Reducing Risk by Diversifying Rangeland Income

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Reducing Risk by Diversifying Rangeland Income

• Paul Moloney, RMIT University
• Prof. John Hearne, RMIT University
• Prof. Iain Gordon, CSIRO
• Dr. Steven McLeod, DPI NSW

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Outline

• Introduction to problem
• Resilience of the farm
• The current situation
• Possible diversification
• Modelling the ecosystem
• Modelling the finances
• Risk Analysis
• Summary

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Introduction to the Problem

• Increasing numbers and/or severity of droughts,
  floods and land degradation are of significant
  concern to pastoralists.
• Farming practises, and therefore farms, need to
  be more resilient to extreme weather conditions
  and degradation.
• Income variability needs to be mitigated.
• One possible answer is to diversify the
  commodities a farm produces.

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Resilience of the farm

• It is hoped that though diversification will
  increase resilience in several ways
• Aggregation of price fluctuations,
• Lowering total grazing pressure,
• Quicker recovery from extreme weather events,
• Minimise/reverse land degradation.

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The current situation

• Many farms in the rangelands have one species
  stocked, usually sheep or cattle.
• Kangaroos and feral goats are seen as pests to be
  eradicated.
• Harvesters are allowed entry to farms to cull
  kangaroos with no return to the farmer.
• Some farmers are starting to farm feral goats.

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Possible diversification

• Farming of (feral) goats for the increased demand
  of goat meat in Australia and internationally.
• Development of kangaroo farming for their
  leather and meat.
• Tree plantations as carbon sinks (not modelled).

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Modelling the ecosystem

• The modelling has been split, to some degree,
  into two parts, one for the plant and one for the
  herbivores.
• The plant modelling will be handled by a well
  established model known as GRASP.
• The herbivore model has been developed for this
  application and will be discussed in some detail.

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The herbivore model

• We have chosen to use a continuous model which
  tracks each group, given by species, gender and
  age.
• This will help with the models responsiveness to
  the variable environmental condition of the
  rangelands.
• It monitors the number of the herbivores as well
  as their mean weight, condition, mortality and
  fecundity.

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Modelling the finances

• The financial aspect of this model using
  portfolio optimisation techniques.
• Traditionally used to help select the type and
  quantity of investments to be made so as to
  minimise variation in returns.
• Comparing expected gain and the risk associated
  with each investment, an optimal purchasing
  strategy is calculated to minimise risk given the
  clients desired return.

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Traditional portfolio visualisation
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Portfolio selection for mixed grazing

• Using the ecosystem model we can simulate
  possible scenarios, allowing for the effect of
  various factors, including the weather, stocking
  rates and management strategies.
• Available forage and livestock are analogous to
  the available funds and the shares.

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Portfolio selection for mixed grazing

• The returns to the farmer come in two parts, the
  net present value of their livestock and lands as
  well as the commodities they produce and sell and
  both need to be taken into account.
• The farmer has control, they choose the minimum
  average return and therefore the risk they are
  willing to take.

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Grazing portfolio visualisation
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Risk analysis

• From these simulation, which will account for
  random fluctuations and events we can construct a
  risk-return curve per hectare or efficiency
  frontier.
• The efficiency frontier will give an optimal
  mixed grazing strategy related to the average
  return versus the amount of risk the farmer is
  willing to accept.

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Hypothetical efficiency frontier
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Summary

• It is hoped that, with this research, we can
  develop
• a tool which will enable farmers to choose a
  strategy that reduces their risk, by mitigating
  the variability in income,
• a better understanding of sustainable use of
  wildlife.