Estimating risk premiums for adopting no-till and cover crops management practices in soybean production system using stochastic efficiency approach. (February 2020)

• Record Type: Journal Article
• Authors: Adusumilli, Naveen; Wang, Hua; Dodla, Syam; Deliberto, Michael
• Is Part Of: Agricultural systems. Volume 178(2020)
• Publication Date: 2020-02
• Subjects: Risk -- Cover crops -- Conservation -- Tillage -- Certainty equivalents -- Risk-premium; Agricultural systems -- Periodicals; Agriculture -- Environmental aspects -- Periodicals; 338.16
• DOI: 10.1016/j.agsy.2019.102744
• Languages: English
• ISSNs: 0308-521X

Abstract

Abstract: Several alternative conservation practices that address farmers' concerns over natural resource stewardship are currently available. Such conservation practices as the planting of cover crops and conservation tillage are some of the most widely promoted practices throughout the U.S. today. Based on three-years (2016–2018) of field data and historical market price, crop yield, crop price, and fuel and fertilizer price are simulated to create net return distributions. To evaluate the profitability of conservation alternatives and the risk efficiency of these alternatives, the stochastic efficiency with respect to a function (SERF) method is used for analyzing the no-till and cover crop management systems in Louisiana soybean production. SERF estimates certainty equivalents (CE) in order to rank a set of risk-efficient alternatives over a range of risk aversion preferences. Results indicate that CE values are higher for conventional tillage practices than for no-till and risk premiums are positive across all risk-aversion values; however, for risk-averse farmers, premiums are almost zero if their current system is either a no-till or conventional tillage system where the farmer has already implemented a cover crop. Highlights: Certainty equivalents for conservation tillage and cover crop adoption are estimated. Risk-neutral farmers prefer conventional tillage over no-till and/or cover crop. Risk premiums are dependent on current conservation practices. Risk premiums are higher for highly risk-averse farmers. Risk premiums allow identifying conservation incentives for enhancing adoption.