Identifying risk-efficient strategies using stochastic frontier analysis and simulation: An application to irrigated cropping in Australia

In irrigated cropping, as with any other industry, profit and risk are inter-dependent. An increase in profit would normally coincide with an increase in risk, and this means that risk can be traded for profit. It is desirable to manage a farm so that it achieves the maximum possible profit for the desired level of risk. This paper identifies risk-efficient cropping strategies that allocate land and water between crop enterprises for a case study of an irrigated farm in Southern Queensland, Australia. This is achieved by applying stochastic frontier analysis to the output of a simulation experiment. The simulation experiment involved changes to the levels of business risk by systematically varying the crop sowing rules in a bioeconomic model of the case study farm. This model utilises the multi-field capability of the process based Agricultural Production System Simulator (APSIM) and is parameterised using data collected from interviews with a collaborating farmer. We found sowing rules that increased the farm area sown to cotton caused the greatest increase in risk-efficiency. Increasing maize area also improved risk-efficiency but to a lesser extent than cotton. Sowing rules that increased the areas sown to wheat reduced the risk-efficiency of the farm business. Sowing rules were identified that had the potential to improve the expected farm profit by ca. $50,000 Annually, without significantly increasing risk. The concept of the shadow price of risk is discussed and an expression is derived from the estimated frontier equation that quantifies the trade-off between profit and risk.

Resting pastures to improve land condition in northern Australia: guidelines based on the literature and simulation modelling

Pasture rest is a possible strategy for improving land condition in the extensive grazing lands of northern Australia. If pastures currently in poor condition could be improved, then overall animal productivity and the sustainability of grazing could be increased. The scientific literature is examined to assess the strength of the experimental information to support and guide the use of pasture rest, and simulation modelling is undertaken to extend this information to a broader range of resting practices, growing conditions and initial pasture condition. From this, guidelines are developed that can be applied in the management of northern Australia’s grazing lands and also serve as hypotheses for further field experiments. The literature on pasture rest is diverse but there is a paucity of data from much of northern Australia as most experiments have been conducted in southern and central parts of Queensland. Despite this, the limited experimental information and the results from modelling were used to formulate the following guidelines. Rest during the growing season gives the most rapid improvement in the proportion of perennial grasses in pastures; rest during the dormant winter period is ineffective in increasing perennial grasses in a pasture but may have other benefits. Appropriate stocking rates are essential to gain the greatest benefit from rest: if stocking rates are too high, then pasture rest will not lead to improvement; if stocking rates are low, pastures will tend to improve without rest. The lower the initial percentage of perennial grasses, the more frequent the rests should be to give a major improvement within a reasonable management timeframe. Conditions during the growing season also have an impact on responses with the greatest improvement likely to be in years of good growing conditions. The duration and frequency of rest periods can be combined into a single value expressed as the proportion of time during which resting occurs; when this is done the modelling suggests the greater the proportion of time that a pasture is rested, the greater is the improvement but this needs to be tested experimentally. These guidelines should assist land managers to use pasture resting but the challenge remains to integrate pasture rest with other pasture and animal management practices at the whole-property scale.

Boosting the productivity and profitability of northern Australian beef enterprises: Exploring innovation options using simulation modelling and systems analysis

The financial health of beef cattle enterprises in northern Australia has declined markedly over the last decade due to an escalation in production and marketing costs and a real decline in beef prices. Historically, gains in animal productivity have offset the effect of declining terms of trade on farm incomes. This raises the question of whether future productivity improvements can remain a key path for lifting enterprise profitability sufficient to ensure that the industry remains economically viable over the longer term. The key objective of this study was to assess the production and financial implications for north Australian beef enterprises of a range of technology interventions (development scenarios), including genetic gain in cattle, nutrient supplementation, and alteration of the feed base through introduced pastures and forage crops, across a variety of natural environments. To achieve this objective a beef systems model was developed that is capable of simulating livestock production at the enterprise level, including reproduction, growth and mortality, based on energy and protein supply from natural C4 pastures that are subject to high inter-annual climate variability. Comparisons between simulation outputs and enterprise performance data in three case study regions suggested that the simulation model (the Northern Australia Beef Systems Analyser) can adequately represent the performance beef cattle enterprises in northern Australia. Testing of a range of development scenarios suggested that the application of individual technologies can substantially lift productivity and profitability, especially where the entire feedbase was altered through legume augmentation. The simultaneous implementation of multiple technologies that provide benefits to different aspects of animal productivity resulted in the greatest increases in cattle productivity and enterprise profitability, with projected weaning rates increasing by 25%, liveweight gain by 40% and net profit by 150% above current baseline levels, although gains of this magnitude might not necessarily be realised in practice. While there were slight increases in total methane output from these development scenarios, the methane emissions per kg of beef produced were reduced by 20% in scenarios with higher productivity gain. Combinations of technologies or innovative practices applied in a systematic and integrated fashion thus offer scope for providing the productivity and profitability gains necessary to maintain viable beef enterprises in northern Australia into the future.