices and output levels at which producers generate net returns of zero
are often used as guidelines for the economic potential of an enterprise to
become part of an operation.
Breakeven criteria for this study were determined through the use of a
general partial budgeting format set forth by Kay and Edwards.
A partial budget provides a formal and consistent method for calculating
an expected change in profit form a proposed change in the farm business (Kay
and Edwards p.182). Partial
budgeting analyzes only those factors that are considered when making a change
in an operation. By identifying
those factors and working through the partial budget in Table
1, equation 1 can be obtained.
(1)
where CRP equals CRP payments, VC represents
variable operating costs of production not dependent on yield, GR represents
gross revenues, GOV represents government payments, EST represents establishment
costs, MNT represents maintenance costs, c represents management unit or cell, i
represents year and j represents crop enterprise.
The process used to select regions of fields to convert to buffer strips
involves a two-year rotation of corn and wheat double cropped with soybeans.
For this reason, a definite breakeven yield cannot be calculated due to
the uncertainty of the other yields. Rather,
a breakeven gross revenue becomes more useful to the analysis.
Using equation 1, a breakeven gross revenue can be obtained.
(2) 
Application of
Model
Using previously mentioned equations and procedures, breakeven analysis
is conducted. Using yield maps as
collected through yield monitoring allows for generation of gross revenue for
each individual management cell. Maps
are then created in a similar format that yield maps are expressed in.
Using average prices, the representative yields are used to generate a
breakeven gross revenue for that particular management cell, all on a per acre
basis. A breakeven gross revenue of $503.32 was used, given variable costs of
$149.68 for corn, $118.58 for wheat, and $113.64 for soybeans[2].
Actual establishment costs for strips were $3.78[3]
per year when spread out over a 10 year life for the strip.
Cost of capital calculations on investment into strips generated $1.51
per year costs, which can be seen as opportunity costs for that capital.
Maintenance costs were assumed to be $5.00 per acre per year for the
strips. Average CRP payments of
$71.00 per acre were used.
The breakeven gross revenue was then used in ArcView software to generate
maps that meet economic criteria as well as criteria for buffer strips as set
forth by NRCS. Comparisons are made
between putting all areas into strips that are eligible to a strategy of
stripping those areas that meet both economic and NRCS guidelines.
Results
The actual results of this process are presented in Table
2. Table
2 depicts the effects of buffer strips on net returns as well as other
aspects of the operation. For every
field, net returns are shown to increase using ‘precision agriculture’[4]
compared to using no strips at all. Implementing
buffer strips in all areas that qualify through NRCS guidelines proved to be
ineffective in total on all fields suggesting regions in these strips are
producing positive net returns greater than those experienced with CRP filter
strips. The actual strips used for
field 14 are presented in Figure 1 to visually
display results. As can be seen,
not all regions that qualify by NRCS guidelines should be put in strips from an
economic standpoint. Comparing the
two stripping strategies, the ‘precision agriculture’ strategy produces
about $78 more in net returns for the field than does putting all regions into
strips.
Conclusions
The
process used to select these regions to plant to buffer strips has merit in
terms of increasing net returns. All
cases in our analysis proved that net returns for wheat in 1999 was increased.
Putting all areas eligible into strips proved to have a positive effect
on increase of net returns per acre, though this practice eliminates areas that
due have positive net returns that should not be eliminated.
This research suggests using stripping as a means to increase net
returns. One limitation to this
study is the lack of abundant data to test this process.
Our analysis could not extend into double-crop soybeans due to
non-availability of precise yield maps. As
precision agriculture practices become adopted by more producers, studies such
as this will become more credible with the increase in data available.
Future research is warranted in the development of mathematical procedures to actually delineate those regions that will be planted to buffer strips. This research relied on a selection process from those regions that met both economic criteria and NRCS criteria and would be put into strips from the standpoint of continuity of the strip. Operating arrangements are another area that poses potential for future research. The recipient of CRP payments is a key factor in this study. Under a tenant/landowner arrangement, it is likely that the tenant would not receive the CRP payment from enrolling strips. Arguments can be made from both standpoints concerning who should actually receive the payment. Research that analyzes this issue and can develop results that can be used by both tenants and landowners is needed