Economic perspectives on nitrogen in farming systems: managing trade-offs between production, risk and the environment

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 the present review, key insights are presented from a large and diverse literature on the economics of nitrogen in agriculture and the economics of the consequences of nitrogen fertilisation. Issues covered include (1) the economics of nitrogen as an input to production, (2) nitrogen and economic risk at the farm level, (3) the economics of nitrogen fixation by legumes, (4) the existence of flat payoff functions, which often allow wide flexibility in decisions about nitrogen fertiliser rates, (5) explanations for over-application of nitrogen fertilisers by some farmers, and (6) the economics of nitrogen pollution at both the farm level and the policy level. 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.