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Complementarity

Complementarity. An Economic/Analytical Primer Sustainable AG Application. Definitions:. Complementarity : The positive “spillover” (marginal) impacts of one context on another. Substitution : The negative “spillover” (marginal) impacts of one context on another . Synergy:

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Complementarity

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  1. Complementarity An Economic/Analytical Primer Sustainable AG Application

  2. Definitions: • Complementarity: • The positive “spillover” (marginal) impacts of one context on another. • Substitution: • The negative “spillover” (marginal) impacts of one context on another. • Synergy: • Uses complementarity/substitution among parts to add value and/or reduce costs. • The whole is greater than the sum of it’s parts!!!

  3. PRIMAL = “Quantity” Space • Production and/or Distance Function: • Functional relationship between inputs and outputs. • Q1 = f (Q2, Q3, x1, x2, x3). • Substitute versus Complement Relations w.r.t.: • Inputs • Outputs • Netputs!!! • Inputs versus outputs is arbitrary from a whole farm/systems perspective!!!

  4. DUAL = “Value” Space • Cost, Revenue, Profit Functions. • Functional relationship between netputs and values. • P3= f (Q1, Q3, x1, x2, x3). • Substitute versus Complement Relations w.r.t. Netputs!!! • Generally: Value = Price

  5. 2nd Order Metrics: Netputs • Marginal Product: • Amount of netput (or value) for one more unit of another netput. • 1stderivative: • MPx1 = ∂Q1/∂x1, MPx2 = ∂Q1/∂x2, MPx3 = ∂Q1/∂x3. • ∂Q1/∂Q2, ∂Q1/∂Q3. • Substitute versus Complement: • 2ndderivativedescribe how MP of one netput is affected by second netput (a spillover effect). • ∂MPx1/∂x2 = ∂2Q1/∂x1∂x2.

  6. Netput Complements • How is marginal productivity of one netput affected by a second netput ??? • IF ∂MPx1/∂x2 = ∂2Q1/∂x1∂x2 > 0 • THEN, the second netput, x2, enhances the marginal productivity of the first netput, x1. • This is netput complementarity • AND, the foundation of “design for” UpCycle synergy.

  7. Netput Substitutes • How is marginal productivity of one netput affected by a second netput ??? • IF ∂MPx1/∂x2 = ∂2Q1/∂x1∂x2 < 0 • THEN, the second netput, x2, reducesthe marginal productivity of the first netput, x1. • This is netput substitution • AND, the foundation of “design against” Green Chemistry synergy.

  8. Sustainable Ag Examples • Netput “spillovers”: • UpCycle design to reduce entropy • Entropy: a negative marginal product due to lower level (energy) use • Tillage/rotation/cover crops • Increase (design for): soil structure, infiltration, biotic health/diversity, carbon sequestration and (slow release) nutrient cycling, etc. • Decrease (design against): soil/water/nutrient/GHG loss. • Look for Spillovers in Space/Time/Form!!! • THINK: “whole farm”/P3systems context…..

  9. Sustainable AG Implications • THINK SYSTEMS/NETPUTS: • Environment & Societalversus “Economic” • Hierarchical  emergent properties…. • Stocks versus Flows • Longer versus shorter run…. • Duality to “time value of $$$” dilemma??? • Technical versus Biological Nutrients (UpCycle) • Design to MIN(entropy)/MAX(solar capture/store) • Weak(er) versus Strong Metrics: • Still need “measure to manage”….

  10. Sustainable AG Implications • THINK P3 (place, people, profit) VALUE “mappings” as Functions…. • Full generality(advanced analytics/metrics) • functions = “correspondences” • benefit (versus profit/etc.) functions • Traditional: Production/Cost/Revenue/Profit • Triple Bottom LineExpansions??? • “enlightened” (green/spiritual) dualitymappings??? • P3 Benefit Function mappings…. • Duality need to invert (stand on head)…..

  11. THINK P3 (place, people, profit) VALUE “mappings” as Functions…. • Value Function: P3(place, people, profit) = f( )

  12. Sustainable AG Implications • THINK P3 (place, people, profit) VALUE “mappings” as Functions…. • Sustainable AG: • Value Function: P3(place, people, profit) P3 = f(Community Vitality, Cover Crops, Conservation Tillage, Nutrient Management, Crop/Lvstk/Landscape Diversity, On-Farm Energy (Conserve/Produce), Water/Wetland Mgmt, Marketing, Whole Farm/Systems Approach, Grazing, Ecological Pest/Weed Mgmt (IPM))

  13. Sustainable AG Implications • THINK P3 Empirical/Discrete Derivatives!!! • Simulate (cross-shock) P3 Benefit Correspondences • Footprint Metrics: carbon, water, N|P|K|S, land • Think: 2nd (applied, discrete)derivatives!!! • Innovate!!! • Develop, expand, refine, calibrate, validate “new and improved” P3 metrics!!! • Social/interpersonal metrics!!! • Measure to Manage!!! • UpCycle design/manage for synergy…

  14. Implications • Identify potential +/- netput synergies: • Note substitute/complement dynamics can change with the levels (hierarchy) of the component contexts. • ALSO: Δ Space/Time/Form • Via Dialogue With Major Players/Stakeholders Across Whole System • Supply Chain  Circle  Spiral (UpCycle) • Identify potential design/management values/objectives/strategies/tactics/metrics (in this order) to exploit these synergies (bio-mimicry!!!)

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