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Effects of uncertainty and farmers' risk aversion on optimal N fertilizer supply in wheat production in Germany

Andreas Meyer-Aurich and Yusuf Nadi Karatay

Agricultural Systems, 2019, vol. 173, issue C, 130-139

Abstract: The role of nitrogen (N) fertilizer in mitigating economic risks in agriculture is under debate with contrasting views. This study contributes to an analysis of the economic response in wheat production to N fertilizer with respect to price premium structures for grain qualities from eight field experiments across Germany. Optimal N fertilizer levels were determined by different algorithms, based on average response, expected profit, and certainty equivalents with different attitudes toward risk aversion. The inherent uncertainty of yield response and crop quality response consistently resulted in higher expected profit with higher N rates than a management based on average response. Profit maximizing N rates based on maximum expected profit were substantially higher than economic optimal N rates based on average response data at 6/8 sites. Expected profit remained high over a large range of N fertilizer rates without a substantial downside risk and opportunity costs of deviating from optimal N rates within a range of 50 kg/ha. Protein price premiums reduce the riskiness of higher N rates and it is possible to apply higher N rates without increasing risk considerably.

Date: 2019
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Handle: RePEc:eee:agisys:v:173:y:2019:i:c:p:130-139