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An obvious strategy available to Australian farmers to counter the vagaries of market and seasonal variation, is to diversify investments derived from income in favourable times. The objective of the present research dissertation is to examine the financial implications of alternative off-farm investments to the farm business, whilst analysing the risks involved. To achieve this objective a stochastic budgeting model of two case study farms in the New England region were simulated, with three different investment options over a ten year period. The investment options include selected representatives from the shares, property and cash type of investment groups. Each simulation provided probabilistic results to display the likely returns and risk associated with each investment strategy. The results from each strategy were then analysed in two ways. One analysis included the stochastic efficiency criteria of stochastic dominance with respect to a function (SDRF). The second analysis included an approach which relied upon the individual farmer to rank the strategies from a set of illustrated simulation results. With this approach the complex beliefs and preferences of individual farmers were included in the analysis. After ranking the investment strategies, it was concluded that with the exception of one case study farm with the SDRF criterion, the most preferred investment option was shares on both case study farms. Property and cash differed in ranking between case study farms and between analyses. |
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