IDEAS home Printed from https://ideas.repec.org/a/eee/agisys/v124y2014icp1-11.html
   My bibliography  Save this article

Embedded risk management in dryland sheep systems II. Risk analysis

Author

Listed:
  • Gicheha, M.G.
  • Edwards, G.R.
  • Bell, S.T.
  • Burtt, E.S.
  • Bywater, A.C.

Abstract

Climatic variability is a major constraint to improved productivity and profitability in dryland grazing systems. This paper reports the physical and economic benefits obtained from incorporating tactical responses in risk management strategies for dryland sheep production systems constrained by climatic variability. A total of 112 potential risk management strategy:response combinations were evaluated using the simulation model LincFarm. The strategies differed in stocking rate (SR; stock units (SU) ha−1), pasture type (legume or grass-based system), and stock classes. All strategies were evaluated at 10, 12, 14 or 16 SR, first without tactical responses and then with responses triggered when soil moisture levels fell to 10.0%, 12.5% or 15.0% in the top 25cm soil. The results show that all strategies including tactical adjustments to management and marketing were economically superior to those that did not vary tactically. The difference in average returns between the best strategy with tactical responses and the best without is $336.04ha−1 year−1, an increase of 40%. The value of including tactical responses in corresponding strategies ranged between 2.98% and 37.32%. This was in addition to tactical responses decreasing the variability of returns by between 19.74% and 67.38%. The combination of risk and return defines a risk-efficient frontier on which any individual farmer should find an optimal strategy which reflects their risk attitude. By including tactical adjustments additional strategies become risk-efficient and the number on the frontier increased from 5 to 11. Comparing the two sets of strategies showed that failure to incorporate tactical adjustments may result in sub-optimal risk management strategies being chosen whereas failure to accommodate risk attitude may change the strategy chosen, but not necessarily to one that is sub-optimal. The results suggest conventional ryegrass:clover pastures are risk efficient when management is aggressive (high stocking rate and later climate response) and that either conventional pasture systems or those with high nutritive value species are superior when management is more conservative. In all cases, retaining a proportion of flexible stock classes such as 2year old cattle or a mob of older ewes is essential. The results also emphasise the importance of maintaining high pasture quality to ensure fast lamb growth rates and early drafting.

Suggested Citation

  • Gicheha, M.G. & Edwards, G.R. & Bell, S.T. & Burtt, E.S. & Bywater, A.C., 2014. "Embedded risk management in dryland sheep systems II. Risk analysis," Agricultural Systems, Elsevier, vol. 124(C), pages 1-11.
    • Handle: RePEc:eee:agisys:v:124:y:2014:i:c:p:1-11
    DOI: 10.1016/j.agsy.2013.05.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0308521X13000553
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.agsy.2013.05.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Hardaker, J. Brian & Lien, Gudbrand D., 2003. "Stochastic Efficiency Analysis With Risk Aversion Bounds: A Simplified Approach," Working Papers 12954, University of New England, School of Economics.
    2. Diaz-Solis, H. & Kothmann, M. M. & Hamilton, W. T. & Grant, W. E., 2003. "A simple ecological sustainability simulator (SESS) for stocking rate management on semi-arid grazinglands," Agricultural Systems, Elsevier, vol. 76(2), pages 655-680, May.
    3. Marshall, Graham R. & Jones, Randall E. & Wall, Lisa M., 1997. "Tactical Opportunities, Risk Attitude and Choice of Farming Strategy: an Application of the Distribution Method," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 41(4), pages 1-21.
    4. John M. Antle, 1983. "Sequential Decision Making in Production Models," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 65(2), pages 282-290.
    5. Hardaker, J. Brian & Pandey, Sushil & Patten, Louise H., 1991. "Farm Planning under Uncertainty: A Review of Alternative Programming Models," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 59(01), pages 1-14, April.
    6. Cacho, O. J. & Bywater, A. C. & Dillon, J. L., 1999. "Assessment of production risk in grazing models," Agricultural Systems, Elsevier, vol. 60(2), pages 87-98, May.
    7. Dorward, Andrew, 1999. "Modelling embedded risk in peasant agriculture: methodological insights from northern Malawi," Agricultural Economics, Blackwell, vol. 21(2), pages 191-203, October.
    8. Antle, John M., 1983. "Sequential Decision Making in Production Models," 1983 Annual Meeting, July 31-August 3, West Lafayette, Indiana 279107, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    9. Kay, Ronald D. & Edwards, William M., 1999. "Farm Management: Instructor's Manual," Staff General Research Papers Archive 1373, Iowa State University, Department of Economics.
    10. Mjelde, James W. & Dixon, Bruce L. & Sonka, Steven T., 1989. "Estimating The Value Of Sequential Updating Solutions For Intrayear Crop Management," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 14(1), pages 1-8, July.
    11. Robert W. Jolly, 1983. "Risk Management in Agricultural Production," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 65(5), pages 1107-1113.
    12. Kingwell, R. S., 1994. "Risk attitude and dryland farm management," Agricultural Systems, Elsevier, vol. 45(2), pages 191-202.
    13. Dorward, Andrew, 1994. "Farm Planning with Resource Uncertainty: A Semi-sequential Approach," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 21(2), pages 309-324.
    14. Jolly, Robert W., 1983. "Risk Management in Agricultural Production," Staff General Research Papers Archive 11459, Iowa State University, Department of Economics.
    15. Diaz-Solis, H. & Kothmann, M.M. & Grant, W.E. & De Luna-Villarreal, R., 2006. "Use of irrigated pastures in semi-arid grazinglands: A dynamic model for stocking rate decisions," Agricultural Systems, Elsevier, vol. 88(2-3), pages 316-331, June.
    16. Cacho, O. J. & Finlayson, J. D. & Bywater, A. C., 1995. "A simulation model of grazing sheep: II. Whole farm model," Agricultural Systems, Elsevier, vol. 48(1), pages 27-50.
    17. Kingwell, Ross S. & Pannell, David J. & Robinson, Stephen D., 1993. "Tactical responses to seasonal conditions in whole-farm planning in Western Australia," Agricultural Economics, Blackwell, vol. 8(3), pages 211-226, March.
    18. Pannell, David J. & Malcolm, Bill & Kingwell, Ross S., 1995. "Are We Risking Too Much? Perspectives on Risk in Farm Modelling and Farm Management," 1995 Conference (39th), February 14-16, 1995, Perth, Australia 171063, Australian Agricultural and Resource Economics Society.
    19. Finlayson, J. D. & Cacho, O. J. & Bywater, A. C., 1995. "A simulation model of grazing sheep: I. Animal growth and intake," Agricultural Systems, Elsevier, vol. 48(1), pages 1-25.
    20. Kay, Ronald D. & Edwards, William M., 1999. "Farm Management," Staff General Research Papers Archive 1374, Iowa State University, Department of Economics.
    21. Pannell, David J. & Malcolm, Bill & Kingwell, Ross S., 2000. "Are we risking too much? Perspectives on risk in farm modelling," Agricultural Economics, Blackwell, vol. 23(1), pages 69-78, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Andrieu, Nadine & Descheemaeker, Katrien & Sanou, Thierry & Chia, Eduardo, 2015. "Effects of technical interventions on flexibility of farming systems in Burkina Faso: Lessons for the design of innovations in West Africa," Agricultural Systems, Elsevier, vol. 136(C), pages 125-137.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Marshall, Graham R. & Jones, Randall E. & Wall, Lisa M., 1997. "Tactical Opportunities, Risk Attitude and Choice of Farming Strategy: an Application of the Distribution Method," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 41(4), pages 1-21.
    2. Musshoff, Oliver & Hirschauer, Norbert, 2007. "What benefits are to be derived from improved farm program planning approaches? - The role of time series models and stochastic optimization," Agricultural Systems, Elsevier, vol. 95(1-3), pages 11-27, December.
    3. Andrew Dorward, 1999. "Modelling embedded risk in peasant agriculture: methodological insights from northern Malawi," Agricultural Economics, International Association of Agricultural Economists, vol. 21(2), pages 191-203, October.
    4. Behrendt, Karl & Cacho, Oscar & Scott, James M. & Jones, Randall, 2016. "Using seasonal stochastic dynamic programming to identify optimal management decisions that achieve maximum economic sustainable yields from grasslands under climate risk," Agricultural Systems, Elsevier, vol. 145(C), pages 13-23.
    5. Gicheha, M.G. & Edwards, G.R. & Bell, S.T. & Bywater, A.C., 2014. "Embedded risk management in dryland sheep systems I. Field results and development of a destocking algorithm," Agricultural Systems, Elsevier, vol. 124(C), pages 12-20.
    6. David Boussios & Paul V. Preckel & Yigezu A. Yigezu & Prakash N. Dixit & Samia Akroush & Hatem Cheikh M'hamed & Mohamed Annabi & Aden Aw‐Hassan & Yahya Shakatreh & Omar Abdel Hadi & Ayed Al‐Abdallat &, 2019. "Modeling producer responses with dynamic programming: a case for adaptive crop management," Agricultural Economics, International Association of Agricultural Economists, vol. 50(1), pages 101-111, January.
    7. Kingwell, Ross, 1996. "Programming models of farm supply response: The impact of specification errors," Agricultural Systems, Elsevier, vol. 50(3), pages 307-324.
    8. Kingwell, Ross S., 1992. "The Tactics of Dryland Farm Management given Variance in Climate and Prices," 1992 Conference (36th), February 10-13, 1992, Canberra, Australia 146536, Australian Agricultural and Resource Economics Society.
    9. Monjardino, M. & McBeath, T. & Ouzman, J. & Llewellyn, R. & Jones, B., 2015. "Farmer risk-aversion limits closure of yield and profit gaps: A study of nitrogen management in the southern Australian wheatbelt," Agricultural Systems, Elsevier, vol. 137(C), pages 108-118.
    10. Mullen, John D., 2001. "An Economic Persective On Land Degradation Issues," Research Reports 27999, New South Wales Department of Primary Industries Research Economists.
    11. Pannell, David J. & Malcolm, Bill & Kingwell, Ross S., 2000. "Are we risking too much? Perspectives on risk in farm modelling," Agricultural Economics, Blackwell, vol. 23(1), pages 69-78, June.
    12. Flaten, O. & Lien, G., 2007. "Stochastic utility-efficient programming of organic dairy farms," European Journal of Operational Research, Elsevier, vol. 181(3), pages 1574-1583, September.
    13. Musshoff, Oliver & Hirschauer, Norbert, 2008. "Sophisticated Program Planning Approaches Generate Large Benefits in High Risk Crop Farming," 82nd Annual Conference, March 31 - April 2, 2008, Royal Agricultural College, Cirencester, UK 36865, Agricultural Economics Society.
    14. Monjardino, Marta & McBeath, T. & Brennan, Lisa E. & Llewellyn, Rick S., 2012. "Are farmers in low-rainfall cropping regions under-fertilizing? An Australian case-study," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 124976, International Association of Agricultural Economists.
    15. Ridier, Aude & Chaib, Karim & Roussy, Caroline, 2016. "A Dynamic Stochastic Programming model of crop rotation choice to test the adoption of long rotation under price and production risks," European Journal of Operational Research, Elsevier, vol. 252(1), pages 270-279.
    16. Farquharson, Robert J. & Scott, J. Fiona, 2000. "Analysis of Farming Systems Issues in the Northern Cropping Region of NSW," 2000 Conference (44th), January 23-25, 2000, Sydney, Australia 123644, Australian Agricultural and Resource Economics Society.
    17. Flaten, Ola & Lien, Gudbrand D., 2005. "Stochastic Utility-Efficient Programming of Organic Dairy Farms," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24743, European Association of Agricultural Economists.
    18. Girard, N. & Hubert, B., 1999. "Modelling expert knowledge with knowledge-based systems to design decision aids : The example of a knowledge-based model on grazing management," Agricultural Systems, Elsevier, vol. 59(2), pages 123-144, February.
    19. Monjardino, Marta & McBeath, T. & Brennan, Lisa E. & Llewellyn, Rick S., 2012. "Revisiting N fertilisation rates in low-rainfall grain cropping regions of Australia: A risk analysis," 2012 Conference (56th), February 7-10, 2012, Fremantle, Australia 124339, Australian Agricultural and Resource Economics Society.
    20. Antle, John M. & Capalbo, Susan Marie & Crissman, Charles C., 1994. "Econometric Production Models With Endogenous Input Timing: An Application To Ecuadorian Potato Production," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 19(1), pages 1-18, July.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:agisys:v:124:y:2014:i:c:p:1-11. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/agsy .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.