Economic Tidbits

Exports Fall Back

In his book, Water: A Biography, Guilio Boccaletti writes, “To cope with the variable rainfall and exposure to international markets, smaller farmers found themselves hedging their bets, growing a bit of everything. Any such form of risk mitigation came at a cost, however. Labor productivity dropped as farmers could no longer maximize yields of one crop.” Boccaletti was describing the tradeoffs facing small farmers in Greece thousands of years ago. The same tradeoffs exist today. Producers are often advised to diversify for risk management, raising both crops and livestock is an example. However, additional demands on labor, management, and other resources in a diversified operation can affect the overall efficiency of an operation.

A recent Cornhusker Economics article by Jay Parsons, professor at the Center for Agricultural Profitability at the University of Nebraska-Lincoln, and Maroua Afi, graduate assistant at the Center, examines the tradeoffs between efficiency and diversity. Parsons and Afi divide Nebraska counties into three categories—integrated crop-livestock system counties (ICLS); livestock specialized counties; and crop specialized counties. Counties with livestock sales of greater than 70 percent of total agricultural sales are categorized as livestock specialized (22 counties); those with livestock sales of less than 40 percent are categorized as crop specialized (33 counties); and those with livestock sales between 40-70 percent are categorized as integrated crop-livestock counties (38 counties).

Accounting for inputs like the number of cattle, land area, feed expenditures, labor, and chemical expenditures, Parsons and Afi identify fully efficient counties within each category. In other words, counties producing maximum output (net income) for their given level of input. For livestock specialized counties, fully efficient ones tend to have a sizable percentage of cattle on feed or are in or near the Sandhills. Efficient crop specialized counties are correlated with higher chemical expenditures and are in southeast Nebraska. Fully efficient integrated counties tend to spend less on chemicals and have a higher share of irrigated crop and pastureland. Parsons and Afi write, “These characteristics seem to suggest the most efficient ICLS counties are capturing some of the synergies of crop-livestock diversification with efficient use of perennial grass coupled with crop residue grazing more typically found in irrigated systems.”

Parsons and Afi then compare efficiency across all counties and identify 23 as the most efficient, finding the most efficient are either crop or livestock specialized ones. Only three integrated crop-livestock counties are categorized among the most efficient. A finding which supports the notion of a tradeoff between diversity and productivity. The authors suggest further research is needed to gain a better understanding of efficiencies and tradeoffs in integrated systems. Research is already underway examining farm-level data to gain a better understanding. Read more here.

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