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Improved program planning with formal models? The case of high risk crop farming in Northeast Germany

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  • Oliver Mußhoff
  • Norbert Hirschauer

Abstract

In this paper we explore whether the incorporation of systematic time series analyses and mathematical optimization procedures in the practical planning process has the potential to improve production program decisions. The cases of four German cash crop farms are investigated over six planning periods. In order to avoid solutions that simply exceed the farmer’s risk tolerance, the apparently accepted variance of the observed program’s total gross margin is used as an upper bound in the optimization. For each of the 24 planning occasions, the formal model is used to generate optimized alternative programs. The total gross margins that could have been realized if the formally optimized programs had been implemented are then compared to those that were actually realized. We find that the farmers could have increased their total gross margins significantly if—instead of using simple routines and rules of thumb—they had used adequate methods of statistical analysis combined with the formal optimization model. Copyright Springer-Verlag 2007

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  • Oliver Mußhoff & Norbert Hirschauer, 2007. "Improved program planning with formal models? The case of high risk crop farming in Northeast Germany," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 15(2), pages 127-141, June.
    • Handle: RePEc:spr:cejnor:v:15:y:2007:i:2:p:127-141
    DOI: 10.1007/s10100-007-0022-2
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    References listed on IDEAS

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    1. Rulon D. Pope, 2003. "Agricultural Risk Analysis: Adequacy of Models, Data, and Issues," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(5), pages 1249-1256.
    2. Adams, Richard M. & Menkhaus, Dale J. & Woolery, Bruce A., 1980. "Alternative Parameter Specification In E, V Analysis: Implications For Farm Level Decision Making," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 5(1), pages 1-8, July.
    3. Darren Hudson & Keith Coble & Jayson Lusk, 2005. "Consistency of risk premium measures," Agricultural Economics, International Association of Agricultural Economists, vol. 33(1), pages 41-49, July.
    4. 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.
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    Cited by:

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    2. Jitka Janová, 2012. "Crop planning optimization model: the validation and verification processes," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 20(3), pages 451-462, September.
    3. Hutchings, Timothy R. & Nordblom, Thomas L., 2011. "A financial analysis of the effect of the mix of crop and sheep enterprises on the risk profile of dryland farms in south-eastern Australia," AFBM Journal, Australasian Farm Business Management Network, vol. 8(1), pages 1-23, October.

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    More about this item

    Keywords

    Production program planning; Optimization; Risk; Time series analysis; C1; C61; M11; Q12;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • M11 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Production Management
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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