- Our next speaker is Dr. Paul Mitchell.
He's an associate professor in the Department of
Agricultural and Applied Economics.
He's gonna talk about meta-economics of cover crops
and he's told me that this will be
the best economics talk you'll hear all week.
So, please help me welcome Paul Mitchell.
(applause)
- Alright, thank you.
First off, I wanna talk about
what am I actually gonna talk about?
And the economics of cover crops, I'm not gonna spend
a lot of time going through budgets and stuff like that.
You've all heard a lot of talks here about different
benefits and stuff and you can, what is the cost?
That's the next step, we'll get to that,
I'm not gonna spend time talking about that.
I'm gonna put some dollar-value estimates,
some of the benefits,
I'll show you some numbers here in a bit.
But what the heck's this meta-economics thing?
It's the economics of the economics of cover crops.
I'm gonna try to do the broader, deeper,
some of the principles that are driving what we see out there.
What are farmers really doing?
These are some quick benefits
and I'm gonna talk about the first three.
Reduced soil erosion,
nutrient capture and release for crop use, additional forage.
Not gonna talk about suppression of the
different pathogens and pests and such.
I'm not really gonna talk about improved soil health.
So the first one is what is the value if of a ton of soil?
That, that's, this has been an issue
and suppose you prevented some soil erosion,
what's it worth?
What's is actually get you?
Jim Hansen and Mark Ribaudo are Ag-economists
at USDA Economic Research Service
and in 2008 they came out with this technical bulletin
and you can actually go in and look up each county
and it has a number.
What they've done is they did a big lit review
and pulled together a lot of stuff,
all the different impacts that soil erosion has on society
and come up with a dollar impact.
If you prevented a ton of soil, how much would you,
benefit would you generate or conversely if you'd
had an extra ton of erosion, how much damage would it cause?
And they kind of, what this, they did their best
but they kind of call it lower bound on the value of
of a ton of soil, either saved or eroded,
whichever way you wanna look at it.
In Wisconsin I've highlighted the two that really
are big generators, recreational fishing
and water-based recreation.
Other parts of the country, other benefits are a big deal.
This is the map of what they come up with.
These are at the county level
and they were meant for, like inner C.S. to do
their policy analysis and guide erosion,
control of spending.
Benefit to Wisconsin is somewhere between
$8.81 to $6.57 a ton, would be a ton of soil.
Of that productivity, or of that benefit
about a $1.21 is soil productivity.
You know, if you're eroding your soil
there goes some of your value of your land,
that's the next years yield, potentially.
You can see how it falls out across the U.S.,
we're up in the, you know, we're in the
$5 to $9 dollar region.
There's some greater than $9 up there in the northeast
and you can see the wind erosion and such.
They're fairly constant across our Wisconsin counties.
So what I thought is, okay, what can soil,
what can a cover crop do?
Let's look at that farmer cost.
We're not gonna, farmer's aren't gonna be worried about,
we'll say in a very self-centered perspective
about what the erosion of soil does down stream.
We're just gonna work on what does it mean?
There's this $1.21 a ton benefit of soil productivity
being washed away.
That's in 1990 dollars is the way they did it
in their study because, for whatever reason
they picked that year,
so we'll convert that to current dollars.
You take it times 1.79 using the consumer price index.
That's $2.17 a ton.
How much did we have in Wisconsin?
The state average is roughly 4.6 tons.
There was an article in the newspaper this week
and edit it, 4.4.
So, somewhere around that is the average
annual erosion of soil for Wisconsin land.
We'll take $2.17 dollars, or $2.17 a ton times
4.6 tons per acre, almost $10 dollars an acre
is lost in productivity, is the idea, every year.
This is the average across all the land
and it also puts an upper bound.
So if a cover crop came in and completely limited soil erosion
the loss in productivity, it would be stopping,
would be about $10 bucks an acre.
It would be a quick, simple guess.
So that's an upper bound on what you could get
if you stop soil erosion.
For, on average, this isn't a specific field,
this is the average field.
So, we'll talk about soil erosion, not a ton,
not a lot there, you know, maybe $10 buck an acre
if it really did a lot.
And that's just the farmer's stuff,
not the downstream cost, not the stuff like Tom
was talking about going downstream and stuff like that,
just the individual personal cost.
Let's look at nitrogen.
How much nitrogen do cover crops immobilize
for the following crops?
There's a really nice study out of Spain.
It's a five year study and the reason I pick it
is for these pictures, of the graphs here.
I haven't found graphs like this.
They did a cover cropping study in Spain
but it's before corn, or maize, as they call it,
and they come up with these probability
density functions.
It's very skewed, and this is the part I really wanna push,
there's a lot of times there's a lot of low to medium values
but then there's this chance once in a while
it's a really big nitrogen captures.
It depends on how big the crop is
and just the way the conditions work out.
And you can just see that in the data.
The average is all kilograms per hectare.
So, like, 82 kilo, 74-75 pounds of nitrogen per acre
is the average, but the mode is 12,
like 10-11 pounds.
But, and you can see there, but sometimes it's really high.
Same thing, and this is a barley cover crop,
you could see something similar, an average of,
what, a little over upper 50s, pounds per acre?
But the mode is 22 kilograms, so 20 pounds per acre
of nitrogen.
So, you know, the point I wanna make is it's variable
and there are some chances for some really high outcomes.
Then just because it immobilizes it doesn't mean you're
gonna, the following crop gets it.
It depends on so many things,
and you've heard several talks about some of that.
How to de-terminate it.
What's the soil temperature when you terminate? What's the moisture?
What's the timing relative to the major uptake period of the following crop?
Cover crop species, et cetera, et cetera, et cetera.
There's a ton of stuff in there.
So I just use this paper, again,
because it had some nice numbers.
It's the average uptake rate by, for corn was
90% of the barley, nitrogen was captured,
that's the average, there's gonna be another
distribution around it,
81% for vetch, 65% for rapeseed.
I don't know what we have for Wisconsin crops
or Midwestern crops and, you know, these are different,
these are just an example of what you can get.
And then, I'm sure some of you have seen this,
or know this, some cover crops actually consume
nitrogen as they decompose.
They're, it depends on the ratios of the
cover and nitrogen and such.
Matt Ruark and Jim Stute have a little,
you Google that, Cover Crop Considerations for 2012
you'll get it.
This is what we have here in Wisconsin.
This is UW Extension Matt Ruark and Jim Stute
back when Jim was working for UW Extension.
Nutrient credits vary by cover crop species,
by size, planting date.
That table 9.5 there shows you.
Less than six inches growth versus more than
six inches of growth.
You know, alfalfa, different,
a couple different clovers and vetch,
the legume cover crops.
You can see that 40 is a good average guess.
You saw those figures we had,
those nice little histograms we had before
from the Spanish study.
But you can see an upper end potential there.
It gets really high, a 100, 120 in some of those situations.
So is this enough nitrogen to justify the cost?
That's the question.
You can get, let's say 40 pounds, maybe you'll get more.
So I just took the current value of nitrogen,
it's about $0.40 cents a pound.
So what's the nitrogen value for 40?
About $16 bucks an acre, $24 if you go with
60 pounds per acre.
You know that, for a lot cover crops
that's not gonna cover the cost of the seed.
You add in the $10 dollars per acre on the
lost productivity, that all varies depending
on a lot of other things.
You kind of see that the numbers aren't strong.
These aren't a big no brainer for farmer adoption,
That's why we see what we see.
Here's the last one.
We've seen some talks on this on using the
cover crop as a forage crop.
So this is some posters actually over here.
This is a study being done by Kevin Shelley
and [inaudible] Pest Management, Jaime West
that you see in the back there,
and then Matt Ruark again.
They've been looking at using early season rye
forage before you plant corn silage.
Early season rye as a forage crop before you plant silage.
It effects the following, the quality and the quantity
of the follow crop, the corn silage.
And what they have is a base system is no-till
continuous corn silage.
And then one the systems afterwards
is to just do a rye cover crop
and the other one is to do a rye cover crop that
you actually harvest as forage.
And so the green is the cover crop terminated
with a herbicide
and the blue is the, used as forage.
This is the net gain and this would be extra revenue
generated for milk
because the quality, it's all quality adjusted
for the forage
and the quantity forage is used in the current
milk prices in those years.
And really, you can talk to Kevin about it afterwards,
it's the extra milk after you've taken
out some of these costs.
The paying for the seed, the planting,
the herbicide, the extra forage, you know,
an additional harvest.
There's nutrients removed by the forage.
What I want you to see is, relative to the base system,
sometimes you come out ahead, sometimes you come out behind.
On average it's a winning bet, $59 bucks an acre
an extra revenue for the milk or $233,
but the blue one lost money in 2014.
The green one, two out of the four years it lost money.
There's also this interaction to go on.
Cover crop by crop by environment by management
interactions matter.
Sometimes you're worse off with cover crops.
I think we all know that.
Cover crops use soil moisture which is good in wet years
and heavy soils but it's bad in dry years and light soils.
A very good example is the 2012, we had a very dry year here
and then 2013 was a wet spring.
This is just a graphic example.
On the left is the, yeah, on the left is the cover crop.
I wanna make sure it's the same as what you guys see.
On the right is the no cover crop.
This is a Columbia County example.
This picture on 6/29, from Matt Ruark I believe.
The rye cover crop is harvested May 10th,
he'd plant the corn.
Well, the rye cover crop was harvested,
he had a soil moisture deficit.
So the cover crop, you can just see it on the left side,
is much lower in, you know, plant height,
it's a little more yellow than the non-cover
crop section on the right side.
Would this be the same if you had cover crops
20 years or maybe it changed your organic matter content?
Would it look the same?
I don't know, you'd have to do the study.
Now I've done sort of those benefits.
The soil erosion value, nutrient-nitrogen values,
then the, some of these other,
this potential additional forage.
Let's just, yield as the integrator, what do you see?
This is back to that Spanish study.
I would love to see someone do something like this in the U.S.
This is an example of, this is maize again, or corn,
following these cover crops over a five year period.
And this is just the yield.
And that red vertical line in the middle,
which I'm not seeing the cursor,
is, that's the zero.
That means there's no yield impact.
That's the zero number, you can see it in the bottom,
very bottom of the slides there.
This is all in metric units, yield of,
kilograms of yield of dry matter per hectare.
The point I really wanna make, is I converted the maize
yield into bushels so we can think about it in U.S. world
but the vetch was up 13 and a half bushels,
barley was 5.3, the mean with the rapeseed is
negative 3.5 bushes and then the fallow is essentially zero,
the average.
But you can see the range.
Sometimes you're lower, sometimes you're higher.
That's what you get.
Cover crops, sometimes you come out behind,
That's the point I wanted to make there.
And it depends on the, what the cover crop is
and over the five years you get different outcomes.
So what is the yield benefit of cover crops?
I mean, that's what you think of yield as the integrator.
This is Jason Bergtold he's an Ag-economist
at Alabama, it'd be Auburn, Auburn University.
He did a paper, it's in an Ag-econ journal.
He did a survey of farmers, of 300 Alabama farmers.
Sixty-seven percent had used cover crops
sometime in the last three years.
Thirty-three of the adopters perceived a benefit,
the other 67, or 63% did not.
Of those perceiving a benefit, how much was it?
Almost 13%.
I wasn't able to figure out what the average
across all of them was or what the average
of those who had negative benefits was.
The real point I'm trying to make is that
triangle, again, is meant to be just like the
triangle we saw, I'll go back a slide.
These triangles.
It's just saying sometimes you come out ahead
sometimes you come out behind in the yield effect.
That's the point I'm trying to make.
So you can do an analysis here.
You can take the price of whatever you're,
of the harvest crop is, take it times the
extra yield that you get when you get it minus the extra cost.
That's your net benefit.
You can figure out some of these things
the soil erosion and productivity and nutrients, et cetera.
And the real question is the yield increase, on average,
enough to justify the cover crop
in the terms of the spending on it?
Is it enough to justify that risk?
I think you have to get away from the fact this is not
a you spend the money and you get a certain pay back.
This is a risky pay back and so the farmer's taking on
a different kind of risk when they do these cover crops.
Is the cost savings enough to justify the yield risk?
Really, and when you start talking about that
variability, you've seen those slides,
it depends on your costs, how much can it cost you
to plant that cover crop?
Then it really comes down to your willingness
and capacity to bear risk.
Everybody's got, as economists argue,
everyone is different on their willingness
and capacity to bear risk.
How much you discount the future.
A lot of these benefits are coming further down the line.
Some people want money right away, some people are patient,
a lot of times that depends on your age
and/or your financial status.
And then there's all these non-monetary benefits
that cover crops generate.
I feel better planting them, I'm doing something,
I'm helping the downstream people.
That is, that does have value
and to some people it has more value,
to other people it has less value.
So I think that statement in red is
cover crops are not a sure bet.
You're not always gonna win with cover crops.
The real question you should be asking yourself,
are they a good bet for you?
And all the different management stuff can slide
that figure around down there at the bottom.
The blue line is the benefit probability distribution.
Certain things will slide it up,
certain things will slide it down.
And then you have to ask yourself,
do I want to take that bet?
That's the way that farmers need to think about it.
And I really think this underlies a ton of problems
or issues in humanity.
There's this common issue underlies a lot of
what we consider problems.
You pay these big costs now, whatever they are,
and you have to wait a long time for the benefits.
Invest in being healthy and you don't really see the
benefits until you're much older.
But it's a lot of work when you're younger.
Or you can flip it around, you can switch the cost of
benefits around.
There's this big benefit right now,
I don't pay the costs for the future.
You know, pick your favorite, eating extra food,
smoking or drinking too much, whatever,
the benefit comes now.
You don't pay the cost until later.
That underlies, and cover crops very much are like that.
Spend money now, the benefits come in the future.
How long from now?
You know, when's that, when do the benefits exceed the cost?
How big are those benefits gonna be compared to the cost?
How much are those costs?
That underlies a ton of things we spend a lot of time
agonizing about as human beings.
Then, once you add that variability in these responses,
the risk, it just becomes even more unclear
what the heck should I do?
Are good or bad outcomes due to good luck
or bad luck or to your choices you made?
It's very hard to tell, you know.
You can't tell was I lucky?
Or was I, did I do a good job?
So now I'm gonna switch to some data.
This is a survey of Wisconsin organic vegetable farmers.
Jenny Moore was the graduate student working on it.
She's here somewhere.
It's in review currently.
And really, I like this because we're gonna pick
organic vegetable growers.
They're sort of a group of good farmers.
If they're, you know they're, organic farmers
are supposed, are held up as these are good people,
they're trying to do the right thing, et cetera.
And they generally use cover crops.
So let's look at them and see what we get here.
So, at 2014, 152 responses.
You can see the size of the farm,
some very small to very large operations.
Most of them are 36 acres is the mean,
the median is 4.
So a lot of these are pretty small,
you can generate a lot of revenue off these
vegetable cover cropping operations.
You can see the median revenue for the vegetables, 78%.
There's 7 different vegetable crops as the middle group
but the top three vegetable crops are a
big chunk of their acreage.
You know, they tended to have specialization,
it wasn't just a little bit of everything.
Here's where they're from, you can,
it's a little hard to see the colors.
Well, you can see them better up there.
You can see they're in the traditional organic areas
but they, it's a, there's a wide coverage around the state.
Seventy-eight percent planted cover crops in 2013.
Seventy-five percent at least for part of the season.
Sixty-one percent for the full season.
So they're using cover crops pretty intensely.
This is way higher than you would see
like in a conventional corn-soybean operations.
Fourteen percent had planted cover crops
just not that year we did the survey.
We did the survey roughly this time of year
about what they had done the year before.
And on average it was about 40% of their acres.
And so that seemed pretty good.
Here's what the, this horizontal axis is the year
and then this is the percent of respondents
when they started planting cover crops.
You can see we had some early bumps there
and then, it was fairly flat for the mid-80s til the early 2000s
and it really took off.
Roughly that's when organic, the National Organic Program,
finally the standard was set
and a lot of people joined the industry as well.
The National Organic Program set what you needed to do
if you're gonna be certified organic.
So we, and the cover crops are a part of that.
And this is a couple figures.
Most of these growers are using cover crops
in their organic vegetable acres, we've seen that.
Seventy-eight percent planted it that year in 2013.
Roughly you can see on the left side there,
and I'm talking, looking at the top figure there
the reddish one.
Roughly a third of them, about 40%,
but roughly a third used them a little bit.
You know, on 10% of their acres, 10% or less of their acres.
Then there's a third in the middle,
somewhere between 20 and 90%
and then there's another third at the end there
with pretty much our full adopters in all their acres.
So one third, one third, one third.
One third use it on a few, one third on some
and one third on most of their acres.
But then you look at the bottom figure
it's the percent of their total acres
that are using cover crops.
And what you can see there is, it doesn't necessarily
slop over to what they're doing elsewhere.
Part of it is the, it's a little different
in these vegetable systems.
You can, they're more intense.
What're they doing?
It's a diverse portfolio but rye dominates,
I've kinda circled it in red.
The main ones, rye, peas, oats, clover and buckwheat.
You could probably throw alfalfa in there
and then you've caught the big ones that they're using.
Use every year, the lighter color is used
in some of the years.
But you can see, rye is the big one
and then oats and other cereal.
And then, a lot of crops, they're using a lot of them.
You can see there's some, you know,
there's a number of respondents is the vertical axis,
horizontal is how many cover cropping species did you plant?
One to twelve.
You can see there's quite a bit of people are using,
people are using a lot of different species.
So this is the part now we ask what challenges were
the most important impediments?
Issues you saw with cover crops.
Cost shows up a lot, you know, they got direct cost,
you got managerial cost or you got opportunity costs.
These are the top six.
Seed expense is the number one cost.
That was, what makes it hard to do cover crops?
The seed.
Extra time to manage, it takes me more time.
Vegetable operations, these guys are worked,
they work a lot.
It's a very intensive operation.
It might only be 3, 4 acres but it's a lot of time.
There's a short planning window, it's another management issue.
I gotta get it in there and I gotta be sure that when
the time is right I gotta get planted.
Management difficulty, there's an extra work again.
Special equipment, a direct cost.
I gotta buy something to make it work
or rent it or borrow it from a neighbor or something.
And then there's the opportunity cost.
I'm putting that cover crop in, rye or whatever it is,
I'm not planting a vegetable I'm selling.
That's what they see, cost, cost, cost.
So let's start pulling this all together
and get back to this meta-economics.
So what is the meta-economics of cover crops?
Cost matters for cover crop adoption. A lot.
Cost share is and will continue to be
an important driver for adoption.
I'm thinking of the grain systems.
The NRCS, that is gonna be important.
Cost is a big deal.
Even among farmers who believe in cover crops,
the organic industry, cost is still a big issue to them.
So I expect with the tight margins out there this year
and even last year somebody even more so this year,
we're gonna see some serious disadoption of cover cropping
because it's just, they're gonna become very cost-conscience
and we're gonna see a pulling back on cover crops
on, by grain farmers.
Cover crops are risky.
They're not a sure bet, but they can be a good bet.
That's what I'm hoping you, some of you see out of this.
Sometimes the cover crop will make the farmer worse off
in the short run.
Are the good outcomes due to good luck or good practices?
You really can't tell.
So I think we need some honest statements
and assessments of the benefits and risks that,
in order to manage farmer expectations
and to maintain legitimacy and credibility of cover crops.
You can't be thinking, you can't get the farmers
to think you're selling snake oil.
That's the way to think of it.
Be realistic about it.
Yes, sometimes they are gonna lose you money.
You have to be aware of that, it's not a sure bet.
It can be a good bet if you, if you're, you know,
a good manager and are willing to try it all.
It's also an investment and investments have immediate costs
and they're risky and uncertain long-term benefits.
And you're not gonna be guaranteed a pay off.
Just like a lot of things in life.
You find, I think what we can do is find some of
these long-term users to show these benefits,
where you can get to in the long term.
And some of the human element to inspire
and maintain long-term investment by farmers.
I've done this for a couple years,
now comes 2016, the margins are tight.
Hey, Billy Bob over here, Mary Jane over there,
they've been doing this cover cropping thing for a long time
and it still seems to work for them.
You need a little inspiration or something to keep
these people, keep the investment going
so that eventually you get to spot where
the benefits exceed the costs, whenever that is.
If it ever happens.
Here's the point I really wanna make is
cover crops are very idiosyncratic,
very focused on what each individual operation.
And they're also very diverse.
Success depends on the specifics of each farmer,
each farm, each field, each year.
You've seen some of that already in what the people
do in real science with, collecting real data show ya.
It's very diverse.
It's just too diverse to come up with a simple rule
or design a research program that's gonna
answer all the questions.
A one-size-fits-all rule will always be second best,
you can't, because each farm is so different,
each year is so different, each field is so different.
And there's just too many research questions to answer.
So my first big bullet there.
Farmers are gonna need to do their own research
to figure out what works for them on their farm,
on their fields is what I add there.
There's just-- we don't have the resources to spend on it
and frankly, the benefits aren't big enough
to justify a billion dollar research investment
in figuring all the different ways we can use
cover crops on farms.
It's just, there's just so many options, it's so diverse.
What species? We've seen so many different species,
you can see the grazing, you know,
all those species that went up.
Each one of those can potentially behave differently
on a different field.
How do you do research on all that?
We don't have the resources to do it.
The timings it can change,
the management practices can change.
So I'm, you want, each farmer's gonna have to find
a low cost simple, locally relevant practice
that works on their fields.
And nobody else can do it for them.
We can give them as extension in outreach and research,
we can give them some ideas,
but they're gonna have to do some of that themselves.
There's just no way around that.
On the policy side, I'm thinking for like for NRCS
these rules should be as flexible as they can be.
We're gonna have to have rules, there's no way around it,
you have to have rules
but try to make them flexible so that they can be,
each grower can figure out a way to make them
work for their farm.
Wide spread highly intense adoption is unlikely.
I have a hard time seeing that happening.
Like, I'm thinking corn and soybeans,
not without some rules.
You think what you see in the organic vegetables there,
I put that greenish figure again.
Even though they're using a lot of cover crops
in their vegetables it doesn't necessarily
lop over to their other acres.
Cover crops would almost have to become a requirement.
You need something, it becomes not a economic thing,
it becomes a political solution.
There's a rule set, you know, a legal solution.
The National Organic Program is really driven
some of the organic vegetable growers into it.
Conservation compliance, you make that required,
maybe cover crops become required.
In the European Union the Common Agriculture Policy
has a cover cropping requirement.
And so that, if you want wide-spread,
highly intense adoption it's not gonna happen voluntarily
even with a lot of cost share.
It's probably gonna take a rule.
Think about what Tom Casper's talking about with
what's happening on the, in Iowa with the nitrogen.
It might be, lawsuit, if it comes out that the farmers,
they might have to do something like that.
It's a political solution,not an economic or voluntary solution.
Institutions matter, we talked a little bit about
the crop insurance rules.
That's a big deal.
Rental arrangements.
There's a lot of people who are absentee landowners,
you know, there's a lot of land rented.
In some of them, or a big chunk of them,
are interested in these issues, we could,
why can't we find example leases
that require cover cropping?
We could do it.
Of course, then the rent is gonna be different
because you're forcing the farmer, whoever rents that land,
to do something, well you can't expect to pay a
full market price for that rent.
You can, alright, I'll pay 10% or, you know,
$15 dollars an acre, whatever that number is, lower rent
but I will do the cover cropping.
We can find examples of that.
So thanks for your attention and I guess questions
for everybody at the end I think is what we're doing.
(applause)