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Economic and financial risks in under-vine management alternatives to herbicide in four South Australian wine-grape districts, 2016 & 2017

Tom Nordblom, Chris Penfold, Melanie Weckert, Mark Norton, Jake Howie and Tim Hutchings

No 273525, 2018 Conference (62nd), February 7-9, 2018, Adelaide, Australia from Australian Agricultural and Resource Economics Society

Abstract: We calculate financial risk profiles for representative vineyards of 50-ha in four wine grape regions of South Australia using straw or living mulches as alternatives to herbicides for under-vine management. Calculations are based on replicated experiments in a commercial vineyard in each district with the most widely grown vine variety of each; the grape yields were measured in 2016 and 2017. Published district grape prices and yields for the years 2006 through 2017 form the basis for novel stochastic analysis. The herbicide (Control) treatment in Barossa Shiraz (BS) and Riverland Merlot (RM) showed greater median Gross Revenues (prices x yields) than the other two districts: Eden Valley Shiraz and Langhorne Creek Cab-Sav. After subtraction of operating costs, and assuming alternative treatments produce grapes of equal quality and price as the Control in a district, the alternatives gave median Gross Margins ($/ha) greater than the Control in BS but lower than the Control in RM. Gross Margin results were mixed in the other two districts. The Gross Margin results above are magnified in financial Risk Profiles based on variations in Gross Margins times 50 ha across multiple ten-year periods after subtracting taxes, drawings, recurrent capital costs and interest on accumulating debt, for decadal cash margins. The Risk Profile of a treatment in a district is its cumulative distribution of decadal cash margins ($M). We show that choice of under-vine treatment can significantly affect a vineyard’s financial viability.

Keywords: Crop Production/Industries; Production Economics; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 29
Date: 2018-02-06
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DOI: 10.22004/ag.econ.273525

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