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Stochastic Optimization: An Application to Sub-Arctic Dairy Farming

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  • Asheim, Leif Jarle
  • Richardson, James W.
  • Schumann, Keith D.
  • Feldman, Paul A.

Abstract

The paper demonstrates how a deterministic farm linear programming (LP) model can be made stochastic and simulated using Solver and Simetar© in Excel©. The demonstration is conducted with an LP-model for a dairy farm for a sub arctic region of Norway. The income risks arising from variation in milk and crop yields due to winter damage in leys and pastures have been quantified for farms demonstrating low, medium and high forage yield risk. The estimated distribution of farm profit will be skewed to the left, indicating a downside risk. In the presence of risks, farmers maximize income by producing the milk quota with using surplus forage for meat production. The analysis demonstrated here may assist farmers and farm managers in improving sensitivity analysis for risky variables in farm LP models.

Suggested Citation

  • Asheim, Leif Jarle & Richardson, James W. & Schumann, Keith D. & Feldman, Paul A., 2005. "Stochastic Optimization: An Application to Sub-Arctic Dairy Farming," 15th Congress, Campinas SP, Brazil, August 14-19, 2005 24253, International Farm Management Association.
    • Handle: RePEc:ags:ifma05:24253
    DOI: 10.22004/ag.econ.24253
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    Keywords

    Livestock Production/Industries;

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