Impacts of risk aversion on whole-farm management in Syria

This article reports on a study of the impact of risk on farm management practices in northern Syria, focusing particularly on how these are affected by risk aversion and farm size. The study is based on production data from an eight‐year field trial and on prices from market surveys. A large linear programming model is built, representing the eight years as observations from a discrete probability distribution. Risk aversion is modelled by inclusion of a utility function with constant relative risk aversion, represented using the DEMP/UEP approach.Farm Management, Risk and Uncertainty,

A financial analysis of the effect of the mix of crop and sheep enterprises on the risk profile of dryland farms in south-eastern Australia

This study analyses the financial risk faced by representative mixed-enterprise farm businesses in four regions of south-eastern Australia. It uses discrete stochastic programming to optimise the ten-year cash flow margins produced by these farms operating three different farming systems. Monte Carlo analysis is used to produce a risk profile for each scenario, derived from multiple runs of this optimised model, randomised for commodity prices and decadal growing season rainfall since 1920. This analysis shows that the performance of the enterprise mixes at each site is characterised more by the level of variability of possible outcomes than by the mean values of financial outputs. It demonstrates that relying on mean values for climate and prices disguises the considerable risks involved with cropping in this area. Diversification into a Merino sheep enterprise marginally reduced the probability of financial loss at all sites. This study emphasises the fact that the variability, or risk, associated with all scenarios far exceeds the likely change in cash margins due to innovation and good management. It further shows that farm managers should give a higher priority to adopting innovations which reduce costs, rather than increase productivity, in order to reduce risk. Further analysis shows that the current static measures of financial performance (gross margins, profit and cash margins) do not characterise the risk-adjusted performance of the various farming systems and almost certainly result in a flawed specification of best-practice farm management in south-eastern Australia.Farm Management,

Derivation of supply curves for catchment water effluents meeting specific salinity concentration targets in 2050: linking farm and catchment level models or “Footprints on future salt / water planes”

The salt burden in a stream reflects the blend of salty and fresh flows from different soil areas in its catchment. Depending not only on long-run rainfall, water yields from a soil are also determined by land cover: lowest if the area is forested and greatest if cleared. Water yields under agro-forestry, lucerne pasture, perennial grass pasture, and annual pasture or cropping options span the range of water yields between the extremes of forested and cleared lands. This study explores quantitative approaches for connecting the hydrologic and economic consequences of farm-level decisions on land cover (productive land uses) to the costs of attaining different catchment level targets of water volumes and salt reaching downstream users; environmental, agricultural, domestic, commercial and industrial. This connection is critical for the resolution of the externality dilemma of meeting downstream demands for water volume and quality. New technology, new products and new markets will expand options for salinity abatement measures in the dryland farming areas of watershed catchments. The development of appropriate policy solutions to address demands for water volumes and quality depends on the possibility of inducing targeted land use change in those catchments or parts of catchments where decreased saline flows or increased fresh water flows can return the best value for money. This study provides such a link.salinity, targets, opportunity cost, concentration, dilution, effluent, externality, supply, demand, policy, water quality, new technology, new markets, Resource /Energy Economics and Policy,

Disposition of precipitation: Supply and Demand for Water Use by New Tree Plantations

As the greatest rainwater users among all vegetative land covers, tree plantations have been employed strategically to mitigate salinity and water-logging problems. However, large-scale commercial tree plantations in high rainfall areas reduce fresh water inflows to river systems supporting downstream communities, agricultural industries and wetland environmental assets. A bio-economic model was used to estimate economic demand for water by future upstream plantations in a sub-catchment (the 2.8 million ha Macquarie valley in NSW) of the Murray-Darling Basin, Australia. Given four tree-product values, impacts were simulated under two settings: without and with the requirement that permanent water entitlements be purchased from downstream entitlement holders before establishing a tree plantation. Without this requirement, gains in economic surplus from expanding tree plantations exceeded economic losses by downstream irrigators, and stock and domestic water users, but resulted in reductions of up to 154 GL (gigalitres) in annual flows to wetland environments. With this requirement, smaller gains in upstream economic surplus, added to downstream gains, could total $330 million while preserving environmental flows. Extending downstream water markets to new upstream tree plantations, to equilibrate marginal values across water uses, helps ensure water entitlements are not diminished without compensation. Outcomes include better economic-efficiency, social-equity and environmental-sustainability.Environmental Economics and Policy, forest, environmental services, catchment, water sources, interception, entitlement, supply, demand, market, economic surplus, evapo-transpiration, urban water, irrigation, wetlands.,

Economics of managing acid soils in dryland mixed cropping systems: comparing gross margins with whole-farm analysis derived using a business process model

A 12-year experiment designed to show the benefits of applying lime to acid soils when growing annual pasture, perennial pasture, and annual crops in rotations with annual or perennial pastures, provides the context for comparing methods of economic analysis. In this study enterprise gross margins are compared with whole-farm cumulative monthly cash flows derived using a business process model. The current study gave gross margins comparable with those of a recently published study based on the first 12 years of the same field experiment at Book Book near Wagga Wagga in southern NSW (Li et al., 2010). Both gross margin analyses indicated positive results for all treatments. However, because key fixed and capital cost items were not taken into account in the gross margin analysis the financial benefits of the treatments were overstated. In the whole-farm analysis, a full set of accounts (including fixed and capital costs) was developed for the experimental combinations of prime lamb and dryland cropping enterprises and used to generate a monthly cash flow sequence for each treatment over the 12-year term of the experiment. This full financial analysis, where all costs are included, showed all mixed treatments (cropping and grazing) accumulated unsustainable losses over the period of the trial. The grazing-only treatments generated positive cash lows over the 12 year period, but 2 accumulated high levels of debt in the initial years. None of these outcomes were predicted by gross margins, which were consistently positive for all treatments. This paper concludes that the analysis of trial results benefits from interpretation in the context of whole-farm analysis, verified by district experience. Relying on gross margin analysis alone would have supported loss-making outcomes in this trial. This conclusion has important ramifications for analysis of all systems trials.Agribusiness,

Mathematical optimisation of drainage and economic land use for target water and salt yields

Land managers in upper catchments are being asked to make expensive changes in land use, such as by planting trees, to attain environmental service targets, including reduced salt loads in rivers, to meet needs of downstream towns, farms and natural habitats. End-of-valley targets for salt loads have sometimes been set without a quantitative model of cause and effect regarding impacts on water yields, economic efficiency or distribution of costs and benefits among stakeholders. This paper presents a method for calculating a ‘menu’ of technically feasible options for changes from current to future mean water yields and salt loads from upstream catchments having local groundwater flow systems, and the land-use changes to attain each of these options at minimum cost. It sets the economic stage for upstream landholders to negotiate with downstream parties future water-yield and salt-load targets, on the basis of what it will cost to supply these ecosystem services.discounting, landuse, NPV, opportunity-cost, salinity, Resource /Energy Economics and Policy,

Simulation of cattle cycle demography: cohort analysis of recruitment and culling decisions in the national beef cow herd

This study expresses the hypothesis that historical patterns of national beef cow herd accumulation and liquidations (the cattle cycle) have been related to investment incentive differences across cow ages through time, resulting each year in changes in herd age structure, performance and potentials for adjustment in subsequent years. A review of national cattle cycle literature reveals the common assumption of variable heifer recruitment levels through time to the mature cow herd. A review of firm level cattle cycle stategy studies shows that most which considered heterogeneous herds (distinguishing performance by cow age) ironically assumed constant recruitment in proportion to cow numbers. Farmer interviews indicated that heifer recruitment may vary widely in proportion to cow numbers from year to year and that there are strong tendencies to cull non-pregnant and unsound cows from the herd at any age. The present study assumes both variable recruitment and age heterogenity. A search and synthesis of the biological literature allowed expression of economically important attributes as point estimates from continuous functions of cow age. These attributes are conception rates, health rates, cow survival rates, cull cow body weights, calf survival rates and weaning weights. Based on these biological parameters, and on the assumption that non-pregnant and unsound cows would be culled, retainment and culling rates are defined as management expectation parameters. These biological and expectation parameters are the building blocks of a simulation model designed to make value comparisons between cows of different ages and pregnancy status and to trace out changes in the national cow herd age structure through time. A budget generator produces estimates of expected net annual revenues for each of the 26 discrete age and pregnancy classes of heifers and cows, in each year from 1950 through 1978, based on exogenous price and cost series. These estimates are used to project the present values of expected future net revenues for each class of breeding animals. The ratio of future breeding value to present cull slaughter value is calculated for each of the 26 classes, each year. These V-ratios, in turn, are decision variables for determining the proportions of animals in each class to be retained in the herd, simulated by a national beef cow demography model. Annual summations from the demography model are compared with objective historical series of January 1 inventories of beef cows and replacement heifers, and annual numbers of cull cows slaughtered and beef calves born. The model's simplicity, ignoring related livestock sectors, is one of its significant features. With its few exogenous price and cost variables, simple biological relationships and management assumptions, the model is able to track the historical numbers of beef cows and calves born quite well. Mean proportional absolute deviations (MPAD) of the simulated series from the objective historical series were computed in addition to simple correlation coefficients and Theil's coefficients of inequality. In a display run, the tracking behavior of the model was best for cow inventories and calves born, and worst for heifer recruitment and cull cows, with MPAD's of .029, .036, .172, and .261, respectively. Theil's coefficients of inequality were .405, .587, .962, and .842, respectively. In an alternative run, with parameters set to reflect the assumption that all cows have the same performance characteristics across ages, the tracking behavior of the model was in several aspects about as good as the display run. Thus, the null hypothesis that performance differences across cow ages are of no importance in explaining investment behavior could not be rejected. Simulated national beef cow herd age structure changes through cattle cycles are shown from 1950 through 1978

Impact of ICARDA Research on Australian Agriculture

Research and Development/Tech Change/Emerging Technologies,

Economic feasibility of fall-calving on Oregon high desert cow-calf operations

The traditional practice on beef cow-calf ranches in the high desert region of Eastern Oregon has been to breed the cows to calve in the Spring months. Interest has been growing recently in the practice of Fall-calving; that is, breeding cows to calve in the months of October and November. The Squaw Butte Experiment Station at Burns, Oregon, began a Fall-calving program with part of their range beef herd several years ago. They found that climatic conditions are generally more favorable for calving in the Fall, resulting in higher weaned-calf percentages. Calves from both Spring and Fall-calving herds were weaned in late Summer, with Fall calves averaging around 500 pounds compared with 330 pounds for the Spring calves. There was little doubt about the biological feasibility of the Fall-calving practice in that area, but its economic feasibility was somewhat in question. The purpose of this research was to analyze the economic aspects of Fall-calving and determine what are the most important factors in deciding its economic feasibility. A linear programming model was developed for comparing Fall and Spring-calving systems under different conditions. The model was designed to maximize net returns to labor, management and fixed resources in the beef enterprise. This model took account of range forage utilization patterns. Solutions from the model indicated that Spring-calving systems may have slightly higher net returns than Fall-calving because of two main differences: (1) the lighter Spring-born calves bring a higher average price per cwt. , and (2) the Fall-calving herd requires about 1500 pounds more Winter hay than cows in the Spring-calving herd. An algebraic relationship was found between calf price differentials and the price of meadow hay, which would equate the net return values for Spring and Fall-calving systems. With an expected differential of $2. 95, between the average prices of calves sold from the Spring and Fall-calving herds, it was found that a price as low as$14.12 per ton of meadow hay would be needed to equate the net returns of a Fall-calving system with those of a Spring-calving system (with calf sales on September 1). Labor costs were not included in the model, but the ranch operator's labor situation may well be the most important element in his decision to go with Fall rather than Spring calving. The main difference is in the times of the year that labor is needed. The Fall-calving system needs more labor in the Fall, and the Spring-calving system needs even more in the Spring

Downstream benefits vs upstream costs of land use change for water-yield and salt-load targets in the Macquarie Catchment, NSW

The net present value (NPV) of downstream economic benefits of changes in water-yield (W) and salt-load (S) of mean annual river flow received by a lower catchment from an upper catchment are described as a 3-dimensional (NPV,W, S) surface, where dNPV/dW > 0 and dNPV/d(S/W) < 0. Upstream changes in land use (i.e. forest clearing or forest establishment, which result in higher or lower water-yields, respectively) are driven by economic consequences for land owners. This paper defines conditions under which costs of strategic upstream land use changes could be exceeded by compensations afforded by downstream benefits from altered water-yields and/or lower salt loads. The paper presents methods, and preliminary calculations for an example river, quantifying the scope for such combinations, and raising the question of institutional designs to achieve mutually beneficial upstream and downstream outcomes. Examples refer to the Macquarie River downstream of Dubbo, NSW, and Little River, an upstream tributary.policy, markets, upstream, downstream, water, salinity, Land Economics/Use,