A new concept, `stochastic breakeven yields', is used to illustrate the risk levels associated with short run and long run transitions to new technology. The breakeven yield implies the same probability of dynamic business failure for both, the old and new technologies. The framework has an intuitive appeal because while prices are beyond the farmer's control, a farmer often has some perceptions of the likely yield performance. An application to the transition to no-till farming showed that breakeven yield premiums to make no-till farming was equally risky as conventional tillage farming, varied with farm size, proportion of rented land, and transition strategies. The choice of minimizing yield premium was consistent across planning horizons. Immediate adoption of no-till was found to be preferable for large farms when the transition involved buying a no-till drill. For smaller farms, the preferred transition strategy was to rent a drill and gradually expand the no-till area.

Farmers and businessmen not only want short run stability but also long run survival of their business. A key to achieve these objectives is to make appropriate decisions on day-to-day tactical adjustments and on major investments (Kingwell et al., 1993). Major investments require appropriate multi-year risk management decisions.

Recent concern about on-farm and off-farm effects of soil erosion and rising tillage costs have raised questions about the sustainability of conventional tillage (Papendick, 1996). Minimum tillage and no-tillage have emerged as the preferred alternatives for environmental reasons, but may be economically risky (Papendick, 1998; Schillinger, 2001; Janosky et al., 2002). The transition to no-till farming requires major cash outflows for no-till drill and the farmers may face difficulties in mastering the new technology. The transition is risky due to the stochastic nature of yields and prices. Risk exposure will vary with the size of the farm and equity position. Risk management implies choosing from several speeds of expanding no-till area and choices of no-till drill acquisition options. There is evidence that mastering the risky no-till transition is worthwhile because some established no-till farms have been profitable (Camara et al., 1999).

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