Land-Use Implications of the Changes in Energy Prices

Lyubov A. Kurkalova*, Stephen Randall*, and Silvia Secchi**

*North Carolina A&T State University

**Southern Illinois University

Selected Poster prepared for presentation at the Agricultural & Applied Economics

Association’s 2010 AAEA, CAES & WAEA Joint Annual Meeting, Denver, Colorado, July 25-

27, 2010.

Copyright 2010 by L.A. Kurkalova, S. Randall, and S. Secchi. All rights reserved. Readers may make

verbatim copies of this document for non-commercial purposes by any means, provided this

copyright notice appears on all such copies.

LAND-USE IMPLICATIONS OF THE CHANGES IN ENERGY PRICESThe Impact of Conflicting Economic Incentives

Lyubov A. KurkalovaNorth Carolina A&T State University

Silvia SecchiSouthern Illinois University

Stephan RandallNorth Carolina A&T State University

We find a significant, spatially heterogeneous increase in tillage intensity as-sociated with the introduction of a corn stover market. Concurrent incentives for the adoption of conservation tillage partially alleviate the increase, but such a program is expected to be expensive. Our results underscore the im-portance of coordinating the agricultural conservation policies with those that encourage the growth of the production of biomass for energy production. An extension of this study is underway to estimate the environmental impacts of the identified changes in cropping and tillage patterns.

CONCLUDING COMMENTSOur study complements the large-scale studies on the effect of energy prices on land use generally fail to capture the full spatial heterogeneity of growing conditions. We find a significant, spatially heterogeneous de-crease in tillage intensity and corn monoculture associated with the in-crease in energy prices. It must be noted that we are investigating what could be termed a medium-run response of farmers to the changes in energy prices. We assume that farmers perceive the price change as per-manent so that they change their profit-maximizing choices on crops to grow. However, we leave to future studies the consideration of the poten-tial farm practices adjustments that may happen in the long run including, e.g., the wide-spread adoption of precision agriculture practices such as yield monitoring, GPS systems, and variable rate applicators (Miranowski, 2005; Daberkow et al., 2007).

FINDINGS

Daberkow, S., D. Lambert, and W. Musser. 2007. “U.S. corn producer’s response to increased energy prices: evidence from producer surveys in 2001 and 2005,” West-ern Economic Forum 6(1): 14-27.

Miranowski, J.A. 2005. “Energy consumption in US agriculture.” In J. Outlaw, K.J. Collins, and J.A. Duffield (Eds.), Agriculture as a Producer and Consumer of Energy, pp. 68-111.

Secchi S., Kurkalova L.A., Gassman P.W., and Hart C. Land use change on the in-tensive and extensive margin in a biofuels hotspot: the case of Iowa, USA. Under review.

REFERENCES

ACKNOWLEDGEMENTS This research was made possible in part by USDA-CSREES grant 2005-51130-02366, USDA-NRCS Prairie Rivers RC&D grant Q6861146200, USEPA grant R83209401, and USDA-Rural Development grant 68-3A75-6-511.

Crop production uses a number of energy inputs: diesel fuel to power planting and harvesting machinery, LP gas to dry harvested crops, and nitrogen fertilizer (which is derived from natural gas) to supply crop nutrients. The increases in energy prices act as fertilizer, fuel, and LP gas taxes, thus increasing the costs of operation and reducing the net returns to farming for energy and/or fertilizer intensive crops. While recent discussions suggest that the increase in fuel prices is likely to widen the use of conservation tillage and lower fertilizer application rates (Daberkow et al., 2007), little is known about the magnitude of these responses. We assess the responsive-ness of the compositional distribution and spatial patterns of cropping systems and tillage use to changes in energy prices for the state of Iowa.

RESEARCH QUESTION DATA AND MODELS To capture the spatial heterogeneity of soils and crop growing conditions, we conduct the analysis on a grid of a field scale, with a 30 by 30 meter resolution. The GIS-based, USDA NASS remote sensing crop cover maps for the years from 2002 to 2006 have been combined to construct historical rotations on each of the fields in Iowa. The cropland data are supplemented by the GIS-based, USDA NRCS SSURGO 2.2 soils data, and the Corn Suitability Rating (CSR) that measures land’s productivity in crop production. Environmental vulnerability of cropland is measured by the Highly Erodible Land (HEL) code. Details on data construction are provided in Secchi et al. (under review). While most of Iowa cropland is of high productivity, most of the presently cropped HEL is of medium productivity (Figure 1). We assume that farmers maximize expected profits by choosing crop rotations and till-age intensity, and simulate the field-by-field choices by comparing multiple-year cumu-lative expected net returns. Cost estimates are based on crop production and corn stover collection budgets devel-oped by ISU extension (http://www.extension.iastate.edu/agdm). We consider three crop rotations that are currently dominating state cropland: continuous corn (CC), corn-soybeans (CS), and corn-corn-soybeans, and three tillage systems: conventional, mulch, and no-till. The latter two tillage systems are conventionally termed conservation tillage.

Given the current instability in crop markets, we assume crop prices to be as in the Chicago Board of Trade futures contracts for the fall of 2010 traded in the summer of 2008, $3.9/bushel and $9.8/bushel, for corn and soybeans, respectively.

The simulations assume that the prices of all energy inputs considered (diesel fuel, LP gas, and fertilizer) are positively correlated. We consider diesel prices ranging from $2/gallon to $6/gallon. The outcome of each scenario is the prediction of rotation and tillage system, for each of the 30 by 30 meter fields currently cropped in the state.

SCENARIOS

Figure 2 Predicted rotation and tillage at $2/gal diesel price Figure 3 Predicted rotation and tillage at $6/gal diesel price

Figure 1 Distribution of Iowa cropland by soil erodibility and soil productivity