2. DEPARTMENT OF
PRIMARY INDUSTRIES
THE BIG QUERY:
• To what extent do present research techniques result in findings
about nitrogen input use which tell the farmer "the direction to
adjust,“ "how far to go" and "how to get there.“
• To what extent do the findings correspond with known and
established economic models and technical relationships?
• In the explanation of the economic approach to thinking about
nitrogen inputs, the situation is that the farmer is facing the
decision choice:
‘How much N should I apply?
How much N and when - considering the alternatives?
3. DEPARTMENT OF
PRIMARY INDUSTRIES
‘Fitting’ N Response Function to a Paddock
Need to know information about:
-previous and planned grazing rotation
-previous N applied and residual soil N
-soil phosphorus status
-soil type and likely temperature during forth coming growth period
-pasture composition and stage of growth
-cost of N applied in paddock
-likely cost of alternative equivalent sources of DM/ME.
Then, consider
-interaction with other inputs, management, tactics, strategies
4. DEPARTMENT OF
PRIMARY INDUSTRIES
Experimental N to DM Response Data
Ave Harvest 1 Harvest 2
N Olsen Colw Colwell Olsen
Plot applied P P K Soil N Response Response Cumulative P
A-
H3/
1 0 17.0 77 418 0.62 707 798 1504 17.6
A-
H3/
2 20 17.0 78 481 0.61 994 1070 2064 16.1
A-
H3/
3 40 17.0 73 521 0.67 898 1074 1972 17.7
A-
H3/
4 80 17.0 67 431 0.62 1128 1237 2365 16.6
A-
H3/
5 160 17.0 78 610 0.65 1081 1307 2388 16.9
5. DEPARTMENT OF
PRIMARY INDUSTRIES
Fitted response to Experimental N and DM Data y = -0.0454x2 + 11.576x + 1662.1
R2 = 0.9351
3000.0
2500.0
2000.0
DM kg/ha
1500.0
1000.0
500.0
0.0
1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96 101 106 111 116 121 126 131 136 141 146 151 156 161
N kg/ha
6. DEPARTMENT OF
PRIMARY INDUSTRIES
OUTPUT
Maximum
Diminishing
marginal Negative
returns returns
Total
Product
Increasing
returns
Average
product
INPUT
Too little Just right
input Marginal
product Too much input
7. DEPARTMENT OF
PRIMARY INDUSTRIES
Diminishing DM Responses to Extra Inputs of N
Marginal
response:5 kg
DM/kg N
Marginal
response:15kg
DM/kg N
Extra Average
response:10 kg
Pasture DM/kg N
DM
Amount of N
Linearity can lead to poor advice and decisions
8. DEPARTMENT OF
PRIMARY INDUSTRIES
Principle of Diminishing Marginal Returns means:
Marginal Input-Output Focus, not Average Input-Output Focus
• An extra kg of fertilizer may or may not add to total profit
because of the operation of the principle of diminishing
marginal returns. It will only do so as long as extra
revenue exceeds extra cost.
• Maximizing total product or maximum average product does
not maximize profit
• Average technical efficiency ratios do not guide decisions to
increasing profit, e.g. use N to where average yield
pasture/kg N is maximum will not make most profit
9. DEPARTMENT OF
PRIMARY INDUSTRIES
• Theoretically, with full information and no
limit on working capital, decision guide
would be: use variable inputs such as
nitrogen so that the marginal cost of
extra input of N = marginal revenue from
extra production of pasture
• In practice the decision rule is to use N
such that the return on the extra capital
invested in the N is high enough to allow
for the risk and uncertainty associated
with the size and value of the response
that may result
10. DEPARTMENT OF
PRIMARY INDUSTRIES
Average and Marginal Product from Extra N
30.00
25.00
20.00
15.00
DM kg/ha
Marginal Product
Average Product
10.00
5.00
0.00
1 7 13 19 25 31 37 43 49 55 61 67 73 79 85 91 97 103 109 115 121 127 133 139 145 151
-5.00
N KG/ha
11. DEPARTMENT OF
PRIMARY INDUSTRIES
Marginal cost and revenue from extra N
1.40
1.20
1.00
0.80
$ extra revenue and cost
0.60
marginal cost of each extra unit of input
marginal revenue from each extra input used
0.40
0.20
0.00
11.00
18.00
38.61
45.67
66.67
24.61
31.61
52.67
59.67
73.67
80.67
87.67
94.67
101.67
108.67
122.67
129.67
136.67
143.67
157.67
115.67
150.67
-0.20
-0.40
N kg/ha
12. DEPARTMENT OF
PRIMARY INDUSTRIES
Percentage Return on Marginal N Capital
50%
30%
10%
-10% 1 8 15 22 29 36 43 50 57 64 71 78 85 92 99 106 113 120 127 134 141 148 155
% Return on Marginal Capital
-30%
-50%
PercentageReturn on marginal N capital
-70%
-90%
-110%
-130%
-150%
N kg/ha
13. DEPARTMENT OF
PRIMARY INDUSTRIES
Total Revenue, Total Cost, Net Gain from added N
140.00
120.00
100.00
80.00
60.00
total revenue
40.00 total cost
$
net gain
20.00
0.00
1 7 13 19 25 31 37 43 49 55 61 67 73 79 85 91 97 103 109 115 121 127 133 139 145 151 157
-20.00
-40.00
-60.00
N kg/ha
14. DEPARTMENT OF
PRIMARY INDUSTRIES
Profit rule
If no uncertainty and no limit on working capital,
use N up to where
Marginal product from extra unit of N = ratio of price of N (cost of
N applied):price (value) of extra pasture DM grown
If N price is 60c/kg
Pasture price is 10c/kg
Maximum profit rule:
Extra product 6=Price ratio 60c/10c
In practice, and depending on the risk and uncertainty
involved, apply N to where extra return on extra cost
represents say 20-30% return on that capital
16. DEPARTMENT OF
PRIMARY INDUSTRIES
Uncertainty about response of N in paddock
u
output
Farm factors
Experiment estimate
Farm factors
nitrogen
Probability associated with the response curve
that will apply in a particular situation
17. DEPARTMENT OF
PRIMARY INDUSTRIES
Best Bet N application
The extra kg pasture from the 40th kg of extra N/ha is:
0.25 chance it will be 7 kg (3/1 against)
0.25 chance it will be 6 kg (3/1 against)
0.3 chance it will be 5 kg (7/3 against)
0.1 chance it will be 4.5 kg (9/1 against)
Expected Value of response=1.75+1.5+1.5+0.45=5.15
