Economic and productive risk analysis in livestock systems

Risk studies in agricultural companies recognize five main sources: institutional, personal, financial, productive and markets. The present work will be limited to studying the effects on the annual income of livestock systems from the last two sources. In a simplified approach, risk is considered to be obtaining an economic result that is insufficient to cover a critical amount for the normal performance and evolution of the system and the sustainability of the producing family. The questions that are intended to be answered are, given changing price and yield scenarios, what are the probabilities that the system does not guarantee a sufficient operating result to cover these values? How often does it “fall” below them? What is the intensity of the loss on each occasion? To answer these questions, two breeding systems located in “Cuña Boscosa” (Santa Fe province, Argentina) and in “Cuenca del Salado” (Buenos Aires province, Argentina) were analyzed. They were described in their structural components (number of production factors used and their valuation) and technological (management, health, food, marketing, etc.). Physical and economic results were estimated for a given current situation, in a deterministic analysis. For the stochastic analysis, the variables with the greatest power in the definition of results were identified, to which a probability distribution was assigned to represent their real variations. They were weaning (in percentage, triangular distribution, with parameters 46;53;64 for Santa Fe and 61;65;72 for Buenos Aires), calf weight (kg/head, triangular distribution, with parameters 170;180; 190 for Santa Fe and 160;170;180 for Buenos Aires) and its price (US$/kg, truncated normal distribution, with parameters 2.57; 0.30;2.30;2.70 for Santa Fe and 2.78;0.20;2.23;2.72 for Buenos Aires). The sales weights of cows and bulls are treated as fixed. The sales weights of other categories are correlated with the triangular distribution of the variable "Calf Weight". The prices of all categories are correlated with the variable "calf price". 100 iterations were carried out and 100 Operational Results were obtained. For these simulations, the Monte Carlo method was applied, through the use of the Excel plugin, Simulation 5.0, developed by José Ricardo Varela. A critical financial level was defined. It establishes a minimum annual amount that satisfies family consumption. In this work, the value was rounded to US$ 10,000. The other four critical levels are of an economic nature (economic critical levels) and are being added for exploratory purposes. First, the probability that the system will not cover the depreciation of its capital assets (decapitalization); then remuneration for family work was added (decapitalization + family work). Subsequently, an amount was added to compensate the capital invested in improvements and exploitation (decapitalization + family work + interest). Finally, an amount was added to cover a positive rent to the land (decapitalization + family work + interest + land rent). The (real) rate used for these last two critical levels was 3%. Two indicators were calculated for each critical level. First, the frequency with which the operating result is less than the critical level; This indicator was called the Risk Frequency Index (RFI) and was categorized as "low", "medium" and "high". The second dimension of risk is the magnitude of the loss, which represents how much is lost each time it is lost. This indicator was called Risk Intensity Index (RII); measures the average drop in income with respect to the critical level considered. Two qualitative categories are established: “low” and “high”. With both indicators, a double-entry matrix was built that allowed establishing the system's risk typology. The results indicated that there are practically no differences from the location of the fields. The critical financial level (family consumption) did not figure as a risk possibility. Meanwhile, level 1 (decapitalization), manifested "low" risk for the establishment of Santa Fe and "no risk" for that of Buenos Aires; Both level 2 (decapitalization + family work) and level 3 (decapitalization + family work + interest on capital) showed medium risk and, finally, level 4 (decapitalization + family work + interest on capital + land income) showed risk "high". The resulting conclusion is that the two systems are low risk, at least given the variations of the analyzed sources, prices and production. None presents negative results, which would imply situations of bankruptcy or debt generation, whether commercial, banking or fiscal, since the risk is measured from the operating result. The critical financial level, although it is the most subjective of all (it does not depend on the system itself, but on the family composition, the stage in which it is, tastes and preferences, among other factors), does not reported risk situations. The same situation occurred for the critical level “decapitalization”. When the remuneration of family work and the payment of interest are required, in addition to the decapitalization, the risk is medium, while there are high risk situations to cover the critical level that accumulates the payment of all factors. In the comparison with other studies carried out in previous cycles for livestock systems of the Argentinean northeast (NEA), these systems show a better performance, promoting the hypothesis -and the question- of what would happen in the event of lower livestock price scenarios than those of the analyzed cycle (2021/22).