Generating revenue from manure
April 25, 2008 by Bailey Norwood Ryan Luter & Raymond Massey
Depending on the situation,
livestock producers could develop their own manure marketing strategies
and generate additional revenue from manure sales to crop producers
looking to substitute manure for chemical fertilizers.
Depending on the situation, livestock producers could develop their own manure marketing strategies and generate additional revenue from manure sales to crop producers looking to substitute manure for chemical fertilizers.
As regulations involving the land application of livestock manure become more stringent, many livestock producers may be forced to spread the same amount of manure over a greater number of acres. Farms with limited land availability may need to transport their manure to off-farm acres, incurring higher manure disposal costs. These costs can be partially offset if crop producers are willing to pay for the manure.
Are crop producers willing to pay for manure applications, and if they are, how much will they pay? A survey of crop producers was undertaken to answer this question, finding that over half will pay some amount for manure and a large portion will pay an amount equal to the fertilizer savings or more. However, approximately 25 percent of crop producers require a payment before manure will be allowed on their land. While this suggests that the manure price one can expect varies across producers, it does give hope that manure can be marketed as a valuable soil amendment.
Livestock manure can substitute for chemical fertilizer, so if a crop producer saves $20 per acre in fertilizer costs by using manure, the producer may be willing to pay up to $20 for each acre receiving manure. However, manure may receive a discount relative to chemical fertilizer if it is seen as an imperfect substitute. Manure may alter the soil pH differently from fertilizer, contain weed seed and other undesirable foreign material, emit a foul odor, and may release nutrients at a different rate than fertilizer. Therefore, the willingness of crop producers to pay for manure hinges on their perceptions of manure performance relative to fertilizer, as well as the perceived side effects of manure.
| Crop Producer Willingness to Pay for Livestock Manure When Fertilizer Savings Are $15 / Acre|
25% of crop producers Must be paid money to accept
25% of crop producers Will pay between $0 and $10
35% of crop producers Will pay close to $15 per acre
15% of crop producers Will pay more than $15 per acre
Survey responses from 288 Oklahoma crop producers were recently analyzed to measure the value of livestock manure relative to chemical fertilizer. In the survey, producers were given a hypothetical situation where they had the opportunity to allow a neighboring livestock producer to apply manure to their crop. The respondents were told the manure would save them a particular amount on fertilizer costs for each acre receiving manure. Next, based on the per acre fertilizer savings, producers were given a per acre price of manure and asked if they would purchase the manure at that price. For some producers the given price was negative, meaning they would be paid for taking the manure.
Some producers were asked if they would pay less than the fertilizer savings; if they answered “no” that indicates they place a discount on manure. Others were asked if they would pay more than the fertilizer savings; if they said “yes” that indicates they place a premium on manure.
Another set of producers were asked if they would accept manure if given a certain amount for each acre receiving manure, and some did reject the offer. By varying the fertilizer savings and manure price across surveys one can obtain a profile of preferences across crop producers.
Since the surveys contain hypothetical questions, it may overestimate the true willingness to pay for manure. Studies have shown that people state they will pay more for goods than they really will. To guard against this hypothetical bias, a certainty question was used. If the producer indicated they would purchase the manure, they were asked to express how certain they are on a scale of one to ten they would really purchase the manure if given the opportunity. Studies have shown that only people with high levels of certainty will truly pay the price they stated. Using results of previous studies, the survey answers can then be adjusted to prevent an overestimation of manure value.
The above table shows the survey results, assuming that the per acre manure application is set to save $15 per acre in commercial fertilizer costs. While 25 percent of producers must be paid to receive manure, an even greater percentage will pay an amount close to $15 or more. Livestock manure is costly to transport, and so hog, cattle and poultry producers may have only a few potential customers for their manure.
The survey results show that the marketability of manure depends partly on luck, as the perceived value of manure does vary across crop producers. The results also show that many producers will pay for manure, and livestock producers should keep this in mind when negotiating a price.
Several other findings are worth noting. Dry manure receives a significant premium over liquid manure, and crop producers with previous experience using manure will pay a significantly higher price. For example, if the manure application saves $10 in chemical fertilizer costs, on average, producers will pay $5 per acre more for dry manure than liquid manure and producers with previous manure experience will pay $6 per acre more for manure. Incorporating manure into the soil during application did not increase the perceived value to crop producers. These factors should not be overlooked when developing a manure marketing strategy.
Bailey Norwood and Ryan Luter are assistant professor and research assistant, respectively, in the Department of Agricultural Economics at Oklahoma State University. Raymond Massey is associate professor in the Department of Agricultural Economics at the University of Missouri-Columbia. All comments and questions may be sent to Bailey Norwood at firstname.lastname@example.org.