The relative profitability of dairy, sheep, beef and grain farm enterprises in southeast Australia under selected rainfall and price scenarios

Abstract

Dryland farming and its profitability is directly affected by the amount and timing of rainfall that influence and consequently impacts on pasture and crop yields. Yet rainfall is not the sole determinant of farm enterprise profitability; prices of farm inputs and commodities produced also affect farm profits. This study draws on farm commodity prices and input prices from the past 9years to form correlated price and cost datasets that are then used in examining the profitability of a range of farm enterprises in south eastern Australia under low, average and high rainfall scenarios. Fourteen representative farm enterprises were examined that included the production of Merino fine wool, prime lamb, beef cattle, milk, wheat and canola. The spread of profitability of these farm enterprises against the backdrop of price variability and rainfall scenarios was compared. The results show that profitability of the enterprises studied is currently affected more by changes in rainfall than by commodity prices and that dairy enterprises are the most profitable on a $/ha basis but that the profitability of wheat, steer and prime lamb enterprises are least affected by low rainfall scenarios. The self-replacing cow–calf beef systems, canola and dairy enterprises are the most vulnerable to reduced rainfall and may benefit by reducing profit risk through changes such as expanding the enterprise or diversifying across other types of enterprises. Farm diversification involving combinations of enterprises with negatively correlated profits will enable the variance in farm profits to be reduced. Such actions could form part of farms’ adaptation strategies to climate and price variability.