Risk efficiency of irrigation to cereals in northeast Germany with respect to nitrogen fertilizer

Abstract

The potential role of irrigation of cereals as a response to climate change is under debate. Especially under temperate continental conditions empirical evidence of crop yield response to irrigation in interaction with nitrogen fertilizer supply is rare. Besides mean yield effects, irrigation reduces yield variance, which may be an incentive for farmers to use irrigation. This paper investigates the risk-efficiency of irrigation in cereal production in a temperate continental climate, based on data from a long term field experiment on a sandy soil. Irrigation and no irrigation of winter rye (Secale cereale) and winter barley (Hordeum vulgare) were investigated in three different nitrogen (N) fertilizer levels. Crop yield response data (1995–2010) to irrigation and N fertilizer were used to calculate net returns, certainty equivalents (CE) for different levels of risk aversion and the conditional value at risk (CVaR) as a downside risk indicator in two price scenarios. The scenarios were calculated with a total cost and a partial budget approach. Irrigation was found to be profit-maximizing in all partial budget calculations, which sometimes required higher N input to be profit-maximizing. Irrigation and N fertilizer reduction were identified as risk mitigation strategies, even though their impact was limited. Irrigation reduced the downside risk only in the partial budget calculations. The analysis based on the CE did not show improved risk efficiency with irrigated management options. In contrast, reduced fertilizer input proved to be risk efficient at specific levels of risk aversion. The price expectations of winter rye and winter barley had a much higher impact on the ranking of the management options than risk aversion based on the crop yield variances. At low crop prices for all levels of risk aversion, irrigation of winter barley and winter rye was only economically justified if fixed costs for irrigation were not taken into account. At high crop prices, irrigation of winter barley was also justified based on the total cost calculation. However, this advantage was only given at a very low level of risk aversion. With increasing levels of risk aversion irrigation was not efficient based on the CE in the total cost accounting scenario. In conclusion, irrigation of cereals can contribute to downside risk mitigation and increased profits, if fixed costs for irrigation are covered. However, this conclusion holds only when irrigation is combined with an increased N intensity. If total costs need to be accounted for, irrigation in cereals is not an appropriate risk reduction strategy and a reduction of N input is more effective.