20Farming Systems in the Northern Cropping Region of NSW: An Economic Analysis Region of NSW: An Economic Analysis

Scott JF, Farquharson RJ and Mullen JD (2004) Farming Systems in the Northern Cropping Region of NSW: An Economic Analysis. Economic Research Report No. 20, NSW Department of Primary Industries, Tamworth.

Executive Summary

This report presents a description of six important crop-based dryland farming systems in the northern cropping region of NSW. The northern cropping region has been described in terms of physical and financial characteristics. The trend in farming practices with respect to tillage, crop rotations and the role of pastures and livestock in recent decades is also described. From discussions with farmer groups and research and advisory staff, six farming systems were identified which differ in crop rotations and in the role of pastures and livestock because of soil and rainfall characteristics. These farming systems have been described in detail and representative farm models have been developed. These models are based on assumptions about the size of a typical farm and other resources such as labour, overhead costs, assets and liabilities and the nature of the cropping rotation used. The whole farm budgets were constructed from these assumptions and from information on enterprise gross margin budgets.

The whole farm budget provides a snapshot of the financial performance at a particular point in time of a farm with a particular set of resources. While the representative farm models presented in this Report may give a broad indication of the financial performance of many farms in the northern cropping zone, they may be misleading for farms with markedly different resources or enterprise rotations to those of the representative farms.

The six models are intended to be representative of six subregional areas which differ by characteristics of soil type, rainfall patterns, frost incidence and temperature. These include Western Clay (Walgett and Coonamble grey clays), Western Red (Coonamble red loams), Inner West (Moree Plains and west of Narrabri), Inner East (Yallaroi and east of Narrabri), North-East slopes (Inverell) and Liverpool Plains (Gunnedah and Quirindi). They vary in size from 1050 ha to 6080 ha. The main difference in crop rotations, influenced by soil type and rainfall, was use of lucerne in the rotation in the Western Red and North-East Slopes subregions, compared to continuous cropping in the other four areas. The returns to capital (business return on owner’s equity) varied from 4.1 % in the North-East Slopes subregion to 8.2% for the Western Red subregion. These financial results were based on prices and costs prevalent in the early 2000s.

Apart from providing a broad brush picture of financial performance, the models were used to analyse an important farming issue in each subregion. The models allowed comparisons of alternative crop rotations in a whole-farm context rather than on the basis of enterprise gross margins, although they remain simple comparisons of before and after changes with little information about the timing and cost of changing rotations. The results presented show that in many cases there is little difference between rotations in economic terms except in the case of the Liverpool Plains. The rotations used by farmers in the northern cropping zone vary in many small ways hence it is not surprising that we observe little change in profit from minor variations in the cropping rotations analysed in these representative farm models.

The Liverpool Plains case study involved a comparison of long fallow wheat-sorghum strip cropping with a sorghum-wheat opportunity cropping rotation. In this case the latter strategy outperformed the strip cropping rotation substantially. The assumptions about cropping frequency deriving from the opportunity cropping management are important in this comparison, and the use of this model has allowed these details to be included in a wholefarm context. This demonstrates the potential advantages in using such an analytical tool.

An important objective of our work was to develop some tools which can help in assessing the change in farm profit from new ideas and technologies generated by the research and advisory activities of NSW Department of Primary Industries. The models can also be used to give an assessment of the impact on farm profit of policy changes with respect to the management of natural resources. Our work has been aimed at developing whole-farm representations or models that can be utilised, by researchers, extension officers and farmers, to assess potential changes. Such models can be used in at least two ways – as a sieve for technologies while they are being developed or prior to release, and as a tool to strengthen extension programs by demonstrating to farmers that there may be sufficient financial advantage in a technology that it warrants adoption. Of course we acknowledge that there are other aspects of new technologies (apart from the financial) that influence adoption decisions. We hope that economic analysis at the enterprise and farm level will provide information which supplements other issues bearing on the decision.

This work was completed prior to the formation of the NSW Department of Primary Industries (on July 1, 2004) through an amalgamation of NSW Agriculture, NSW Fisheries, State Forests of NSW and the NSW Department of Mineral Resources.