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Cropping in low-rainfall regions can be risky business. Farms are often characterized by high climatic and spatial variability, while input prices, particularly nitrogen (N) fertilisers, are rising steadily relative to grain prices. Consequently, in anticipation of having a poor season, farmers minimize downside-risk, which is perceived as far more likely than upside gain in such risky environments, by applying fixed low rates of N to their cereal crops. However, farmers might benefit from using higher fertiliser rates and adjusting the rate of N fertiliser applied during the growing season, because if seasons are favourable the crop demands more nutrients. Using a combination of crop simulation, probability theory, profit function and finance techniques to quantify the trade-offs between magnitude and variability in net returns, we found that the use of higher N rates (relative to the region’s average) can reduce risk in a highly variable dryland environment like the Mallee region in south-eastern Australia. Overall, typically risk-averse Mallee farmers with low starting N seem likely to benefit from increasing their N rates to up to 60 kg N ha-1 from the 15 kg N ha-1 currently applied, with less risk-averse farmers being likely do this by adopting a more tactical approach to N fertilisation.


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