In business, risk is often associated with reward. The general idea being the greater the risk, the greater the return. 

In agriculture, this is generally taken to mean that by increasing your input costs (i.e. fertilizers, herbicides, irrigation, etc.,), your yields, and thus your profits, will increase correspondingly — simply put, the more you spend the more you make. Historically, success on a farm is all about yield.    

However, an agricultural movement known as regenerative farming is challenging this bit of conventional wisdom by arguing it is possible to make more money by growing lower yield crops.

The regenerative agricultural movement is focused on restoring soil health and productivity by redeveloping natural nutrient cycles that have been disrupted by years of tillage and heavy chemical use. Restoring these natural nutrient cycles is a long-term commitment that can take several years to fully achieve.   

One of the central goals of this movement is to reduce agricultural reliance on synthetic chemicals (i.e. fertilizers and pesticides) and, by doing so, greatly reducing the input costs of planting a crop. 

Now, reducing inputs, like synthetic fertilizer, during seeding will have the predictable effect of reducing the ultimate yield of that crop. 

However, it is crucial to remember that yield is not a direct measure of net profit (net = gross – expenses) and growing more grain does not necessarily translate into greater profits. This idea is reinforced by a recent study by LaCanne & Lundgren (2018) out of the University of North Dakota. 

LaCanne & Lundgren (2018) set out to compare the profitability of conventional versus regenerative farms around the north-central plains (e.g. the Dakotas). The researchers collected data from 20 farms (ten conventional, ten regenerative) and looked specifically at the net profitability of corn crops. 

Crucially, they found that, “Regenerative fields had 29% lower grain production but 78% higher profits over traditional corn production systems”

This is highlight in their chart below:

In the figure above, revenue and costs were calculated per hectare (i.e. 0.405 acres). Revenue (or net profit) is illustrated by the white box while expenses (or input costs) are represented by the coloured bars and boxes. 

The additional profit gained by regenerative farmers came largely from savings on input expenses like fertilizer, herbicide and irrigation, despite a smaller overall yield when compared to conventionally farmed corn.  

This method of modeling profit is an important metric. Traditionally, most farmers contend that greater yields leads to greater profits — this appears to be a false equivalency, as maximizing a crops yield potential through ostensive use of fertilizers, pesticides and other expensive technologies may actually provide diminishing returns.    

Again, this finding is worth reiterating: on regenerative farms, yields were almost 30% less than on conventional farms but net profits were almost 80% greater  

Crucially, as regenerative farmers have smaller overall expenses, they experienced significantly less risk and would be better able to cope in the event of a devastating crop loss.

So regenerative farming — lower risk, greater reward. 

****

This article briefly explores one aspect of LaCanne & Lundgren (2018) paper – risk and profitability. You can check out the full paper here (https://peerj.com/articles/4428/)

Ref.

LaCanne, C.E., Lundgren, J.G,. (2018) Regenerative agriculture: merging farming and natural resource conservation profitably. PeerJ, DOI 10.7717/peerj.4428

Leave a comment

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: