The Economics of Canola Production by Limited-Resource Farmers in South Carolina

Abstract

ABSTRACT The purpose of this study is to examine the economic viability of canola production as an additional or alternative crop for limited-resource fanners in South Carolina, and to investigate the economics of its production as a competing rapeseed and oil crop. Canola offers farmers an additional or alternative crop to fall-planted crops such as winter wheat. Canola seed is in demand because of its value as an input in canola oil and meal production which is referred to as “crush.” Canola oil has a variety of uses. It is used in salads, as cooking oil, and as baking and frying fats. The oil can be found in processed foods such as potato and corn chips, salad dressings, mayonnaise, baked goods, and candies. This puts canola in a strong position to compete with other vegetable oils made out of soybean, cottonseed, corn and sunflower seed. It is cholesterol-free and has a saturated fat content of 6 percent. This is the lowest saturated fat content among major vegetable oils on the market. South Carolina can become a major canola growing area for several reasons. These include South Carolina's high grain yields with reasonable production cost, the fact that canola fits in with current double-crop systems in South Carolina, and because major agribusinesses interested in canola production are already in the Southeast. Two models are used to examine the economics of canola production by limited-resource farmers in South Carolina. The first model uses alternative enterprise budgets for canola production to compute net returns to management and risk. These budgets incorporate existing crop production technologies, and multiple price, multiple yield and multiple acreage assumptions. The second model develops optimal input use plans. Since the farmer will incorporate an array of choices and consequences in his/her decision, and simultaneously deal with both optimizing returns and constraint problems, a linear programming model is utilized. The linear program incorporates decision variables that reflect the reality of life on the farm for limited-resource farmers. The results snow that farmers who plant single crop canola can make reasonable income if they achieve a combination of acreage, yield and price per bushel that are at least 50 acres, 50 bushels/acre and $5.00/bushel. Combinations with higher yields and higher prices are even more profitable activities. Farmers who plant canola double-cropped with soybeans can make reasonable income with lower acreage and same yield and price combinations as single crop canola farmers. Their low end combinations of acreage, yields and prices would be 40 acres, 50 bushels/acre and $5.00/bushel. The strategy of farmers with low acreage should be to realize high yields and any combinations of acreage and prices that is consistent with the optimal use of their machinery size. Higher acreage, yields and prices will lead to even greater net income to management and risk. Three variants of the linear program are run, and the results show that the objective function values are $24,004.50 or $27,604.50 or $31,416.00, depending on the price and yield assumptions, and the cropping systems used. The optimal activity level is for the farmer to use all the available 150 acres for canola double-cropped with soybeans as an alternative to wheat, if the farmer is not planting wheat; and in addition, to allocate 1,440 hours of their labor to off-farm employment The limited-resource farmer exhibiting the model's characteristics will maximize his or her income by engaging in both farm and off-farm employment. The conclusion drawn from these results is that limited resource farmers could make reasonable income by achieving an appropriate combination of acreage, yield and prices for canola double-cropped with soybeans, if they do not plant wheat. Their strategy should depend on whether they have large or small acreages of land, and their ability to achieve high yields per acre and obtain high prices for their product. Large acreages of land can go with moderate yields and low prices, and low acreages of land can go with high yields a moderate to high prices.