SOIL TEST DEMAND - THE CASE OF THE UNIVERSITY-OF-TENNESSEE SOIL TESTING LABORATORY

Soil testing labs provide an important service that helps farmers hone their fertilizer decisions. This service also benefits society by simultaneously addressing the growing demand for food and the environmental concerns associated with over fertilization. This study was motivated by the hypothesis that economics plays a role in determining the amount of soil test information farmers use. Economic theory suggests the per-acre quantity of soil tests demanded by a farmer from a particular soil testing lab is a function of the price of a soil test performed by that lab, the prices of soil tests performed by alternative labs, the price of fertilizer, and the prices received for crops. Other factors include the amount of precipitation during key soil testing months and efforts to promote soil testing. Annual times series data for 1961 to 1992 were used to estimate the per-acre demand relationship for soil tests provided by the University of Tennessee Soil Testing Lab (UT Lab), Nashville. All hypothesized variables, except the price of fertilizer and a dummy variable for operation of an alternative commercial lab, are significant determinants of soil test demand in this case. Soil test demand at the UT Lab is price inelastic, suggesting that a subsidy that reduced the price of a soil test would be a costly method of promoting an increase in the quantity of soil tests demanded. Alternatively, if the lab increased the price of a soil test to cover rising costs or to upgrade services to its clientele, the price rise would increase total revenue without causing a serious reduction in soil tests demanded. However, a subsidy may be beneficial or a price rise may be detrimental to society if marginal users of soil test information are those who cause the most environmental problems.