Farmer risk-aversion limits closure of yield and profit gaps: A study of nitrogen management in the southern Australian wheatbelt

• Different results across 4 case-study sites of southern Australia.
• Multi-tool approach necessary to tackle profit-risk analysis.
• Risk and risk-aversion impact on N rates and thereby N-limited yield potential.
• Risk concepts are key to manage yield gaps and profit-maximisation on dryland farms.

Nitrogen (N) is the most limiting nutrient in cereal crop production and is an important requirement in closing the gap between potential and achieved water limited yield. However, N fertiliser management in broadacre cereal cropping can be risky for farmers operating in dryland regions because of variability of rainfall and price. Farmers typically respond to this situation by making risk-averse decisions that are neither yield- nor profit-maximising. Here we use a set of case-study sites across the southern Australian wheatbelt to examine the risk-return profile of a range of N management options and show the extent to which the economics of N fertiliser decisions and the farmers' attitude to risk can determine N rates in a way that limits closure of yield gaps. Using a risk-return framework that incorporates crop simulation response to N application, probability theory, finance techniques, and risk-aversion analysis, we were able to better demonstrate how farmers might select N management practices that manage the trade-off between maximising economic net return and risk exposure using a risk-aversion analysis across four case-study sites.