Economic perspectives on nitrogen in farming systems: managing trade-offs between production, risk and the environment

David J Pannell

University of Western Australia,,


The economics of nitrogen in farming systems are complex, multifaceted, fascinating and sometimes surprising. Economic insights are crucial for making sound decisions about farm-level management of nitrogen, and also about regional or national policy, such as for water pollution. In this paper I present key insights from a large and diverse literature that is often neglected by technical scientists. Issues covered include: the economics of nitrogen as an input to production; nitrogen and economic risk at the farm level; the economics of nitrogen fixation by legumes; the existence of flat payoff functions, which often allow wide flexibility in decisions about nitrogen fertilizer rates; explanations for over application of nitrogen fertilizers by some farmers; and the economics of nitrogen pollution, at both the farm-level and the policy level. Economics helps to explain farmer behaviour, and to design strategies and policies that are more beneficial and more likely to be adopted and successfully implemented.