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Farmer risk-aversion limits closure of yield and profit gaps: A study of nitrogen management in the southern Australian wheatbelt

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  • Monjardino, M.
  • McBeath, T.
  • Ouzman, J.
  • Llewellyn, R.
  • Jones, B.

Abstract

Nitrogen (N) is the most limiting nutrient in cereal crop production and is an important requirement in closing the gap between potential and achieved water limited yield. However, N fertiliser management in broadacre cereal cropping can be risky for farmers operating in dryland regions because of variability of rainfall and price. Farmers typically respond to this situation by making risk-averse decisions that are neither yield- nor profit-maximising. Here we use a set of case-study sites across the southern Australian wheatbelt to examine the risk-return profile of a range of N management options and show the extent to which the economics of N fertiliser decisions and the farmers' attitude to risk can determine N rates in a way that limits closure of yield gaps. Using a risk-return framework that incorporates crop simulation response to N application, probability theory, finance techniques, and risk-aversion analysis, we were able to better demonstrate how farmers might select N management practices that manage the trade-off between maximising economic net return and risk exposure using a risk-aversion analysis across four case-study sites.

Suggested Citation

  • Monjardino, M. & McBeath, T. & Ouzman, J. & Llewellyn, R. & Jones, B., 2015. "Farmer risk-aversion limits closure of yield and profit gaps: A study of nitrogen management in the southern Australian wheatbelt," Agricultural Systems, Elsevier, vol. 137(C), pages 108-118.
  • Handle: RePEc:eee:agisys:v:137:y:2015:i:c:p:108-118
    DOI: 10.1016/j.agsy.2015.04.006
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    References listed on IDEAS

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    Cited by:

    1. Holden, S.T. & Quiggin, J., 2018. "Probability Weighting and Fertilizer Use in a State-Contingent Framework," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277355, International Association of Agricultural Economists.
    2. Cann, David J. & Hunt, James R. & Malcolm, Bill, 2020. "Long fallows can maintain whole-farm profit and reduce risk in semi-arid south-eastern Australia," Agricultural Systems, Elsevier, vol. 178(C).
    3. Anderson, Edward & Monjardino, Marta, 2019. "Contract design in agriculture supply chains with random yield," European Journal of Operational Research, Elsevier, vol. 277(3), pages 1072-1082.
    4. Adam M. Komarek, 2018. "Conservation agriculture in western China increases productivity and profits without decreasing resilience," Food Security: The Science, Sociology and Economics of Food Production and Access to Food, Springer;The International Society for Plant Pathology, vol. 10(5), pages 1251-1262, October.
    5. Benjamin Dequiedt & Emmanuel Servonnat, 2016. "Risk as a limit or an opportunity to mitigate GHG emissions? The case of fertilisation in agriculture," Working Papers 1606, Chaire Economie du climat.
    6. Catherine Ragasa & Antony Chapoto, 2017. "Moving in the right direction? The role of price subsidies in fertilizer use and maize productivity in Ghana," Food Security: The Science, Sociology and Economics of Food Production and Access to Food, Springer;The International Society for Plant Pathology, vol. 9(2), pages 329-353, April.
    7. Andrew L. Fletcher & Chao Chen & Noboru Ota & Roger A. Lawes & Yvette M. Oliver, 2020. "Has historic climate change affected the spatial distribution of water-limited wheat yield across Western Australia?," Climatic Change, Springer, vol. 159(3), pages 347-364, April.
    8. Silva, João Vasco & Reidsma, Pytrik & van Ittersum, Martin K., 2017. "Yield gaps in Dutch arable farming systems: Analysis at crop and crop rotation level," Agricultural Systems, Elsevier, vol. 158(C), pages 78-92.
    9. Meyer-Aurich, Andreas & Karatay, Yusuf Nadi, 2019. "Effects of uncertainty and farmers' risk aversion on optimal N fertilizer supply in wheat production in Germany," Agricultural Systems, Elsevier, vol. 173(C), pages 130-139.
    10. Grundy, Michael J. & Bryan, Brett A. & Nolan, Martin & Battaglia, Michael & Hatfield-Dodds, Steve & Connor, Jeffery D. & Keating, Brian A., 2016. "Scenarios for Australian agricultural production and land use to 2050," Agricultural Systems, Elsevier, vol. 142(C), pages 70-83.

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