Financial and Economic Impication on No Tillage and Conventional Practices

[ ] Project Paper 2011

FINANCIAL MANAGEMENT

PROJECT PAPER:

Financial and economic implication on different approach of tillage practices

1.0 INTRODUCTION /PROBLEM STATEMENT

All most all types of land establishment required tillage in order to ensure good condition

for each crop. But the issues now are about soil erosion and profitability dictates that unnecessary


and deep tillage be minimized. Reduced tillage can range from eliminating a single practice such

as chisel plowing to eliminating all tillage.

Conservation tillage eliminates moldboard plowing and uses less erosive methods,

including chisel plowing or disking, to prepare the soil for planting. No-tillage, the strictest form of

conservation tillage, uses no tillage of the soil except for minimal disturbance of the soil surface in

the row during planting and, in some cases, during injection of fertilizers. The result is that 60 to

95 percent of the surface of a planted field is covered with crop residue from the previous season.

Increased surface residue helps to increase or maintain organic matter, to increase moisture

retention and to decrease soil erosion.

No-till is a way of growing crops without disturbing the soil. This practice involves leaving

the residue from last year's crop undisturbed and planting directly into the residue on the seedbed.

No-till requires specialized seeding equipment designed to plant seeds into undisturbed crop

residues and soil. No-till farming changes weed composition drastically. Faster growing weeds

may no longer be a problem in the face of increased competition, but shrubs and trees may begin to

grow eventually. Cover crops – ‘green manure’ – can be used in a no-till system to help control

weeds. Cover crops are usually leguminous which are typically high in nitrogen can often increase

soil fertility. The economic value of a ton of soil lost to erosion varies with the productivity of the

soil and the relative amount of soil lost. Whatever the short-term cost of erosion, it is clear that

long-term erosion will affect the productivity of the land.

2.0 LITERATURE REVIEW

2.1 No tillage practices


No-tillage or zero tillage is a farming system in which the seeds are directly deposited into untilled

soil which has retained the previous crop residues. It is also referred to as no-till. Special no-till

seeding equipment with discs (low disturbance) or narrow tine coulters (higher disturbance) open a

narrow slot into the residue covered soil which is only wide enough to put the seeds into the

ground and cover them with soil. The aim is to move as little soil as possible in order not to bring

weed seeds to the surface and not stimulating them to germinate. No other soil tillage operation is

done. The residues from the previous crops will remain largely undisturbed at the soil surface as

mulch. If the soil is disturbed even only superficially then the system cannot be termed no-tillage

and is defined as mulch tillage (CTIC, 2011). Seeding systems that till and mix more than 50% of

the soil surface while seeding cannot be defined as no-tillage (Linke, 1998, Sturny et al., 2007).

Adequate weed management is the key to successful application of the system. Weed control is

performed in this system using herbicides and also through the adoption of appropriate crop

rotations including the use of adapted, aggressive species of cover crops. Some of the environment

relevant effects of no-tillage as erosion control, improvement of water quality, increased water

infiltration which leads also to reduced flood hazard and climate related consequences through

carbon sequestration in the soil, will come into effect only after several years of continuous,

uninterrupted application.

The no-tillage technology is being applied globally on over 100 Million ha under the most diverse

climate and soil conditions (Derpsch, et al., 2010). The success of this conservation production

system is based on its continuous, permanent application, similar to a permanent pasture (Sturny et

al., 2007) and on biological diversification through crop rotation and cover crops. Special

requirements of the system must be satisfied to avoid failures and the necessary steps towards a

successful transition to no-till need to be followed (Duiker and Myres, 2006, Derpsch, 2008). The


fact that the soil is not tilled and remains permanently covered with crop residues leads to efficient

erosion control, to sequestration of atmospheric carbon in the soil, to increased biological activity

in the soil, to better conservation of water and to higher economic returns through time (Derpsch,

2010). Moreover, no-till is the only farming system that fully meets the requirements of a

sustainable agricultural production even under extreme soil and climate conditions.

2.2 Conservation tillage

Conventional tillage involves disking, plowing and other methods of tilling up crop residue left

behind after harvest. Here’s what’s working for farmers who still practice conventional-tillage

methods

2.3 Economic assessment on different tillage practices

According to Sorresson (2006), the main output of the project would be a higher rate of adoption

of no-tillage, in combination with financially attractive crop rotations. The adoption rates were

estimated to increase from the present level of about 20% of farmers to some 60%, 75% and 80%

in the 5th, 10th and 20th years, respectively, of the project. Without the project, it is estimated that

the rate of adoption would increase to 40%, 50% and 55% by the 5th, 10th and 20th years,

respectively.

The study conducted in Kentucky show that the implications for the established conventional

tillage producer are clear. Unless yields improve with conservation tillage, net cash flows will be

reduced by a switch in tillage systems. This reduced net cash flow would make it impossible for

the established producer to repay any loan associated with the purchase of no-till equipment.

(David et al, undated)


Another assessment made show that Corn and soybean production costs with conservation tillage

are about the same as those with no-tillage. The largest cost increase associated with no-tillage is

for herbicides and is a cash cost immediately affecting cash flow. The largest decreased cost

associated with no-tillage is depreciation and interest costs associated with machinery.

Unfortunately, noncash cost savings can result in greater profitability while not completely

offsetting the increased cash expenses of adopting no-tillage crop production. (Massey, 2007)

3.0 COMPARISON OF METHODOLOGY

The project target groups of small, medium and large mechanized farmers, were selected for in-

depth study on the basis of their representatively and availability of farm records . Following


recommended practice, no-tillage (NT) and crop rotations were being introduced gradually on most

of these farms, normally over four to five years. The time series data collected during the study

enabled a valid comparison of NT and conventional cultivation (CC) under roughly the same

physical and management conditions over several seasons. Interviews were also held with other

farmers during the course of the study to canvas their attitudes towards soil erosion and the

NT/crop rotation technologies.

Based on the farm data collected during the study, and some secondary data (from farmer co-

operatives), two sets of representative crop budgets under CC and NT were prepared, one set for

each region. In addition, machinery costs (both fixed and variable) were assembled for each region

and crop rotations, linked to crop budgets to accommodate residual nutrient effects, were specified.

The crop budgets, machinery costs, crop rotations and resource endowments (land, labor and

capital) were all combined in models of typical farms for each region, so that the financial and

economic impacts of NT and crop rotations could be quantified and compared to CC cropping

systems. The farm models were prepared using a universally-available spreadsheet program.

A subsidiary objective of the study was to make the models accessible to extensionists and

farmers through extension programmers. Hence the models were structured to permit easy

inputting of variables peculiar to an individual farm such as farm size, capital invested, labor

complement, rate of adoption of no-tillage, crop yields, crop and farm input prices, interest rate,

etc., so as to assist a farmer to decide on how he should introduce NT on his farm, including the

choice of crop rotations.

In other study conducted in Kentucky, to investigate the economics of various tillage systems in

Kentucky, a “typical” west Kentucky cash grain farm was investigated. The assumed farm


consisted of 400 tillable acres that were well suited to conventional tillage, reduced tillage or no-

till methods of crop production. The case farm used a rotation of 200 acres of corn, 100 acres of

full season soybeans (FSSB), 100 acres of wheat, and 100 acres of double crop soybeans (DCSB).

It was assumed that the owner-operator of the farm supplied all labor required by the operation. All

cultural practices used were those recommended by the University of Kentucky.

Another methodology use are the budgets in cost estimates of producing corn using two different

tillage systems under reasonable assumptions about practices and prices. Budgets for conservation

tillage and no-tillage soybean production are presented in this study.

Many of the production assumptions used in this guide are from the Missouri No-Till Planting

Systems Manual. The seeding rate, fertility program and yields are expected to be the same under

both tillage systems. The no-tillage corn budget differs from the conservation tillage budget by

eliminating two tillage activities and changing the herbicide program.

A study conducted on the Malawi, used the method of which is the trials were established and

managed by smallholder farmers in all 8 ADDs with supervision from extension staff. Sites

represent typical soil and farm management conditions to accurately reflect how the practices

discussed operate in the real world of the Malawi smallholder. Each farmer had an unreplicated set

of 10 m x 10 m plots for the different elements under demonstration. Sites were split to evaluate

the effect of fertilizer application on the different practices, giving a total of 6 comparisons, which

were analyzed across sites:

1. Continuous maize under conventional tillage, no fertilizer

2. Continuous maize under conventional tillage, with fertilizer (see rates below)

3. Continuous maize under reduced tillage + retention of crop residues, no fertilizer

4. Continuous maize under reduced tillage + retention of crop residues, with fertilizer


5. Undersowing Tephrosia and maize under reduced tillage in year 1 no fertilizer, fallow in year 2,

sole maize in year 3 with reduced tillage, no fertilizer

6. Undersowing Tephrosia and maize under reduced tillage in year 1 with fertilizer, fallow in year

2, sole maize in year 3 under reduced tillage, with fertilizer

Another study conducted to see the different tillage practices on the potato barley forages rotation

and barley soybean rotation. It has been done to study the different cost involved with different

types of tillage.

4.0 DISCUSSION ON ISSUE

4.1 Cost analysis


The corn budgets and soybean budgets indicate that switching to no-tillage will probably have

little effect on the per acre and per bushel cost of producing either crop. Several concepts need to

be understood before drawing conclusions from these budgets.

First, the budgets in this guide attempt to represent a group of farmers by making assumptions

about production activities and prices. The closeness of the results indicates the importance of

individual farmers estimating their own costs of switching to a different tillage system. Farmers

whose activities and inputs differ substantially from the budgets shown may expect either more or

less difference associated with switching production practices.

Second, farmers adopting no-tillage are likely to experience greater differences in cash flow than in

profitability. Understanding the true economic impact of switching tillage systems requires an

understanding of cash and noncash costs, and variable and fixed costs.

4.2 Increased costs associated with no-tillage

Herbicide cost, a variable cash cost, is the most obvious cost that increases with adoption of no-

tillage. The example analysis shows herbicide cost increasing $8.00 per acre when switching to no-

tillage corn production (compare herbicide costs in Tables 1 and 3). Along with an increase in

herbicide costs is a small increase in interest on operating capital. The small increase in operating

capital indicates that though total cost of production decreases slightly from adopting no-tillage,

cash costs actually increase.

4.3 Decreased costs associated with no-tillage


Fuel cost is variable cash cost that decreases with the elimination of two tillage practices when

adopting no-tillage. In the fuel cost decreases $1.45 per acre when switching to no-tillage corn

production.

Labor is a cash cost that helps offset the increased costs mentioned above. The budgets show a

labor cost decrease of $2.09 per acre when switching to no-tillage corn production. The budgets

assume that labor is hired, hourly labor — a variable cash cost. If salaried or self-employed labor is

involved, the cost is fixed and a decrease is not necessarily realized.

Though the number of hours worked per acre will decrease as activities are eliminated, that does

not necessarily mean that true farm labor costs will decrease. Labor costs per acre will decrease

only if

Hired labor costs actually decrease (i.e., employees work and are paid for fewer hours)

Salaried labor is used for other productive activities (e.g., farm more land, work with

livestock)

If the farmer-owner does other financially productive activities (e.g., income-creating or

expense-saving tasks such as crop scouting, input purchasing, and marketing).

In Paraguay, farm income decreases (from US$ 77,030 to US$ 68,630) under CC in response to

declining crop yields which have been built into the model based on research results from Parana,

Brazil, and actual farmer experience in San Pedro. Under NT it increases considerably (from US$

75,010 to US$ 93,760). At the same time, farm costs (both variable and fixed costs - the latter,

exclusive of the cost of NT equipment) are lower under NT compared to CC. Net farm income

increases considerably under NT from US$ 8,570 in year 1 to US$ 31,140 in year 10, while under

CC it is calculated to decrease from US$ 4,930 to -US$ 3,010. The changes in income and variable


costs under NT, between the first and tenth years, reflect increasing crop yields, a higher cropping

intensity and savings per crop in fertiliser, herbicide and insecticide. It is significant to note that

these results are based on actual farmer experience in San Pedro. Similar results were shown by

Sorrenson and Montoya (1989) in Parana, Brazil.

Financial rates of return on the marginal investment in NT equipment were calculated over 10

years for medium and large farms in San Pedro and Itapúa. It was assumed that new equipment

would be purchased. The results are shown below together with average rates of return over the 10

years analyzed.

The adoption of NT and crop rotations is much more attractive financially in both regions for large

farmers than medium-sized farmers. The reason for this is because in the farm model analysis, it is

assumed that the investment costs in NT equipment would be the same irrespective of farm size.

Therefore, larger-sized farms are able to capitalize on considerable economies of scale. Savings in

permanent labor costs are also greater on the larger farms. Nevertheless, NT and crop rotations are

still financially attractive for medium-scale farmers.

Small farmers can also benefit considerably from NT and crop rotations. While the Study focused

on the mechanized areas where most of the soil erosion is occurring in Paraguay7, it also included

an analysis of the benefits that a number of small farmers are obtaining from their mechanized

NT/crop rotation technologies. Such farmers plant 4-5 ha of soybeans through contracting

neighboring farmers with tractors for their cultivation, spraying, sowing and harvesting operations.

The farmers are conscious of the costs of soil erosion and have adopted new crop rotations with

directly-sown soybean crops. Ignoring the effects of reduced soil erosion, the annual cost savings

per small farmer are estimated at about US$ 440.

http://www.fao.org/docrep/007/ae368e/ae368e00.htm#P397_20503


Based on the study on comparative tillage costs for crop rotations utilizing minimum tillage on a

farm scale (Sijtsma et al, 2008), it show that the different types of tillage equipment and their

characteristics used in the cost analysis, including work rate, lifespan, replacement costs, and

maintenance costs are analyzed. As mentioned before, the differences in total costs between tillage

systems were basically differences in fuel costs, labor costs and differences in both capital and

maintenance (including repair) costs of the tillage equipment. Because the assumption is made that

there are no differences in capital costs for tractors between tillage systems, differences in total

costs might be underestimated. Nevertheless, there were substantial differences in overall costs

between tillage systems. In the potato±barley±forage rotation, overall annual tillage costs for the

360 ha farm scenario were 44±60% less with minimum tillage, compared to the conventional

ploughed system, while in the barley soybean rotation savings ranged from 10% to 40%

Costs and returns resulting from this switch to reduced tillage or no-till are summarize. As was the

case with the beginning farmer, the no-till system proved to be the most profitable with a net

return per acre of $28.43. Reduced tillage returns of $24.10 per acre were slightly less.

Despite the cost associated with purchasing new equipment for no-till production, conservation

tillage methods proved to be most profitable for both the beginning and established farmer when

higher yields were assumed. However, many producers may not be in a position similar to those

assumed in our base farm situation.

These differences were caused by a higher work rate, which saved both fuel costs and labor costs,

and cheaper equipment and lower maintenance and repair costs of the different tillage systems in

comparison to moldboard ploughing. Moldboard ploughing was the most costly tillage system,

because of its low work rate and high repair and maintenance costs, and the need for secondary


tillage. The disc harrow system was the system with the lowest costs, because of a high work rate

and low capital and maintenance costs. Between the different rotations, savings for using

Alternative tillage systems can differ greatly. In the barley±soybean rotation, the savings per

hectare for tillage systems were less, because in comparison to the potato±barley±forage rotation

the total cost differences were spread over more hectares. For example in the latter rotation, tillage

only takes place before the potato crop and the barley crop (forage is under-sown in barley). Thus,

the savings ($5890 per annum) due to minimum tillage are for 240 ha in the potato±barley±forage

rotation, while the annual savings of $7860 for the barley±soybean rotation represent that found for

the full 360 ha. Furthermore, for the mouldboard plough and the chisel plough system in the

potato±barley±forage rotation a disc tillage operation was required, which was not required in the

barley±soybean rotation.

4.4 The Beginning Farmer

For the beginning producer, all machinery is newly purchased. The annual costs of machinery

ownership were obtained by amortizing the total cost of the equipment complement over its

average useful life. Equipment used in the conventional tillage system was assumed to last 10

years. Machinery used in the reduced till or no-till system was assumed to last for the same number

of hours, and therefore more years than in the conventional tillage system.

Based on this analysis, the net return of $33.53 per acre from the no-till system was the greatest.

The net return of $26.49 per acre provided by the reduced tillage system was second. The lowest

return of $15.85 per acre came from the conventional system


4.5 The Established Farmer

For the farmer equipped to till and plant by conventional methods, a switch to no-till would require

the purchase of a new no-till drill and a new planter or the modification an existing planter

allowing for the proper placement of the seed in heavy residue conditions. To analyze this situation

the annual costs of ownership were determined for a producer who switches tillage systems in year

6 after initial startup of his conventional tillage operation. Changing to reduced tillage required no

new investment in equipment. It did extend the useful life of existing machinery and thereby

reduced the annual ownership cost. Adoption of no-till required the purchase of new coulters

($1,733) for the planter and a no-till drill ($12,275) in year 6. It was assumed that the producer

would keep the existing tractor for use in the no-till system.


5.0 CONCLUSION

Benefits to farmers from the adoption of no-tillage, in combination with sensible crop rotations,

could be substantial. However, in order for farmers to realize these benefits, besides adopting

NT, they must markedly alter their cropping systems, switching from monocropping practices to

diversified crop rotations, including the use of green manure crops.

The implications for the established conventional tillage producer are clear. Unless yields

improve with conservation tillage, net cash flows will be reduced by a switch in tillage systems.

This reduced net cash flow would make it impossible for the established producer to repay any

loan associated with the purchase of no-till equipment.

Further, if all labor for the operation is supplied by the owner-operator, there is no cash outflow

associated with the labor used by any tillage system. Thus, the labor saving aspects of either

reduced tillage or no-till are not realized as increased cash flow. This situation would simply act

to place the conservation tillage systems at a greater cash flow disadvantage than reflected in

these results.

Most of crop production costs with conservation tillage are about the same as those with no-

tillage. The largest cost increase associated with no-tillage is for herbicides and is a cash cost

immediately affecting cash flow. The largest decreased cost associated with no-tillage is

depreciation and interest costs associated with machinery.


6.0 REFERENCES

1. David C. Ditsch, Richard L. T, and Jill M. W. undated. Tillage selection: Soil

Stewardship versus Financial Survival

2. Sijtsma C.H et al., 2007. Comparative tillage costs for crop rotations utilizing minimum

tillage on a farm scale. Soil & Tillage Research 49, 223- 231

3. Massey R. E, 2007. No tillage and conservation tillage: Economic considerations. MU

Extension, University of Missouri-Columbia, 1-6

4. Sorrenson W. J, 1997. Paraguay Financial And Economic Implications Of No-Tillage

And Crop Rotations Compared To Conventional Cropping Systems, FAO Corporate

Document Repository No 9

5. FAO (Food and Agriculture Organisation) (no date) Conservation Agriculture: Matching

production with sustainability, FAO

6. Olaf E et al., undated. Adapting No-tillage Agricultural to the condition of smallholder

maize and wheat farmers in the tropics and sub tropics, 253- 289

7. Olaf E, 2009. Zero tillage in the Rice-Wheat Systems of the Indo-Gangetic Plains- A

review of impacts and sustainability implications, International Food Policy Research

Institute, 1-32

8. http://www.fao.org/ag/AGP/AGPC/doc/Newpub/landers/chap5.pdf

9. http://cornandsoybeandigest.com/conventional-tillage

10. http://en.wikipedia.org/wiki/No-till_farming

http://en.wikipedia.org/wiki/No-till_farming

http://cornandsoybeandigest.com/conventional-tillage

http://www.fao.org/ag/AGP/AGPC/doc/Newpub/landers/chap5.pdf

Financial and Economic Impication on No Tillage and Conventional Practices

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