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. They span issues at various scales: the field, farm, region, nation and world. 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 important 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, including price risk and production risk; 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 (or under) application of nitrogen fertilizers by some groups of farmers; farm-level economics of nitrogen-saving technologies; the economics of nitrogen pollution, at both the farm-level and the policy level; and the international market for nitrogen fertilizer. 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.