Economic Evaluation of Cover Crops in Midwest Row Crop Farming

Project Overview

LNC15-375
Project Type: Research and Education
Funds awarded in 2015: $183,969.00
Projected End Date: 12/31/2017
Region: North Central
State: Iowa
Project Coordinator:
Dr. Alejandro Plastina
Iowa State University

Annual Reports

Commodities

  • Agronomic: annual ryegrass, corn, soybeans, cereal rye, other cover crop species

Practices

  • Crop Production: cover crops
  • Farm Business Management: budgets/cost and returns

    Abstract:

    This project addresses two problems. First, science-based information on the potential return on investment at the farm-level associated with the use of cover crops by Cornbelt farmers is very limited. We provide the first set of partial budgets to evaluate the private economic returns to cover crops in Midwest row crop farming. Second, row crop farming in the Midwest has been increasingly singled out as a major non-point source of nitrate pollution in waterways. We provide an evaluation of the potential impacts of cover crop adoption in nitrate leaching and soil erosion, and the cost saving potential for local water treatment plants. If aggregate cost savings in drinking water treatment plants stemming from reduced nitrate levels and soil erosion are greater than the sum of potential net losses across cover crop adopters, then economic theory suggests that a reallocation of resources from water treatment plants to cover crop users might improve social welfare.

    Contrary to our expectations, we found that cover crops typically induce negative net returns in Midwest row crop systems. Using the cover crop biomass for grazing livestock or harvesting it for forage is the most likely source of additional revenue (or cost savings in a crop/livestock system) that would result in positive net returns to cover crops.
    Our long term agronomic simulations suggest that using cover crops every year in a corn/soybean rotation for two decades would result in higher average soybean yields, similar corn yields, and lower nitrate leaching and soil erosion than in a comparable crop system without cover crops.

    However, the potential of cover crops to save costs to water treatment plants in the Midwest is limited by the relatively small annual operating costs for removing nitrates from untreated water sources. Therefore, and contrary to our expectations, the societal benefits defined in this very narrow way would be insufficient to offset the negative returns to Midwest farmers associated with large scale adoption of cover crops.

    Introduction:

    Row crop farming in the Midwest has been increasingly singled out as a major non-point source of nitrate pollution in waterways, putting pressure on farmers to adopt conservation practices. One of the promising conservation practices is the use of cover crops, which is known to promote many aspects of soil and water sustainability (Kaspar & Singer, 2011; Chatterjee, 2013). For instance, preliminary results from simulations based on a long-term cover crop study in Iowa suggest that nitrate concentration in tile drainage can be reduced by 54% when a winter rye cover crop is added to corn-soybean acres (Miguez, Basche, and Archontoulis, 2013). Moreover, the Iowa Nutrient Reduction Strategy (2014), Illinois Nutrient Loss Reduction Strategy (2015) and Minnesota Nutrient Reduction Strategy (2014) all list cover crops as one of the practices with the greatest potential for nitrate-N reduction. However, despite the considerable benefits the cropping systems can accrue, adoption of cover crops is very low in the Midwest. Singer, Nusser, and Alf (2007) found that in 2006, only 11% of farmers surveyed in Illinois, Iowa, Minnesota and Indiana had grown a cover crop within the previous five years. An analysis by the National Wildlife Federation of seed dealer data calculated that in 2011, less than 2% of the total cropland acreage in the Mississippi River Basin was planted to cover crops (Bryant, Stockwell, and White, 2013). Rundquist and Carlson (2017), using satellite imagery, report that in 2015 cover crops were incorporated into corn and soybean rotations in 2.3% of Illinois cropland, 7.1% of Indiana cropland and 2.65% of Iowa cropland.

    It has long been recognized that lack of familiarity with novel approaches in agriculture can inhibit adoption of conservation practices (Nassauer, et al. 2011). The top cover crop challenges farmers reported across four annual cover crop surveys (Watts and Myers 2013, 2014, 2015, and 2016) were establishment, time or labor required and increased management, and species selection. Farmers’ perceptions that cover crops are costly is also found to be a major barrier to their adoption: 74% of the respondents to the Iowa farm and Rural Life Poll (Arbuckle, 2015) report that potential economic impacts have moderate to very strong influence on changes in their management practices, and 57% agree with the statement that “pressure to make profit margins makes it difficult to invest in conservation practices”. During the 2014 National Conference on Cover Crops and Soil Health, participants highlighted the need for economic analyses to document short- and long-term impacts of cover crops (Sustainable Agriculture Research and Education 2014). Roesch-McNally, et al. (2017) found that despite having successfully planted cover crops, farmers tended to believe that greater economic incentives would be needed to spur more widespread adoption of the practice. The U.S Department of Agriculture Natural Resource Conservation Service (2017) estimated that Iowa farmers planted more than 353,000 acres of cover crops with financial assistance from the Iowa Department of Agriculture and Land Stewardship (through the Iowa Water Quality Initiative, state cost-share, and local watershed project) and federal conservation programs (through the Environmental Quality Incentives Program (EQIP), Conservation Stewardship Program (CSP), and Regional Conservation Partnership Program (RCPP)) in the fall of 2016 – nearly 18 percent more than the previous year.

    Science-based information on the potential return on investment at the farm-level associated with the use of cover crops by Midwest farmers is very limited. A handful of papers evaluate the economic impact of cover crops on different cash crops including Reddy (2009) with soybeans in Mississippi; Mahama, et al. (2016) with corn in Kansas; and Roberts, et al. (1998) with no-till corn in Tennessee. However, those studies are based on field experiments set up to evaluate agronomic factors, and the resulting estimates of economic returns might not apply to real farms where management practices do not follow an experimental design. Roberts and Swinton (1995) use actual data from 15 farms growing corn in Michigan in 1994 to explore the relationship between operating costs and crop diversity, and they concluded that cover crops reduce non-point source pollution without significantly reducing net returns. However, the small sample size limits the robustness of the results. Snapp, et al. (2005) provided a summary of the potential benefits and costs from the cover crops, both external and internal to the farm, and report qualitative findings from focus group discussions with eight Michigan potato farmers.

    There is a gap in the literature on the actual changes in economic costs and revenues faced by farmers who choose to use cover crops in their corn-soybean rotations in the Midwest. This project addressed the limited availability of science-based economic evaluations of cover crops in Midwest row crop systems by engaging farmers in developing and promoting the use of partial budgets for cover crops. Partial budgets capture the net annual private economic benefit or loss associated with the use of cover crops by identifying and monetizing the differences in management practices across production systems with and without cover crops. We provide a suite of partial budgets for cover crops in Midwest row crop production systems (by cover crop species, location, planting and termination method, tillage practices, cash crop rotation, and years of experience with cover crops) that serve both as benchmarks to current and potential cover crop users, and ground-truthing for agricultural and environmental policy design.

    Cover crops may provide soil conservation benefits in the reduction of on-site erosion. Soil erosion represents a cost to land owners, farmers and society as a whole. Duffy (2012) estimated the value of soil erosion to landowners in Iowa at approximately 4.8% of the adjusted 2011 land values.

    USDA/NRCS (2009, 2010) studies reported that each ton of soil eroded contained the equivalent of 2.32 pounds of nitrogen and 1 pound of phosphorous. The estimated costs per pound of nitrogen and phosphorous for Iowan farmers in 2015 were $0.47 and $0.48, respectively (Plastina, 2015). One way to value soil loss from the farmer’s perspective is in terms of the value of lost fertilizer, and that results in $1.57 per ton of soil loss. This approach is fraught with shortcomings, and more farm-specific economic valuations for farmers (as the one discussed in this proposal) are needed.

    The USDA/NRCS (2009, 2010) studies also estimated a per-ton benefit of $4.93 per acre for improved water quality benefits. Summing the values of soil loss saved for the farmer ($1.57 per ton of soil saved) and water quality benefits ($4.93 per ton of soil saved), participation in the Environmental Quality Incentives Program (EQIP) creates benefits for farmers and society at large, valued at $6.50 per ton of soil. Using the estimated 8.6 tons per acre reduction in soil erosion for land in EQIP, enrollment in EQIP saves soil valued at $55.90 per acre.

    Hansen and Ribaudo (2008) estimate the total annual water-related benefits from soil erosion abatement in the Corn Belt at $2.77 per ton of soil saved; and the reduction of municipal water treatment costs due to reduced turbidity at $0.18 per ton of soil saved. These estimates focus on the benefits stemming from reduced sediments in waterways, but exclude the benefits stemming from reduced nitrogen load on tile drainage.

    Des Moines Water Works (DMWW), a regional water utility providing drinking water to approximately 500,000 Iowans, reported having incurred approximately $900,000 in treatment costs and lost revenues when nitrate levels in the Raccoon and Des Moines Rivers were record high in 2013; and another $540,000 in operations and additional expenses between December 2014 and March 2015. DMWW (2015) claimed that “record high nitrate concentrations will require future capital investments of $76-183 million to remove the pollutant and provide safe drinking water to a growing central Iowa.” On March 10, 2015, DMWW filed a lawsuit against the Boards of Supervisors of three Iowa counties for the discharge of nitrate pollutants into the Raccoon River, and requested that they be recognized and held accountable as a point source polluter. This lawsuit is currently inactive (Center for Agricultural Law and Taxation, 2017), but served as a starting point for our investigation into the operating costs incurred by water treatment plants in Iowa, Illinois, and Minnesota to remove nitrates and reduce turbidity stemming from agricultural land. If aggregate cost savings in drinking water treatment plants stemming from reduced nitrate levels and soil erosion were greater than the sum of potential net losses across cover crop adopters, then economic theory would suggest that a reallocation of resources from water treatment plants to cover crop adopters might improve social welfare.

    Our societal economic evaluation was based on the analysis of existing long-term field trial data collected by Practical Farmers of Iowa and simulations of farm-specific yield and soil erosion estimates using the Agricultural Production System Simulator (APSIM), along with the operating costs incurred by water treatment plants to treat nitrates and turbidity. Due to the costs associated with generating data from numerous field research sites, simulations are used to develop best estimates of the impact of cover crops on nitrate leaching and soil erosion. This method provides much better estimates than off-the-shelf values from the literature alone, and allowed us to avoid large-scale experimentation which is costly and impractical. By providing a science-based report on the potential reduction in soil erosion and nutrient loading stemming from cover crops use, we expect to heighten awareness about the benefits of this practice in sustaining and improving the environmental quality and natural resource base for agriculture.

    As expected, our findings indicate that cover crops generate clear environmental benefits (although with regional differences), but contrary to our expectations, individual, regional, and state-wide partial budgets suggest that farmers who use cover crops tend to incur in annual net losses when the operation cannot benefit from livestock feed savings through grazing or harvesting the cover crop biomass for forage. These findings are robust across cover crop species, location, planting and termination method, tillage practices, cash crop rotation, and years of experience with cover crops; and take into account cost-share payments.

    The societal economic evaluation, given the annual negative net returns to cover crops and the minor costs (if any) to operate equipment to remove nitrates in water treatment plants, and the small potential influence of cover crops use in reducing water turbidity, suggests that additional cost-share funding for cover crop expansion cannot be justified based solely on water treatment plant savings. However, it must be noted that our approach excludes other environmental benefits (Tang et al. 2018) from the calculation that if included could provide a solid rationale for a more extensive support to cost-share programs.

    References

    Arbuckle Jr., J.G. (2012). Attitudes towards Cover Crops in Iowa: Benefits and Barriers. Iowa Farm and Rural Life Poll, Iowa State University Extension and Outreach, PMR 1010, March.

    Bryant, L., R. Stockwell, and T. White. (2013). Counting Cover Crops. National Wildlife Federation. Available at: https://www.nwf.org/~/media/PDFs/Media%20Center%20-%20Press%20Releases/10-1-13_CountingCoverCrops-FINALlowres.ashx

    Carlson, S. and R. Stockwell. (2013). Research priorities for advancing adoption of cover crops in agriculture-intensive regions. Journal of Agriculture, Food Systems and Community Development. Advance online publication. http://dx.doi.org/10.5304/jafscd.2013.034.017

    Center for Agricultural Law and Taxation. 2017. Des Moines Water Works Litigation Resources. Available at: https://www.calt.iastate.edu/article/des-moines-water-works-litigation-resources Last accessed Feb 2, 2018.

    Chatterjee, A. (2013). North-Central US: Introducing cover crops in the rotation. Crops and Soils, 46(1): 14-15.

    Des Moines Water Works (DMWW). (2015). Board of Water Works Trustees Votes to Pursue Lawsuit Against Drainage Districts. Available at: http://www.dmww.com/about-us/announcements/board-of-water-works-trustees-votes-to-pursue-lawsuit-against-drainage-districts.aspx

    Duffy, M. (2012). Value of Soil Erosion to the Land Owner. Ag Decision Maker File A1-75. Available at: www.extension.iastate.edu/agdm/crops/html/a1-75.html

    Hansen, L. and M. Ribaudo. (2008). “Economic Measures of Soil Conservation Benefits, Regional Values for Policy Assessment,” USDA/ERS, Technical Bulletin 1922.

    Kaspar, T., and J. Singer. (2011). The Use of Cover Crops to Manage Soil. In Soil Management: Building a Stable Base for Agriculture. Ed. J.L. Hatfield and T.J. Sauer. Madison: American Society of Agronomy and Soil Science Society of America.

    Miguez, F., A. Basche and S. Archontoulis. (2013). Predicting long-term cover crop impacts on soil quality using a cropping systems model. Leopold Center for Sustainable Agriculture. Available at: http://www.leopold.iastate.edu/grants/e2013-19

    Nassauer, J., J. Dowdell, Z. Wang, D. McKahn, B. Chilcott, C.Kling and S. Secchi. (2011). Iowa Farmers’ responses to transformative scenarios for Corn Belt agriculture. Journal of Soil and Water Conservation, 66(1): 18A-24A.

    Natural Resource Conservation Service (NRCS) of Iowa. (2012). Practices Improving Soil Health Also Reduce Erosion. Available at: http://www.nrcs.usda.gov/wps/portal/nrcs/detail/ia/home/?cid=STELPRDB1097491

    Plastina, A. (2015). Estimated Costs of Crop Production in Iowa. Ag Decision Maker File A1-20. Available at: www.extension.iastate.edu/agdm/crops/html/a1-20.html

    SARE. (2013). 2012-2013 Cover Crop Survey: June 2013 Survey Analysis. North Central SARE and Conservation Technology Information Center: http://www.northcentralsare.org/Educational-Resources/From-the-Field/Cover-Crops-Survey-Analysis

    SARE. (2014). “Preliminary draft report from the National Conference on Cover Crops and Soil Health,” Omaha, NE, Feb 17-19.

    Singer, J., S. Nusser, and C.Alf. (2007). Are cover crops being used in the US corn belt? Journal of Soil and Water Conservation, 62(5): 353–358.

    Tang, C., G.E. Lade, D.A. Keiser, C.L. Kling, Y. Ji, and Y-H. Shr. “Economic Benefits of Nitrogen Reductions in Iowa.” Iowa State University, Center for Agricultural and Rural Development. February 2018. Available at https://www.card.iastate.edu/products/publications/texts/water-quality-report.pdf. Last accessed Feb 27, 2018.

    SDA/NRCS. (2009). Summary Report: 2007 National Resources Inventory, Natural Resources Conservation Service, Washington, DC, and Center for Survey Statistics and Methodology, Iowa State University, Ames, Iowa. 123 pages.

    USDA/NRCS. (2010). Final Benefit-Cost Analysis for the Environmental Quality Incentives Program (EQIP), Natural Resources Conservation Service, Washington, DC, May 10.

    Project objectives:

    This project had two objectives: to address the limited availability of science-based economic evaluations of cover crops in Midwest row crop systems through partial budgets; and to evaluate the long-term impacts of cover crop adoption in nitrate leaching and soil erosion (and the resulting cost saving potential for local water treatment plants) through long-term agronomic simulations.

    An entire suite of partial budgets for cover crops in Midwest row crop production (by cover crop species, location, planting and termination method, tillage practices, cash crop rotation, and years of experience with cover crops) was developed based on: farmer focus groups conducted in Iowa, Illinois, and Minnesota; online survey responses from 11 states; hard-copy survey responses from Iowa; and analyses of existing data from multi-year field trials from Practical Farmer of Iowa.

    The Agricultural Production System Simulator (APSIM) model was used to simulate the long-term effects of cover crop adoption on soil erosion and nitrate leaching for a variety of locations, soil types, and alternative management practices. The APSIM model follows the Natural Resource Conservation Services’ Revised Universal Soil Loss Equation (RUSLE2).

    Estimating the private and social cost of soil erosion is extremely difficult and subject to a variety of assumptions. We focused on estimating only a portion of all possible social costs of soil erosion, namely those related to increased costs of drinking water treatment due to increased turbidity and/or nitrogen load. We interviewed water treatment plant managers in Iowa, Illinois, and Minnesota, to learn about the technology available to reduce nitrates and turbidity in drinking water caused by cropland soil erosion.

    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.