ROI may be stumbling block for widespread adoption of cover crops

Using cover crops for livestock grazing or forage would lead to positive returns for farmers.

March 15, 2018

4 Min Read
ROI may be stumbling block for widespread adoption of cover crops
Iowa State University

Despite farmers’ positive perceptions about cover crops and the availability of cost-share programs to incentivize their use, an Iowa State University study found that the return on investment (ROI) may be the biggest hurdle to overcome before the practice sees widespread adoption.

In 2017, Iowa fields planted to cover crops expanded to 760,000 acres, with less than half receiving federal or state cost sharing. However, even though Iowa — and other Midwest states — has millions of acres of crops, it has yet to see widespread adoption of cover crops to reduce nitrates in water from crop fields and to conserve and build healthy soils, Iowa State said in an announcement.

“We have a substantial body of research that shows cover crops have positive long-term benefits for water quality, soil health and the environment,” said Alejandro Plastina, Iowa State University assistant professor of economics and extension economist. “Farmers also have positive perceptions about the value of cover crops and can take advantage of cost-share programs that incentivize their use.

“It’s likely that the number of acres planted won’t substantially scale up if the practice doesn’t at least break even in the short term,” he added.

In the study, Plastina and his colleagues calculated annual net returns to cover crop use by analyzing field data collected through focus groups conducted in Iowa, Illinois and Minnesota, an online survey with responses from 11 states, as well as a survey mailed to 1,250 farmers in Iowa. Through the survey and focus groups, conducted in partnership with the Practical Farmers of Iowa organization, the researchers compared each farmer’s costs and revenues from fields that used cover crops and from fields without cover crops.

Working with Plastina were Fernando Miguez, associate professor of agronomy; Fangge Liu and Wendiam Sawadgo, graduate students in economics; Guillermo Marcillo, graduate student in agronomy, and Sarah Carlson, strategic initiatives director for Practical Farmers of Iowa.

Using the survey results, the researchers developed partial budgets to evaluate changes in net returns resulting from using cover crops in corn or soybean production.

Overall, the researchers found substantial variability in net returns, driven by the costs of planting and terminating cover crops, feed cost savings from grazing cover crops, cost-share program payments and the difference in yields obtained in fields with and without cover crops.

“Cost-share payments are a critical incentive to support the practice of cover crops, but we found that, for most farmers, these payments are insufficient to cover all costs associated with cover crops,” Plastina said.

What can help tilt the balance to a more positive ROI?

“We found that farmers who grazed livestock on cover crops or harvested them for forage or biomass generated sufficient additional revenue or cost savings to result in overall positive returns, in addition to receiving cost-share payments,” Plastina said. “Promoting the use of cover crops for livestock grazing or forage would help a farmer’s bottom line.

“Anecdotally, farmers may find ways to reduce costs and increase revenues, but from our research, we can affirm that is not what Iowa farmers are typically experiencing,” he said, adding that it would also be helpful to develop improved guidelines for farmers on ways to minimize yield drag on corn and soybeans while containing cover crop planting and termination costs.

“A less sustainable alternative, due to federal and state budget constraints, would be to consider public policies that provide more incentives to adopt cover crops, like more cost-share payments, subsidized seed, discounted crop insurance premiums or tax credits,” Plastina said.

Plastina admitted that partial budgets derived from survey data do not account for long-term soil and water quality benefits because no market value for soil health or water quality exists, and neither does a generally accepted method to measure their value. However, this information still provides important insight for farmers and policy-makers.

“The calculated returns are based on real field data, not experimental plots, from row-crop farmers who manage acres with and without cover crops,” he said. “This information can be a useful benchmark for current and potential cover crop adopters. It also can serve as a reference for discussions on future agricultural and conservation policy.”

Plastina is developing a website on the economics of cover crops that will include tools farmers and others can use to discern potential costs and benefits. The website will include a downloadable spreadsheet with several budget scenarios for cover crops and a simple web-based decision-making tool to generate estimated net returns to cover crops.

A paper on Plastina’s study will be published by the Journal of the American Society of Farm Managers & Rural Appraisers.

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