Costs of Australian Carbon Tax: @RISK Evaluates the Profitability of Dairy Systems

UniversityMelbourne-1In Australia, a carbon tax is one of the key policy tools that the government plans to use to curtail greenhouse gas emissions in the private sector—however, there has been little research looking into the effects of a carbon tax on Australia dairy farm operations. Dr. Şeyda Özkan, who was working with the Department of Agriculture and Food Systems at the University of Melbourne, Australia, at the time, evaluated how this new policy would affect dairy operations using two different systems for feeding their cattle—a traditional ryegrass pasture system, and a complementary forage-based system, which involves a rotational sequence of two forage crops per year. Using @RISK, Dr. Özkan evaluated the financial performance of these two feeding systems—specifically looking at the two dairy systems’ operating profit for a single year. The results showed that a carbon tax caused losses in both feeding systems, and that both feeding systems’ profitability were most affected by milk price and the price of feed.  Overall,  the complementary forage-based feeding system was more likely to guarantee an operating profit of $200,000 under a carbon tax, but  posed larger risks of financial loss—making it a ‘high-risk and high-reward’ option. “One of the advantages of the @RISK software is that it can iterate thousands of scenarios in just seconds, depending on the complexity of the model and the number of parameters examined,” says Dr. Özkan. Her favorite features of the software include the BestFit, “for saving time and energy to find the best distribution,” and the probability distribution functions “for easily determining which of the two options dominates the other.” Read the full case study here.

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