An economic risk analysis of no-till management and rental arrangements in Arkansas rice production

Abstract

Rice is a major cash crop for eastern Arkansas and generally involves intensive cultivation. Sediment is the primary pollutant identified for most eastern Arkansas waterways, and conservation practices like no-till are commonly recommended as remedial mechanisms. The profitability of no-till rice has been investigated, but the main emphasis has been on comparing mean returns of no-till to conventional till without consideration for return variability. Profitability in these studies is also evaluated from the prospective of the producer only, despite the fact that most cropland is owned by someone other than the producer. This study evaluates the profitability and risk efficiency of no-till management in Arkansas rice production from both the perspective of the tenant and the landlord using simulation and stochastic efficiency with respect to a function. Crop yields and prices are simulated for a typical two-year rice-soybean rotation, and tenant and landlord net return distributions are constructed for popular rental arrangements used in eastern Arkansas rice production. The results indicate that both the tenant and the landlord can benefit monetarily from no-till management. Risk-neutral and risk-averse tenants would both benefit from no-till management as no-till increases mean (expected) returns for risk-neutral tenants and results in large risk premiums over conventional till for risk-averse tenants. Risk-neutral landlords would be indifferent between either no-till or conventional till management because mean returns are essentially the same for both tillage methods. Risk-averse landlords would have a slight preference for no-till, since no-till risk premiums tend to be positive with increasing levels of risk aversion. However, no-till risk premiums are modest for risk-averse landlords, implying that risk would play less of a role for the landlord than for the tenant when considering the use of no-till management on rented land.