Optimization of Agricultural Resource Allocation among Crops: A Portfolio Model Analysis

Abstract

The portfolio model provides a new framework that enables farmers to make tradeoffs between the returns and risks of agricultural production. However, it has only been used in cost allocation among resources and in farmland allocation among crops at present. Thus, we conducted a portfolio model analysis based on an independent, mixed cross-section of data accounting for 1650 rural households in Minqin county, China, over a timescale of three years; the goal was to explore the feasibility and actuating extent of the portfolio model in optimizing the allocation of agricultural resources among crops other than farmland. The results showed that, by optimizing resource allocation among crops using a portfolio model, the return per unit resource of farmland, water, and labor increased by CNY 4.03 thousand per hectare, CNY 0.38 per cubic meter, and CNY 39.75 per day, without increasing risk, and with corresponding increases in use efficiency of 14.64%, 9.25%, and 13.55%, respectively, in the study area. Therefore, the portfolio model is a good tool for agricultural resource allocation optimization. Policy makers can manage agricultural resources according to their risk preference using this model. This study provides new insights into agricultural resource allocation and critical empirical evidence for return and risk management, as well as resource use efficiency improvement in agricultural production.