A major soil improvement may affect the balance between farm enterprises materially and may provide the opportunity for changes in farm organization. Tile drainage may permit a shift in land use from pasture to grain. This in turn may indicate a change from stocker cattle to a beef- fattening enterprise. Additional facilities and perhaps a change in the other farm enterprises will have to be made to fit the beef-fattening enterprise into the total farm business most profitably.

Changes in other parts of the farm business that are implemented by the Improvement in question often may be profitable in themselves. Tile drainage may not pay if the land continues to be used for pasture. Terraces may not pay without associated practices that permit them to be as productive as possible. The additional product that results from a soil improvement must be used fully and evaluated fairly in the appraisal of the improvement itself. At the same time, care should be taken not to attribute to the soil improvement added profit that comes from changes in some related enterprise.

CAPITAL OR INVESTMENT FUNDS often are limited in agriculture for all purposes, including soil improvements. Some farm economists call this limitation "capital rationing." Part of this limitation rests in the uncertainty that exists with respect to the future. In reality, this rationing generally limits the investment of funds in farming to a point below the point that would give the highest marginal rate of return. In effect, capital rationing makes short-time investments relatively more attractive than longtime investments.

Credit for soil improvements may be especially important. If a farmer has no funds of his own, the terms on which he can borrow may determine his willingness to undertake the improvement.

I mentioned scarcity of investment funds and effects of the rate of interest in evaluating investments. A further factor is the relation of the timing and terms of loan repayment to the timing of income from the investment.

Longtime investments usually are financed by loans secured by mortgages on real estate. The period of the loan is longer, and the rate of interest usually is lower for this type of financing than for other types of loans. Commercial banks often are reluctant to grant loans for periods long enough to be useful for financing soil improvements unless the loans can be repaid from more immediate sources of income. Many banks, however, make special efforts to finance conservation work and other types of investments in the productive capacity of farmland.

Land tenure, or the way in which a farmer holds his land, influences any consideration of a longtime investment in soil improvement. My discussion so far has assumed full ownership and operation of the farm by the one who makes the decision. When ownership and operation are divided between individuals with different goals and discount rates on future income, a new set of factors enters the decision.

Tenants who have annual lease contracts are not likely to be interested in making longtime investments in the land. An exception is when provision is made in the lease to compensate the tenant for unexhausted improvements upon termination of his occupancy. Even so, the difficulties of appraising unexhausted improvements and the uncertainty generally associated with tenancy tend to discourage longtime investments in the farm by tenants. Frequently associated with this are differences between landlord and tenant in goals and in relative needs for immediate versus future income.

Landlords themselves may not be encouraged to undertake longtime investments in soil improvements under customary types of lease contracts. An investment that only substitutes fixed costs for operating costs certainly would not be attractive to a landlord under ordinary share leases, in which the tenant usually pays all or most of the operating expenses.

An investment that increases output also might not be to the advantage of the landlord when he gets only a share of the crop with which to meet the costs of the improvement unless some change in the shares compensates him for his extra costs. Full productiveness of the improvement also might not be realized on tenant-operated farms, especially if associated changes in farm organization and management are needed to achieve maximum benefit from the investment.

Landlords and tenants may have to share the costs as well as the added returns from a major land improvement before investments of this kind become attractive to either. This sharing may require a departure from customary rental arrangements as to the length of time provided in the contract, provisions for dividing expenses of production, distribution of the product, or all three combined.

Annual leases ordinarily discourage investments in soil improvements for both landlord and tenant. Longer leases would encourage investment.

LONGTIME INVESTMENTS in land improvements must be considered carefully to avoid any costly mistakes, as money spent in this way usually can be recovered only over the years.

In this consideration, here are some questions that must be answered: What will this improvement cost? Is the money available?

Can this money be used to better advantage for some other purpose? If money must be borrowed, can a loan be made on terms that will permit repayment from the returns?

What will this improvement do in terms of increasing yields, reducing operating costs, or permitting changes in land use?

What other changes will be needed in the farm to realize its full potential in the way of increased livestock, additional machinery, extra labor, or other investments?

How uncertain is the outcome of this investment?

Will this investment reduce future operating costs?

If land is rented, can satisfactory arrangements be made between landlord and tenant?

What assistance is available for planning and financing the land improvement?

Is the present worth of the expected returns from this investment more than its cost or more than the present worth of returns from some other use for these funds?

THESE AND PERHAPS other questions should be weighed carefully before longtime investments are made.