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.

Exploring profit - Sustainability trade-offs in cropping systems using evolutionary algorithms

Models that implement the bio-physical components of agro-ecosystems are ideally suited for exploring sustainability issues in cropping systems. Sustainability may be represented as a number of objectives to be maximised or minimised. However, the full decision space of these objectives is usually very large and simplifications are necessary to safeguard computational feasibility. Different optimisation approaches have been proposed in the literature, usually based on mathematical programming techniques. Here, we present a search approach based on a multiobjective evaluation technique within an evolutionary algorithm (EA), linked to the APSIM cropping systems model. A simple case study addressing crop choice and sowing rules in North-East Australian cropping systems is used to illustrate the methodology. Sustainability of these systems is evaluated in terms of economic performance and resource use. Due to the limited size of this sample problem, the quality of the EA optimisation can be assessed by comparison to the full problem domain. Results demonstrate that the EA procedure, parameterised with generic parameters from the literature, converges to a useable solution set within a reasonable amount of time. Frontier ‘‘peels’’ or Pareto-optimal solutions as described by the multiobjective evaluation procedure provide useful information for discussion on trade-offs between conflicting objectives.

A participatory whole farm modelling approach to understand impacts and increase preparedness to climate change in Australia

This study presents the use of a whole farm model in a participatory modelling research approach to examine the sensitivity of four contrasting case study farms to a likely climate change scenario. The newly generated information was used to support discussions with the participating farmers in the search for options to design more profitable and sustainable farming systems in Queensland Australia. The four case studies contrasted in key systems characteristics: opportunism in decision making, i.e. flexible versus rigid crop rotations; function, i.e. production of livestock or crops; and level of intensification, i.e. dryland versus irrigated agriculture. Tested tactical and strategic changes under a baseline and climate change scenario (CCS) involved changes in the allocation of land between cropping and grazing enterprises, alternative allocations of limited irrigation water across cropping enterprises, and different management rules for planting wheat and sorghum in rainfed cropping. The results show that expected impacts from a likely climate change scenario were evident in the following increasing order: the irrigated cropping farm case study, the cropping and grazing farm, the more opportunistic rainfed cropping farm and the least opportunistic rainfed cropping farm. We concluded that in most cases the participating farmers were operating close to the efficiency frontier (i.e. in the relationship between profits and risks). This indicated that options to adapt to climate change might need to evolve from investments in the development of more innovative cropping and grazing systems and/or transformational changes on existing farming systems. We expect that even though assimilating expected changes in climate seems to be rather intangible and premature for these farmers, as innovations are developed, adaptation is likely to follow quickly. The multiple interactions among farm management components in complex and dynamic farm businesses operating in a variable and changing climate, make the use of whole farm participatory modelling approaches valuable tools to quantify benefits and trade-offs from alternative farming systems designs in the search for improved profitability and resilience.