Commodity Risk Management SMU Research

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Professor Onur Boyabatli shares about what gave him the impetus to study crop planning, and how his research demonstrates that making crop planning decisions based on principles of sustainable agriculture can actually help farmers increase profitability and also be beneficial for the environment. • • Onur Boyabatli is Associate Professor of Operations Management, Area Coordinator, Operations Management, and Lee Kong Chian Fellow at the Lee Kong Chian School of Business (LKCSB) in the Singapore Management University. He holds a Ph.D. in Technology and Operations Management from INSEAD, France, M.S. and B.S. degrees in Industrial Engineering from Bilkent University, Turkey. His main research interests are in the areas of integrated risk management in global supply chains, commodity risk management, agribusiness, technology and capacity management under financing frictions, supply chain finance and sustainable operations. He teaches courses related to Operations Management (e.g., Decision Analysis, Risk Management in Global Supply Chains, Interdisciplinary Research Topics in Operations Management) at various — executive, graduate (MBA and PhD) and undergraduate — levels. • • Faculty profile: https://www.smu.edu.sg/faculty/profil... • About the Paper • Crop Planning in Sustainable Agriculture: Dynamic Farmland Allocation in the Presence of Crop Rotation Benefits. • • Onur BOYABATLI, Singapore Management University • Javad NASIRY, Hong Kong University of Science and Technology • Yangfang Helen ZHOU, Singapore Management University • • Abstract • This paper examines crop planning decision in sustainable agriculture---that is, how to allocate farmland among multiple crops in each growing season when the crops have rotation benefits across growing seasons. We consider a farmer who periodically allocates the farmland between two crops in the presence of revenue uncertainty where revenue is stochastically larger and farming cost is lower when a crop is grown on rotated farmland (where the other crop was grown in the previous season). We characterize the optimal dynamic farmland allocation policy and perform sensitivity analysis to investigate how revenue uncertainty of each crop affects the farmer's optimal allocation decision and profitability. Using a calibration based on a farmer growing corn and soybean in Iowa we show that growing only one crop over the entire planning horizon, as employed in industrial agriculture, leads to a considerable profit loss — that is, making crop planning based on principles of sustainable agriculture has substantial value. We propose a simple heuristic allocation policy which we characterize in closed form. Using our model calibration we show that (i) the proposed policy not only outperforms the commonly suggested heuristic policies in the literature, but also provides a near-optimal performance; (ii) compared to the optimal policy, the proposed policy has a higher allocation of crops to rotated farmland, and thus it is potentially more environmentally friendly. • • Citation • BOYABATLI, Onur; NASIRY, Javad; and ZHOU, Yangfang Helen. Crop Planning in Sustainable Agriculture: Dynamic Farmland Allocation in the Presence of Crop Rotation Benefits. (2017). 1-34. Research Collection Lee Kong Chian School Of Business. • • This paper is available at: http://ink.library.smu.edu.sg/lkcsb_r... • • Produced by • Office of Integrated Information Technology Services (IITS) • Singapore Management University • #SMUResearch

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