An analysis of geographic and product diversification in crop planning strategy

Abstract

An empirical study of the factors that influence the optimal degree of geographic and product diversification to use as a risk mitigant in agriculture planning is carried out using a simple crop planning optimisation model that maximises the expected profit. The factors considered include the distance between the available plots, the amount and variability of spoilage risk, the yield variability and the variance in the produce selling prices. We propose a new metric, based on the entropy concept, for quantifying the geographic diversification. The degree of geographic and product diversification of the optimal plan, as well as the profit level, the overall percentage of demand satisfied and the number of plots unused, are studied. The results show that the optimal combination of the two types of diversification (geographic and product) are dependent on the specific scenario considered, and the factor that has the largest influence on the degree of geographic and product diversification is the separation between the plots. A similar effect is in the variance of the selling prices. Also, as the geographic diversification of the optimal solution increases so does its product diversification and its profit level. The profit level decreases significantly as the separation between the plots and the average spoilage risk increases. Other effects that are worth mentioning are the reduction in the percentage of demand satisfied as the separation between the plots increases, and when the variance in the selling prices increases.