Evaluating Relative Impacts of Conventional and Sustainable Farming Systems on Rural Communities

The Minnesota study assessed differences in farm spending among various farm types by conducting in-depth interviews with 30 farmers in southwest Minnesota. The farmers were chosen from farm management associations so that a consistent set of records could be obtained. Interviewers spent approximately two hours with each farmer talking about their expenditure analysis and conducting a check-by-check analysis of farm expenses to determine which purchases were made locally and which were not.

The results of these interviews clearly show that as farms get bigger, they buy a smaller percentage of their inputs in local markets. The study also confirmed that the addition of livestock to crop farms increases local spending, but only up to a point. Very large livestock operations spend much more in total than their smaller counterparts, but have no greater impact on local economies because they have a much higher percentage of non-local spending.

Results of the full Minnesota study have been published as a MS thesis, "Local Spending Patterns of Farm Businesses in Southwest Minnesota," by John Wade Chism, University of Minnesota, September, 1993. The results of this study have been widely quoted in various newsletters and popular publications, a sample of which are enclosed with this report.

The Nebraska study focused in the communities of Hartington and Wynot, which are located in Cedar County in northeast Nebraska and are dominated by moderate-sized diversified family farms. In June 1993, letters were sent to 42 farmers in the area, requesting their participation in a study of the relative impacts on rural communities of various types and sizes of farms. Follow-up phone contacts were made with each recipient and from this group, 28 agreed to participate.

A survey instrument was developed and sent to all participants. The survey requests specific information regarding the farmer's current operation, expenditure patterns, and future farming plans. To complete the questionnaire, each participant was visited in person so the interviewer could eliminate any deviations based on individual interpretations. These interviews were completed during 1993.

Twenty-eight farmers agreed to participate in the Hartington-Wynot, Nebraska Study. Each farm was classified as either "sustainable" or "conventional" based on an assessment of their farming practices, and specifically their use of chemicals and fertilizers and the nature of their crop rotations. Farmers with less chemical and fertilizer use and more diverse crop rotation were classified as "sustainable." Farmers with higher chemical and fertilizer purchases and less diverse crop rotations were classified as "conventional." The classification resulted in 14 farmers of the 28 farmers representing each category.

The participating farms were similar in that they were all family owned and operated, most rent land in addition to land they own, all have both livestock and crops, and all utilize manure to supplement commercial fertilizer. However, the farms classified as sustainable and conventional differed in several other respects: (1) conventional farms controlled approximately twice as many acres as sustainable farms; (2) conventional farms on average have more than twice as many head of livestock as sustainable farms; and (3) conventional farms had more than twice as high an average "gross" income as sustainable farms. However, sustainable farms had a higher average "net" income per farm in spite of the fact that sustainable farms were less than half the size of conventional farms in terms of acres, head of livestock, or dollars of gross sale.

Currently, a total of 169 people are supported by the 28 farms included in the Nebraska study. If all farms in the survey area had been of the same average size as the sustainable farms, an additional 44 people could have been employed on the same number of acres with at least as high a per capita income. If all farms were like those in the conventional group, 22 fewer people could have been supported in the area. Local farm business expenditures would be about $200,000 higher with all conventional farms but total family expenditures would be more than $100,000 higher with all sustainable farms. Total family income with all sustainable farms would have been more than double that of an all conventional community and 80% higher than in the current community, with both higher net farm incomes and off-farm incomes for the sustainable farms.

In the Missouri study, Putnam County was selected as a case study location because it has a high level of CRP enrollment and in many ways is typical of a number of economically depressed north Missouri counties. A mail survey was sent to all owners of land covered by CRP contracts in the county. The response rate to the survey was over 60%. Preliminary findings include: (1) The average CRP parcel size is 161 acres out of an average of 583 total acres owned by farmers with land in the CRP program; (2) Forty-four percent of the owners of CRP land currently plan to use the land only for pasture or hay if the CRP program is not continued. Thirty-four percent plan to return the land exclusively to row crops. Eighteen percent plan to use a combination of hay and row crops. Eighteen percent plan to use a combination of hay and row crops. Trees will be continued on the remaining four percent.

The Missouri Study compared local economic impacts of returning lands currently in the Conservation Reserve Program (CRP) in Putnam County, Missouri to production under either a conventional or an alternative (more sustainable) system of farming. Results of a survey provided estimates that 55% of current CRP land would be returned to crop production and 41% would return to pasture or hay for livestock production if CRP payments were terminated. The remainder would be maintained in wildlife habitat or trees.

Local CRP contract holders were defined as those residing in Putnam County or adjoining counties in Missouri and Iowa. Local contract holders indicated intentions to return a significantly larger proportion of their CRP land to livestock production than did out-of-area residents. Out-of-area residents favored returning CRP land to crop production, which could be carried out more easily through rental or leasing arrangements and without investing in fencing and watering facilities for livestock. The use of highly-erodible CRP land for pastures and livestock production would be expected to be less erosive and would provide more favorable wildlife habitat than would any economically viable system of crop production.

Two different scenarios were developed for use of post-CRP land. One represents "conventional" farming methods and the other a set of "alternative" farming methods designed to be more sustainable. The same acreage of the same crops were produced under both scenarios, using recent cropping history for the county to simplify the comparison. However, continuous corn and soybean systems, conventionally used on about half of Putnam County's crop land, were replaced with crop rotations under the alternative scenario. The alternative scenario utilized no-till and ridge-till systems to replace conventional tillage on erodible lands. No-till provides more erosion protection and less fuel use at similar levels of herbicide use, while ridge tillage allowed herbicide use to be cut in half with somewhat less effective erosion control and greater fuel use than no-till. Conventional fertilizer application was set at levels so as not to limit yields under the most favorable growing conditions. Fertilizer use for the alternative scenario was adjusted for realistic yield goals with allowances for peak yield reductions in the most favorable growing years.

The alternative cropping system using ridge tillage indicated that farmers could reduce direct production costs by 25% and increase returns over direct costs 26% in comparison to conventional farming methods. The no-till system showed a 12% reduction in direct costs and a 19% increase in net returns per acre over conventional cropping methods.

The alternative or more sustainable system of cattle production was represented by a planned, or management intensive, rotation grazing system with 24 paddocks. Conventional livestock production was represented by a three paddock grazing system, which likely overestimates the intensity of current management of a typical Putnam County grazing system. The alternative system would allow farmers to stock more than 50% more cows on the same number of acres than would the conventional grazing system.
The more sustainable grazing system resulted in a 35% increase in direct production costs as a result of higher stocking rates per acre of pasture. However, total livestock sales were increased by 51% under the alternative scenario resulting in a 73% higher net return over direct costs for the sustainable system.

Costs and returns per acre were multiplied by the numbers of acres of CRP land to be returned to crop and livestock production in Putnam County, assuming the CRP program was allowed to expire. The results indicate an increase in total input purchases of $946,000, if CRP land were returned to conventional crop production compared with $707,000 for inputs purchases if the more sustainable alternative cropping systems were used. However, input costs for the conventional livestock system were lower, totaling $1,030,000, in comparison with the alternative system, totaling $1,401,000. Thus, combined total input purchases were actually higher for alternative systems, $2,108,000, than for the conventional systems, $1,976,000. In addition, combined returns over direct costs, or gross farm income, were nearly $1 million higher for the ridge-till system, $3,404,000, versus the conventional system, $2,421,000. The no-till system also returned $862,000 more than the conventional system, netting $3,283,000.

Total annual CRP payments in Putnam County currently average about $65/acre for an annual total of approximately $1,692,000. Thus, returning CRP land to production under either the conventional or alternative system would result in more than a two-fold increase in total direct, or first round, economic activity. Returning CRP land to conventional crop and livestock production would add $2,705,000 in total economic activity, while returning the same number of acres to more sustainable crop and livestock could result in a $3,820,000 increase in total economic activity in comparison to current CRP payments. Putnam County's 581 farms averaged about $17,500 in net cash income in 1992. Returning land to production under the conventional scenario could support 89 additional "average" farming operations. The additional income for the more sustainable scenario would support 57 additional "average" Putnam County farming operations, a total of 146 more than are supported by the CRP program.

The final phase of the study was to translate potential changes in total economic activity into estimates of impacts on the local economy, including increases in local farm income and local consumer spending. The IMPLAN model was used to estimate indirect business and induced consumption expenses in the local area as well. Finally, estimates will be made of impacts on local employment, including self employment of farmers, and the related number of farm families who might be productively employed in the local community.

During 1994, basic data identifying potential changes in purchased inputs and product outputs were analyzed for Nebraska and Missouri communities to estimate economic impacts of changes in farming systems on the respective rural communities. Nebraska data was used to evaluate differences in direct or first-round impacts of conventional and sustainable farms on the local economy. Missouri data was used to develop coefficients for the agricultural sector of an IMPLAN input-output model, allowing estimation of indirect and induced effects, in addition to direct effects, of input purchases and commodity sales for alternative systems of farming.

The sustainability of alternative farming systems must be assessed using ecologic, economic, and social indicators. In this study, ecologic risks are assessed as threats to water quality from commercial agrichemicals, soil loss, energy use, and cropping diversity. Economic indicators are relative income or profitability with indirect implications for financial risks associated with cropping diversity. Social impacts are reflected in implications for farm size and ownership structure, number of farm families in the community, and for the economic and social quality of life of farmers and others who live and work in rural areas.

Farming activities have direct, indirect, and induced impacts on the local economy. Direct impacts are the first round impacts associated with purchases of production inputs, sales of farm commodities, and the resulting net cash farm income. Indirect effects result when local input suppliers or marketing firms buy raw materials, products, or business services from local sources.

Substantial leakages typically occur between direct and indirect economic impacts. A large portion of total production inputs may be purchased from sources outside the local community. Even when inputs are purchased locally, only a small proportion of the total sale price may go to local manufacturers and local service providers. Additional indirect effects occur when local manufacturers or service providers buy their raw materials or services from other local sources. However, additional leakages occur with each round of activity until additional impacts from a given initial transaction eventually become negligible.

Sales of farm commodities may also create indirect effects on the marketing, processing, or value-added sector of the local economy. Commodities sold locally generated sales commissions and other types of income for local marketing firms. Marketing firms may purchase supplies or employ local residents, resulting in indirect economic impacts similar to those associated with input purchases. As in the case of purchases, leakages occur at each round of activity, and eventually any additional impact from a given marketing transaction becomes negligible.

Total indirect effects represent the sum of all local economic activity occurring "after," but in response to, the initial direct transactions associated with input procurement and commodity sales. Indirect impacts are associated with the local business sector, including manufacturing, wholesaling, and business services. Induced impacts, on the other hand, are associated with local consumptive activities.

Induced impacts occur when people spend money they earn from participating in the local economy. Obviously, those earning income from agricultural transactions include farmers and farm workers. However, employees of local input suppliers, marketing firms, and other service providers also earn income from local agricultural transactions. As in the case of indirect impacts, initial consumption expenditures have second, third, and higher round impacts. Those who work for local retailers spend part of their incomes for local goods and services, which in turn generates income for local residents who provide those goods and services. And as in the case of indirect impacts, leakages at each round of consumption spending eventually reduce additional impacts from a given retail transaction until they become negligible.

Results of the Missouri impact assessment study indicate that returning current Putnam County CRP land to conventional production would increase total production and marketing activities by $4,508,900. Increased farm owner/operator net cash income, or gross profits, would account for $2,421,400 of this total. Direct impacts, net of farm income, were $2,087,500. Total indirect impacts were estimated to be $776,000. The business sectors of the local economy receiving the largest benefits would be agricultural services, wholesale trade, and banking, insurance, and real estate, in that order.

Induced economic impacts were derived from two sources: hired workers in the business sectors, including hired workers in business sectors affected by consumptive activity, and income that accrues to farm owner/operators and supports their consumptive activities. The estimated $2,421,400 in farm income was assumed to be spent on consumption activities. The total induced impact from farm consumptive spending was estimated at $2,577,000. The relatively small difference between initial spending and total induced impact results from the fact that few consumption items are produced in Putnam County. For hired workers in the business sector, the induced impact was estimated at $829,000. Thus, total induced spending was $3,406,000 for the conventional farming scenario. Most of this impact would be felt by the retail and service sectors of the Putnam County economy. The total economic impact - direct, indirect, and induced - from returning land presently in the CRP program to conventional production is projected to total $6,269,000. The largest component of this economic impact would come from increased consumption spending with a smaller proportion coming from impacts on input supply, marketing, and business services sectors.

The alternative, more sustainable, production scenario was estimated to increase total production and marketing activities by $5,651,500. Increased farm owner/operator net cash income would account for $3,283,200 million of the alternative system total. Direct impacts, net of farm income, totaled $2,368,300. Total indirect impacts were estimated to be $925,700. The business sectors of the local economy receiving the largest benefits would be banking, insurance, and real estate; wholesale trade; and agricultural services, in that order.

The estimated $3,283,200 in farm income for the alternative scenario, when spent for consumption activities, resulted in a total induced impact from farm consumptive spending of $3,494,200. For hired workers in the farm and business sector, the induced impact was estimated at $1,070,800, resulting in total induced spending of $4,565,000 for the alternative farming. The total economic impact - direct, indirect, and induced - from returning land presently in the CRP program to conventional production is projected to total $7,860,000.

In summary, the total economic impact from returning land presently in the CRP program to production under the alternative scenario is projected to total $7,858,900: $2,368,200 direct effects (excluding farm income), $925,700 indirect effects, and $4,565,000 induced effect (including farm income). This compares with $6,269,500 under the conventional farming scenario: $2,087,500 direct effects (excluding farm income), $776,000 indirect effects, and $3,406,000 induced effects (including farm income).

The economic impacts of crop production under both scenarios were very similar, even though their conservation and environmental quality impacts would be quite different. Most of the difference in economic impact arises from the livestock sector. The production and profit potential is significantly higher from the management intensive grazing system. The alternative system generated an estimated 25% higher level of local economic activity than did the conventional system. Most of the $1,589,400 advantage for the sustainable system is associated with the higher level of income generated for farm families and their associated consumption spending in the local community.

Sustainability must be measured in terms of ecological soundness, economic viability, and social responsibility of alternative systems of farming. Environmental soundness in this case is measured in terms of threats to water quality from commercial agrichemicals, soil conservation, energy conservation, and cropping diversity. Economic viability measures for the Putnam County study focused primarily on relative profitability with some indirect implications for financial risks associated with cropping diversity. The social responsibility dimension of sustainability was reflected in implications for farm size and ownership structure, and for the economic quality of life of farmers and others who live and work in Putnam County. More farming families might also contribute indirectly to the viability of local schools, churches, health care, and other public institutions.

The alternative farming system may be concluded to be more sustainable than the conventional system because it was found to be more ecologically sound, economically viable, and socially responsible than was the conventional system. The alternative systems appear to be more economically viable and socially responsible to the Putnam County community than is the current CRP program. The question of whether the alternative system would be considered more economically viable than the CRP by current CRP land owners is beyond the scope of this study. Current CRP land use practices are quite likely more environmentally sound and resource conserving than are those in the alternative, or sustainable, land use scenario. Returning land to production under the alternative scenario would retain more of the ecological benefits than would returning the land to conventional production. However, significant tradeoffs among environmental, economic, and social benefits remain when the sustainable scenario is compared with the CRP program. Sustainability is a question to which the answer is seldom either definite or clear.

Case Studies

The planned case studies have taken the form of special project reports for the Missouri and Nebraska studies. The Nebraska report focuses on potential differences between conventional and sustainable systems of farming on the communities of Hartington and Wynot in Nebraska. The Missouri case study report focuses on alternative post-CRP land use strategies for Putnam County.