Agriculture Reference
In-Depth Information
Trade-off Analysis of Profitability vs. Ecosystem Service Provision
Trade-off analysis can illustrate the relationship between profitability and ecosys-
tem services such as greenhouse gas fluxes or nitrate leaching for the MCSE sys-
tems (Antle and Capalbo 2002). When graphed in two or three dimensions, the
method provides a visual illustration of trade-off vs. win-win outcomes for farmers
and the public. It also permits an indirect way to calculate the cost to the farmer
of increasing output of nonmarketed ecosystem services. Farmers face two kinds
of monetary costs: direct costs and opportunity costs. Direct costs are subtracted
from revenues to calculate profitability. Opportunity costs are measured indirectly,
as the difference in earnings between the most profitable system and an alterna-
tive. Trade-off analysis can measure the opportunity cost of reduced profitability in
exchange for increased supply of ecosystem services.
Trade-off analysis can also be used to evaluate the efficiency of providing tar-
geted outcomes. By comparing profitability and ecosystem service outcomes for
the full set of MCSE systems, it identifies some systems that do not excel in any
outcome. Such systems are termed “inefficient” because other ones (either alone or
in combination) could provide the same or higher levels of all desired outcomes.
A caveat for trade-off analysis is that it only captures the supply side of economic
value, focusing on the marginal cost to the farmer of providing more of an ecosys-
tem service. In our research on the MCSE, we use budgets with static prices, so the
analysis implicitly assumes that any shift to an alternative cropping system would be
sufficiently limited in scale that it would not generate market price feedbacks.
The KBS LTER trade-off analyses begin with partial enterprise budgets for
the MCSE systems. Annualized partial enterprise budgets were calculated by
Jolejole et al. (2009) using standard enterprise budgeting techniques (Boehlje and
Eidman 1984), with a focus on only those costs that vary across systems, as per
the CIMMYT (1988) methodology for analysis of agronomic data. For systems
involving perennial crops, net present values were calculated over the crop lifetime
and converted to an annualized value using a standard financial annuity formula
(Weston and Copeland 1986). The resulting profitability measure is the gross mar-
gin, which represents revenue above costs that vary. Gross margins capture the
differences among MCSE cropping systems, although they do not account for other
kinds of costs that are unchanging across MCSE systems but tend to vary substan-
tially from farm to farm (e.g., land rental, compensation of family labor). Mean
values for global warming impact (GWI) were compiled for all MCSE systems
by Robertson et al. (2000) and Syswerda et al. (2011) and for nitrate leaching by
Syswerda et al. (2012).
Global warming impact results show that among the six MCSE cropping sys-
tems evaluated during 1993-2007, Poplar had the lowest overall impact (-105 g
CO
2
e m
−2
yr
−1
or -1.05 Mg ha
−1
yr
−1
, where the negative sign connotes net CO
2
uptake from the atmosphere), but it was also one of the least profitable cropping
systems ($73 acre
−1
or $179 ha
−1
), though more profitable than Alfalfa. In profit-
ability, the No-till system dominated at standard prices ($139 acre
−1
or $345 ha
−1
),
while the Biologically Based certified organic system dominated at organic prices
($185 acre
−1
or $458 ha
−1
) (Fig. 3.3).
