Representing weather-year variation in whole-farm optimisation models: Four-stage single-sequence vs eight-stage multi-sequence

Michael Young, John Young, Ross S. Kingwell and Philip E. Vercoe

Australian Journal of Agricultural and Resource Economics, 2023, vol. 68, issue 01

Abstract: The trade-off between accuracy and complexity is a common issue faced in farm systems analysis. To provide insights into the importance of representing weather-year sequence in farm modelling, two whole-farm optimisation models are constructed and applied to a mixed enterprise farming system in a subregion of Western Australia. The frameworks are (i) four-stage single-sequence stochastic programming with recourse (4-SPR) to capture weather-year variation and management tactics tailored to each weather-year and (ii) eight-stage multi-sequence stochastic programming with recourse (8-SPR) to outline weather-year sequences and management tactics tailored to particular weather-year sequences. Results show that single-year stochastic programming generates similar expected profit and strategic management as multi-year stochastic programming. However, optimal tactical farm management is affected by the outcome of the previous year. Tactical decision-making in response to the outcome of the preceding weather-year increases profitability by 14%. Technology changes over the last decade, particularly the increase in computer speed and computational power, increase the ease of construction and application of the 4-SPR and 8-SPR frameworks. Nonetheless, choosing which framework is best to apply to a particular issue or opportunity remains a challenge.

Keywords: Risk; and; Uncertainty (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aareaj:343074

DOI: 10.22004/ag.econ.343074

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