In-farm diversity stabilizes return on capital in Argentine agro-ecosystems

Abstract

Agricultural production faces risks of various kinds caused by weather, pests, markets, and policy changes. Minimizing these risks is an ongoing objective of farmers. The diversification of activities and the selection of the most stable activities are frequently mentioned as potential stabilizing factors. The aim of this study is to determine the impact of diversification and selection of activities on economic stability over time in a set of farms located in the southwest of the Pampa Region, Argentina. We use the coefficient of variation of return on capital as indicator of economic stability. These farms routinely evaluate their economic performance through a shared methodology. We compiled a data set that included 366 annual productive and economic results for 82 farms in 7 years between 2000 and 2008. We analyzed the economic and yield results of these farms and of a set of simulated farms that differentially combined various activities. We found that a greater diversification of activities was associated with an increase of stability, measured by a reduction of the coefficient of variation of return on capital as diversification increased. This effect resulted from a significant increase of mean return on capital without changing the standard deviation as diversification increased. We also found significant differences in this indicator of economic stability of individual activities as a result of different combinations of variability in yields, prices and costs. Birth to slaughter livestock operation was much more economically stable than either cow-calf or fattening operations. Wheat was the most stable crop, corn was the least stable crop, and sunflower and soybean showed intermediate stability. Overall, livestock activities were more stable than agricultural crops. Simulated farms showed that more diversified combinations were economically more stable. The stability of the average real farm was very similar to the most stable farm simulation. This suggests that farmers in the study area have found in the diversification and selection of activities useful tools to reduce the economic risks they face.