Assessing Crop Portfolios: Diversification versus Monoculture for Biodiesel

The selection of crop patterns for agricultural areas is usually guided by the maximization of expected income. This variable is, however, influenced by the fluctuations of both crop productivity and prices. The annual variability is directly related to the risk of a crop portfolio and, according to the so called Modern Theory Portfolio (MTP), it is a fundamental aspect to be taken into account during the selection of crops. This is true especially in case of those farmers who are not wealthy. Crop diversification is considered an effective solution able to alleviate the abovementioned inter-annual fluctuations and to guarantee a safe minimum income. This being the context we assess different alternative crop portfolios for biodiesel production in Brazil, where many small and resource-poor ones co-exist with capital intensive and large-scale farms (units of less than 20 hectares constitute more than 60% of the total farm number). By adopting the MTP approach, we aim to compare two alternative and opposite strategies: monoculture and crop diversification for biofuel crop production. In particular, we evaluate the effectiveness of crop diversification in reducing the risk of crop portfolios and estimate possible losses in terms of expected incomes. The obtained results confirm that the choice of a mixed crop portfolio can guarantee the minimum risk in the majority of the analyzed cases, but the incomes are considerably lower than the ones obtained with monocultures. Nevertheless, the obtained outcomes vary considerably depending on the considered crop. Finally, an increment of diversity could have improved both expected income and risk of actual average national crop portfolio, which is close to soybean monoculture.