Optimal Sustainable Agricultural Decisions: A Mixed Integer Approach

Soil is a capital asset and a renewable resource that requires continued maintenance to ensure the sustainability of agricultural output in the long-run. Growers are continually adjusting the soil's productivity by adding and extracting soil nutrients, and modifying the soil structure through cultivation. Accordingly, we approach sustainable agriculture in terms of capital assets and switching conditions. A theoretical model focusing on cover cropping and soil nitrates shows that profit maximizing farmers' cover cropping decision depend on the price of nitrogen, cost of chemical nitrogen, cost of cover crops and the farmer decision making horizon. In addition, we show that restriction on application of chemical nitrogen for environmental reasons will increase the value marginal product of cover crops. The results demonstrate the importance of analyzing sustainable agriculture as producing capital assets. We believe that the resulting conditions explain observed farm managers' behavior more accurately than static myopic approaches.