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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 – Part 1

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  • Hutchings, Timothy R.

Abstract

This study presents a method of simulating longer-term cash flows that reflect the cumulative effects of variation in seasons, prices, enterprise sequences and mixes and other management decisions. It can be used to develop full risk profiles on a whole-farm or individual-component enterprise basis for most dryland farms in southern Australia, at gross margin, profit or cash flow levels. This analysis concentrates on the cash flow implications of these various scenarios because cash flow is the indicator which includes all costs, and therefore demonstrates affordability and the long-term viability of the farm business entity. This study shows that the role of sheep in the mixed farming enterprise in south-eastern Australia is to reduce the exposure of the business to the relatively high cash flow variability associated with dryland cropping. In all districts studied, sheep have a cost of production about half that of cropping, and crop margins are more sensitive to rainfall variability. Sheep therefore reduce the risk of loss when compared with continuous cropping.

Suggested Citation

  • Hutchings, Timothy R., 2009. "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 – Part 1," AFBM Journal, Australasian Farm Business Management Network, vol. 6(1).
  • Handle: RePEc:ags:afbmau:121467
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    File URL: http://purl.umn.edu/121467
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    References listed on IDEAS

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    1. Donnelly, J. R. & Freer, M. & Salmon, L. & Moore, A. D. & Simpson, R. J. & Dove, H. & Bolger, T. P., 2002. "Evolution of the GRAZPLAN decision support tools and adoption by the grazing industry in temperate Australia," Agricultural Systems, Elsevier, vol. 74(1), pages 115-139, October.
    2. Keating, B. A. & McCown, R. L., 2001. "Advances in farming systems analysis and intervention," Agricultural Systems, Elsevier, vol. 70(2-3), pages 555-579.
    3. Janssen, Sander & van Ittersum, Martin K., 2007. "Assessing farm innovations and responses to policies: A review of bio-economic farm models," Agricultural Systems, Elsevier, vol. 94(3), pages 622-636, June.
    4. David J. Pannell, 2006. "Flat Earth Economics: The Far-reaching Consequences of Flat Payoff Functions in Economic Decision Making," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 28(4), pages 553-566.
    5. Lien, Gudbrand, 2003. "Assisting whole-farm decision-making through stochastic budgeting," Agricultural Systems, Elsevier, vol. 76(2), pages 399-413, May.
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    Cited by:

    1. Hutchings, T.R., 2013. "Financial risk on dryland farms in south-eastern Australia," Dissertations-Doctoral 204434, AgEcon Search.

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