Causes of farm diversification over time: an Australian perspective on an Eastern Norway model

Introduction Measures of farm diversification Data and model specification Econometric results Discussion Summary and conclusions Acknowledgements References Appendix Abstract. Farm planning often focuses on optimal diversification with respect to risk, where the riskmanagement strategies combine production, marketing, financial and environmental aspects of the farmfirm. In this study an empirical examination of diversification has been carried out using a sample of farms in Eastern Norway. Four measures of diversification (indices) were defined to record the risks in relation to income from farm production. Using these alternative measures of diversification and paneldata, the results show that larger farms are more diversified, and for farms in more favourable locations and access to labour, the farmers have a greater incentive to spread risk. These results suggest that diversification and farm size are positively linked and that there may not be sufficient economies of scale to warrant specialisation and/or farm specialisation may not be environmentally desirable because of the pollution that would result. The Norwegian model offers good prospects for analysing similar issues of diversification in the Australian farming sector. Farm planning often focuses on optimal diversification with respect to risk, where the riskmanagement strategies combine production, marketing, financial and environmental aspects of the farmfirm. In this study an empirical examination of diversification has been carried out using a sample of farms in Eastern Norway. Four measures of diversification (indices) were defined to record the risks in relation to income from farm production. Using these alternative measures of diversification and paneldata, the results show that larger farms are more diversified, and for farms in more favourable locations and access to labour, the farmers have a greater incentive to spread risk. These results suggest that diversification and farm size are positively linked and that there may not be sufficient economies of scale to warrant specialisation and/or farm specialisation may not be environmentally desirable because of the pollution that would result. The Norwegian model offers good prospects for analysing similar issues of diversification in the Australian farming sector.