Publication Type

Working Paper

Publication Date

5-2016

Abstract

This paper examines crop planning decision in sustainable agriculture---that is, how to allocate farmland among multiple crops in each growing season when the crops have rotation benefits across growing seasons. We consider a farmer who periodically allocates the farmland between two crops in the presence of revenue uncertainty where revenue is stochastically larger and farming cost is lower when a crop is grown on rotated farmland (where the other crop was grown in the previous season). We characterize the optimal dynamic farmland allocation policy. Using a calibration based on a typical farmer growing corn and soybean in Iowa we provide rules of thumb for the effect of revenue uncertainty. In particular, we show that the farmer always benefits from a higher corn revenue volatility but benefits from a higher soybean revenue volatility only when this volatility is high; otherwise a lower soybean volatility is beneficial. We also show that growing only one crop over the entire planning horizon, as employed in industrial agriculture, leads to a considerable profit loss---that is, making crop planning based on principles of sustainable agriculture has substantial value. We propose a simple sustainable heuristic allocation policy and characterize the periodic allocation decision of this policy in closed form. Using our model calibration we show that the proposed policy not only outperforms the commonly suggested heuristic policies in the literature, but also provides a near-optimal performance.

Keywords

Farm Planning, Crop Rotation, Sustainability, Agriculture, Commodity, Uncertainty, Dynamic Programming, Corn, Soybean

Discipline

Agribusiness | Operations and Supply Chain Management

Research Areas

Operations Management

First Page

1

Last Page

35

Embargo Period

6-1-2016

Copyright Owner and License

Authors

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Comments

Under revision (major) for second round review at Management Science

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