Reference Manual of LISA Resource Management Strategy Budgets for the Mid-South Region

Final Report for LS91-033

Project Type: Research and Education
Funds awarded in 1991: $50,000.00
Projected End Date: 12/31/1994
Matching Non-Federal Funds: $50,000.00
Region: Southern
State: Alabama
Principal Investigator:
Larry A. Johnson
Tennessee Valley Authority Agricultural Institute
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Project Information

Abstract:

OBJECTIVE: To develop Resource Management Strategy (RMS) budgets for selected agricultural enterprises and systems located in the Mid-South.

METHODS: Standard budgetary analysis procedures were used to develop multiple crop RMS budgets for selected rotation schemes. Representative cropping strategies applicable to farmers in the mid-south region were identified and cropping alternatives analyzed. Economic and environmental data were collected from various sources including farm records, experiment station data, and consultations with Extension specialists, County Extension Agents, SCS and EPA officials. Representative price and yield data were based on information provided by the Agricultural Statistical Reporting Services of representative states. Input costs, such as chemical, fertilizer and interest were collected from a sampling of input suppliers and agricultural lending institutions. Budget format conforms to the SMART-FRMS system at the Center for Sustainable Agriculture.

Each RMS crop budget included a complementary set of decision aids to assist farmers in assessing the economic and environmental impacts of each decision. The decision aids included were break-even tables, costs and returns over relevant ranges of prices and yields, and various environmental impacts. Costs and returns were identified for various resource levels so farmers can easily adjust to reflect their own situation.

An advisory and review committee was organized. The committee was comprised of Extension Specialists, farmers, and TVA participants. The committee assisted in developing the work plan, identifying applicable resource management strategies and giving advice regarding practical applications for the different strategies. The final phase of committee assignments included a review and approval of the final document listing budgets for the selected Resource Management Strategy Crop Budget Manual.

RESULTS: The study resulted in the development of detailed cost, return, break-even and other budgetary data for 300 enterprise, rotation, and system budgets. These include traditional crop, livestock, fruit, vegetable, and specialty crops; alternative tillage system budgets for major field and forage crops including conventional, no-tillage, conservation tillage, contour and various contour strips; as well as low-input livestock operations, rotational systems, and organic crop budgets.

ABSTRACT

Conventional agriculture requires specialized, capital intensive systems that are dependent upon high levels of purchased inputs. Excessive use of many of these inputs can have detrimental effects upon the environment, raise food safety issues and often result in lower returns to farmers and increased risk levels. Environmental and food safety improvements can be made and farmers would gain financially from reduced cost levels associated with the incorporation of proven low-input farming methods.

The objective of this LISA proposal was to develop Resource Management Strategy (RMS) crop budgets for selected crop enterprises and cropping systems located in the mid-south region. The budgets provide sound economic information sustainable management practices to farmers, Extension personnel, ASCS and SCS offices and other interested individuals and organizations.

Project Objectives:

The overall objective of this SARE-TVA project was to develop a reference manual, with supporting research and educational material, that identifies, outlines, and provides economic information pertaining to the use of proven sustainable management practices in the mid-south region.

Introduction:

Conventional agriculture requires specialized, capital intensive systems that are dependent upon high levels of purchased inputs. Often times the excessive use of many of these inputs is not sustainable, have detrimental effects upon the environment, raise food safety concerns, are resource extracting, and result in lower returns to farmers. Therefore, critics argue that conventional agricultural systems are not sustainable and adjustments will have to be made to address environmental and other concerns.

The Tennessee Valley Authority (TVA) is committed to an environmentally sound agriculture while maintaining farm profitability. This commitment is evidenced by the long-standing farm demonstration cooperative program with the land-grant universities of the Tennessee Valley region, where proven techniques are applied on the farm. Farm demonstrations embracing environmental improvements, such as erosion control, animal waste management, and proper chemical use, are an integral part of the cooperative program.

While sustainable agriculture has numerous definitions and is relatively new as a farming concept, farming methods that are both environmentally sound and yet profitable have been, and continue to be, used in the farming community. Many of these sustainable practices are as common as the use of no-till, ridge till, and conservation tillage, as well as the use of crop rotations, legumes, cover crops, Integrated Pest Management (IPM) and others. These common practices, when organized into a production system, can have a significant impact on a farm=s profitability and environmental impact. The problem is that farmers need accurate information on the economic and environmental impacts of alternative systems before integrating them into their own farming operation.

Research

Materials and methods:

PROCEDURE: Methodology included an extensive literature review of Extension and Experiment Station publications from Tennessee and neighboring mid-mouth states. Current and previously recommended sustainable management systems and practices were identified and documented. Sustainable management practices that had merit in today=s economic and environmental conditions were reviewed by Extension Farm Management specialists from throughout the mid-south region. Data to support these estimates were obtained from farm records available through the TVA Cooperative program, personal interviews with farmers, current research and Extension budgets, and interviews with Extension specialists and research personnel. All budgets were reviewed by a review panel of Extension specialists and farmers from across the Mid-South.

EXPLANATION OF DATA: Hourly fixed costs, the new cost, expected life in hours, expected annual hours of use, storage space required and insurance cost were estimated for each price of machinery. The new costs for machinery are based on 1993 retail prices which were secured from published lists and machinery dealers. Expected life is based on research findings from several universities. The data assume reasonable storage facilities and average intensities of use.

Depreciation, housing, and insurance made up the fixed costs. Annual depreciation was calculated by dividing new cost less salvage value by the expected life. Investment in housing for machinery was determined based on the square foot of housing required by the machine. This amount was depreciated over 30 years with an annual maintenance charge of 1 1/2 percent of new cost. The annual insurance cost for fire and extended coverage was calculated by multiplying the average value of the machinery times an assumed insurance rate. The combined annual cost of depreciation, housing, and insurance was divided by the estimated hours of annual use to derive the fixed costs per hour.

Variable cost for machinery without engines consists only of repair costs. Variable costs for machines with engines included cost of fuel and lubrication in addition to repair costs. Repair costs were based on a percentage of new costs obtained from machinery research data while fuel consumption data were obtained from the Nebraska Tractor Trials. Oil and filter costs were assumed to be 10 percent of the fuel cost for tractors rated below 80 hp and 6 percent of fuel cost for tractors assumed to have diesel engines.

Machinery costs per acre were calculated based on the machine time needed to cover an acre. The machine time per acre times its hourly costs determined the acre cost for the machine. The theoretical field efficiency was obtained by multiplying the speed (mph) by the width (ft) and dividing by a factor of 8.25. This was then reduced to correct for the time required for turning, adjusting machines, filling hoppers, etc. and the acres per hour and hours per acre were determined. The field efficiency factors for each machine were obtained from research studies on machine efficiency.

An interest expense for each selected machine was determined. This figure was derived by taking half the investment in the machine and multiplying by the fixed interest rate.

Estimated labor requirements for crops and livestock were recorded by two-month periods. The labor requirements for selected crops were determined by listing a set of specific field operations which could be used to produce a given crop. The number of times each operation was performed was multiplied by the time required to perform the operation.

The capital requirements were for the brood stock and sire if needed, for feeders and for the buildings and equipment required to handle the enterprise.

Investments in field machinery and equipment were excluded from the livestock budgets. Capital requirements represent the initial investment.

Each enterprise budget is composed of five components. The revenue and expense data is in the final column of the budgets. Revenue is equal to expected yield times expected price per unit. Crop yields and livestock production rates used in the budgets are in most instances, above state averages. However, these yields and production rates are considered typical of many farmers in the mid-south region. Product prices in the budgets reflect average or normal prices that are expected to prevail during the next three to five years

Because of wide fluctuations in product prices and yields during recent years, a table denoting returns to land, labor, capital and management for varying price and yield combinations were included with each crop budget. These tables allow the user to select a price and yield combination that is considered applicable and to use the return figures given in the tables.

Variable expenses include the costs which vary with the level of output. These costs were normally for production items which were used within a given production period such as feed, seed, fertilizer and part of the machinery costs.

The amount of fertilizer listed in the crop budgets was based on a medium soil test, and in most instances, a specific pesticide was designated in order to compute a cost. All livestock enterprises were charged market price for all the feeds they consumed with the exception of pasture where only the costs of production were included.

Also most fertilizer and lime was assumed to be spread by bulk application with the cost of application included in the fertilizer and lime prices used in the budgets. Fixed expenses consisted of those costs that occur regardless of the level of output once the operation is established.

Building and equipment costs in the livestock budgets are based on the investment costs. Depreciation was computed at 5 percent of initial costs (a 20 year life) and repairs were calculated at 1 percent of initial costs, unless otherwise stated.

Labor and interest charges fall into both variable and fixed categories. Hired labor and interest on operating capital are variable expenses, while the value of family labor and interest on investment capital are assumed to be fixed expenses.

A section which outlines the machine and labor requirements for each crop enterprise is included with each crop budget. The table lists a set of field operations which may be used in the production of a given crop along with the machine time and man-hours required including indirect labor.

Multi-year crop rotation budgets were developed using information provided by the enterprise budgets. Changes in production practice, costs and resource requirements were made to reflect adjustments created by the system. These changes were then entered into the SMART system=s BUDGETOR subroutine.

PLANETOR is the foundation of the microcomputer-based SMART farm decision support system. It is a Awhole farm@ budget generator that incorporates economic and environmental data to develop RMS budgets. Developed under a project funded jointly by the Extension Service and Cooperative State Research Service-United States Department of Agriculture, this program is designed to help farmers and ranchers evaluate both environmental and economic aspects of their farming practices.

PLANETOR provides both an economic analysis and environmental assessment of a particular farm or representative farm. Three databases comprise the system; soils, chemicals, and enterprise budgets. The environmental section of PLANETOR evaluates each field for erosion control, water quality, and pesticide toxicity with each receiving a rating of low, medium, or high.

Research results and discussion:

The study resulted in the development of detailed cost, return, break-even and other budgetary data for 300 enterprise, rotation, and system budgets. These include traditional crop, livestock, fruit, vegetable, and specialty crops; alternative tillage system budgets for major field and forage crops including conventional, no-tillage, conservation tillage, contour and various contour strips; as well as low-input livestock operations, rotational systems, and organic crop budgets.

Each budget includes a complementary set of decision aids to assist farmers, researchers, and Extension workers, in assessing the economic and environmental impacts of each alternative. Decision aids include, break-even tables, costs and returns over relevant ranges of prices and yields, and various environmental impacts. All budgets are user friendly and can be easily adjusted to analyze specific income or resource use decisions.

CONCLUSIONS

This study produced a reference manual providing detained information on various crop and livestock systems. The intent was to provide farmers, Extension agents, and others with sufficient information to determine the economic and environmental trade-off of alternative systems. A comparison of the budget information to determine the appropriate crop and livestock systems was beyond the scope of this study.

Participation Summary

Educational & Outreach Activities

Participation Summary

Education/outreach description:
Publications

Graham, N. L. Estimated Costs, Returns, and Environmental Impacts of Sustainable Agriculture Systems for the Mid-South Region, Published thesis, University of Tennessee, 1992.

Johnson, L. A. and N. L. Graham AResource Management Strategy Budgets: The Building Blocks of Sustainable Agricultural System.@ published proceedings, Sustainable Agriculture Conference, Knoxville, TN, 1992.

Johnson, L. A. Field Crop Budgets–Four Row Complement of Machinery, published manual, Tennessee Valley Authority, Muscle Shoals, AL, 1994

Johnson, L. A. Field Crop Budgets–Eight Row Complement of Machinery, published manual, Tennessee Valley Authority, Muscle Shoals, AL 1994.

Johnson, L. A. Forage Crop Budgets–Four and Eight Row Complements of Machinery, published manual, Tennessee Valley Authority, Muscle Shoals, AL, 1994.

Johnson, L. A. Livestock Budgets, published manual, Tennessee Valley Authority, Muscle Shoals, AL, 1994.

Johnson, L. A. Fruit, Vegetable, and Organic Field Crop Budgets, published manual, Tennessee Valley Authority, Muscle Shoals, AL, 1994.

Project Outcomes

Project outcomes:

The information provided in the reference manual assists farmers and others with decisions regarding income and resource use. Improved decisions on individual farms result in tremendous impacts at the aggregate level. However, a complete analysis of aggregate impacts is beyond the intent of this study.

The enterprise data needs to be further analyzed using the new decision aid tools including PLANETOR II and CROPS. These computerized systems provide superior chemical leaching, runoff, and soil erosion information as well as a complete financial analysis.

Economic Analysis

Cooperative Efforts

A review panel of Extension Farm Management specialist and farmers served as advisors and reviewers for this study. Each cooperator assisted in the collection of data and reviewed the final report. The cooperators will also assist in the dissemination of final reports and plan to use elements of the study in their own educational programs.

Participants included: Dr. Bill Givan, University of Georgia; Dr. Jere Crews, Auburn University; Mr. Malcombe Broome, Mississippi State University; Dr. Clark Garland, University of Tennessee; and Dr. Steve Issacs, University of Kentucky. Farmer cooperators included Mr. Steve Parks, Tennessee; Mr. Mike Hutchins, Georgia; and Mr. Gary Walters, Tennessee.

Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture or SARE.