Economics of Diversified Cropping Systems in the Black and Dark Gray Soil Zones in the Canadian Prairie Region

Abstract

There has been an ongoing trend of increasing Canadian canola production, coinciding with increased intensity of canola in rotations. This contrasts with extensive research that has found significant agronomic benefits from less canola-intensive and more diversified cropping systems. Current producer behavior in terms of increasing frequency of canola in rotations is attributable to the short-term profitability of canola relative to competing crops, although other factors such as participation in business risk management (BRM) programs may also be relevant. Understanding the role that these factors play in determining risk efficient crop rotations is of importance to industry as well as to policy makers. This study examines the economic trade-offs for alternative crop rotations, through an evaluation of net returns from crop production for representative Alberta and Saskatchewan cropping operations in the Black and Dark Gray soil zones. Production and market risk are incorporated through modeling of stochastic processes for crop yields and prices. Farm-level benefits and costs of rotations are estimated using Monte Carlo simulation and Net Present Value analysis methods. SERF analysis is used to identify risk efficient rotations for different levels of risk aversion. A common cropping rotation, consisting of spring wheat and canola was designed as the base rotation for all representative farms, and alternative cropping systems examined in the study were varied in length, specific crops included (i.e., barley, oats, field peas, flax) and degree of diversification/specialization. Results suggested all rotations for all three farms generated significantly positive expected wealth, while more specialized crop production were more economically viable due to the shortterm economic benefits associated with specialization. The annualized per acre risk premiums required by producers to adopt more diversified crop rotations were approximately $34, $2.30, and $11 in Camrose, Smoky River and Saskatchewan, respectively. Further, SERF results also suggested the advantages of specialized rotations are reinforced by participation in BRM programs, with corresponding increases in the risk premiums required to adopt more diversified rotations. This confirms the role of BRM programs in supporting adoption of more specialized crop rotations by crop producers in the study regions. While including yield effects of previous crops in the rotation did not have a significant impact on results for the risk efficiency analysis, it did highlight the relevance of this type of information on the economic performance of alternative rotations and the benefits (or lack thereof) of more diversified rotations. Lastly, the results from this study support the argument that information on negative productivity factors (e.g., disease event incidence and severity) are needed to provide producers with the knowledge required to make informed cropping management decisions.