Understanding the overall economic implications of alternative farming systems requires research at several levels, including individual components of crop and livestock enterprises, whole-farm studies, and national and international analyses.

Traditionally, most evaluations of the economic impact of adopting alternative farming practices have focused principally on the cost and returns of adopting a specific farming method.
 

• Many studies at the farm level have estimated the economic benefits of integrated pest management (IPM), crop rotations, and manure management options

 
• Such studies generally assume no other changes in the farm operation, input or output, or prices

 
• These studies fall into a broader literature on farm management that employs partial budget analysis techniques

Fewer studies have considered the impact of alternative farming systems on the economic performance of the whole farm.
 
 

• Most aggregate studies are flawed in their methods and assumptions regarding the effectiveness of alternative systems and the impact of commodity policy on farm management.

 
• The common approach has been to compare conventional farming practices with the economic performance of a similar farm, assuming total withdrawal of certain categories of farm inputs

 
• These studies usually assume or project substantial reductions in per acre yields in many crops and then project the effect of these reductions in the context of strong export demand and limited commodity supplies.

Economic Studies of Farming Practices

Economic analyses of single enterprises or their components usually employ partial budgeting techniques that estimate the change in production costs, profits, and risks accompanying a specific change in farming practice.

• Results are often expressed as a change in the net return over cash production costs per acre or per unit of output

 
• Partial budget studies focus on short-term net returns, including labor, and generally do not take into account off-farm impact or long-term changes in the productivity of the natural resource base.

 
• They assume no change in farm size, enterprise combinations, prices of commodities or inputs, or other variables

Whole-Farm Analysis of Alternative Methods

Frequently, a farming method that appears profitable when analyzed at a component level may prove less attractive from the perspective of the whole farm, particularly in relation to other possible practices or combinations of practices.

• Analysis at the whole-farm level recognizes that a farmer's decision to adopt one or more farming practices is not made in isolation from the rest of the farm enterprise.

 
• The most important factor in adopting any management system or combination of crops is the net return to the farm family.

The successful commercial farmer must assess the compatibility of proposed alternative practices with other practices already in place, taking into account a farm's physical and biological resources and anticipated changes in crop yields, livestock productivity, production costs, farm programs and policy, and labor and machinery requirements.

Whole-farm studies typically use one of two approaches:

• Linear budget (risk programming) or

 
• Overall farm surveys

Partial and whole-farm analyses can take a short- or long-term perspective.

• For short-term analyses, some resources and technologies are assumed fixed, and management decisions are made among existing alternatives.

 
• Long-term studies are more complex and difficult because many more variables are changeable, including technologies and policies.

A critical need in terms of technological trends and policy changes is how these trends and changes are likely to influence the relative costs and benefits of various farming systems.  For example:

• Biotechnology could increase technological options in support of alternative agriculture systems, and that society's environmental and public health goals will tend to support producers successfully adopting these technologies.

 
• Farm surveys are based on empirical measures of the performance of agricultural production systems.

 
• It is often difficult to draw cause and effect inferences from surveys.

 
• Experimental data on alternative agricultural systems are clearly lacking, and relatively few well-designed surveys have been undertaken.

The Transition to Alternatives

Most economic studies of alternative production at the whole-farm level take a static approach, ignoring the year-to-year difficulties associated with the transition from one system to another.  Moreover, the assumptions used generally ignore uncertainty stemming from the weather, crop yields, management skills, prices of inputs and products, government policies, and other variables.

• As a result, these studies must be interpreted cautiously

 
• These studies recognize that a farm's economic performance can change significantly during a multi year evolution from conventional to alternative practices

Many factors can influence the economic performance of farms during the transition to alternative practices.

• The use of certain kinds of pesticides and fertilizers may have disrupted natural predators and other biota.

 
• Although crop rotations will generally increase yields, decrease pesticide costs, and, in the case of legumes, decrease fertilizer costs, the full benefits of crop rotations may take several years to materialize

 
• Depending on the prices of farm commodities and inputs, adoption of a rotation sometimes reduces net farm income, particularly during the initial years of a transition

Farmers may also need a few years of experience to acquire the additional knowledge and 
management skills necessary for more diversified operations.

• The economic impact of a farmer's decision to change from conventional to alternative farming methods on all or part of a farm operation will vary depending on factors such as climate, soil type, crops and livestock produced, cropping history of the farm, the farmer's skills, and many other considerations

Because of these factors, most farmers adopt alternatives gradually.  Although the transition may be difficult, successful alternative systems tend to reduce variability of net returns.

Comparative Regional Cost of Production

Production cost per unit of output is one of the most important short-term measures of the economic performance of an agricultural operation, production system, or sector.  Comparing per unit production costs for a given crop by region is a good indicator of regional absolute advantage-or the inherent suitability of an area or farm for the profitable production of a given crop.

Another common measure--production costs per acre-is widely used in comparative analyses.  This measure, however, 

• Differs significantly from per unit production costs

 
• Per acre costs do not take into account the actual yields harvested

 
• They reflect the level of inputs applied on a per acre basis

 
• Consequently, per acre production costs do not as accurately reflect the productivity of a cropping system or an area for a particular crop.

For example, farmers in highly productive corn-growing regions generally use more fertilizer and other inputs per acre because they can afford it based on the high yields they will achieve, not because the area is unsuited to corn production.

• Per bushel costs are good indicators of an area's suitability for production of a given crop

 
• Costs expressed on a per bushel basis show that it requires far less cash expenditure to produce a bushel of corn or soybeans in the Corn Belt-Great Lakes region than in the Southeast.

 
• Diverse soil types, climates, and levels of pest infestation, often account for large regional differences in per unit costs for a given crop, despite fairly similar per acre production costs.

Increased efficiency and lower per unit production costs are essential for agricultural producers to remain competitive in domestic and international markets.  Alternative systems can often help achieve these goals.  To better understand the role and viability of specific alternative agriculture systems, however, far greater knowledge of regional differences in production costs, their variability, and their causes is needed.  Such understanding will help.

Methods for Comparing Production Costs

A variety of farm accounting systems and methods can be used to calculate per acre and per unit production costs. 

These data show:

• Low-income farms incur per unit production costs nearly twice those of high-income farms ($3.66 versus $1.87 per bushel).

 
• The yields on low-income farms are about 9 percent less than on the high-income farms even though the per bushel production costs are almost double.

 
• All variable costs per acre were greater on the low-income farms.  The per acre differential was greatest for machinery hire ($5.57), fertilizer ($7.53), machinery repair ($6.02), and herbicides and insecticides ($5.28).

Alternative Agriculture and Production Costs

Alternative production systems are designed to enhance beneficial biological interactions and improve economic performance through better nutrient management and pest control.  When successfully adopted, most alternative systems greatly influence fertilizer and pest management costs.

Production cost analyses can yield important insights into the economic and environmental performance of farming systems.  Studies based on actual farm records for operations within a given region appear particularly promising.  More in-depth assessments designed to distinguish features of low-cost farms, in contrast to high-cost farms, could guide agricultural researchers and extension specialists toward the most important technical and managerial factors underlying profitability.

• Within a given region for a specific crop, average production costs per unit of output on the most efficient farms is typically 25 percent less, and often more than 50 percent less, than average costs on less efficient farms.  There is a great range in the economic performance of seemingly similar or neighboring farms.

 
• Average production costs per unit of output also vary markedly among regions, although not as dramatically as among individual farms.

 
• High-income and low-cost farms are often larger.  The causes and effects of this, however, deserve study.

 
• Certain variable production expenses -machinery expenses, pesticides, fertilizers, and interest charges (excluding land) -account disproportionately for differences in per unit production costs.