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Mitigating economic risk from climate variability in rain-fed agriculture through enterprise mix diversification

Version 2 2024-06-04, 10:24
Version 1 2017-08-04, 13:54
journal contribution
posted on 2024-06-04, 10:24 authored by JM Kandulu, Brett BryanBrett Bryan, D King, JD Connor
Climate variability, and its increase with climate change, pose substantial economic risks to agriculturalists and hence, limit their ability to respond to global challenges such as food security. Enterprise mix diversification is the most common, and is widely regarded as the most effective, strategy for mitigating multiple sources of short-term economic risk to agricultural enterprises. However, assessments of enterprise mix diversification as a strategy for mitigating climate risks to ensure long term viability of agricultural enterprises are sparse. Using the Lower Murray region in southern Australia as a case study, we combined APSIM modelling with Monte Carlo simulation, probability theory, and finance techniques, to assess the extent to which enterprise mix diversification can mitigate climate-induced variability in long term net returns from rain-fed agriculture. We found that diversification can reduce the standard deviation by up to A$200ha -1 , or 52% of mean net returns; increase the probability of breaking even by up to 20%, and increase the mean of 10% of worst probable annual net returns (Conditional Value at Risk) by up to A$100ha -1 . We conclude that enterprise mix diversification can also be an effective strategy for hedging against climate-induced economic risk for agriculturalists in marginal areas.

History

Journal

Ecological economics

Volume

79

Pagination

105-112

Location

Amsterdam, The Netherlands

ISSN

0921-8009

Language

eng

Publication classification

C Journal article, C1.1 Refereed article in a scholarly journal

Copyright notice

2012, Elsevier B.V.

Publisher

Elsevier