ESTIMATING ECONOMIC IMPACTS OF CONTROLLED RELEASE FERTILISERS IN SUGARCANE SYSTEMS: AN ECONOMIC RISK CASE STUDY ANALYSIS

AN ECONOMIC RISK framework for assessing economic impacts of adopting controlled release nitrogen fertilisers (CRFs) is presented, taking into account variable climatic and economic conditions. Specifically, economic impacts of switching from urea to various CRF products are assessed by comparing: 1) average economic returns, 2) economic returns in good years, represented by highest returns with a cumulative probability (CVaR00.95), and 3) big losses in bad years, represented by lowest returns with a cumulative probability (CVaR0.05) across alternative fertilisers. The risk framework is underpinned by a modelling approach that integrates agricultural production system simulation modelling (APSIM), probability theory, Monte Carlo simulation, financial-risk analysis techniques and threshold analysis. The analysis is carried out in a specific case study in the wet tropics, Queensland for one soil type and sugarcane management system as a first analysis to identify economic issues that may arise with adoption of CRFs. Results show that yield responses to fertiliser inputs are highly variable with variable climate. The potential for profitable adoption of CRFs is largely influenced by the relative cost of CRFs compared with the cost of urea. At equal cost, CRFs would likely realise higher average net returns and higher returns in both good and bad years than conventional fertilisers thereby improving the overall economic viability of agricultural enterprises. If, however, the cost of CRF was at least twice the cost of conventional fertilisers, adoption of CRFs would likely result in reduced average net returns and lower returns in bad years, thereby increasing the downside economic risk. A blend of CRFs and urea performs better than urea and CRFs in good years at N rates between 60 and 150 kg N/ha, indicating that additional yield gains from switching to a blend could offset additional costs, assuming CRFs cost twice as much as urea. At twice the cost of urea, profitable adoption of CRFs is only achievable in a scenario where half as much CRFs as urea are applied to get the same yield. The likelihood of this occurring is low under our specific case study climate, soil and management system scenario, but would likely be higher in high yield climate, soil and management system case study scenarios. Overall, net returns from sugarcane are sensitive to variable sugar prices, yields, and harvesting and fertiliser costs. Changes in a number of factors could make adoption of CRFs more economically and environmentally attractive. These include: 1) consistent growth in the cost of conventional fertilisers, 2) steady technological advances in the performance and efficiency of CRFs, 3) reduction in CRF production costs and future costs for CRFs and 4) increasing demand for CRFs as a possible solution for mitigating N loss to sensitive coastal and marine ecosystems. The next step is to extend this analysis to different regions with different climate, soil types, and management systems to identify combinations of factors under which profitable adoption of CRFs is likely.