Modelling the long-term effects on farm net worth of investments in pasture fertilizer under constraints of family expenditure

A simple dynamic farm model is developed and used to analyse the net worth of a family farm grazing enterprise producing wool on the Northern Tablelands of New South Wales, Australia, under alternative assumptions regarding family expenses and investments in fertilizer. The linkage between family costs and expenditure on fertilizer is explored over a 25-year period highlighting the feed-back effects of each type of expenditure on farm productivity and ultimately on net worth and thus farm viability. Inputs to the model include historic values for rainfall, fertilizer application rates, commodity prices and rates of interest and inflation. In this way, the farm business performance is investigated over a wide range of climatic conditions and commodity prices, typical of the real conditions experienced by grazing enterprises in this region between 1967 and 1992. The results show that non-discretionary fertilizer applications had a large effect on the maintenance of soil fertility compared to discretionary applications (average available phosphorus levels of 29.0 and 9.2 ppm, respectively). This in turn resulted in higher average wool production per head (4.63 and 3.95 kg/hd, respectively) and higher carrying capacity. The final (1992) net worth for a family farm applying discretionary rates of fertilizer varied from $0.13m to −$1.00m for those families raising over 25 years zero or three children, respectively. For families applying fertilizer as a non-discretionary expense, the net worth in 1992 was estimated to be $3.5m and $2.6m for families raising zero or three children, respectively. Both the level of initial debt and the level of fixed costs had considerable effects on final net worth. Higher fertilizer applications also provided a buffering effect on the effects of debt, high fixed costs and the costs of raising children. The results suggest that investments in fertilizer are essential for maintaining farm viability, regardless of the level of expenditure on raising children. The model provides a useful means of integrating the effects of competing expenditures on long-term profitability and net worth of a family farm.