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Mitigating economic risk from climate variability in rain-fed agriculture through enterprise mix diversification

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  • Kandulu, John M.
  • Bryan, Brett A.
  • King, Darran
  • Connor, Jeffery D.

Abstract

Climate variability, and its increase with climate change, pose substantial economic risks to agriculturalists and hence, limit their ability to respond to global challenges such as food security. Enterprise mix diversification is the most common, and is widely regarded as the most effective, strategy for mitigating multiple sources of short-term economic risk to agricultural enterprises. However, assessments of enterprise mix diversification as a strategy for mitigating climate risks to ensure long term viability of agricultural enterprises are sparse. Using the Lower Murray region in southern Australia as a case study, we combined APSIM modelling with Monte Carlo simulation, probability theory, and finance techniques, to assess the extent to which enterprise mix diversification can mitigate climate-induced variability in long term net returns from rain-fed agriculture. We found that diversification can reduce the standard deviation by up to A$200ha−1, or 52% of mean net returns; increase the probability of breaking even by up to 20%, and increase the mean of 10% of worst probable annual net returns (Conditional Value at Risk) by up to A$100ha−1. We conclude that enterprise mix diversification can also be an effective strategy for hedging against climate-induced economic risk for agriculturalists in marginal areas.

Suggested Citation

  • Kandulu, John M. & Bryan, Brett A. & King, Darran & Connor, Jeffery D., 2012. "Mitigating economic risk from climate variability in rain-fed agriculture through enterprise mix diversification," Ecological Economics, Elsevier, vol. 79(C), pages 105-112.
  • Handle: RePEc:eee:ecolec:v:79:y:2012:i:c:p:105-112
    DOI: 10.1016/j.ecolecon.2012.04.025
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Monjardino, Marta & McBeath, T. & Brennan, Lisa E. & Llewellyn, Rick S., 2012. "Are farmers in low-rainfall cropping regions under-fertilizing? An Australian case-study," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 124976, International Association of Agricultural Economists.
    2. Monjardino, Marta & McBeath, T. & Brennan, Lisa E. & Llewellyn, Rick S., 2012. "Revisiting N fertilisation rates in low-rainfall grain cropping regions of Australia: A risk analysis," 2012 Conference (56th), February 7-10, 2012, Freemantle, Australia 124339, Australian Agricultural and Resource Economics Society.
    3. Kandulu, John M., 2013. "Quantifying the extent to which enterprise mix diversification can mitigate economic risk in rainfed agriculture," Australasian Agribusiness Review, University of Melbourne, Melbourne School of Land and Environment, vol. 21.
    4. Thamo, Tas & Addai, Donkor & Pannell, David J. & Robertson, Michael J. & Thomas, Dean T. & Young, John M., 2017. "Climate change impacts and farm-level adaptation: Economic analysis of a mixed cropping–livestock system," Agricultural Systems, Elsevier, vol. 150(C), pages 99-108.
    5. Zhou, Li & Turvey, Calum G., 2014. "Climate change, adaptation and China's grain production," China Economic Review, Elsevier, vol. 28(C), pages 72-89.
    6. repec:eee:forpol:v:83:y:2017:i:c:p:199-209 is not listed on IDEAS
    7. 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.
    8. Herr, Alexander & Braid, Andrew & Carter, John & McIvor, John & Murphy, Helen T & O’Connell, Deborah & Raisbeck-Brown, Nat & Poole, Michael, 2016. "Cut your grass and eat it too– Is aviation biofuel production and grazing in the Australian tropics possible?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 53(C), pages 1377-1388.
    9. Solomon Zena Walelign, 2016. "Livelihood strategies, environmental dependency and rural poverty: the case of two villages in rural Mozambique," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 18(2), pages 593-613, April.

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