Bill Malcolm

Are we risking too much? Perspectives on risk in farm modelling

Risk and uncertainty have been extensively studied by agricultural economists. In this paper we question (a) the predominant use of static frameworks to formally analyse risk; (b) the predominant focus on risk aversion as the motivation for considering risk and (c) the notion that explicitly probabilistic models are likely to be helpful to farmers in their decision making. We pose the question: for a risk-averse farmer, what is the extra value of a recommendation derived from a model that represents risk aversion, compared to a model based on risk neutrality? The conclusion reached is that for the types of the decision problems most commonly modelled by agricultural economists, the extra value of representing risk aversion is commonly very little.

Future investment in landscape change in southern Australia

Abstract Future investment in Australias countryside will greatly influence the appearance of the landscape, and the ecosystem services provided. Primarily, landowners will undertake this investment. Government investment in revegetation programs is likely to be relatively small. This paper is about research conducted on grazing properties in south-eastern Australia, and extrapolated to the region as a whole. Four strategies are reported: they involve increasing the perennial component of the pastures, fine-tuning grazing management, encouraging natural regeneration and more targeted application of fertiliser. Three of the strategies are profitable and also contribute substantially to the condition of native vegetation and to the ecosystem services it provides. The strategies are not as profitable as traditional pasture improvement, historically the main source of increased wealth. However, the availability of alternative strategies greatly reduces the opportunity cost of not pursuing the traditional pasture improvement approach. This means that incentives to adopt the alternative strategies may make good public policy sense.

Potential impacts of negative associative effects between concentrate supplements, pasture and conserved forage for milk production and dairy farm profit

A case study and whole-farm modelling approach was used to examine the potential impacts of negative associative effects on milk production and economic performance of two dairy farms in northern Victoria. The two case studies differed in herd and farm size, calving pattern, forages grown and use of labour, but both had production systems based on grazed pasture, grain fed in the dairy at milking and conserved hay fed out in the paddock. The feeding system of each farm was altered by implementing a partial mixed ration (PMR), where cows grazed once a day and received supplements in a well formulated mix once a day. Negative associative effects between feeds were included in the biophysical modelling by deriving a relationship from published studies between declining neutral detergent fibre digestibility and increasing grain intake. Before applying a PMR system, both farms were profitable and earning competitive rates of return after tax, with mean real internal rate of return higher than 5%, and positive mean annual operating profit and mean net present value, at a discount rate of 5%. Feeding a PMR enabled both farms to increase profitability and internal rate of return, particularly if milk production was increased as well, but only when associative effects were less than those in the feeding system based on grain fed in the dairy and hay in the paddock. Increased profitability was also associated with higher standard deviation in annual operating profit, internal rate of return and net present value, in other words risk increased under the PMR feeding system, as the businesses would be more vulnerable to fluctuating supplementary feed prices.

Dairying in the Antipodes: recent past, near prospects

The majority of dairy farmers and processors in Australia and New Zealand are considered world class due to their ability to produce dairy products at a cost that is competitive on the world market without requirement for subsidy. International and domestic forces beyond the farm influence the international competitiveness of Antipodean dairy systems, as much or more than, the within-farm characteristics of the systems. Critical external forces include: world population growth, protein demand from increasingly wealthy developing countries, dairy supply from domestic and international producers, international dairy prices and exchange rate volatility. Within farm, the keys to persistent profitability, business survival, and growth will continue to be management ability and labour skill as well as the relationship between milksolids (milk fat + milk protein) produced per system and total production costs. Domestic forces will include competition for resources such as land, water, quality labour and capital, and public expectation that farms will meet the costs of community environmental and welfare objectives. Public and industry investment in research, development and extension in innovations that increase productivity is essential if dairying is to remain competitive. The operation of the comparative advantage principle determines which industries thrive, or decline, in an economy. New Zealand dairying has a strong comparative advantage over alternative pastoral industries which will continue. In Australia, the comparative advantage of dairy farming over alternative activities is less clear-cut. History shows that the best farmers and processors handle risks such as market and climate volatility and other challenges better than others, and their prospects are positive. However, world class performers in the future dairy industry will certainly not be all, or even the majority, of the current population of dairy farmers.

Perennial pasture persistence: the economic perspective

Abstract. Persistence of pasture in grazing systems has technical and economic dimensions. Profit from investment in pasture is maximised when the profit from the pasture is maximised over cycles of investments in pasture over the life of the farm business. The economic decision-rule is that an existing pasture should be replaced when the expected extra average addition to farm profit per year over the whole of the expected life of the next cycle of pasture investment exceeds the expected addition to farm profit from one more year of the existing pasture. This profit-maximising decision-rule means that the persistence of pasture is an economic phenomenon to be accounted for over several cycles of investment—a different concept to technical views that focus on the number of years of existence (i.e. persistence) of a pasture in one investment cycle. The number of years in which a pasture performs near peak potential annual dry matter (DM) production is a useful perspective on pasture persistence. The longer a pasture persists at peak level the more profitable. An empirical example was analysed of a pasture that had declined to carrying annually 6 dry sheep equivalents/ha (DSE/ha) and reinvestment occurred. The new pasture attained a peak of 11 000 kg/dry matter/ha in years 4–7, carrying an extra 15 DSE/ha.year, and declined to 50% of peak DM production by year 11, which was maintained until year 20. The modified internal rate of return for the base model of investing in pasture improvement was 12% real. The profit-maximising life of the pasture analysed was 8 years in repeated cycles over the life of the farm business. If this pasture produced at 65% of peak kg DM/ha for years 11–20, then the pasture was equally profitable whether the life of the pasture was any length from 8 to 20 years. If the pasture maintained production >65% of peak annual kg DM/ha, then longer pasture lives were more profitable than shorter lives.

Estimating the value of genetic gain in perennial pastures with emphasis on temperate species

Abstract. Relatively little is known about the weightings that breeders consciously or subconsciously place on specific traits when selecting individual plants, or the weightings agronomists and producers use when evaluating the relative merits of alternative cultivars and their potential economic value in farm systems. This is despite the many active programs for breeding improved forage plants, and in contrast to most modern animal-breeding programs where the relative merits of novel genetics are assessed against index-based breeding objectives. There are many reasons why breeding objectives based on profit indices are not used when breeding pasture plants. The nature of pasture as an intermediate input to farm output and profit poses unique difficulties in developing breeding objectives based on profit. In this paper, we review the literature about methods to value genetic gain in perennial grasses. Various methods are canvassed for assessing the value of genetic gain for different pasture species across production systems. In the context of the complexity and cost of estimating the direct economic benefits of superior characteristics of pasture plants in farm systems via bio-economic simulation methods, we outline the use, and usefulness, of discrete choice techniques in the development of weightings for specific traits in forage plant improvement. There is a clear need to estimate the value of new pasture cultivars to producers, and although the differences between individual farms mean that one value or one ‘best’ cultivar is unlikely for any farm, the estimation of potential value of traits and cultivars will allow producers to make choices that are more informed.

The impact of system changes to a dairy farm in south-west Victoria: risk and increasing profitability

A case study modelling approach was used to examine changes to a dairy farm in south-west Victoria to maintain or increase profit in the future 5–10 years in the face of some ‘cost-price squeeze’, emphasising impacts on both returns and risk. Five changes to the status quo system were analysed. Each involved increasing pasture consumption on the milking area and non-milking leased area (where appropriate). The five changes were: (1) reducing leased non-milking area by 100 ha; (2) converting 60 ha of non-milking leased area to milking area, reducing leased non-milking area by 100 ha and reducing stocking rate on the milking area; (3) converting 187 ha of leased non-milking area to milking area, increasing herd size to 800 cows and reducing stocking rate on the milking area; (4) discarding all leased area, reducing herd size to 370 cows and reducing stocking rate; and (5) converting 127 ha of non-milking leased area to milking area, discarding all other lease arrangements and reducing stocking rate. Mean ± standard deviation of nominal owner’s equity at the end of Year 10 was

Evaluating the economics of concentrate feeding decisions in grazing dairy cows

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Expanding a dairy business affects business and financial risk

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Supplementary feeding options to alleviate the impacts of decreased water availability on dairy-farm economic performance in northern Victoria

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