Introduction
Land-use practices are undergoing significant change throughout the North American Great Plains region in response to rising input costs, expanding global markets and growing concerns over food safety and environmental degradationReference Padbury, Waltman, Caprio, Coen, McGinn, Mortensen, Nielsen and Sinclair1, Reference Pimentel, Hepperly, Hanson, Douds and Seidel2. Producers have begun to extend and diversify their traditional cereal-based cropping systems by reducing summer fallow and including oilseed and legume crops in the rotation, together with increased use of conservation tillage methods, to capitalize on the rotational benefits of mixed cropping systems, reduce the need for synthetic N fertilizer and fossil energy, and protect the quality of the soil, water and air resourcesReference Smolik, Dobbs and Rickerl3–Reference Zentner, Wall, Nagy, Smith, Young, Miller, Campbell, McConkey, Brandt, Lafond, Johnston and Derksen5. Other producers have become increasingly interested in employing low-input and organic production methods to further reduce the reliance on purchased inputs and to add value to the products producedReference Pimentel, Hepperly, Hanson, Douds and Seidel2,6–Reference MacRae, Frick and Martin8. The degree to which producers will ultimately adopt these new or alternative production systems depends on their ability to lower production costs, generate increased net returns, or reduce overall financial risk compared to current cropping practicesReference Zentner, Wall, Nagy, Smith, Young, Miller, Campbell, McConkey, Brandt, Lafond, Johnston and Derksen5. However, few studies have explicitly examined the relative economic merits of these land-use changes under Canadian Prairie conditions.
The use of minimum-till and no-till practices for annual crop production offers producers the opportunity to increase soil moisture conservation, reduce soil erosion, sequester soil carbon and reduce greenhouse gas emissions compared to conventional tillage practicesReference Acton and Gregorich9, Reference Janzen, Desjardins, Asselin and Grace10. At the same time, however, these practices pose additional challenges with respect to managing problem weeds and maintaining nutrient availabilityReference Lafond, Boyetchko, Brandt, Clayton and Entz11–Reference Derksen, Anderson, Blackshaw and Maxwell13. On the semi-arid Brown (Aridic Haploborolls) and Dark Brown (Typic Boroll) Chernozemic soils, researchers have seldom reported an increase in crop yields when conservation tillage is compared to conventional tillage practices in monoculture cereal rotationsReference Brandt14, Reference McConkey, Campbell, Zentner, Dyck and Selles15, but when conservation tillage is combined with mixed cereal–oilseed–pulse rotations, consistent yield increases are more commonReference Lafond, Boyetchko, Brandt, Clayton and Entz11, Reference Miller, McDonald, Derksen and Waddington16. The synergism that occurs between conservation tillage and mixed cropping systems has been attributed to several factors, including enhanced soil moisture availability from improved snow trap, reduced evaporation losses and lower moisture use by some crops (e.g., pulses); improved crop establishment due to better surface soil moisture conditions, particularly for small seeded crops; improved nutrient use efficiency resulting from better synchrony between nutrient release via mineralization of previous crop residues and nutrient uptake by the current crop; and to enhanced control of weeds and other crop pestsReference Derksen, Anderson, Blackshaw and Maxwell13, Reference Campbell, Zentner, Janzen and Bowren17. Results of economic studies of conservation tillage practices in these regions have indicated little or no economic advantage over conventional tillage practices for monoculture cereal and fallow-based cropping systemsReference Smith, Peter, Blackshaw, Lindwall and Larney18, Reference Zentner, McConkey, Campbell, Dyck and Selles19. Although reducing tillage intensity lowers costs for labor, fuel and machine repair and overheads, these savings were generally more than offset by higher expenditures for herbicides and N fertilizer. However, in mixed crop rotations significant economic benefits are often reported with conservation tillage management due to a combination of higher crop yields, production of higher valued crops and, in some cases, lower production costsReference Zentner, Wall, Nagy, Smith, Young, Miller, Campbell, McConkey, Brandt, Lafond, Johnston and Derksen5, Reference Zentner, Brandt, Kirkland, Campbell and Sonntag20, Reference Zentner, Lafond, Derksen and Campbell21.
Organic agriculture relies on the use of crop rotations, legume green manure and cover crops, the addition of organic soil amendments such as animal manures and compost, rock phosphate and on tillage to maintain the health of the soil and environmental resources, recover nutrients from lower soil depths and to minimize the influences of crop pests22. Organic systems typically produce lower crop yields than conventional cropping systemsReference Entz, Guilford and Gulden6, Reference MacRae, Frick and Martin8, Reference Brandt, Ulrich, Thomas and Olfert23. They also often require that producers incur substantial transition costs, such as the investment in soil building crops and/or the addition of organic amendments to enhance soil organic matter levels and replenish soil nutrients, and to make needed changes in machine inventories. Further, they require substantial time and effort to learn and master organic production practices, document the practices used and to discover and secure market opportunities. Organic producers must also endure a 3-year certification period during which they are required to use certified organic seed and management methods, but must sell their grain and forage products at commercial or non-organic prices. However, once certified most organic products can be sold at prices greater than conventionally produced products and these higher revenues, combined with savings in expenditures for inorganic fertilizers and chemicals, may lead to overall improvements in net farm income. Studies that have examined the economic merits of organic agriculture have reported that the main determinants of profitability (compared to conventional agriculture) are the relative crop yields, extent of the cost savings due to the reduced reliance on non-renewable resources and purchased inputs, the supply of unpaid family labor, the existence of price premiums for organic products and the magnitude and duration of reduced income during the organic certification/transition periodReference Pimentel, Hepperly, Hanson, Douds and Seidel2, Reference Smith, Clapperton and Blackshaw7, Reference MacRae, Frick and Martin8, Reference Schneeberger, Darnhofer and Eder24.
The objective of this study was to determine and compare production costs, net returns and the riskiness of nine cropping systems, representing a factorial combination of three levels of input usage (high, reduced and organic) and three levels of cropping diversity (low cropping diversity and intensity, diversified cropping using annual grains and diversified cropping using annual grains and perennial forages). The cropping systems were assessed over a 12-year period (1996–2007) on a Dark Brown Chernozemic soil (Typic Boroll) in the Canadian Prairie.
Materials and Methods
Experimental data
The design and methods for the field experiment have been described previouslyReference Malhi, Brandt, Lemke, Moulin and Zentner25–Reference Zentner, Basnyat, Brandt, Thomas, Ulrich, Campbell, Nagy, Frick, Lemke, Malhi and Fernandez27; thus only a summary of aspects pertinent to the economic discussion is presented.
The cropping systems experiment was established in 1994 on gently sloping land (1–3% slope) at the Agriculture and Agri-Food Canada Research Farm at Scott, Saskatchewan (52°22′N; 108°50′W; elevation 713 m). The soil was developed from modified glacial tillReference Clayton and Ellis28, with a loam texture and surface pH in water paste of 5.4–5.9. Long-term (1931–1990) annual weather conditions at this location are 97 days for frost free period, 1.0°C for temperature, 355 mm for precipitation and 635 mm for potential evaporation. The study area had been cultivated for about 90 years using a cereal–fallow or cereal–cereal–fallow rotation with limited (mainly phosphorus) fertilization. The site was uniformly cropped to barley (Hordeum vulgare L.) in 1994 to reduce the residual effects in the soil.
Nine cropping systems, each 6 years in length, were established in 1995. They consisted of a factorial combination of three methods of input management and three levels of cropping diversity (Table 1). The input treatments were: (1) high (HIGH, which used conventional tillage for weed control on fallow areas and for seedbed preparation together with full recommended rates of pesticides and fertilizers ‘as required’); (2) reduced (RED, which used conservation tillage, together with legume green fallow to build soil N and higher seeding rates to increase crop competition, in an effort to lower the overall requirements for fuel, fertilizers and pesticides); and (3) organic (ORG, which used organic management methods including conventional tillage, non-chemical pest control, legume green fallow, selected application of compost, higher seeding rates and later seeding dates). The crop diversity treatments were: (1) a fallow-based rotation with low-cropping diversity (LOW); (2) a diversified annual rotation of cereal, oilseed and pulse grains (DAG); and (3) a diversified annual rotation of grains and perennial forages (DAP).
Summary of the nine cropping systems.
1 High input uses conventional tillage and full recommended rates of pesticides and fertilizers as required; reduced input uses conservation tillage, integrated pest and nutrient management, and higher seeding rate practices; and organic input uses organic management methods including non-chemical pest control, legume green fallow, selected application of compost, higher seeding rates and later seeding dates.
2 FallowT=tillage fallow, wheat (Triticum aestivum L.), canola (Brassica. rapa L. or B. napus L.), lentilGM (Lens culinaris Medikus) green fallow, fallowC=chemical fallow, field pea (Pisum sativum L.), barleyM=malt barley, barleyF=feed barley, clover=sweet clover (Melilotus officinalis L.), cloverGM=sweet clover green fallow, rye (Secale cereale L.), flax (Linum usitatissimum L.), oat (Avena sativa L.), bromegrass (Bromus inermis Leyss.), alfalfa (Medicago sativa L.).
3 Mustard (B. juncea L.) replaced canola in these organic systems beginning in 2001.
4 The oat underseeded to bromegrass+alfalfa was replaced with alfalfa alone beginning in 2002.
The experiment used a split–split-plot design with input level as main-plots, crop diversity as sub-plots and crop or rotation phase as sub-sub-plots. The experimental site occupies 16 ha, with sub-sub-plots 12.8 m×40 m in size. All phases of each rotation were present every year and each rotation was cycled on its assigned plots. All treatments were replicated four times.
For the HIGH- and ORG-input treatments, tillage using a cultivator equipped with sweeps and mounted harrow was typically used to prepare the seedbed and to control emerging weeds prior to planting. The RED-input treatments received no pre-seeding tillage, but glyphosate was applied prior to planting. All crops were planted using selected cultivars based on their suitability to the area, with the same cultivars used with all input and crop diversity treatments for a full 6-year cycle. Seeding rates for most crops were typically one-third higher for ORG and RED than for HIGH-input treatments in an attempt to increase crop competition with weedsReference Zentner, Basnyat, Brandt, Thomas, Ulrich, Campbell, Nagy, Frick, Lemke, Malhi and Fernandez27. The seeds for the ORG and RED-input treatments were treated with Penicillium bilaiae, while field pea, lentil and alfalfa seeds were treated with appropriate N-fixing Rhizobium inoculants for all treatments. Non-organic spring wheat, barley and pea seeds were treated with fungicide, whereas non-organic canola seeds were treated with fungicide and insecticide. All plots were seeded with a disc drill with the exception of lentil green fallow, which was seeded with a hoe drill. Planting of the ORG treatments was delayed up to 2 weeks compared to HIGH- and RED-input treatments in an effort to improve control of weeds.
Fertilizers N and P were applied to non-organic crops based on the soil test recommendation guidelines from the Saskatchewan Soil Testing Laboratory29 for each cropReference Zentner, Basnyat, Brandt, Thomas, Ulrich, Campbell, Nagy, Frick, Lemke, Malhi and Fernandez27. For the HIGH-input treatments, the same fertilizer rates were applied to all replicates based on the average soil test level of plots for that crop-phase and treatment; for the RED-input treatments, the fertilizer rates varied across replicates based on soil test values for each individual plot and crop type. The N was mid-row banded, while P was placed near the seeds at an average rate of 16 kg P ha−1 for all non-organic annual crops. At the end of each 6-year cycle, compost was applied to the RED/DAP and ORG/DAP systems to replace the N removed in the forage and barley crops. The compost was applied and soil-incorporated with tillage between the last forage phase and the subsequent grain phase. The ORG systems utilized legume green fallow to replace some of the N removed in crops, but soil P was not replaced, except where compost was applied.
In-crop weed control for the HIGH-input systems utilized herbicides ‘as required’ at full recommended rates based on plot surveys of weed populations; RED-input treatments received herbicides only if weed populations exceeded defined threshold valuesReference Brandt, Thomas, Olfert, Leeson, Ulrich and Weiss26. Organically grown cereals and pea typically received post-seeding harrowing for weed control. Weeds on conventional fallow plots were controlled with tillage using a heavy-duty cultivator with sweeps and mounted harrow. Fallow plots for the RED-input treatments relied on herbicides alone for weed control.
Grain yields were determined at crop maturity by direct harvesting a 1.2 m×40 m area per plot using a small plot combine. The straw and crop residue from grain crops were chopped and uniformly spread back on the respective plots to protect the soil from erosion and maintain soil quality. Forage yield was determined on a 1.0 m×40 m area per plot at the soft dough stage of oat and 10% bloom of alfalfa. All grain and forage yields were corrected to a constant 10% moisture basis.
Growing season (1 May–31 August) rainfall, air temperature and other weather parameters were recorded at the test site using an automated weather station and datalogger.
Economic analysis
The economic analysis follows methods used previously by Zentner et al.Reference Zentner, Brandt, Kirkland, Campbell and Sonntag20 and Zentner and CampbellReference Zentner and Campbell30. Spreadsheet programs were developed to determine and compare annual total and unit costs of production, amount and seasonal distribution of resource needs (e.g., seed, fertilizer, pesticides, fuel, machine repair, labor, specialized equipment needs), level of gross and net returns (i.e., income remaining after paying for all cash costs, plus labor and overhead costs for machines and buildings) and riskiness (income variability) for each cropping system. In addition, the net present values (NPV)Reference Doll and Orazem31, which incorporate both the timing and magnitude of net returns, were computed for each cropping system using a discount rate of 5%. No allowance was made for investment costs associated with land equity or for differences in management requirements among the treatments. All costs and returns were expressed in Canadian dollars.
The experimental data were extrapolated to the farm-level using a representative farm size of 907 ha and with a typical complement of machinery for each cropping system. Costs for inputs were held constant at their 2007 levels32, 33. Conventionally produced products were valued at their respective 2007–2008 average farm-gate prices (net of handling, transportation and storage costs) (Table 2). Organically produced products were valued using the relative prices of organic versus conventional grains as established by the Saskatchewan Crop Insurance Corporation34, such as an organic/conventional price ratio of 1.8 for field pea and cereal crops, 1.3 for canola and 1.5 for mustard and an assumed organic/conventional price ratio for hay of 1.15. Spring wheat prices were adjusted for protein concentrations obtained in the respective treatments using the 2007–2008 protein price premium schedules as established by the Canadian Wheat Board35. Organic price premiums were not permitted for organic products produced in 1996 and 1997 as the hypothetical organic farms were still completing the 3-year organic certification period. The analysis was repeated for five price scenarios reflecting current and possible future declines in organic price premiums: full price premiums received on 100% of the organically grown grains and forage (reflects an established organic farm capable of selling all of its produce at current organic prices); 75, 50 and 25% of current organic price premiums; and no organic price premiums (reflects a new organic producer or one considering the transition from conventional to organic management). The evaluations were conducted with and without participation in the Canada/Saskatchewan all-risk crop insurance program to assess its effectiveness in reducing the overall financial risk associated with the cropping systems. For the former analysis, all grain crops were insured at the 70% yield coverage level for the respective conventional and organic treatments in Risk Area #20 of Saskatchewan34; forage and legume green manure crops were assumed to be uninsured.
Net farm prices ($ t−1) for conventional and organically grown crops.
All findings were expressed on per hectare basis for the complete cropping systems, which includes the costs and returns for all cropped and fallow phases of each treatment. Data for the establishment year of the experiment (1995) were excluded because not all crops were yet in proper sequence, and thus their performance would not be reflective of true treatment effects. All data were initially subjected to analysis of variance on an annual basis for split-split plot designs using Proc Mixed, with the residuals tested for normality with Proc Univariate of SAS36. The presence of an excess of zeros in the data created an over-dispersion problem, hence the data were transformed using a gamma distributionReference Littel, Milliken, Stroup and Wolfinger37 and subsequently analyzed using PROC GLIMMIX of SAS Version 9.138. Input and crop diversity levels were modeled as fixed effects. Denominator degrees of freedom for tests of fixed effects were calculated using the Kenward–Roger method. Least square means and standard errors were used in the calculation of least significance differences (LSD) after back-transformation for comparison among treatment means at P<0.05. Riskiness was assessed using stochastic dominance analysisReference Goh, Shih, Cochan and Rakin39 to compare the probability distributions of net returns for each cropping system for groups of producers having low, medium and high risk aversion as defined by Zentner et al.Reference Zentner, Selles, Campbell, Handford and McConkey40.
Results and Discussion
Growing conditions
Growing season (1 May–31 August) precipitation over the 12-year study period averaged 181 mm, which is below the long-term (1961–1990) mean (211 mm) for this region (Fig. 1)Reference Zentner, Basnyat, Brandt, Thomas, Ulrich, Campbell, Nagy, Frick, Lemke, Malhi and Fernandez27. Growing season temperature averaged 14.6°C compared to the long-term mean of 14.9°C. May to August precipitation was less than 70% of normal in 5 years, with three of these years being consecutive (2001–2003); it was near normal in 6 years, and well above normal in 2005. Overall, five of the growing seasons were categorized as dry and warm, three were dry and cool and 4 years were moist and cool (Fig. 1). The severe drought conditions, particularly in 1998 and 2001–2003, were damaging to crop establishment and development, while an early fall frost in 2004 reduced grain yields and quality. Late summer hail storms also resulted in moderate crop damage in 2005 and light crop damage in 2006.
Growing season (May 1–August 31) precipitation and air temperature conditions at Scott, Saskatchewan (1996–2007). Vertical and horizontal lines are the long-term (1961–1990) means for the region.
Production costs
Total costs (excluding crop insurance premiums) were significantly influenced by input level, cropping diversity and the interaction on input level and crop diversity in all years (Table 3). Total costs for the ORG-input treatments averaged $262 ha−1, which was $50 ha−1 lower (or 16% less) than for the HIGH- and RED-input treatments. There was little difference in total costs for the respective HIGH and RED treatments in most years, despite the intention within the research protocol to reduce the overall reliance on purchased inputs with the RED treatments through use of an integrated approach to nutrient and pest management. Further, total costs were lowest for the LOW crop diversity treatments ($267 ha−1), and higher but similar for the more intensively cropped DAG and DAP treatments ($42 ha−1 more). Thus, as expected, total production costs were generally lowest for the ORG/LOW and highest for the HIGH/DAG systems. Production costs varied relatively little across years for most treatments (as indicated by the low CVs), but tended to be higher in years with more favorable growing conditions due mainly to the increased costs associated with harvesting, transporting and storing the higher crop yields and the need for additional weed control measures for some treatments in these years. By comparison, on the Dark Brown Chernozemic soils in southern Alberta, Smith et al.Reference Smith, Clapperton and Blackshaw7 reported an annual cost saving of 13% with an organically managed spring wheat–legume green fallow rotation compared to a no-till managed spring wheat–fallow rotation, and a 32% cost saving with an organically managed cereal–pulse–oilseed–legume green fallow rotation compared to a no-till cereal–pulse–oilseed–fallow rotation, but a 31% increase in annual costs for an organically managed 4-year mixed grain–forage rotation due largely to the high costs associated with purchasing and applying composted manure to this cropping system. In Ontario, Stonehouse et al.Reference Stonehouse, Weise, Sheardown, Gill and Swanton41 reported that production costs averaged 14, 1 and 21% lower for corn (Zea mays L.), soybean (Glycine max L.) and fall cereals, respectively, with reduced-input compared to conventional-input management, and 38, 4 and 23% lower relative costs for the respective crops with organic management practices. In the USA, most studies of small grain production have also reported cost savings of up to 49% with organic compared to conventional and reduced tillage systemsReference Diebel, Llewelyn and Williams42–Reference Archer, Jaradat, Johnson, Weyers, Gesch, Forcella and Kludze44.
Effect of input management and crop diversity on total annual production costs (without all-risk crop insurance).
1 Coefficient of variation.
Expenditures for seed were lowest for the HIGH input/LOW crop diversity treatment ($28 ha−1) due to the high proportion of summer fallow in this rotation; they were highest for the ORG/DAG and ORG/LOW systems ($70 ha−1) reflecting the reliance on legume green manure crops to build soil N fertility, together with the higher seeding rates and higher unit seed costs for the ORG managed grain crops (Table 4). Seed costs for the RED-input treatments were intermediate between the HIGH- and ORG-input treatments, averaging about 33% more than for the HIGH treatments due to the higher seeding rates that were also used with the RED treatments in our study.
Effect of input management and crop diversity on production costs by resource category (without all-risk crop insurance, 1996–2007).
1 Includes compost that was applied to selected crops within the reduced input/grains and forage rotation and the organic input/grains and forage rotation.
2 Includes land taxes, farm utility costs, plus certification and inspection fees for organic treatments.
Expenditures on inorganic fertilizers, primarily N, were lowest for the LOW crop diversity treatments, reflecting the inclusion of summer fallow or legume green fallow in these rotations (Table 4). Summer fallowing enhances N mineralization from soil organic matter, but frequent use of this practice, particularly when combined with tillage for control of weeds, mines soil fertility by reducing organic matter levels and N supplying capacity of the soil in the long term, and exposes the soil to other environmental damage from wind and water erosion, deep leaching of plant nutrients and enhanced emissions of greenhouse gasesReference Acton and Gregorich9, Reference Janzen, Desjardins, Asselin and Grace10. The higher fertilizer costs for RED compared to the respective HIGH-input treatments reflects that as soil tillage is reduced with conservation tillage management there is a build-up of crop residues on the surface soil, which slows the rate of residue decomposition, resulting in the temporary immobilization of N until the system reaches a new steady stateReference Unger and McCalla45. Others have also suggested that with no-till management there is greater risk of N loss by denitrification than in tilled systems, especially in wet yearsReference Aulakh, Rennie and Paul46. Thus during this transition period, available N in soil is often lower under conservation tillage management than under conventional tillage, resulting in somewhat higher N fertilizer recommendations when based on soil testsReference McConkey, Campbell, Zentner, Dyck and Selles15, Reference Zentner, Lafond, Derksen and Campbell21. In the longer term, however, it is expected that this effect may diminish and could possibly reverse as the relative soil organic matter levels and N-supplying capacity of the soil build over time with the continued use of conservation tillage management; this may be particularly true when combined with the periodic inclusion of a legume green manure or legume forage crop, as in the LOW and DAP crop diversity treatmentsReference Campbell, McConkey, Zentner, Selles and Curtin47, Reference Janzen, Campbell, Izaurralde, Ellert, Juma, McGill and Zentner48.
Pesticide expenditures averaged $8 ha−1 higher for RED- than for HIGH-input treatments, with the cost difference being as large as $13 ha−1 for the LOW crop diversity treatments (Table 4). These trends reflect the fact that with conservation tillage management, herbicides were substituted for tillage prior to planting and on summer fallow areas. Other Canadian Prairie studies comparing conventional and conservation tillage practices have reported a several-fold increase in herbicide expenditures with no-till management in 2-year or 3-year cereal–fallow rotations due to the higher cost of controlling weeds on summer fallow areas with herbicides than with tillageReference Zentner, McConkey, Campbell, Dyck and Selles19, Reference Zentner, Brandt, Kirkland, Campbell and Sonntag20, but they too reported a much smaller increase in herbicide costs when using no-till management together with continuous crop rotations. This latter effect reflects the normally small difference in cost between one pre-seeding herbicide application to control weeds on no-till stubble areas, compared to one, and in some years two, pre-seeding tillage operations to control weeds and to prepare the seedbed on stubble areas with conventional tillage management under semi-arid conditions.
Although differences in labor costs among input treatments were not large, they tended to be lowest for RED, intermediate for ORG, and highest for the HIGH-input treatments (Table 4). Further, labor costs tended to be lowest for the LOW and highest for the DAP crop diversity treatments. However, these costs capture only the direct labor required to conduct field operations and perform other production activities and do not include labor associated with management aspects. Studies of conventional and organic systems in the USA often report higher direct labor requirements with organic systemsReference Archer, Jaradat, Johnson, Weyers, Gesch, Forcella and Kludze44, Reference Karlen, Duffy and Clovin49 but also report higher management labor input due to the greater need to scout and inspect crops for emerging plant pest and nutrition problems, the increased time to research and devise non-chemical control strategies, and the greater effort and costs required to develop and secure markets for organic productsReference Pimentel, Hepperly, Hanson, Douds and Seidel2, Reference Hanson, Lichtenberg and Peters50. Consequently, our labor cost values likely underestimate the relative total labor requirements of the various cropping systems, particularly for the ORG treatments, and this could become an important factor influencing producers' decisions to adopt organic practices in a real-world scenario, especially as farm size increases or if the operator has limited access to unpaid family labor or is dependent on off-farm employmentReference Pimentel, Hepperly, Hanson, Douds and Seidel2, Reference Schneeberger, Darnhofer and Eder24, Reference Hanson, Lichtenberg and Peters50.
Expenditures for fuel and machine repair were lowest for the RED-input treatments, and higher but generally similar for the HIGH- and ORG-input treatments (Table 4), consistent with findings of other comparable studies of conventional and conservation tillage management practices in western CanadaReference Zentner, Wall, Nagy, Smith, Young, Miller, Campbell, McConkey, Brandt, Lafond, Johnston and Derksen5, Reference Smith, Peter, Blackshaw, Lindwall and Larney18, Reference Zentner, Lafond, Derksen and Campbell21. In contrast, several US studies have reported higher expenditures for fuel with organic compared to conventional practices due to the heavy reliance of organic management on tillage for weed control and seedbed preparationReference Archer, Jaradat, Johnson, Weyers, Gesch, Forcella and Kludze44, Reference Mahoney, Olson, Porter, Huggins, Perillo and Crookston51. The savings in machine-related operating costs with conservation tillage management in our study arise from fewer trips across the field and from using machines with greater capacity and lower draft requirements (sprayer versus cultivator). Machine overhead costs were also lowest for the RED-input treatments and highest for ORG treatments. The savings in machine overhead costs with RED compared to HIGH input arise from eliminating (or reducing) the need for tillage machines, using smaller-sized power units with lower capital investment, and extending the life of machines because of their reduced annual use. Similarly, the higher machine overhead costs for the ORG treatments reflects the greater use and reduced life of tillage equipment plus the need for additional and specialized machines (e.g., rotary hoe for in-crop weed control and manure spreader for compost application) used only with ORG management.
Participation in the Canada/Saskatchewan all-risk crop insurance program (excluding insurance on legume green manure and forage crops) added $10–15 ha−1 to the total annual costs for the LOW crop diversity treatments shown in Table 3. It added $14–16 ha−1 to the total costs for the DAG treatments, and $5–6 ha−1 for the DAP treatments, with the respective ORG crop diversity treatments tending to have the higher total insurance premium costs.
Overall, the savings in labor plus machine-related costs with RED-versus HIGH-input treatments were largely offset by higher expenditures for seed, fertilizers and pesticides, as reported in earlier studiesReference Zentner, Wall, Nagy, Smith, Young, Miller, Campbell, McConkey, Brandt, Lafond, Johnston and Derksen5, Reference Zentner, Lafond, Derksen and Campbell21. In contrast, the savings in expenditures for inorganic fertilizers and pesticides with ORG management more than offset the higher costs for seed, organic certification and inspections and machine overheads compared to the non-organic treatments.
Gross returns
Gross returns or income earned from the sale of grain and forage (with full price premiums for organic products beginning in 1998) were highest for the cropping systems in 1999 and lowest in 2002 (Table 5), directly reflecting the growing conditions and resulting crop yieldsReference Brandt, Ulrich, Thomas and Olfert23. Gross returns were significantly influenced by input level in all years except 2001. In 1996 and 1997 when the organic systems were still completing the 3-year certification period, gross returns were highest for the HIGH and RED (1997 only) input treatments, but in 9 of the remaining 10 years, gross returns for the ORG treatments were equal or modestly higher than those from other input treatments. Overall, however, there was relatively little difference in the 12-year average gross returns among the methods of input management. In contrast, gross returns were influenced by cropping diversity in all study years (Table 5), with the DAG treatments typically providing the highest (in 8 of 12 years) and the DAP treatments the lowest gross earnings. In the drought years, gross returns were generally highest for the LOW crop diversity treatments, reflecting the greater soil moisture reserves for crops grown on summer fallow versus on stubble landReference Campbell, Zentner, Janzen and Bowren17. Gross returns averaged $505 ha−1 for the DAG treatments, about 10% less for the LOW treatments and 36% less for the DAP treatments. Thus, the HIGH/DAG and RED/DAG systems produced the highest gross returns ($524 ha−1), whereas the HIGH/DAP and RED/DAP systems produced the lowest ($309 ha−1).
Effect of input management and crop diversity on gross product sales (100% organic price premiums).
1 Coefficient of variation.
The variability in annual gross returns (as measured by CV) tended to be lower for RED compared to the HIGH and ORG input treatments, reflecting the benefit of reducing tillage intensity for enhancing soil moisture conservationReference Brandt14, Reference McConkey, Campbell, Zentner, Dyck and Selles15. Similarly, the relative variability in annual gross returns tended to be lower for the LOW crop diversity treatments compared to DAG and DAP, reflecting the value of including summer fallow or legume green fallow in the rotation to enhance soil moisture reserves, build soil N levels and help control problem weeds compared to continuously cropped systemsReference McConkey, Campbell, Zentner, Dyck and Selles15, Reference Brandt and Zentner52, Reference Zentner, Brandt and Campbell53.
Net returns
Base grain and forage prices
Net returns (i.e., profit or residual income remaining after paying for all production costs) for the cropping systems, and without participation in the Canada/Saskatchewan all-risk crop insurance program, averaged $174 ha−1 for the ORG treatments, $119 ha−1 (32% less) for HIGH-input and $103 ha−1 (41% less) for the RED-input treatments (Table 6). The net earnings were significantly influenced by input level in 11 of 12 years, with economic losses common for most treatments during the drought years. In 1996 and 1997 when the ORG treatments did not yet qualify for organic price premiums, net returns for these treatments were substantially lower (and often negative) compared to the non-organic input treatments, and this reduced income during the certification/transition period is often reported as a major barrier to the adoption of organic practices by non-organic producersReference Smith, Clapperton and Blackshaw7, Reference Schneeberger, Darnhofer and Eder24. After this period, however, the ORG treatments earned the highest net returns in 8 of the 10 years, and shared the top ranking with other input treatments in the other 2 years. Among the non-organic treatments, average net returns were higher for HIGH than for the RED-input treatments in 5 years, lower in 2 years, and similar in 5 years. These latter results are generally similar to those reported in earlier studies comparing conservation and conventional tillage management of monoculture spring wheat and fallow-based cropping systems under Canadian Prairie growing conditionsReference Smith, Peter, Blackshaw, Lindwall and Larney18, Reference Zentner, Lafond, Derksen and Campbell21, Reference Zentner, Brandt and Campbell53. Further, our results suggest that the RED-input treatments, which also included use of a more integrated approach to pest and nutrient management problems, were generally less profitable than the HIGH-input treatments, which used a more conventional approach of performing tillage operations and applying full recommended rates of pesticides and inorganic fertilizers as required. These latter findings differ from those by Smith et al.Reference Smith, Upadhyay, Blackshaw, Beckie, Harker and Clayton54 who reported an economic advantage from using integrated weed and nutrient management practices over conventional high-input practices for cereal–oilseed and cereal–pulse cropping systems in this region. However, their 4-year study was conducted during the period of severe drought (1999–2002) when lack of moisture may have prevented full expression of the benefits from high inputs of fertilizers and herbicides.
Effect of input management and crop diversity on net returns (100% organic price premiums and without all-risk crop insurance payouts).
1 SD=standard deviation.
2 Net present value computed using a discount rate of 5%.
Net returns were also influenced by crop diversity in all years, with the input by crop diversity interaction significant in nine of these years (Table 6). Net returns averaged $189 ha−1 for the DAG and LOW cropping systems, but only $18 ha−1 for the DAP systems. The LOW crop diversity treatments had the highest net earnings (or lowest losses) in the drought years (2001–2003), whereas DAG had the highest net returns in 5 years (1996, 1998, 1999, 2000 and 2007). In the remaining 4 years there was no difference in the net returns for the DAG and LOW crop diversity treatments. Net returns were lowest for the DAP treatments in all years, reflecting the low forage yields obtained in most years due to poor stand establishment when using a companion crop in years with below-normal precipitation and the relatively low price for forage compared to grain crops. This is consistent with the general findings reported for conventional and organically managed grain and grain-forage rotations in southern AlbertaReference Smith, Clapperton and Blackshaw7 and with results from an earlier study of conventional mixed grain and grain-forage rotations at the Scott locationReference Zentner, Brandt and Campbell53. Overall, the most profitable treatment combination was LOW crop diversity with ORG input management (average $234 ha−1). This was followed closely by DAG with ORG management (about 10% less than the best system) and then by the DAG systems with HIGH and RED inputs (about 22% less) (the best non-organic treatments). The least profitable cropping system was DAP crop diversity with RED input with an average net loss of $24 ha−1.
The rankings of treatments were largely unchanged when based on the 12-year net present values, which incorporate the time value of money (Table 6). The ORG/LOW system ranked highest in terms of net present value, followed by the three DAG treatments with values that averaged about 12% less than for the best system. The length of time required for the ORG treatments to break even with the comparable non-organic systems (i.e., years required to provide equal accumulated net returns) was about 6 years after organic certification was completed for the LOW crop diversity rotation (i.e., in year 2003), 7 years for the DAG rotation (year 2004) and 5 years for the DAP rotation (year 2002). By comparison, in southern Alberta, Smith et al.Reference Smith, Clapperton and Blackshaw7 reported that the time required to break even compared to the respective conventional rotations under the most likely organic price premium scenario was 8 years for a 2-year spring wheat–legume green fallow rotation, 1 year for the 4-year spring wheat–pulse–oilseed–legume green fallow rotation, while the organically managed 4-year mixed grain–forage rotation would never break even with the comparable conventionally managed rotation. Further, they reported that average net returns under this same price scenario were highest and generally similar for the organically managed spring wheat–pulse–oilseed–legume green fallow rotation and for conventional continuous spring wheat. The organically managed 2-year spring wheat–legume green fallow rotation ranked second highest, and was significantly more profitable than the conventional 2-year spring wheat–fallow rotation. The organic and conventional mixed grain–forage rotations produced economic losses, as was also found in our study. Most US studies have also reported similar or higher net earnings with cropping systems that use organic versus conventional management; however, the relative profitability depended greatly on whether transition costs from conventional to organic management practices, price premiums for organic products and unpaid family labor were included in the calculationsReference Pimentel, Hepperly, Hanson, Douds and Seidel2, Reference Delate, Chase, Duffy and Turnbull43, Reference Archer, Jaradat, Johnson, Weyers, Gesch, Forcella and Kludze44, Reference Hanson, Lichtenberg and Peters50, Reference Mahoney, Olson, Porter, Huggins, Perillo and Crookston51.
Year-to-year variability in net returns in our study was lowest for the ORG input treatments (CV=115%), compared to a CV of 176% for HIGH and 186% for RED input treatments. Similarly, net income variability was lowest for the LOW crop diversity treatments (CV=98%), compared to a CV of 120% for DAG and over 900% for DAP, due largely to the low mean net return values for the DAP treatments. The lower income variability for the LOW crop diversity treatments reflects the advantage of fallow-based rotations in stabilizing net farm income compared to continuously cropped systems in this water-constrained regionReference Zentner, Brandt, Kirkland, Campbell and Sonntag20, Reference Zentner and Campbell30.
Participation in the Canada/Saskatchewan all-risk crop insurance program increased the annual net returns for the treatments by an average of $21 ha−1 (range of $10–$37 ha−1), with the increases tending to be larger for the DAG treatments (Table 7). The LOW crop diversity treatments received significant payouts from the program in 3–4 years compared with 4–5 years with the DAP treatments and 6–7 years with DAG. However, the overall rankings of the treatments based on the mean annual net returns and net present values changed relatively little compared to the no crop insurance situation. The main impact from participation in the all-risk crop insurance program was to reduce the frequency and magnitude of the economic losses, particularly in the drier years, which helped reduce the year-to-year variability in net returns. For example, the CV values for the ORG-input treatments (averaged across crop diversity levels) declined by about 25 percentage points with participation in the program compared to a decline of about 52 percentage points for the HIGH- and RED-input treatments. Similarly, the decline in the CV values with participation in the program (averaged across input levels) was about 24 percentage points for the LOW crop diversity treatments, 35 for DAG and over 450 percentage points for the DAP treatments. The lower net income variability with all-risk crop insurance reduces the overall riskiness of the cropping systems, a benefit to producers who are risk averseReference Zentner and Campbell30.
Effect of input management and crop diversity on net returns (100% organic price premiums and with all-risk crop insurance payouts).
1 SD=standard deviation.
2 Net present value computed using a discount rate of 5%.
Note, however, that our findings with respect to participation in the all-risk crop insurance program may over-state the impact on net returns for the cropping systems. For example, in our analysis, crop yield guarantees were held constant throughout the 12-year study period, as were the annual insurance premium costs for crops. However, in reality, producers who are operating on an individual farm coverage basis would have their yield guarantee levels for crops adjusted annually based on their historical 10-year moving average yields. At the same time, their annual insurance premium costs would also be adjusted based on these coverage levels and their past record of claims. Nevertheless, our findings serve to illustrate the relative benefits of all-risk crop insurance in protecting against significant net income declines (or losses) in drought years, and in helping to reduce the overall riskiness associated with adopting new or alternative cropping systems.
Effect of changes in organic price premiums
Changes in the price premiums received for organic products had a major impact on net returns and the overall rankings of the ORG treatments (Fig. 2). For example, when the organic price premiums were reduced by 25% from current levels, average annual net returns for the ORG-managed LOW, DAG and DAP crop diversity treatments declined by $51, $52 and $31 ha−1, respectively. Similarly, if there were no price premiums for organic products, net returns for the respective ORG treatments declined by $204, $208 and $122 ha−1, making them the least profitable cropping systems. As reported earlier, at full price premiums for organic crops, the ORG treatments were significantly more profitable than the respective HIGH- and RED-input treatments, with the ORG/LOW system being the most profitable. However, when the organic price premiums were reduced to less than about 70% of the base values, HIGH/DAG was the overall most profitable cropping system.
Effect of changes in the price premiums for organic products on mean net returns of cropping systems, with and without all-risk crop insurance (1996–2007) (HIGH=high input, RED=reduced input and ORG=organic input).
Within the LOW crop diversity treatments, reductions in the organic price premiums of up to 35% with all-risk crop insurance, and reductions of up to 30% without all-risk crop insurance, could be tolerated before the profitability of the ORG/LOW system declined below that of the HIGH/LOW system (i.e., the best non-organic system within this crop diversity level) (Fig. 2). In contrast, within the DAG crop diversity treatments, the organic price premiums could only decline by about 13% with all-risk crop insurance and by about 8% without all-risk crop insurance, before HIGH/DAG and RED/DAG replaced ORG/DAG as the most profitable cropping systems. Likewise, within the DAP crop diversity treatments, the organic price premiums could decline by as much as 60–65% before ORG/DAP became less profitable than HIGH/DAP. These differences in threshold values among crop diversity levels reflect the relative profitability of the respective organic and non-organic treatments. For example, when the difference in net returns between an organic and non-organic treatment is initially positive and large (as in the case for LOW and DAP), the organic treatment can accommodate a much larger reduction in the organic price premiums before its profitability level and rank order fall below that of the non-organic treatment, compared to when the difference in net returns between treatments is small (as in the case of DAG). This dependency of the ORG treatments on price premiums raises a concern about the long-term economic viability of organic practices if an increasing number of producers convert from conventional to organic production methods, particularly if the demand for organic products does not keep pace with rising supplies.
These results are in general agreement with those of Smith et al.Reference Smith, Clapperton and Blackshaw7 who reported that the relative profitability of the organic cropping systems in southern Alberta were highly conditional upon the existence of sizable and sustained price premiums for organic produce. Several US studies have also reported similar findingsReference Archer, Jaradat, Johnson, Weyers, Gesch, Forcella and Kludze44, Reference Mahoney, Olson, Porter, Huggins, Perillo and Crookston51, Reference Batte, Forster and Hitzhusen55; but, others report that organic production practices can be equally or be more profitable than conventional practices even without price premiums for organic productsReference Hanson, Lichtenberg and Peters50, Reference Welsh56.
Riskiness of cropping systems
Decision making in risky situations, as in choosing among cropping systems, often requires making a trade-off between the potential to earn higher net returns on one hand and having to accept a higher level of income variability (risk), on the other handReference Zentner, Wall, Nagy, Smith, Young, Miller, Campbell, McConkey, Brandt, Lafond, Johnston and Derksen5. The amount of income variability or risk that producers are willing to accept depends on their personal preferences, attitudes towards risk and financial situationReference Anderson, Dillion and Hardaker57. Producers who are less willing to gamble (i.e., more risk averse) will often forego production opportunities that offer the possibility of significant increases in net return but higher income variability, for those that offer lower net returns but also lower risk.
Based on comparisons of the cumulative probability density functions of net returns among all treatments using stochastic dominance principlesReference Goh, Shih, Cochan and Rakin39, risk-averse producers would typically choose only the ORG/LOW cropping system when crop prices were at the base levels and without the protection of all-risk crop insurance (Table 8). Under this same crop price scenario but with participation in the all-risk crop insurance program, producers who have the lowest aversion to risk would also consider choosing the more intensively cropped ORG/DAG system. These findings differ from those reported in Alberta by Smith et al.Reference Smith, Clapperton and Blackshaw7 who determined that the organic treatments had slightly higher financial risk than the conventionally managed rotations. In contrast, in southwestern Minnesota, Mahoney et al.Reference Mahoney, Olson, Porter, Huggins, Perillo and Crookston51 did not find net returns to be more variable or risky with organic production methods, whereas Hanson et al.Reference Hanson, Johnson, Peters and Janke58 reported that in southeastern Pennsylvania an organic cash grain rotation was preferred by risk-averse producers over a conventional corn–soybean rotation.
Risk efficient cropping systemsFootnote 1 for selected crop price and all risk crop insurance scenarios.
1 HIGH=high input, RED=reduced input and ORG=organic input, while LOW=fallow-based rotation with low crop diversity; DAG=diversified annual rotation of cereal, oilseed and pulse grains; and DAP=diversified rotation using annual grains and perennial forages.
2 Comparisons of the cumulative probability distributions of net returns were completed among all cropping treatments.
3 Comparisons of the cumulative probability distributions of net returns were completed among non-organic treatments only.
When comparisons of the probability distributions were made only among the non-organic treatments, producers with low risk aversion and who participate in all-risk crop insurance would choose either HIGH/DAG or RED/DAG systems, whereas those who do not subscribe to all-risk crop insurance would choose HIGH/DAG or HIGH/LOW (Table 8). Non-organic producers with medium risk aversion would also choose HIGH/DAG or HIGH/LOW, whereas those who are even more risk averse would choose only the HIGH/LOW system with its high proportion of summer fallow. Historically, frequent summer fallowing has been the main management practice used by producers in semi-arid regions to stabilize crop yields and farm incomeReference Campbell, Zentner, Janzen and Bowren17. These findings are in general agreement with those reported in earlier studies of conventionally managed cropping systems in the study areaReference Zentner, Brandt, Kirkland, Campbell and Sonntag20, Reference Zentner and Campbell30.
When the price premiums for organic products were reduced by 25% (holding conventional crop prices and input costs at base levels), HIGH/DAG and RED/DAG were included along with ORG/LOW as the preferred cropping systems by producers with low risk aversion, whereas HIGH/LOW and ORG/LOW were preferred by medium and high risk-averse producers. When organic price premiums were reduced by 50% or more, the organic systems were no longer risk efficient or preferred by producers. The DAP systems, with their low annual net returns and high relative income variability would not be chosen by risk-averse producers under any of the economic scenarios examined.
Conclusions
As input costs rise and product prices decline, producers look for alternative cropping opportunities to enhance net farm income through lowering production costs, adding value to products produced or reducing the risk of financial loss. On the Canadian Prairies, conservation tillage and the use of reduced input and organic management practices, together with diversifying crop rotations, are being promoted as new opportunities for producers with beneficial environmental effects, but relatively little is known about how these newer cropping systems rank in terms of their economic performance compared to current practices. To evaluate this issue we compared a matrix of nine dryland cropping systems for a Dark Brown Chernozemic soil (Typic Boroll). The study examined three levels of input use [conventional high inputs (HIGH); reduced inputs (RED) where we tried to lower the requirements for fertilizers, fuel and pesticides; and organic inputs (ORG)] in a factorial combination with three levels of cropping diversity [a fallow-based rotation with low crop diversity (LOW); a diversified annual rotation of cereal, oilseed and pulse grains (DAG); and a diversified rotation of annual grains and perennial forages (DAP)]. Our findings indicated that:
(1) The most profitable cropping system over the 1996–2007 period, with the current organic price premiums of 30–80% over conventional crop prices, was the ORG-input/LOW crop diversity systems. This was followed closely by ORG/DAG (10% less), and then by HIGH/DAG and RED/DAG (22% less) (the best non-organic systems). The mixed grain–forage rotations (DAP) were not economically competitive with the grain-only treatments.
(2) Net returns for the organic treatments were much lower and sometimes negative during the certification period in contrast to the non-organic treatments. We estimated that it would take 5–7 years beyond completion of the 3-year certification period for the ORG treatments to recoup this foregone income. Thereafter, the ORG treatments were consistently more profitable than the non-organic treatments. This reduced income during the transition from conventional to organic management may create cash flow and loan repayment challenges for producers with limited access to credit or those who need to make adjustments or additions to their machine inventories to accommodate organic practices.
(3) The relative profitability of the organic treatments was highly dependent on the existence of significant price premiums for the organic products. When the organic price premiums were reduced to less than 70% of the 2007 levels, the organic treatments were less profitable than the non-organic treatments. This calls into question the long-term economic viability of the organic management practices if more and more producers move to organic management, unless demand for organic products keeps pace with the increasing supply or producers find other ways to add additional value to their products (e.g., packaging and selling products in smaller quantities versus in bulk, or processing raw crop products into finished food products).
(4) Among the non-organic treatments, net returns were highest for HIGH-input/DAG and RED-input/DAG, with net returns averaging about 11% less for the comparable LOW crop diversity systems. At the same time, production costs were higher for the DAG compared to LOW crop diversity systems, but we did not find significant savings in total costs for RED-input versus HIGH-input management. Nevertheless, these findings suggest that area producers can profitably reduce the damaging effects to the soil and environment from use of traditional production practices by substituting herbicides for tillage in weed control and by substituting legume green fallow for conventional summer fallow.
(5) Income variability was lower for the organic than the non-organic treatments and would be preferred by most risk-averse producers. Participation in the Canada/Saskatchewan crop insurance program was effective in reducing, but not eliminating, the additional risk associated with adopting more intensive and diversified cropping systems. In the end, producers considering changes to their cropping systems will need to weigh the tradeoff between the potential to increase net earnings and the need to accept additional financial risk. The value of this study is that it provides some guidance in making these economic decisions.
Acknowledgements
The authors thank L. Sproule, D. Gerein, D. Leach and R. Ljunggren for their technical assistance in performing field operations and in collecting and processing the various soil and plant samples. We also thank David Wall and Barry Blomert for their assistance in analyzing and summarizing the data and findings. Partial funding for the economic analysis was provided by a grant from the Saskatchewan Agriculture Development Fund.
