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

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  • Power, Brendan
  • Cacho, Oscar J

Abstract

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.

Suggested Citation

  • Power, Brendan & Cacho, Oscar J, 2014. "Identifying risk-efficient strategies using stochastic frontier analysis and simulation: An application to irrigated cropping in Australia," Agricultural Systems, Elsevier, vol. 125(C), pages 23-32.
    • Handle: RePEc:eee:agisys:v:125:y:2014:i:c:p:23-32
    DOI: 10.1016/j.agsy.2013.11.002
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