Precision Agriculture Economics

Some Precision Agriculture Technologies are starting to generate profits to farmers. The areas that show the most promise for profitable returns for cash crop farmers looking to adopt Precision Agriculture are: variable population density, row clutches on planters, and variable rate nitrogen.


A cost/benefit analysis is a straight forward approach to get a good idea of what your profits can be. To do this, we need to look at:

  1. What is the cost of the system?
  2. What is the benefit? It is important to realize that we are talking about benefits, not just increased revenue. Information about your field can be an investment that results in better management and higher profits in the future. Mismanagement of a part of a field can decrease fertility and increase pest pressures.
  3. Is the item you are spending money on a good and applicable way to generate the benefit you want?
  4. Need vs Want. Is the technology part of a Precision Agriculture solution, or is it something fun that you want to have?
  5. Stay flexible. There may be a much better and lower cost technology in 2 to 5 years.

A 1,000 acre cash crop farm can see an increase in revenue of $20,000 to $70,000 per year from Precision Agriculture with current technology. That is revenue, not profit. Your profit will be largely determined by your ability to keep costs down. Part of that is keeping flexible and reducing capital expenditures in the early years that you adopt precision agriculture. It is important to gather a few years of historical data and learn from your fields and your own preferences as to what technology and equipment is best suited to you. Also, the science behind the technology is currently changing rapidly and now might not be the best time to buy expensive equipment. New features, lower costs, and better functionality usually occur a few years after a big technology revolution.


Common sense is also very important. Precision maps and remote sensing can greatly help you better manage your crop and field fertility, but it is important to make sure that the technology and recommendations are appropriate to what the technology can do.


System Costs


There are 2 common sense sayings that are relevant to any discussion of the economics of Precision Agriculture Technologies: "You cannot manage what you cannot measure" and "Garbage In, Garbage Out".


The costs of Precision Agriculture are much more straightforward than the benefits. How much does a GPS system cost? What about auto-steer? How about a new planter? But even here, it is important to consider if the equipment and cost is really an investment to better manage your fields and crops or is it a luxury spend. Is the spend truly needed or is it a new, shiny piece of equipment that you want.


What are some prudent investments? Things that help you scientifically measure your crop performance and field fertility. A yield monitor is a must as “You cannot manage what you cannot measure”. A yield monitor lets you know how each portion of the field performed for the year and it’s tied directly to a key metric, your revenue. Any key metric needs to be precisely and accurately measured.


Crop scouting and remote sensing also help you measure what is happening in your field and helps you identify secondary causes that might be impacting yield. In a simple world, you plant half a field the same way that you always have and then use precision agriculture on the other half. At harvest time, you measure the harvest from each half and see which one did better.
Life is not simple.


Soybean aphids, European corn borer, other pests, frost, hail, water damage, drought and dozens of other factors do not realize that you are doing a side-by-side trial. Nor are they considerate enough to leave your field alone so you can collect nice clean data. Not even the soil cooperates, and we have seen that the field fertility can range from patches of 50 bushel per acre corn to patches of 200 bushel per acre corn within 30 feet of each other.


All this scientific equipment and analysis is needed to make sure that the yield difference you see is because of the difference between precision agriculture versus traditional management and not the other factors that typically impact a crop. And yes, I said science. Agronomy and biology are sciences. You need scientific equipment to accurately measure things and apply your management practices and inputs. And you need the scientific discipline to remain unbiased in your analysis of in season crop data and explaining yield differences. This change in mindset can be a significant cost to you.


As with the yield monitor, a GPS system that links in all, or at least most of your precision agriculture equipment is also essential. A lot of the information in a precision agriculture system will come in as a data layer. There will be one layer that defines the field location. One layer that has the plant locations and seeding data. One layer for your fertilizer application. The GPS system makes sure that all the different layers stack on top of each other properly.


One way to think of this is by looking at a topographic map. Think of each item in the legend as a different layer. One layer for roads, one for rivers and lakes, and one for contours, etc. If the GPS system is out of alignment, then when you add the layers together on top of each other, the result can have things like forests and roads running through the middle of a lake.


Not only do you need a GPS system, you need to make sure all the components are set up properly. Things like making sure that they all use the same datum. The datum is how a piece of 3 dimensional curved surface of the earth is transformed into a flat, 2 dimensional map on a piece of paper. Each different datum does different transformations and even if all the systems have the same GPS coordinates, if they have different datums, then expect your maps to have roads going off cliffs and trees growing in lakes. You will still generate colorful maps, but the information won’t be very accurate or usable.


This is the “Garbage in, garbage out” issue. It is a cost because there is effort in the set up and maintenance of the equipment. This step is essential. Just turning it on probably won't give you any useful data. Some of the newer systems are much better at auto-configuring themselves, but it is still essential to take the time and spend the effort to make sure the system is properly configured and calibrated before you declare yourself a precision agriculture farmer.


Benefits


There are two key benefits that can result from a good implementation of precision agriculture.


1. Increased profitability
2. Increased soil fertility


There are lots of additional benefits that can be realized by precision agriculture, but they are only important in terms of their ability to either increase farm profit or increase soil fertility. And really, farm profit and soil fertility are very much the same things, with farm profit generally referring to the near term and soil fertility referring to the ability to generate profits on the farm over the long term.


Just how profitable can it be? In 2013, we looked at a few fields growing corn in Ontario, Canada. Based on that data, we can consider a 100 acre field of corn. The farm averaged 140 bu/ac. What is interesting is the variability within the fields. There are patches of 50 bu/ac corn within 30 feet of patches that were 200 bu/ac. About 10% of the field was underperforming at the 50/bu level. One field was relatively flat, heavy clay, tiled, and had a single application of 28% UAN (urea ammonium nitrate) in late April. Even though the field is tiled, 2014 was such a wet spring that parts of the field became water logged, resulting in nitrogen leaching. Additionally, the water persisted so long that soil oxygen levels dropped and soil microbes metabolised much of the remaining soil nitrogen. By mid-May, 10% of the field was so severely nitrogen depleted that the corn grew at half the rate of its neighbours and yielded 90 bu/ac less than field average. As early as the v4 (four leaf stage), the plants were showing signs of nitrogen stress that could be detected by crop scouting and remote sensing. This means that by the end of May, we already knew which areas of the field would underperform and why. A second nitrogen application in early June could have recovered over half the yield loss. Put another way, the 90 bu/ac yield loss seen on 10% of the field could have been reduced to only 45 bu/ac, meaning the harvest of the 100 acres could have been increased by 450 bushels. 10% of 100 acres = 10 acres treated with a second nitrogen application. Some of the year’s growth potential was already lost, so we can never get 100% recovery of lost yield. But a 50% recovery in the worst hit 10 acres is an extra 45 bu/ac, multiply that by our worst impacted 10 acres and we get our 450 bushels. At $5/bu, that is a revenue increase of $2,250 on the 100 acres. That would be a revenue increase of twenty two thousand on 1,000 acres of corn.


Precision agriculture can also identify when nitrogen becomes the limiting factor for plant growth in the top performing areas of the field. 200 bu/ac corn in Ontario is impressive, but is it the maximum growth rate? Levels as high as 300 bu/ac have been demonstrated, suggesting that sometimes, a farmer can take 200 bu/ac corn to further increase it.


Remote sensing and yield monitors suggest that the same areas of the field underperform year after year. Similarly, it is the same areas of the field that are over performing year after year. This suggests that there is a difference in soil fertility and these patches are not the result of random variability. This leads to the precision agriculture management practices of both variable population planting and two variety planting. If portions of the soil are more fertile, maybe they can support higher populations and produce 250 bu/acre.


Plants growing on sandy knolls will often be limited by water availability and perhaps the best management strategy there is not to try to increase yield by adding more chemicals, but rather reduce input costs. Here, the farmer may reduce the amount of fertilizer applied, reduce population density, and plant a more drought tolerant variety.


Remote sensing and crop scouting can identify areas that need more in depth analysis, such as soil samples. In turn, precision agriculture can help explain why areas are under performing and lead to better management practices. If there is evidence of soil nitrogen loss in April and May, then a farmer can switch to two nitrogen applications. One in early spring to help the plants get established, and one in early June when the plants need it to grow. The farmer can adopt variable rate nitrogen application, giving more fertilizer to soils that have lost a lot of nitrogen in the spring and giving more to plants that are growing exceptionally well and are at risk of depleting the soil nitrogen.


It looks like the good use of current precision agriculture technologies based on our example of a 100 acre field in Ontario, we can increase annual revenues by as much as $70/ac, while keeping costs down to about $20/ac. Each farm is different and each implementation of precision agriculture is different. A word of advice, don’t buy all the expensive equipment until you have tested and proven the benefit - even then consider your alternatives. Paying a consultant at $500 per flight, 3 or 4 times a year is much more economical than spending $10,000 on a UAV and camera - only to have a much better system come out a year or two later. Included in the consultant payment is the cost for the maintenance and calibration of the remote sensing equipment. Not only is it cost effective, but we also get good quality data.


It can be hard to keep costs low on small scale. Consultants often charge a minimum of $500 for the UAV flight and can generally fly over 200 acres for that amount. There are economies of scale that occur when you start to get into the 1,000 acre size. But there is also risk in changing management practices and adopting new technologies. It’s generally accepted that 3 years of historical yield and remote sensing data is needed to get a good understanding of the underlying biology and soil fertility before good management decisions can be made.


Significant benefits can and should be realized in the first year of adopting precision agriculture, but a lot more attention and management oversight is needed. Especially when it comes to controlling cost and ensuring that the management practice done is applicable.


One of the really exciting aspects of precision agriculture technologies, with its ability to better understand the underlying biology and better test and measure the performance of various management practices, is that farmers may increase the fertility of their fields. Some early results are promising and different management practices are suggesting that better management using precision agriculture can start in modest, but long term, increases in soil health and fertility. But before a farmer can start to look for these benefits themselves, they need to have a good understanding of the current fertility and yield potential of their fields. In other words, they need to start to collect good, accurate data about in season crop performance and yield data.


Applicability of the Technology


One of the biggest risks with precision agriculture is when people overstate the applicability of the technologies. A very common example of this is when people use Normalized Difference Vegetation Index (NDVI) as the basis for variable rate nitrogen application. NDVI is a good measure for overall plant productivity; however, it does not measure nitrogen stress in a plant. Sometimes, using NDVI to generate a prescription map variable rate nitrogen application will result in increased yield. Like on the patches of our 100 acre example field that suffered water-related nitrogen loss in the springtime.


However, sometimes an NDVI will give a very poor variable rate nitrogen prescription map. For example, we saw a field that had nitrogen fertilizer added in the late spring at a replacement rate 150 bu/ac yield. There was no noticeable water-related nitrogen loss (either leaching or microbial) or volatilization. The NDVI by itself gave poor management recommendations for a variable rate nitrogen application. In this case, it is likely that the plants growing in sandier soil were water limited. These plants may be growing at a 100 bu/ac level and the NDVI showed this. The NDVI-based recommendation was to add more nitrogen to these areas. However, what is really happening is that the plants have not used up the soil nitrogen and adding any more fertilizer will only increase the water stress and that will actually decrease yield.


In the more loamy parts of the field where the corn was growing at the 200 bu/ac level, the plants used up the available nitrogen and were actually nitrogen limited. Even though the NDVI-based nitrogen prescription map recommended very low or no nitrogen be applied to these plants. In reality, giving these plants more nitrogen would let them hit the 220 or 250 bu/ac level.


It is not that the NDVI algorithm is wrong. It isn’t. It is giving an accurate measure of how productive the plants currently are. The mistake is in assuming that NDVI can be used to accurately and consistently estimate the nitrogen stress of the plants. NDVI is not the most applicable technology for assessing nitrogen stress.


Fortunately, there are remote sensing methods that more directly estimate the nitrogen stress in plants. These “Nitrogen stress algorithms” are much better at seeing nitrogen stress, regardless of plant productivity or NDVI readings, and are much more applicable for generating a variable rate nitrogen prescription map.


By using the wrong technology or overstating the applicability of a technology, a farmer is at much higher risk of spending a lot of cash and effort on precision agriculture but without seeing any real benefit.


Stay Flexible


There are a lot of good questions coming from early trials with modern precision agriculture. UAV based remote sensing is offering low cost, high precision, maps. Each year, more and more algorithms are becoming available. More algorithms and maps in the future will give an even better understanding of the stresses that are limiting plant growth and harvest yield. These may lead to new management practices and new equipment.


A lot of work has been done on corn and real benefits are being shown in the field. But less work has been done on soybean. Perhaps the benefits of precision agriculture on soybean farming are greater, perhaps they are less. It is prudent to pick precision agriculture technologies flexible enough to still allow you to economically rotate crops as you see fit and are likely to provide benefit to the different crops you grow.


It is important to be flexible to:

  1. changes in weather from one year to the next
  2. changes in yield limiting stress that the plants encounter
  3. crop rotations and the applicability of the technology to the different crops
  4. improvements in technology over the next few years
  5. changes in management practices
  6. lower costs

It is prudent to consider options like equipment leases and hiring consultants rather than new equipment purchases as a means to stay flexible.


"Important Technology Investment" or "Trying to Justify Luxury Purchases"?


No amount of business or economic analysis will generate the expected farm profits if a farmer cannot honestly separate Need from Want. It is very easy to justify a luxury spend as an essential investment in precision agriculture. Sure, you might want to buy a newer, bigger, shinier tractor, but is it really a required investment or is actually something that you want but do not need? Many equipment dealers might disagree, but there are times when new equipment does not need to be purchased, especially if you are just starting out in precision agriculture


As discussed above, a prudent farmer should consider a flexible option when starting into precision agriculture. Sometimes it is better to lease equipment or hire a consultant, custom operator, or input supplier for a 2 or 3 years to prove the benefits and that equipment is suitable and the right one for you before you go out and do a big spend.


Related Precision Agriculture Pages

Precision Ag Agriculture Main Page, Crop Care, Crop Scouting, Precision Maps, Remote Sensing, Precision Agriculture Technology, Yield Monitoring