An Economic Evaluation of Agricultural Management Systems in the Patagonian Grasslands: An Observation of Wool and the Link Between Profitability and Conservation

Abstract

Historically, the region of Patagonia was built on sheep ranching and the production of wool. Since the early 19th century, farmers have grazed these temperate grasslands, which has led to the rapid expansion and growth of the meat and textile industry. This sudden growth has had numerous negative ecological impacts on this very fragile ecosystem and broader socio-economic effects. Grazing peaked in 1952 at 22 million sheep, and since then has steadily declined to approximately 8.5 million sheep (Borrelli & Cibils, 2005). Concentrated conservation efforts aim to address this crisis and better manage the land in hopes of recovery. My research focuses on the farmer’s perspective and the inherent switching costs for shifting to a sustainable grazing program in order to regenerate the land. This study analyzes several financial decision models over a five-year investment period within three ecological areas in Patagonia: the Central District, the Subandean Grasslands, and the Humid Magellan Steppe. Within each ecological zone, I account for three agricultural management scenarios: traditional grazing, basic planning, and holistic management. In addition, this analysis takes into consideration the process of the wool value chain and influence that the textile industry has on the fate of the Patagonian Grasslands. By understanding the financial risks in each of the modal farms, the objective is to provide accurate financial information to the farmer for the assumed switching costs and the expected timing in which the land is projected to have recovered. The majority of the research is derived from an Argentine non-profit, Ovis XXI, which monitors 55 ranches throughout Patagonia. Because many of these ranches face dire economic conditions, switching to a sustainable grazing program could be their last venture option. Thus, the expected results of investment are crucial and the value of switching to a sustainable grazing program can only be captured if the basic fiscal needs are met. My objective is to understand within each ecological zone the best agricultural management plan that optimizes both ecological and financial capital.