Mixed farming diversification may be costly: southern Queensland case study

Abstract

Many farmers in Australia and in other countries have a choice of crop or livestock production, and many choose a mixture of both, based on risk preference, personal interests, markets, land resources and local climate. Mixed farming can be a risk-spreading strategy, especially in highly variable climates, but the right scales of each enterprise within the mix may be critical to farm profitability. To investigate expected farm profits, the probability of breaking even, as well as the worst and best case scenarios, we used farm data and APSIM (Agricultural Production Systems Simulator) to simulate the production of a typical, semi-arid, mixed-farm in southern Queensland. Three farming system scenarios were investigated: I, livestock and more intensive cropping; II, current production system of livestock and minimal cropping; and III, livestock only. We found that the expected profits were in the order system I > system III > system II. The key reason for the lower profits of system II was the high overhead cost of capital to continue some cropping, with low annual cropping income. Under the worst case scenario, in years with low rainfall, system I had the greatest downside risk with far greater financial losses. Systems I and III had similar probabilities of breaking even, and higher than system II, which incurs cropping overheads and limited cropping returns. Therefore, system II was less desirable than either system I or III. This case study helps farmers and advisors of semi-arid mixed farming enterprises to be better informed when making decisions at the paddock and whole-farm level, in both the short and long term, with respect to profit and risk. The method used in this paper can be applied to other mixed farms, in Australia and elsewhere.