Establishing a risk profile for New Zealand pastoral farms
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Date
2017-09-22
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).
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.
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Keywords
Monte Carlo simulations, risk profiling, frequency distributions, correlations
Citation
AGRICULTURE-BASEL, 2017, 7 (10)