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Effect of a Carbon Price on Farm Profitability on Rainfed Dairy Farms in South West Victoria: A First-Look

Seyda Ozkan, Robert J. Farquharson, Julian Hill and Bill Malcolm

No 100710, 2011 Conference (55th), February 8-11, 2011, Melbourne, Australia from Australian Agricultural and Resource Economics Society

Abstract: In this study, the possible impacts of different prices of carbon on farm profitability in two dairy farm businesses with different feeding systems operated over five years were analysed. The feeding systems were a ryegrass pasture-based system (RM) and a complementary forage-based system (CF). Data were obtained from a five year farmlet trial which was applied to a scaled up representative farm model. As a first look, a carbon charge was imposed on the systems as they currently operate to gauge the order of magnitude of a carbon charge on dairy systems if they were to continue to operate essentially the same system following the impost of a cost of carbon. The main finding of this study was that overall net present value (NPV) of five years of annual operating profit for each system, at five per cent discount rate, decreased when a price on carbon, as a direct cost, was included. Compared with the status quo situation where there was no effect of a price on carbon on farm operating profit, a price of $15/t CO2-eq on carbon reduced the net present value of five years of operating profit by about 6 per cent for the RM farm system and 5 per cent for the CF farm system (equivalent to $70 000/farm and $66 000/farm). A carbon price of $25/t CO2-eq reduced the overall net present value by about 10 per cent and 9 per cent in the RM and the CF systems respectively (equivalent to $114 000/farm and $110 000/farm).

Keywords: Environmental Economics and Policy; Farm Management (search for similar items in EconPapers)
Pages: 18
Date: 2011
New Economics Papers: this item is included in nep-agr, nep-ene and nep-env
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DOI: 10.22004/ag.econ.100710

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