2019 SWCS International Annual Conference July 28-31, 2019 Pittsburgh, Pennsylvania

1. Risk-return framework in
conservation evaluation: An
application to cover crop use
in different soil types
74th SWCS International Annual Conference
July 2019
Pittsburgh, PA

2. Environmental Quality Incentives
Program (EQIP) obligations amounted
to $1.4 Billion in FY 2018
Incentives often reflect cost of practice
implementation
Individuals differ in their risk-taking
(or avoiding) behavior
Adoption patterns - perceived risk

3. SERF
(Stochastic
Efficiency
with Respect
to a
Function)
evaluates profitability and risk
efficiency of conservation
alternatives under general
assumptions of the utility function
Allows estimation of certainty
equivalents (CEs) and
risk premiums --- the amount that
one is willing to pay to maintain or
modify their current practice

4. Soybean yield following cover crop use in two soil types
Practice Silt Loam Soil Practice Clay Soil
Crimson Clover—Low 48.55 Crimson Clover—Low 47.99
Crimson Clover—Medium 50.29 Crimson Clover—Medium 47.42
Crimson Clover—High 49.32 Crimson Clover—High 45.71
Rye—Low 52.09 Rye—Low 42.33
Rye—Medium 48.85 Rye—Medium 45.78
Rye—High 47.11 Rye—High 46.15
Radish—Low 50.80 Radish—Low 45.24
Radish—Medium 53.43 Radish—Medium 46.82
Radish—High 44.11 Radish—High 46.45
Fallow 52.15 Fallow 45.85

5. Absolute Risk Aversion Coefficients (ARAC) – Silt Loam Soil
0.00 0.016 0.024 0.032
Risk neutral (profit maximizer)-----------------------------------Risk averse
Certainty equivalents ($/acre)
Crimson Clover—Medium $132 $113 $105 $96
Rye—Low $144 $123 $113 $103
Radish—Medium $159 $138 $128 $118
Fallow $145 $127 $118 $109
Asking to Shift from Fallow
Crimson Clover—Medium 13 14 13 13
Rye—Low 1 4 5 6
Radish—Medium
-14 (0) -15 (0) -10 (0) -9 (0)

6. Absolute Risk Aversion Coefficients (ARAC) – Clay Soil
0.00 0.02 0.03 0.04
Risk neutral (profit maximizer)---------------------------------------Risk averse
Certainty equivalents ($/acre)
Crimson Clover—Low $110 $102 $98 $94
Rye—High $96 $89 $86 $82
Radish—Medium $101 $93 $89 $85
Fallow $95 $88 $85 $82
Asking to shift from Fallow
Crimson Clover—Low -15 (0) -14 (0) -13 (0) -12 (0)
Rye—High -1 (0) -1 (0) -1 (0) 0
Radish—Medium -6 (0) -5 (0) -4 (0) -3 (0)

7. 20
40
60
80
100
120
140
160
180
0.000 0.008 0.016 0.024 0.032
NetReturnCE($/acre)
Absolute Risk Aversion Coefficient (ARAC)
SL_CCL SL_CCM
SL_CCH SL_RYEL
SL_RYEM SL_RYEH
SL_RADL SL_RADM
SL_RADH SL_FALL
50
60
70
80
90
100
110
120
0.00 0.01 0.02 0.03 0.04
NetReturnCE($/acre)
Absolute Risk Aversion Coefficient (ARAC)
C_CCL C_CCM
C_CCH C_RYEL
C_RYEM C_RYEH
C_RADL C_RADM
C_RADH C_FALL

8. Thankyou
• Naveen Adusumilli – Extension Economist
• Donna Morgan – Agronomist
• Hua Wang – Post-Doc