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Economics of managing acid soils in dryland mixed cropping systems: comparing gross margins with whole-farm analysis derived using a business process model

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A 12-year experiment designed to show the benefits of applying lime to acid soils when growing annual pasture, perennial pasture, and annual crops in rotations with annual or perennial pastures, provides the context for comparing methods of economic analysis. In this study enterprise gross margins are compared with whole-farm cumulative monthly cash flows derived using a business process model. The current study gave gross margins comparable with those of a recently published study based on the first 12 years of the same field experiment at Book Book near Wagga Wagga in southern NSW (Li et al., 2010). Both gross margin analyses indicated positive results for all treatments. However, because key fixed and capital cost items were not taken into account in the gross margin analysis the financial benefits of the treatments were overstated. In the whole-farm analysis, a full set of accounts (including fixed and capital costs) was developed for the experimental combinations of prime lamb and dryland cropping enterprises and used to generate a monthly cash flow sequence for each treatment over the 12-year term of the experiment. This full financial analysis, where all costs are included, showed all mixed treatments (cropping and grazing) accumulated unsustainable losses over the period of the trial. The grazing-only treatments generated positive cash lows over the 12 year period, but 2 accumulated high levels of debt in the initial years. None of these outcomes were predicted by gross margins, which were consistently positive for all treatments. This paper concludes that the analysis of trial results benefits from interpretation in the context of whole-farm analysis, verified by district experience. Relying on gross margin analysis alone would have supported loss-making outcomes in this trial. This conclusion has important ramifications for analysis of all systems trials.

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