NPR - IS A LOW-INPUT STRATEGY A SOUND BUSINESS DEFENCE IN A DRYING CLIMATE?

Abstract:

Attaining farm business success is a major challenge in agricultural regions in Australia where the climate is projected to become drier and more variable represent. Developing effective risk management strategies becomes an important part of farm business management. In these environments the conventional view is often that business success requires the higher yields and higher profits in good years, often supported by additional farm inputs, to offset losses in poorer years.
Some farmers, however, are questioning the merits of this high-risk; high-reward approach. In this paper we draw on a case study of a famer who has adopted a strategy aimed at greatly reducing operating costs in order to self-finance the farm’s operating capital. This way of structuring the management of his farm operation is very different from the traditional small business approach of using bank finance for operating capital. In drying, more volatile environments, on-going reliance on bank finance for operating capital will become increasingly problematic and demand new approaches to funding the balance sheet of the business.
We used farm financial modelling that draws on validated crop growth simulation modelling (APSIM) to assess the merits of this farmer’s low-input approach. When various performance metrics are applied, such as farm profit and peak debt, over a range of seasons the low input business strategy appears to be robust.

Keyword: Climate change; Farm finance; Farm modelling; Farm management; Farm business strategy.