Expected margin vs other decisive criteria

4.3.1.1 Gross margin

As explained in EQ 3, CAP measures may impact farmers’ cropping patterns for PRPs. However, these effects are generally limited at EU level (but significant effects may be observed at regional levels) (see EQ 3). Farmers’ planting decisions are ultimately based on crop or rotation margin expectations.

There is a great range of gross margins for PRP crops and their alternative crops across the EU. Gross margin depends on production (sales and subsidies) and direct costs (inputs: fertilisers, pesticides, seeds). In addition, farmers take mechanisation and labour cost into account when comparing crops (then incorporated in the net margin). Experts and scientists interviewed reported that gross margins of PRPs are often too low compared to their main alternative crops such as wheat and maize, although input costs are often lower (see Table 29).

Table 29: Gross margins for studied protein-rich crops in 4 case-study countries (2015²⁴⁶) (€/ha).

€/ha DE²⁴⁷ ES FR PL²⁴⁸

PRPs

Broad and field beans 148 215

Field peas 202 133 680²⁴⁹

Lentils 500-600²⁵⁰

Sweet lupine 186

Rapeseed 854 712 700 759

Sunflower (irrigated) 412 350

Soya bean 310

Alfalfa 912 600

Cere als

Barley (irrigated) 415

Maize (irrigated) 804 739 431

Wheat 617²⁵¹ 780 682

Source: case studies

246 Except for France and Germany, where the data corresponds to the year 2017

247 The data refers to gross margins in Saxony-Anhalt in 2017

248 According to Skarżyńska A., Production Costs and Incomes in the Production of Selected Crops in 2015-2016 – Results of the Research Under the Agrocosts System, (orig. Koszty jednostkowe i dochody wybranych produktów w latach 2015-16 – wyniki badań w systemie AGROKOSZTY) Zagadnienia Ekonomiki Rolnictwa, IAFE-NRI, Warsaw, 2017.

249 This particularly high gross margin is linked to the fact that this data was provided by a major collector supplying the food industry in France (therefore at a higher price than feed).

250 Excluding lentils grown under PDO/PGI.

251 It refers to wheat with a cereal as a preceding crop

Among the different PRPs, oilseed crops generally have gross margins lower than those for cereals, except for rapeseed²⁵². The gross margin of pulses is generally lower although it hides significant discrepancies. Pulses such as field peas and beans show low gross margins for feed outlets while food markets can provide high selling prices, especially through label of origins²⁵³. Such examples also exist for other crops such as soya bean produced in the EU in specific value chains, which can benefit from prices almost double that of their equivalent imported product (source interview ENSA 2018). It shows that gross margins can be highly different depending on the value chain in which the grains are sold.

Regarding legume fodders, it is difficult to compare the margin as they are mostly self-consumed on the farm (cf. box 26 for the case of pluri-annual legume fodders). For dehydrated legume fodders that are more cash crops, the margin is also lower than cereals or rapeseed. However, the crop effect on the following crop can compensate for this difference (see § 4.3.5.3).

Gross margins presented in Table 29 are inherently linked to their local context and it inevitably introduces a bias in the comparisons. To properly compare margins from one crop to another, it is interesting to compare them with all other things being equal, meaning in a homogeneous agronomic and economic way. Therefore, Figure 78 provides data that was compiled using data provided by an accountancy management centre in Northeast France. This accountancy centre is showcased here because it was the only one identified during case studies that internalises crop effect (rotational benefits on the following crop) in the legume crop gross margin.

Figure 78: Comparison of gross margins and significance of monetized rotational benefits for the main crops in Champagne area in France (CDER, 2018)

*For alfalfa, which is a perennial crop, it is considered that 50% of the area is grown 2 years and 50% 3 years.

Figure 78 demonstrates clearly the margin differences between wheat (main crop in the area) and the studied PRPs²⁵⁴. With a margin nearly equal to that of wheat, winter rape shows a high margin and is the only exception. For the remaining PRPs, the margins are much lower, resulting in a negative opportunity cost for legume crops. It also underlines the cost of seeds, especially for soya bean and field peas.

It should also be noted that the value of a crop can modify the relative value of other crops. For example, the legume futures book (Murphy-Bokern et al., 2017) stresses that if the farm price of soya bean is more than about twice that of wheat, soya bean becomes competitive with wheat in some regions of the EU. This ratio ultimately depends on the base price of protein compared with starch, set mostly by the world price of wheat, maize and soya bean. This is also true with maize, which is often the alternative crop to irrigated soya bean. Current soya bean prices can be high enough to make it

253 For example, lentils that are sold 500 €/t in average in France, can reach 2000€/t (and 2500€/t in organic) when labelled through a label of origin (FR case study ANILS, 2018). See also Box 14.

254VCS support. Given the clear impact on the margin, VCS support was added to the calculation.

0 200 400 600 800 1000 1200 1400 1600

€/ha forecasted 2019

Gross margin Rotational benefits

VCS support Fertilizers

seeds Plant protection products

200 400 600 800 1000 1200 1400

2012 2013 2014 2015 2016

gross margin €/ha

Alfalfa

Alfalfa (with rotational benefits) Rape

Wheat Pea

Pea (with rotational benefits)

competitive against wheat or maize in many parts of the EU but this can change. As a result, some value chains (e.g. Sojadoc in FR, see Box 19) have linked their campaign price of soya bean to maize price in order to avoid farmers switching to maize in case of high prices of maize a given year and thus putting the supply chain in difficulty.

The price of nitrogen fertilisers can also have an impact on the relevancy of sowing LFs or not. When N fertiliser price increases, farmers may be more likely to favour the use on N-fixation to produce protein, instead of synthetic fertiliser application. For example, Humphreys et al. (Humphreys et al., 2018) have identified a tipping point in the ratio of fertiliser nitrogen price and the farm-gate price of milk in Ireland. When the ratio of the cost of 1 kg of nitrogen to the price of 1 kg of milk exceeds about 3, grass-white-clover-based production (mixed pastures) tends to be no longer economically disadvantaged²⁵⁵.

Box 26: The specific case of legume fodders

This box focuses on legume fodders as among PRPs, legume fodders are quite specific: they are pluriannual, provide fibre along with proteins and are exclusively grown to feed herbivores, are mostly produced on-farm to feed farm cattle, etc. Given these features, it can be hard to address them in the same way as other crops. A wide spectrum of forage legumes is available to livestock farmers: white clover, red clover, crimson clover, Egyptian clover, Persian clover, sainfoin, alfalfa, etc. Animal farmers can have various reasons to use them:

- feed management: local source of proteins, high protein yield per ha, animal health management;

- agronomic benefits: reduction of N fertilisers, crop effect and better drought resilience than fodder maize.

- tool to diversify and secure feed systems (more autonomy and thus resilience to market fluctuations) and production cost, including price variability management,

- Compliance with regulations (climate change, biodiversity, diversification, etc.).

Despite these assets, the main barriers to legume fodder use by animal farmers are crop management cost and working time. For example, the production cost of alfalfa from sowing to warehouse (including mechanisation, handling and 23% of losses) is about 150€/tonne (Bossis et al., 2016). Obviously, this production cost depends on yield: an alfalfa producing 7t/ha will cost 160€ for one stored tonne instead of 120€ with a yield of 13t/ha.

Regarding manpower needed, 11 to 15 hours are needed to manage one hectare of alfalfa compared to 8 to 10 hours for maize silage or 6 to 8 hours for Italian Ryegrass which is cut twice in a year (versus 4-5 times for alfalfa). In terms of labour cost, it can result in significant differences (cf. 4.3). Conversely, it should be noted that the number of cuts spread out over a long period make farmers more resilient to climate hazards.

Table 30: Comparison of labour time and cost to manage an alfalfa vs maize silage and a temporary grassland in a French context in 2016.

Alfalfa  Maize silage  Italian ryegrass 

Labour/ha (h/ha)  11‐15 hours  8‐10 hours  6‐8 hours 

Labour cost (€/ha)  290 €/ha  220 €/ha  200 €/ha 

Source: (Bossis et al., 2016)

4.3.1.2 Rotational benefits and effects on margins

The economic performance of cropping systems is relatively complex, and the real economic performance of legumes is higher than what conventional gross margin analysis indicates. It means that the potential for economically competitive legume production is probably not fully exploited, as indicated by many authors (Schneider and Huyghe, 2015, Murphy-Bokern et al., 2017). When cultivated, PRPs contribute to rotational diversification and have various rotational benefits. The highest crop-effect is obtained through the cultivation of N-fixing crops (pulses, soya bean, and legume fodders) because they generate significant fertiliser economy for the following crop. Some authors (Brisson et al., 2010) criticise yearly accountancy management and underline the probable impact of the reduction of pea incorporation in wheat rotations. They estimate that it generated a drop of 0.42t/ha of wheat yield between 1996 and 2006. It can also positively influence wheat protein content (CELETTE. and COHAN., 2016), which is a critical market criterion for wheat markets (bread-making needs a high protein content)²⁵⁶. Figure 78 shows that when crop effects of legume fodder are internalised in the margin calculation, then legume crops appear more competitive. For example, for

255 Nonetheless, it should be noted that this factor is not valid in areas with high nitrogen load (areas with high livestock density) where nitrogen sourcing is not an issue, given the excessive organic nitrogen load to be dealt with.

256 It must be noted that even if rotational gross margins show the value of legumes in rotations, most farmers continue to make their decision on the annual gross margins and without internalising crop effects.

alfalfa, crop effect reaches 180€/ha, even though herbicide savings are not considered in this estimation²⁵⁷:

‐ 80€ related to wheat yield gain (+0.3 to 0.4t/ha) and fertiliser savings (40kg N/ha, that being 20% savings).

‐ 50€ of fuel saving at rotational level (alfalfa requires fewer crop operations) and a related 50€

reduction in machinery maintenance.

To a lesser extent, this crop effect is also observed with other legumes, as highlighted in Table 31 for pea and soya bean.

Table 31: Estimated preceding crop effect of preceding legume crops

Preceding crop:   Pea  Soya bean 

Crop:   Wheat  Rape  Maize  Wheat  Durum wheat 

Average yield gain 

+0.74 t/ha on  average compared  to preceding cereal 

+0‐0.3 t/ha  compared to  preceding barley 

+0‐0.8t/ha  compared to  preceding maize 

often +10%  +2.34t/ha on  average compared 

to durum wheat  single cropping 

N fertilisation reduction 

‐20 to ‐60kg N/ha  compared to  preceding cereal 

‐30 to ‐60 kg N/ha  compared to  preceding cereal 

‐30 to ‐40kg N/ha  compared to  preceding maize 

No reduction in  general 

No reduction in  general  (Schneider and Huyghe, 2015)

Murphy-Bokern, Stoddard, and Watson 2017 have also described that in a crop rotation with wheat, barley and sugar beet, the rotational margin increases from 686€/ha to 748€/ha when the portion of legume passes from ≤ 10 % to ≥ 25%.

Although it is not provided in Table 31, legumes also have a significant effect on the use of plant protection products (PPPs) at rotation level, helping to reduce PPP cost. An experiment (POURCELOT et al., 2014) conducted on 300 farms during three campaigns shows that the number of PPP treatments on farms having legumes is lower by 7 to 13% according to the campaign (5 to 13% for herbicides and 13 to 19% for other PPPs). The experiment also shows legume cropping has no impact on productivity and profitability.