How do price (risk) changes influence farmers’ preferences to reduce fertilizer application?

Abstract

The decision of farmers to reduce fertilizer applications and, thus, the achievement of agri-environmental policy goals interacts with market price developments. In this study, we analyze how changes in price levels and volatility over time (i.e., 1991–2006 vs. 2007–2022) affected farmers’ preferences to reduce fertilizer application using statistical inferences of stochastic dominances. The analysis considers two cropping systems and fertilizer reduction measures: (i) grassland-based milk production and the use of legumes and (ii) wheat production and the use of variable rate application. We show that the economic value of reducing fertilizer increased over time in both grassland-based milk and wheat production. However, only in the case of wheat production was the reduction in fertilizer application observed as more risk-reducing over time. In contrast, in grassland-based milk production, the co-movement of fertilizer and milk prices canceled out the increase in risk reduction. We conclude that changes in market price, along with agri-environmental subsidies, can increasingly incentivize the reduction of fertilizer use.