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Australian Agricultural and Resource Economics Society >
2007 Conference (51st), February 13-16, 2007, Queenstown, New Zealand >
Please use this identifier to cite or link to this item:
http://purl.umn.edu/10442
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| Title: | Improved Program Planning Approaches Generates Large Benefits in High Risk Crop Farming |
| Authors: | Musshoff, Oliver
Hirschauer, Norbert |
| Keywords: | production program planning
optimization
uncertainty
static distributions
stochastic processes |
| JEL Codes: | C1
C61
M11
Q12 |
| Issue Date: | 2007 |
| Series/Report no.: | Conference Paper |
| Abstract: | This paper examines whether there is room for the improvement of farm program decisions
through the incorporation of mathematical optimization in the practical planning process. Probing
the potential for improvement, we investigate the cases of four German cash crop farms over the
last six years. The formal planning approach includes a systematic time series analysis of farmspecific
single gross margins and a stochastic optimization model. In order to avoid solutions that
simply exceed the farmer's risk tolerance, the apparently accepted variance of the observed program's
total gross margin which represents an observable reflection of the individual farmer's risk
attitude is used as an upper bound in the optimization. For each of the 24 planning occasions, the
formal model is used in a quasi ex-ante approach that provides optimized alternative programs.
The total gross margins that could have been realized if the formally optimized programs had been
implemented are then ex-post compared to those that were actually realized. We find that the farmers
could have increased their total gross margins significantly if - instead of using simple routines
and rules of thumb - they had used the more sophisticated formal planning model. However, we
also find that the superiority of formalized planning approaches depends on the quality of statistical
analysis and the resulting forecasting model. Using our approach for practical decision support implies
that farmers first specify their "own" production programs without the formal planning aid.
Then, an alternative program can be provided which leads to superior expected total gross margins
without exceeding the farmer's accepted total gross margin variance. |
| URI: | http://purl.umn.edu/10442 |
| Institution/Association: | Australian Agricultural and Resource Economics Society - 2007>2007 Conference (51st), February 13-16, 2007, Queenstown, New Zealand |
| Total Pages: | 34 |
| Language: | English |
| Collections: | 2007 Conference (51st), February 13-16, 2007, Queenstown, New Zealand
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| cp07mu01.pdf | 140Kb | PDF | View/Open |
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