In the second installment of a three-part series on conservation agriculture, Mary Maluleke, junior resource economist with ASSET Research, provide a financial case for three alternative farming systems which farmers often use. She also answers the question on whether it actually pays to convert from conventional farming to regenerative conservation agriculture.
In her previous article, Maluleke gave context to a typical conversion journey while nudging farmers to ask important questions, and objectively analyses the long-term financial sustainability of their farms. In the article she mentions Mpumalanga farmers, William Mahlangu* and Vera Manzini*, who both took a leap towards conservation agriculture.
William and Vera are both convinced that climate-smart agriculture can provide them the breakthrough they need to revive their soils, productivity, profitability, and sustainability. However, they still needed more assurance that climate-smart agriculture will give them not only the best environmental impacts but also best financial prospects for survival and success under current and future farming conditions.
They decided to attend a farmer’s day wherein an in-depth financial analysis of the different crop-livestock systems in both Mpumalanga Highveld and Maluti summer rainfall region was presented by a team of researchers from ASSET Research.
The purpose of the financial analysis by ASSET Research was to answer the question, “Does it pay to convert from a conventional farming system to a regenerative conservation agriculture farming system?”
The analysis used real data from three field trials in the Mpumalanga Highveld region and two in the Maluti region of the Eastern Free State, which were implemented under the CA Farmer Innovation Programme with funding from The Maize Trust and coordination by ASSET Research.
Additional data was sourced from VKB, Grain SA, and farmer co-workers.
Different scenarios
The scenarios for each of the three systems were modeled under a 1000 hectare (ha) farm size with 600 ha crop field (split into 6 * 100 ha fields) and 400 ha grazing land.
The only differentiation was regarding the crop rotations systems, input volume required, and capital replacement period. CT and NT followed simple maize and soya crop rotations with cattle external (mixed system, livestock not integrated), while CA/RA was a fully integrated crop-livestock system with maize and soya as cash crops (with inter-cropping), which are rotated (or interrupted) with one season of annual mixed summer (SCC) and winter cover crops (WCC), and livestock integration (grazing) within those cover crop and inter-crop treatments.
CT assumed a 1% increase in input volume required per annum (130% by year 30) due to continuous degradation of soil’s fertility from tillage; and a five-year capital replacement cycle. For NT, input volume was kept constant at 100% of initial volume because no-till systems do not lead to physical soil degradation, and an 8-year capital replacement cycle.
For CA/RA, the volume required was set at a 10% annual decrease during the first five years, thereafter stabilising at 50% of the initial requirement (between years 6 to 30 because live-stock integration leads to the restoration of soil health); while capital replacement period was kept at every eight years.
The results
The model results were measured in terms of average free cash flow per hectare, which is cash flow that is available to shareholders of the company (which are the farmers in this case). It is free from any claims by stakeholders since their obligations have been attended to.
Based on the results (Figure 1 below), both CT and NT systems in Mpumalanga produce on average significant losses of -R3 159/ha and -R862/ha respectively while CA/RA produces on average a significant positive return of R1 358/ha. CA/RA system performs on average R2 200/ha better than NT and R4 500/ha better than CT.
Similarly, the ACFs per ha for both CT and NT systems in Maluti indicate significant losses of -R3 123/ha and -R1 123/ha while CA/RA produces a relatively significant return of R90/ha.
Although estimated at R90/ha, CA/RA system performs on average R1 300/ha better than NT and R3 300/ha better than CT.
The results for the Maluti cattle dominant scenario were similar in that the ACFs/ha for CT and NT were negative, indicating a loss of -R717/ha and -R86/ha respectively, while that of CR/RA remained positive, indicating a profit of R329/ha. In comparison to the initial crop dominant scenario in Maluti, the ACFs under both CT and NT were still negative but at a decreased magnitude of loss and remained positive under CA/RA at an increased profit margin. Overall, CA/RA still performs R400/ha better than NT and R1 000/ha better than CT in the cattle dominant scenario.
The Maluti cattle dominant scenario was different from the initial crop-dominant scenario in that it included the following changes:
A 300 ha cropland and 700 ha grazing land, 3 x 100 ha field crop rotations system, a reduction in the number of capital implements, and an 8-year capital replacement period CT and 10 years for NT and CA/RA since they work less, reducing maintenance and replacement costs.
These results raise four key questions:
- What are the reasons behind the drastic loss in ACF/ha under CT?;
- Why the loss was relatively lower under NT but still negative?;
- What drives the positive ACF/ha under CA/RA?;
- Why the performance for CA/RA in Maluti was not as strong as in Mpumalanga?
The reasons for the significant loss (ACF/ha) in CT were mainly due to declining soil health from tillage, which means more production inputs, especially fertilisers, would be required; and the relatively more frequent capital replacement cycle expected under the CT systems every 5 years was due to more extensive use (more hours) of more equipment required under CT.
For NT, the reasons for a relatively less drastic loss (ACF/ha) than CT was mainly because NT does not lead to as much physical soil degradation, but neither lead to a significant restoration of the soil. The joint impact of minimum/no-tillage, minimum chemical disturbance, permanent organic soil cover, crop diversification, and livestock integration, which are all anchoring principles of CA/RA, are necessary for the positive return (ACF/ha) over the 30 years.
The relatively poorer performance in CA/RA results in the Maluti region is probably due to:
- Region-specific soil-climate characteristics determining the long-term potential for crop production;
- Limited availability of high potential soils suitable for crop production; and
- Much more marginal land being pushed into cash crop production which leads to dwindling overall farming profits.
The shift from marginal soils under cropping back to permanent pastures for grazing under the cattle dominant scenario in the Maluti region, indicates better performance in CA/RA.
Does it pay to convert?
Looking at the model results, it is clear that CT in both regions and under all three scenarios remain the least performing system with the highest average losses in cash flow per ha over the 30 years. As such, it is safe to infer that staying under CT will generate serious financial issues for farmers in the medium to long term, but even starting as soon as the seventh year.
Likewise, NT also performs poorly with average losses in cash flow over the 30 years but proves better than CT. So, converting to NT will reduce the magnitude of loss but not enough to break into long term profits.
CA/RA is the one system of the three that provide positive cash flow per ha over the 30 years on average across the three scenarios. It also provides an even better financial position relative to both CT and NT.
This answers William and Vera’s question on whether it pays to convert; which based on the results is safe to infer that it does indeed pay to convert to CA/RA.
While these were good news to them, the two still needed guidance on how to actually go about this conversion in a way that is effective, efficient and financially feasible.
In the final installment of this three-part series, we will go through some practical steps that William and Vera can take on their regeneration path.
*William Mahlangu and Vera Manzini are pseudonym names used to protect the identity of farmers.
Mary Maluleke is a junior resource economist with ASSET Research, currently involved with a conservation agriculture project led by Hendrik Smith. In 2019, she obtained a master of commerce degree in economics from Rhodes University.
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