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A longitudinal examination of business performance indicators for drought-affected farms

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  • Lawes, R.A.
  • Kingwell, R.S.
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    Abstract

    Frequent severe droughts can financially cripple dryland farm businesses and farmers need effective business strategies to survive. This study analysed the economic performance of 123 farms in a rainfed agricultural region of Australia from 2004 to 2009, a period that included severe droughts in 2006 and 2007. The business indicators examined were business equity, operating profit/ha, return on capital, and the debt to income ratio and the droughts altered these indicators for many of the farms surveyed. Over the study period the equity position of just over 60% of farms declined, although 55% of these had more than 80% equity in the business initially and were able to absorb a short term decline in equity caused by the drought. In addition, 9% of farms had levels of equity below 80% at the start of the investigation, but actually improved their equity position by the end of the study. Strong links were found between wheat yield and the business indicators. Mostly this was due to the crop dominant nature of the farm businesses where wheat was by far the main crop. However, farms that were able to capitalise on favourable conditions in other years were better placed to enhance or recover their financial position. Farms that cropped a higher proportion of their farm area were at an advantage. Structural indicators, including the percentage of area cropped, had a small but significant effect on the debt to income ratio, the return on capital and operating profit. Farm diversity also favourably lessened the debt to income ratio. Other factors, including farm size did not influence the outcome of any business indicator. Farms that remained resilient, despite the serious droughts were those that cropped more than 50% of their farm area, were prudent in their expenditure, maintained some enterprise diversity and often generated wheat yields in each year that were near the yield potential for that year.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0308521X11001569
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    Bibliographic Info

    Article provided by Elsevier in its journal Agricultural Systems.

    Volume (Year): 106 (2012)
    Issue (Month): 1 ()
    Pages: 94-101

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    Handle: RePEc:eee:agisys:v:106:y:2012:i:1:p:94-101

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    Web page: http://www.elsevier.com/locate/agsy

    Related research

    Keywords: Drought; Farm business indicators; Wheat yield; Farming systems; Resilience;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Productivity Commission, 2005. "Trends in Australian Agriculture," Research Papers 0502, Productivity Commission, Government of Australia.
    2. Sheng, Yu & Zhao, Shiji & Nossal, Katarina, 2011. "Productivity and farm size in Australian agriculture: reinvestigating the returns to scale," 2011 Conference (55th), February 8-11, 2011, Melbourne, Australia 100711, Australian Agricultural and Resource Economics Society.
    3. Westhoff, Patrick C., 2008. "Farm Commodity Prices: Why the Boom and What Happens Now?," Choices, Agricultural and Applied Economics Association, vol. 23(2).
    4. von Braun, Joachim & Torero, Maximo, 2009. "Exploring the Price Spike," Choices, Agricultural and Applied Economics Association, vol. 24(1).
    5. Stephens, David J., 1998. "Objective criteria for estimating the severity of drought in the wheat cropping areas of Australia," Agricultural Systems, Elsevier, vol. 57(3), pages 333-350, July.
    6. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-36, May-June.
    7. Ben Edwards & Matthew Gray & Boyd Hunter, 2009. "A Sunburnt Country: The Economic and Financial Impact of Drought on Rural and Regional Families in Australia in an Era of Climate Change," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 12(1), pages 108-131, March.
    8. Irwin, Scott H. & Good, Darrel L., 2009. "Market Instability in a New Era of Corn, Soybean, and Wheat Prices," Choices, Agricultural and Applied Economics Association, vol. 24(1).
    9. Kingwell, Ross S., 2011. "Revenue volatility faced by Australian wheat farmers," 2011 Conference (55th), February 8-11, 2011, Melbourne, Australia 100572, Australian Agricultural and Resource Economics Society.
    10. Anonymous, 2005. "Trends in Australian Agriculture," Commission Research Papers 31903, Productivity Commission.
    11. Ross Kingwell, 2011. "Managing complexity in modern farming," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 55(1), pages 12-34, 01.
    12. Kingwell, Ross & Farré, Imma, 2009. "Climate change impacts on investment in crop sowing machinery," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 53(2), June.
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    Cited by:
    1. Z. Whitman & T. Wilson & E. Seville & J. Vargo & J. Stevenson & H. Kachali & J. Cole, 2013. "Rural organizational impacts, mitigation strategies, and resilience to the 2010 Darfield earthquake, New Zealand," Natural Hazards, International Society for the Prevention and Mitigation of Natural Hazards, vol. 69(3), pages 1849-1875, December.
    2. Browne, Natalie & Kingwell, Ross & Behrendt, Ralph & Eckard, Richard, 2013. "The relative profitability of dairy, sheep, beef and grain farm enterprises in southeast Australia under selected rainfall and price scenarios," Agricultural Systems, Elsevier, vol. 117(C), pages 35-44.
    3. Martínez-Alvarez, V. & García-Bastida, P.A. & Martin-Gorriz, B. & Soto-García, M., 2014. "Adaptive strategies of on-farm water management under water supply constraints in south-eastern Spain," Agricultural Water Management, Elsevier, vol. 136(C), pages 59-67.
    4. Pacín, Fernando & Oesterheld, Martín, 2014. "In-farm diversity stabilizes return on capital in Argentine agro-ecosystems," Agricultural Systems, Elsevier, vol. 124(C), pages 51-59.

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