This is the third post in a series of posts about cover crops.
In the last post on cover crops, we took a dip in the waters of the U.S. to explore how cover crops act as ecosystem superheroes to protect the environment. This week, we’re going to expand our knowledge of the cover crop world by diving into a very important topic: economics.
To start, let’s talk about profit. It’s defined as:
“Money that is made in a business, through investing, etc., after all the costs and expenses are paid; a financial gain; the advantage or benefit that is gained from doing something.” (Merriam-Webster)
When I think about profit, my mind immediately jumps to the idea of making more money than I spend. So if I want to maximize profit, I either need to:
- a) make more money, or
- b) spend less money, or
- c) make more and spend less.
It’s pretty straightforward at first glance, but the devil’s in the details.
Today, we’re going to explore the ways that cover crops can help farmers make more money, spend less money and even add an extra ingredient to the equation: increasing value through “interest.”
But first, let’s talk a bit more about the complexities of profit.
I’ll admit, I’m driven by profit. The idea of profit influences me in many aspects of my life outside of the balance in my bank account.
Exercise is a wonderful example of this. At least once a day I see advertisements, Instagram posts and headlines that attest to the value of exercise. They tell me that if I exercise regularly, I profit. And I believe them.
Exercise reduces my costs of living by acting as preventative medicine, boosting the ability of my body to ward off infection, chronic inflammation and disease. That means I won’t have to visit the doctor frequently or purchase medicine to treat health problems. And less doctor visits and medicine means more money in my pocket.
Even the simplest form of exercise, walking, can have immense impacts on health. A meta-analysis of 18 global studies on heart disease found that:
“Walking reduced the risk of cardiovascular events by 31%, and it cut the risk of dying during the study period by 32%. These benefits were equally robust in men and women. Protection was evident even at distances of just 5½ miles per week and at a pace as casual as about 2 miles per hour.” (Harvard Men’s Health Watch, 2009)
And, get this, in a 10-year clinical study of women who chose to either walk one mile each day or stick to their typical routine, “the walkers enjoyed an 82% lower risk of heart disease.” (Harvard Men’s Health Watch, 2009)
In short, regular walking produces a healthy heart.
We can quantify the savings this implies. In the U.S., about 1.5 million people suffer from heart attacks and strokes each year (Million Hearts). According to the Center for Disease Control (CDC), coronary heart disease costs the U.S. $108.9 billion per year, including the costs of health care services, medicine and the productivity lost to premature deaths or time out of the office (CDC, Heart Disease). Imagine the sort of savings we could have if every American started to walk one mile each day. That’s profit!
This example demonstrates why it’s important think outside of the box when thinking about profit, and to consider the various ways we can reduce costs to increase our overall profit. We have to be creative and pay attention to all of the details, and the externalities, of our profit-earning enterprises.
Much like exercise makes our bodies strong and resilient, cover crops act as an immune boost and preventative medicine to the soil. They reduce the cost of operating a farm in several ways.
Reduced Need for Nitrogen Fertilizer
Legume cover crops, like hairy vetch and crimson clover, add a natural source of N fertilizer to the soil, and when properly managed they can contribute about 75 – 150 lb. of N per acre to the following crop (Clark, A. 2007).
Let’s get some perspective on this number. To grow corn in the U.S. in 2010, the average amount of N fertilizer applied by producers was about 140 lb. of N per acre. For soybean, this number was 16 lb. of N per acre in 2006 (USDA-ERS, Fertilizer Use and Price).
So by using a legume cover crop during fallow, corn and soybean farmers might be able to offset some or all of their N fertilizer needs. Cha-ching.
Supplemental Pest Management
Certain cover crops can provide natural pest management, reducing the cost of using pesticides in doing so.
“On my no-till research plots with cover crops and long rotations, I’ve not used insecticides for six years on peanuts, for eight years on cotton and for 12 years on vegetables. I’m working with growers who use cover crops and crop rotations to economically produce cucumbers, squash, peppers, eggplant, cabbage, peanuts, soybeans and cotton with only one or two applications of insecticide—sometimes with none.”
-Sharad C. Phatak and Juan Carlos Diaz-Perez (Clark, A. 2010)
Phatak reported that by eliminating tillage and reducing input costs by planting cover crops, they’ve reduced costs of production by $200/acre.
There is an important caveat, here, which is that some farmers use pesticides to kill cover crops before planting their cash crop. Some people might worry that this practice represents an increase in the amount of pesticides used by farmers, which would be an increased financial and environmental burden. But it’s actually a common practice for farmers to apply pesticide to the land before planting the cash crop, to deter any weeds that have taken root over the fallow season. So, in some cases, killing the cover crop with pesticide doesn’t incur an extra cost to the farmer or the environment.
So far, we’ve only discussed the ways that cover crops reduce input costs. They can also increase the money earned by a farmer.
Did you know that cows like to eat turnips? And that turnips can be used as a cover crop?
In this way, cover crops serve a dual purpose: covering the ground in between cash crops and providing an opportunity to graze cattle, which adds income for the farmer! Another bonus is that the manure of the cows grazing on the cover crop will be added to the soil and manure is rich in nutrients. One creature’s waste is another creature’s treasure…
Cash Crop Yield Increases
Each year, the Conservation Technology Information Center (CTIC) and the Sustainable Agriculture Research and Education (SARE) Program administer a survey to farmers across the country. This study collects information directly from farmers on their use of cover crops. In recent years, the study has shown that farmers report yield increases of 2-12% in corn and soybean crops grown on fields that were previously cover cropped. Yield increases mean more production and more money earned!
Costs & Benefits
At this point, we’ve talked about the ways that cover crops can both decrease spending and increase income. But in order to understand how farm profits respond to these changes, we have to do a cost-benefit analysis.
|Seed||Nutrient Additions (N, for example)|
|Planting||Pesticide Input Reduction|
|Time & Labor||Interest* (read on below)|
Now for the dollar signs…
|Costs||$ per acre||Benefits||$ per acre|
|Seed||$20-30||Nutrient Additions (N, for example)||$0-5 (soybean)
|Planting||$10-12||Weed and pest management||$0-23|
These quantities were originally obtained from an assessment done by Rob Myers during a presentation at the National Conference on Cover Crops and Soil Health in 2014. Notice that some costs and one benefit are not included in this analysis: management, time and labor and interest. These are things that I have not found data on, and their absence stresses the need for more research in quantifying the economic impact of cover crops. Since first publishing this post, I’ve updated some of the figures based on new data. Please contact me with specific questions on my calculations.
Add the benefits and subtract the costs, and we end up seeing that cover crops could contribute $14 – 104 of potential profit per acre.
Though we haven’t yet accounted for any time and management costs the farmer will incur when planting a cover crop, we also have some unaccounted benefits, including the concept of “interest.” Cover crops build interest on a farm by increasing soil productivity, reducing yield variability during extreme weather events, keeping water in the soil and preventing soil erosion.
We can think about this by drawing an analogy to stock investments. When investors build a portfolio of investments, they’re thinking about the ability of companies (and the U.S. government, in the case of bonds) to build the investment by accruing interest.
Another example of the kind of interest I’m talking about is the purchase of a house. If I buy my house at $150,000, I would expect that the value of my house will increase over time, especially if I take good care of it.
In these examples, cover crops parallel the interest returned on stock investments or the increasing value of a well-maintained house over time. Cover crops increase the value of the soil by adding nutrients, protecting it from erosion, building its capacity to store water and creating a habitat for beneficial microorganisms to thrive. This increased value can be quantified by measuring the productivity of soils on which cover crops are grown.
In Iowa, for example, the Corn Suitability Rating (CSR) is a standard used to measure the productive capacity of land. The rating is then used to set the cash rental rates for the land. Systems like the CSR could be adapted in the future to account for the productivity additions, or interest, added by using conservation practices such as cover crops.
The increased resilience of land by planting cover crops should also be measured as a way to understand the value of planting cover crops. Recall earlier when I mentioned that cover crops have been shown to increase yields in corn and soybean crops. These yield increases were observed to be highest during periods of drought. This is phenomenal! During drought, farmers expect their fields to suffer losses in productivity. But by increasing yields during drought, cover crops are proving their ability to provide some “insurance” to the farmer that the land will be able to produce, even in times of drought. This insurance could also be quantified as a way that cover crops increase the overall bottom line of a farm.
Finally, there is another way that cover crops can increase farm profit, one that many people are excited about: carbon sequestration. It is well-known that greenhouse gas emissions have reached unprecedented and threatening levels in the atmosphere. As a globe, we are scrambling to abate these emissions by reducing our use of carbon-intensive energy sources and searching for ways to take carbon out of the atmosphere and put it somewhere else.
One of these carbon repositories can be found within the soil, where plants act as channels to pump that carbon from the atmosphere into the soil. One study estimated that the adoption of cover crops across the globe could sequester enough carbon offset about 8 percent of the annual greenhouse gas (GHG) emissions from agriculture (Poeplau et al. 2015). In a carbon tax economy, farmers could actually receive payments for the amount of carbon they sequester by using cover crops.
In conclusion, cover crops have the potential to help farmers profit while also improving the environment. That being said, it’s important that we understand each farm will have different climate conditions, use different cover crops and have various degrees of success and, yes, sometimes failure. But with good planning and advisors, farmers can make cover crop decisions that will boost their financial resources in the long term.
I hope you enjoyed learning about the bottom line of cover crops. I am constantly amazed by the solutions that nature presents us, and I firmly believe that quantifying environmental impacts as costs and benefits to our enterprises will ensure that our business decisions are truly profitable in the long run. I’m excited for the future of cover crops on farms across the U.S.!
Stay tuned to learn about the innovative business opportunities created by cover crops!
Clark, A. (2007). Managing Cover Crops Profitably, 3rd edition. Sustainable Agriculture Research and Education (SARE).
Delgado, J. A., Groffman, P. M., Nearing, M. A., Goddard, T., Reicosky, D., Lal, R., Kitchen, N. R., Rice, C. W., Towery, D., & Salon, P. (2011). Conservation practices to mitigate and adapt to climate change. Journal of Soil & Water Conservation 66(4): 118A-129A. Soil and Water Conservation Society.
Myers, R. (2014). The Case for Cover Crops. Remarks at the National Conference for Cover Crops and Soil Health. Video access: https://www.youtube.com/watch?v=YH2SMcHgrBI&list=PLWlltQ6Oy0zrdMXa9V7h2AFAacqtVb47n
Poeplau, C. & Don, A. (2015). Carbon sequestration in agricultural soils via cultivation of cover crops – a meta-analysis. Agriculture, Ecosystems & Environment 200: 33-41.