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Establishing a Risk Profile for New Zealand Pastoral Farms

Author

Listed:
  • Miles Grafton

    (Agriculture and Horticulture, Massey University, Palmerston North 4410, New Zealand)

  • Michael Manning

    (Ravensdown Ltd., Hornby, Christchurch 8140, New Zealand)

Abstract

In this paper, the risk profile of two pastoral production systems in New Zealand are examined. All farmers must manage and mitigate a multitude of risks. Traditionally, a farm budget is solely undertaken to satisfy a lending institution. Limited variance analysis takes place, usually for output prices and inputs such as: interest rates, energy costs, and fertiliser. The authors of this paper use “@Risk”, a risk profiling plug-in tool for Microsoft Excel to demonstrate how farm budgets can be more relevant to farmers. Many risk factors that affect farm financial performance, such as climate and commodity prices, are not controlled by the farmer. Wet summers help hill country sheep and beef pastoral farmers, as more grass growth occurs, which thereby reduces the cost of production and increases revenue, as more stock is finished. Whereas in drought years income falls as stock must be sold prior to finishing, in severe droughts capital stock may also be sold. Input costs also rise as pasture weed invasion occurs; health issues such as rye grass staggers may also add cost. Monte Carlo simulations on model farm budgets for a North Island sheep and beef property and a Canterbury dairy farm help demonstrate the risk profile of each farm type.

Suggested Citation

  • Miles Grafton & Michael Manning, 2017. "Establishing a Risk Profile for New Zealand Pastoral Farms," Agriculture, MDPI, vol. 7(10), pages 1-12, September.
    • Handle: RePEc:gam:jagris:v:7:y:2017:i:10:p:81-:d:112891
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    References listed on IDEAS

    as
    1. H. Douglas Jose & Ram S. K. Valluru, 1997. "Insights from the Crop Insurance Reform Act of 1994," Agribusiness, John Wiley & Sons, Ltd., vol. 13(6), pages 587-598.
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