Electricity Rates, Input Use and Irrrigated Cotton Profitability: A Hedonic Versus Traditional Profit Maximization Approach

The impact of increasing energy cost on the optimal level of nitrogen and irrigation water use is examined for two irrigated cotton production management strategies using LEPA irrigation. The first strategy is a traditional production management strategy where the optimal per acre application rate is the rate that maximizes expected profit based on a fixed expected cotton lint price and known lint yield response to applied nitrogen and irrigation water. Under the second production strategy, cotton producers are assumed to maximize a hedonic profit function that explicitly considers the tradeoff between lint yield and lint quality attributable to alternative nitrogen and irrigation application rates, and the net effect the tradeoff has on per acre profit. The hedonic production approach, which manages for both quality and quantity, was found to be the more profitable producer strategy and used less fertilizer and less irrigation water.