Transcript Economic Analysis of Haying and Grazing Kansas CRP Land

The Relative Cost Efficiency
of No-Till Farms
• Michael Langemeier
– Professor
– Department of Agricultural Economics
– Kansas State University
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Objectives and Data
• Examine the relative efficiency of no-till farms in central
Kansas.
• Kansas Farm Management Association (KFMA ) Data
– Continuous data from 2003 to 2007
– To be designated as a no-till farm, a farm had to utilize a notill production system for all of their crops
– Farms categorized into two groups:
• No-till (73 farms)
• Reduced or conventional tillage (239 farms)
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Kansas Farm Management Associations
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Definitions
• Value of Farm Production
– Sum of livestock, crop, and other income computed on an accrual
basis minus accrual feed purchased.
• Net Farm Income
– Return to operator’s labor, management, and equity (net worth)
computed on an accrual basis.
• Less Tillage Index
– Computed by dividing herbicide and insecticide cost by total crop
machinery cost which includes repairs, fuel, auto expense,
machinery and equipment depreciation, crop machine hire, and an
opportunity interest charge on crop machinery and equipment
investment.
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Definitions
• Profit Margin
– Computed by dividing net farm income plus cash interest paid minus
opportunity charges on operator and family labor by value of farm
production.
• Asset Turnover Ratio
– Computed by dividing value of farm production by total farm assets.
• Technical Efficiency Index (ranges from 0 to 1)
– Farms with an index of 1 are using the best available technologies and
producing on the production frontier.
• Cost Efficiency Index (ranges from 0 to 1)
– Farms with an index of 1 are producing at the lowest cost per unit of
aggregate output.
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Comparison of Tillage and
No-Till Farms, Central Kansas
Farm
Characteristics
Value of Farm
Production
Net Farm Income
Total Hectares
Less Tillage Index
No-Till
$360,109
Mixed Tillage
$266,618
$74,432
$53,114
817
699
0.162
0.110
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Comparison of Tillage and
No-Till Farms, Central Kansas
Financial Ratios
and Efficiency
No-Till
0.1256
Mixed Tillage
0.0881
Asset Turnover
Ratio
0.3729
0.3011
Cost Efficiency
0.664
0.611
Profit Margin
Note: Technical Efficiency was not significantly different
between the two groups of farms.
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Comparison of Tillage and
No-Till Farms, Central Kansas
Income Shares
Feed Grains
No-Till
0.2125
Mixed Tillage
0.1683
Oilseeds
0.1440
0.0914
Small Grains
0.2277
0.2959
There was not a significant difference between hay and forage, beef, or
dairy income shares.
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Comparison of Tillage and
No-Till Farms, Central Kansas
Cost Shares
Labor
No-Till
0.1904
Mixed Tillage
0.2577
Seed
0.0658
0.0570
Chemicals
0.0823
0.0575
Capital
0.5860
0.7035
There was not a significant difference between livestock and fertilizer cost
shares.
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Conclusions
• Summary
– In addition to having a higher cost efficiency index, the no-till
farms were larger, had a higher level of financial
performance, produced relatively more feed grains and
oilseeds, produced relatively less wheat, and more efficiently
utilized their labor and capital inputs.
• Implications
– Labor utilization
– Management
– Farm Size
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Contact Information
• Contributor Site – Langemeier
– www.agmanager.info
• E-mail
– [email protected]
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