Natural Resources Research Articles

Traditional farm expansion versus joint venture remote partnerships

Document Type

Article

Publication Date

10-24-2017

Journal Title

The Australian Journal of Agricultural and Resource Economics (AJARE)

ISSN

ISSN 1364-985X eISSN 1467-8489

Keywords

Farm size, Western Australia, Farm investment, Farm economics, Farm models, Farming, Business expansion, Risk, Climate change, Asset pricing

Disciplines

Agribusiness | Agricultural and Resource Economics | Agricultural Economics | Agricultural Science | Agronomy and Crop Sciences | Climate | Natural Resource Economics | Natural Resources Management and Policy | Risk Analysis | Sustainability

Abstract

Traditionally, farms expand by buying out a neighbour. But might remote partnerships be a better way of expanding a farm business given projected climate change and price volatility? This question is addressed using farm business financial modelling. Representative farms at 27 locations in Western Australia are constructed to enable comparison of the value of buying out a neighbour versus expansion using geographically distant joint venture (JV) partners. The farm models consider economies of size, bulk purchase price discounts, the variability and correlation of returns associated with farm expansion, and impacts of climate change. Random selection of a remote partner generates little improvement in wealth; on average only 2.3 and 1.6 per cent, respectively, under current and projected future climate across all locations. However, there is large variation in wealth appreciation opportunities for each location and between locations. Preferred partnerships are a function of each farm's characteristics. Locations highly preferred as JV partners under current climate are similarly preferred partners under projected future climate. The main sources of additional wealth come from economies of size advantages, risk-spreading benefits of combining geographically separated farms and bulk discounts. Farmers seeking business expansion will often benefit greatly from careful selection of a remote partner.

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Digital Object Identifier (DOI)

https://doi.org/10.1111/1467-8489.12229