Risk, farmers’ attitude and nutrient use in agriculture

1. Risk, farmers’ attitude and nutrient use in agriculture Dr. GiuseppinaSiciliano Center for Development, Environment, and Policy-CeDEP School of Oriental and African Studies - SOAS China-UK Nutrient Management Workshop 25-26February 2014, Beijing, China

2. Risks and nutrient use in agriculture Risk and uncertainty Uncertainty is a descriptive term concerning the environment surrounding farm decisions, i.e. yield uncertainty, natural hazards, price uncertainty Risk refers to the probability of occurrence of alternative outcomes in decision making (subjective probability attached by the individual to uncertain events) The terms risk aversion, risk neutrality, and risk taking are defined by reference to the subjective preferences between uncertain and certain events

3. Risks and nutrient use in agriculture TVP1= the total value product response to increasing the level of nitrogen input in a “good” year TVP2= the total value product to increasing the level of nitrogen input in a “bad” year ETVP= the expected total value product given the farmers’ views about the likelihood of occurrence of “good” and “bad” seasons TFC= Total Cost Function Total value product Y ($) Risk-taker Risk-averse Fertilizer input X Risk-neutral

4. Risks and nutrient use in agriculture Two main categories of risks can be identified linked to nutrient use in agriculture: • Environmental risk: an excessive use of fertilizers could result in negative environmental impacts (i.e. soil degradation, climate change impacts, water pollution) • Economic\production risk: reducing the amount of fertilizers could result in yield loss (production risk\yield uncertainty) and therefore profit reduction (economic risk) • In the face of uncertainty farmers may use production practices, such as an increased application of nutrients, to mitigate risk

5. Farmers’ attitude toward agricultural risks • Farmers are in general risk-averse: Due to the risk-aversion attitude of farmers, economic risk affects farmers’ decisions more than environmental risk excessive use of nutrients farmers’ decision of not adopting environmental mitigation strategies

6. Farmers’ attitude toward agricultural risks • Other factors linked to farmers’ attitude towards risk: • Lack of information and knowledge about environmental risk and nutrient use • Uncertainty about weather and soil conditions • Low education levels • Lack of trust in farm advisors or models

7. Farmers’ attitude toward agricultural risks • Hong-yun and Lian-ge, 2009 demonstrate that there is a negative relationship between fertilizer application and farmers’ education level and knowledge of environmental impact • Babcock, 1992 shows that increasing uncertainty about soil nitrogen concentration and weather conditions usually increases nitrogen applications by 36 percent • Sheriff, 2005 argues that if a farmer perceives the suggested rate of fertilization is too conservative or the models used by extension advisors under-estimate crop response in their fields, they may over-apply relative to the recommendation • Evidence shows that farmers systematically over-estimate the impact of additional nitrogen relative to agronomists’ models • Yang et al. 2012 show that farmers are willing to take advice from agricultural authorities as long as they are informed in a time-efficient manner and if the advice is consistent with their level of education

8. Agricultural risk-aversion: some policy recommendations • Economic measures. • If farmers over-apply nutrients to manage risk: risk-management instruments like crop and revenue insurance to reduce the levels of farmers’ risk aversion • Mixed measures, extension and economic. • If over-application occurs because farmers are slow to adopt new techniques or technologies that simultaneously reduce emissions and improve profits: extension efforts combined with temporary subsidies or cost shares can be effective • Mixed measures, education, participation and economic. • If risk-aversion barriers are in place: education programs, government subsidies or cost-sharing programs, combined with participatory approaches for fertilizer knowledge dissemination

9. What about China? • The Chinese Academy of Sciences recommends a 60 percent reduction in fertilizer use in areas that are already “over-fertilized” • Reducing the amount of fertilizer used in certain areas of China would substantially decrease greenhouse gas emissions without affecting crop productivity and the area’s natural carbon sink. • Areas of heavy fertilizer use are located in the North China Plain and middle and lower reaches of the Yangtze River Basin • “Chinese farmers need to be educated on the economic and environmental costs of excessive fertilizer use”, says Tian (Asian Scientist, 2012) (Tian et al. 2012)

10. References Hong-yun H., Lian-ge Z. 2009. Farmers’ Character and Behavior of Fertilizer Application -Evidence from a Survey of Xinxiang County, Henan Province, China, Agricultural Sciences in China, 8(10), 1238-1245 • Babcock B. A. 1992. The effects of uncertainty on optimal nitrogen application, Review of Agricultural Economics vol. 14 N. 2 • Sheriff G. 2005. Efficient Waste? Why Farmers Over-Apply Nutrients and the Implications for Policy Design, Review of Agricultural Economics, Vol. 27, No. 4, 542–557 • Yang X., Fang S., Lant C. L., Luo X., Zheng Z. 2012. Overfertilization in the Economically Developed and Ecologically Critical Lake Tai Region, China, Hum Ecol 40, 957–964 • Gong Y., Baylis K., Xu J., Kozak R., Bull G. 2012. Risk Aversion and Farm Input Choice: Evidence from Field Experiments in China, Available at: http://works.bepress.com/kathy_baylis/27

11. Thank you