A Quadratic Programming Model for Farm Planning of a Region in Central Macedonia

Author(s): Basil D. Manos, George I. Kitsopanidis and Elias Meletiadis

Source: Interfaces, Vol. 16, No. 4 (Jul. - Aug., 1986), pp. 2-12
Published by: INFORMS
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A Quadratic Programming Model for Farm

Planning of a Region in Central Macedonia
Basil D. Manos

Department of Agricultural Economics Research

University of Thessaloniki
540 06 Thessaloniki
Greece

I. Kitsopanidis

George

Department of Agricultural Economics Research

University of Thessaloniki

Quadratic programming models are used in farm planning

because risk and uncertainty are involved in the technical and
economic coefficients used and the quantities and prices of
resources. A special quadratic programming model
(the E-V
a
Greek farm region, the former
model) was used to plan
Lake of Giannitsa. The resulting plan is preferred by farmers
to those resulting from the linear and mixed-integer
program
it in
to
because
and
the
used
models
plan
ming
previously
total
cludes crops expected to give the highest minimum
gross margin with the same total fixed costs. The farmers
want plans that achieve not only the highest but also the
most
Farmers

given
These
may
stock

stable

economic

face the problem

and using the resources

results.
of allocating
available at a

time

rationally and efficiently.

resources
(land, labor, and capital)
to various crop and live
be allocated

enterprises
through production
of
which
achieves different
each
plans,
economic
results. Production
plans de
un
to allocate resources
efficiently
signed
as
as
under
well
der perfect knowledge

Copyright ? 1986, The Institute of Management Sciences

?
PROGRAMMING
0091-2102/86/1604/0002$01.25
QUADRATIC

risk and uncertainty

mathematical
models,

are based

on various

chiefly mathemati
models.

cal programming
A quadratic programming
is
model
used to program
the agricultural
produc
re
tion of a region in Greece.
The main
sources considered
are
by the plan
in time. The results
stochastic
considered
of the model
ers and

are useful

both

to the authorities

INDUSTRIES?

to the farm

responsible

AGRICULTURE/FOOD

INTERFACES16: 4 July-August 1986 (pp. 2-12)

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for

FARM PLANNING
com
in this region, especially
planning
linear
from
with
obtained
those
pared
and mixed

in the
The problem of random variation
linear programming
model
is partially
absolute devia
solved by using the mean

Risk

tion criterion

models.
integer programming
in Farm Planning
and Uncertainty
In agriculture,
both prices and quan

tities are uncertain.

common

to other

The
fields,

assumption,
that the prices

and quantities
of resources
and the tech
are known
nical and economic
coefficients
is not true for farming. The
certainty
selection of an optimum
production
plan
is always based on parameters
obtained

with

in the past, although parameter

variations
take place during the time the plan is
include
being used. Such variations
in the yields of crops, in product
changes
re
in the resource
and resource prices,
of the different
enterprises,
quirements
in the quantities
avail
of resources
affect the economic
able; all significantly
results that can be expected.
In the past, research workers
attempted

and

to incorporate
mathematical
der

to produce

these uncertainties

in or
models
programming
were
robust
plans that

insensitive)
(relatively
iations in crop yields,
and the like.
The
model,

standard
which

into

respect to var
resource prices,

with

linear programming
fixed quantities

assumes

the ran
and prices, does not incorporate
dom variations
of these parameters.
The
same

is true of the parametric

linear pro
that investigates
the sta
gramming model
of a selected

at

plan
production
of the
of gross margins
farm enterprises
and the available re
sources. However,
it treats each parame

bility
fixed

intervals

ter separately
(while the others
fixed), and it does not consider
rameter

as

random.

remain
each pa

by using

completely

1971], but more

[Hazell

program
can also

quadratic

programming
ming. Quadratic
be used in the dual form for variations

in

of available resources when

the quantities
these are treated as random variables
with

known

distributions

probability

[Tinter and Sengupta

1972].
The E-V Model
in Quadratic
Programming
to incor
of research workers
Attempts
into
mathe
risk
and
porate
uncertainty
have led to
matical
models
programming
the E-V model
In this model,

in quadratic programming.
refer
risk and uncertainty

to the gross margin

constraints
prises, while
deterministic.

of farm enter

only

are considered

The E-V model,

is the quadratic pro

a
to incorporating
gramming
approach
in the objective
mean-variance
criterion
function.

The

budgeting

in capital

earliest work

using

the quadratic program

criterion was done

ming/mean-variance
by Farrer [1962]. The E-V model
named
plan

because
is selected

the optimum
on the basis

E and
pected gross margin
a
This model
solution
gives
lem of risk and uncertainty

is so

production
of the ex
its variance

V.

to the prob
for
adequate

In fact,
are
important parameters
yields
and prices of farm products.
These pa
rameters vary randomly
through time and

planning
the most

agricultural

production.

strongly affect the production

plan and
the level of gross margin
Varia
expected.
tions in the quantities
of the resources
available

and

their prices,

on the other

July-August 1986 3
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MANOS, KITSOPANIDIS
=
1,2,...,n,
margin
cj of activities /
n
x
n
D is the
matrix of covariances
o^
of gross margin
c, and c;,

are usually
small and have little in
on
the production
fluence
plan suggested
or the level of gross
margin
expected
hand,

E^

[Kitsopanidis 1966].
in gross margin, which
is
farm en
the main
criterion for comparing
to
the op
their
for
contributions
terprises
timum production
by
plan, is measured
Fluctuation

the interval

(0, ?max).
of the gross margins
and a?; are unknown
parameters
(popula
of them
tion parameters)
and estimates

and

must

is
of each farm enterprise
gross margin
a random variable,
considered
and the
variance of the expected
total gross mar
a function of
gin for the whole
region is

margins

achieved
margins
X is varied
when

and covariances

this ratio should

, and

rate with

X1,X2/..., where
?, and V,
are estimates
of E, and V, respectively.
For each critical value X^= ?^, the mini
mum variance
to that
V^ corresponds

increase

increases

the iso
region where
to
iso
the
line
is
gross margin
tangent
curve [How and Hazell
variance
1968].

in

d2E

The E-V model

min V = x'Dx

is expressed

Ax><lb
ex = X U
x
where

tive or negative),
because
of
XXSjjXiXj of variance and the
?
which
joins the
si}/V Sifijj
efficient with
the covariance

?max,

resources

is the m x n matrix

The

coefficients

and

a{)of resource

and activity /,
is the n-vector of the mean

gross

selection

common

l,2,...,m,

of technical

the term
relation

ri]

correlation

co

of c? and

c;.
efficient plan
from the sequence
of (EifV), i = 1,2,... is
in different ways. The most
achieved

of levels x} of ac

1,2,...,n,

economic

by

is the transpose
of x,
of levels b? of avail
is the m-vector
able

plan (ap
point gives the u, optimum
includes farm enterprises
pendix) which
with
coefficients
small correlation
rif (posi

>0
x is the n-vector

tivities;

x'

X<

0 <

of the feasible

This

[Hazell 1971].

>0)

V(?

plans
by production
from zero to Emax.

critical values

point
at an increasing

is the

in gross

to
This parametric
process
corresponds
a sequence
of efficient pairs (E^V^),
of
(E2,V2)/-- in relation to the sequence

1967].
to
the E-V criterion, each
According
farmer will prefer a production
plan with
V
E
if
is
also
greater
higher
only
0)

(appendix).
of the above model

objective
minimization
of the variance

[Kitsopanidis

dE
( _>
oV

be found

The

of the gross
studied
of the farm enterprises

the variances

the means

Both

it can be incorporated
In this case, the
into the E-V model.
its variance,

is the maximum
total gross margin
of the linear programming
approach,
in
is a parameter
that takes values

of the most

intervals

confidence
way is to construct
of the pro
for the gross margin

duction

plans

Description
Construction

(appendix).
of the Region
of the Model

The E-V model

is used

and

the

to plan

INTERFACES16:4 4
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the agri

FARM PLANNING
of a region in Central
production
Macedonia
that was formerly the Lake of
Giannitsa.
The region consists of a culti
cultural

cal Service,

area of 161,672
irrigated stremmas
stremma
(one
equals 1,000 square me
ters). In this area, 3,519 man years are

lected

tural Economics

was

to prepare
tion plans with

ble economic

The total capital

periods.
to 2.12
for land) amounts

cultural

at the Univer

the most

efficient

produc
the highest
sta
and most
return for the local area.

of these plans on each

application
farm
and
in the whole
family
region was
re
undertaken
by the local agriculturists

The

($30.3 million).
for the period
1976-81 were col
from the various
local services of
of Agriculture
and
the
from
National
Bank,

Research

in conjunction
with
sity of Thessaloniki
the local services of the Ministry
of Agri
culture. The purpose
of the investigation

labor is also used

the Ministry

machines.

in this region was un

investigation
dertaken by the Department
of Agricul

(111,724 man days during the year), and

17 sugar beet and two cotton harvesting
are hired from other
machines
regions

Data

various

The

for farm labor along with

1,928
tractors and 33 machines
for harvesting
sugar beets, and
grain, 22 for harvesting

during the peak

invested
(except
billion drachmas

of

farmer-owners

available

Casual

of 34

from the records and accounts of

villages,
73 farms, from 968 farm enterprises
(us
and
19
from
ing special questionnaires),

vated

27 for cotton.

the secretaries

from

sponsible

the Agri
Statisti

for regional

development.
The E-V model

used

agricultural
in agricultural

Activities
Farm
A.

Resources

Enterprises

Annual
1. Wheat

2. Barley
3. Corn
4. Tobacco
5. Cotton
6. Cotton

B.

Crops
11

Perennial

12
13
14
(Burley)
(hand picked)
16
(machine

15

9. Beans
10. Various

Pears

(1)

Alfalfa (2)

picked) 17
7. Sugar beet
8. Tomatoes

C.

Crops

Alfalfa (1)
Peaches (table) (1)
Peaches (processing) (1)
Apples (1)

18
19

Peaches

(table)

Peaches

(processing)

(2)

34. Owned

22. April
23. May

Combine

35. Hired

24.

June

37. Hired

25.

July

Tractors

26. August
27. September
29. November

crops

36. Owned

D. Machinery
Cotton-harvesters

irrigated

Combine

Family
Casual

28. October

Apples (2)
Pears (2)

20

(2)

Labor

21.

30. Owned
31. Hired
Sugar-beet
32. Owned
33. Hired

harvesters

38. Owned
Hired

tractors

39. April
40. May
41.

June

42.

July
43. August
44. September
45. October
E. Variable
46.

capital

Borrowed

Table 1: The 46 activities of the E-V model are divided into farm enterprises and farm resources.
The perennial crops indexed (1) refer to the average for the existing plan irrespective of the age
of trees, whereas those indexed (2) refer to the average for their age and compete with annual
crops. Combine (1) harvests wheat and barley; combine (2) harvests corn. Irrigated crops in
clude

potatoes,

July-August

melons,

and

some

other

garden

crops.

1986 5
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MANOS, KITSOPANIDIS
in this region
planning
ties and 76 constraints

includes

46 activi

[Manos 1984]. The

into farm enterprises
resources
(Xj) and farm
(u?) (Table 1). The
constraints
refer to land, labor, machin

activities

Land (constraints 1-20)

1. Total (= )
2. Wheat
(max 1976-81 period)

are divided

ery, and variable capital (Table 2). One

more constraint
sets the level of gross
for the production
margin
plan at the de
sired level (E{ = X,; the left side corre
to the objective
function of the
sponds
linear programming
model
cx-qu, where
q? is the variable cost of the resource

B. Labor (constraints 21-41)

21. Family total (max available)

41. November

(max casual used)

43. Cotton machinery

for using resource activi

as
as
well
those of farm enterprises,
ties,
are economic
and technical. Most
impor
can be

the E-V model

20. Pears 2 (max 50% 1981 period)

C. Machinery
(constraints 42-73)
42. Cotton machinery
(max required)

activity Uj).
The reasons

tant,

A.

immediately
to linear, parametric
linear,
and mixed-integer
models
programming

(max owned

available)

73. Tractors hired October

D. Capital (constraints 74-75)

74. Own capital (max available)
75. Borrowed capital (max zero to infinity)

transformed

(integer units of labor and machinery);

and the machinery
(owned and hired)
can
the
be immediately
plan
quired by
as can be surplus available
estimated,
and

capital
tal required

its interest

and

re

and

the total capi

labor and machin

for hired

ery. The estimate

tractors is figured

E. Gross Margin
(constraint 76)
=
76. Expected gross margin
( zero

for hired

in monthly
their cost.

labor and
units

quired
The various

constraints,
especially
are in
for labor and machinery,
a
in such
cluded in the model
way that
those

each

farm enterprise

can be entered

the production
plan at the desired
the available
Also
labor, machinery,

into

to the resources

E-V

from the variances

and
margin
resulting
for
the
covariances
of gross margins
c;
1976
farm enterprises
the
during
period
its value is the product
x
vectors x' and
by the gross margins
covariance matrix D.
time,

The

Plans
Suggested
Results
Expected
The

and

of

the

farm plans and the corresponding

results suggested
by the E-V
are shown in Table 3. As the gross
increases
from 1.55 to 1.98 billion

economic
model

and

margin

to the
belonging
region over hired ones from other regions.
ex
The objective
function of this model
the variance V in the total gross
presses

for the

model.

level.

to the individual
capital are allocated
farm enterprises
according to their month
This allocation gives
ly requirements.
priority

Table 2: A sample of the constraints

81. Each

re

to Emax)

in order
the farm plan changes
to yield the smallest possible
variance
for
each level of gross margin.
The changes

drachmas,

in farm plans from 1-6 mainly

involve a
in land devoted
to barley, toma
decrease
toes, beans

and wheat,

for tobacco, while

and an increase

the land area devoted

INTERFACES16:4 6
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FARM PLANNING
to the other

crops remains unchanged.

The decrease
of some crops and the cor
increase

responding
the variance

the
of whether
low, irrespective
are high or
coefficients
partial correlation
or
low, positive
negative.
lutely

on

of others

depends
of each crop and the covari
ance of some of them. In other words,

Table 3 also

the rapid increase of

7.4
to 13.0 percent)
as
(from
the gross margin moves
to
continuously
levels. In fact, when
the gross
higher

of some crops by others

to
the
total gross margin
adds
according
the smallest possible
to the total
variance
the substitution

increases
from 1.55 to 1.98 billion
margin
drachmas
its standard de
(27.5 percent),
viation
increases
from 114.8 to 257.2 mil

variance
tions

of the gross margin:

substitu
take place between
crops that have

or the
low degree of correlation
weigKted
of
is abso
correlation
coefficients
average
Farm

and

Enterprises

Economic Results
Farm Enterprises
1. Wheat
2. Barley
3. Corn
4. Alfalfa

5. Alfalfa 2
6. Tobacco
7. Cotton (hand)
8. Cotton (machine)
9. Sugar beet
10. Tomatoes
11. Beans
12. Various irrigated crops
13. Peaches (table) 1
14. Peaches (table) 2
15. Peaches (processing) 1
16. Peaches (processing) 2
17. Apples
1
18. Apples 2
19. Pears 1
20. Pears 2
Total
B. Gross Margin
(E)
1. E
2. Standard deviation
(ct?)
3. Variance coefficient
4. Pr(E?2(TE) = 95.45%
C. Fixed Costs
D. Net Profits
E. Return on Labor
F. Return on Capital
G.

per cent

Farm Income

The rate of
(124.0 percent).
com
of the total gross margin

Farm Plans in Stremmas and Economic

Results in 1,000 Drachmas

35,342
1,929

30,921

29,667
38,068

21,677

35,342

2,640
38,068

38,068

2,640
38,068

38,068

38,068

1,458

1,458

1,458

1,458

1,458

1,458

2,391

2,391

2,391
12,847

2,391

2,391

2,391
18,983
26,256

35,342

lion drachmas
increase

Optimum

12
A.

shows

the variance

13,539

18,040

12,631

25,122

36,499

24,015
9,319

7,604

13,161

5,258

21,024

14,809

25,777

25,213

11,185
2,164
504

10,848
2,164
504

11,185
2,164
504

16,976
8,421

2,437
1,219
2,501
1,251
781

2,437

2,437
1,219
2,501
1,251
781
391
333
167

2,415

4,655

28,249

12,967

2,833
25,777
11,185
2,164
504
2,437
1,219
2,501
817
781
391
333

2,501
1,048
781

391
333
167

333
167

6,620

504

504

2,437

2,437
89

2,501
781
391

2,501
555
781
391

333
167

333
167

_167
161,672

161,672

161,672

161,672

161,672

161,672

1,555,001
114,873
7.4

1,642,050
132,987
8.1

1,701,061
144,898
8.5

1,829,007
184,730
10.1

1,902,012
219,492
11.5

1,978,546
257,211
13.0

1,325,255
1,784,747
1,643,469
-88,468
746,218
4.2

1,376,076
1,908,024
1,643,469
-1,419
833,267
4.9

1,411,265
1,990,856
1,643,469
57,592
892,278
5.4

1,459,547
2,198,467
1,643,469
185,538
1,020,224
6.2

1,463,028
2,340,996
1,643,469
258,543
1,093,228
6.8

1,464,124
2,492,968
1,643,469
335,077
1,169,725
7.1

1,443,059

1,531,199

1,590,165

1,698,903

1,742,387

1,769,440

Table 3: Optimum
farm plans showing the land area devoted to different crops and their eco
nomic results according to the level of gross margin and its variance. Return on labor includes
the wages of labor used and net profit. Return on capital includes interest on capital invested
and net profit. Farm income includes land rent, labor wages,
interest on capital, and net profit.

July-August

1986

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MANOS, KITSOPANIDIS
its standard deviation
pared with
greater at low levels and smaller

is

at high
this
Inversely,

levels of the gross margin.

means
that the rate of increase
standard

of the

is higher as the total

becomes
higher. The rate of

deviation

gross margin
increase of both

the gross margin

and its
in Fig
standard deviation
is better shown
ure 1. The behavior of the gross
margin
and

the standard

is due

deviation

to the

fact that the probability

of failure or suc
cess increases
in
rapidly as the expected
come

increases.

95.45

as a base

So, taking
confidence
intervals

percent
standard deviations),
the vertical distance

curves
minimum

it is obvious
between

increases

expected)

the

(two
that

the two

EG and AB

the
(which represent
and maximum
gross margins

margin
expected
This can be seen
for farm plan
the maximum

as the medium

gross
(curve CD) is increased.
also in Table 3, where,

1, the difference
and minimum

between
gross mar

is 459.5 million
drachmas;
gin expected
for farm plan 4, this difference
increases
to 738.9 million
and for farm
drachmas;
becomes
1,028.8
plan 6, this difference
million
is more
than
which
drachmas,
double
The

that for farm plan 1.

of the most
efficient

choice

plan is
on the degree of certainty with
can be
each level of gross margin
which
in
to
costs.
achieved
fixed
relation
From
based

the first two plans are

this standpoint,
their fixed costs are
rejected, because
higher
Given

than

the gross margin

expected.
the fact that all the other plans
a very

small probability
(Pr(E^O)^O.OOOl) of achieving
negative
(because of the positive
gross margins

present

in
limits of the 95.45 percent
confidence
we
most
that
conclude
the
tervals),
profit
able plan must be chosen on the basis of
the irdnimum
The highest

total gross margin

expected.
ex
minimum
gross margin

for plan 6,
to point H on curve EG in
corresponds
1.
to give
Farm
Figure
plan 6 is expected

pected,

1,464 billion

drachmas

a level of gross margin

equal to 1.979 bil
lion drachmas with a degree of certainty
95.45 percent, which means
that the
gross margin will
billion drachmas.
Minimum
GrossMarginExpected

3 l-,-,-1-1-1-1-1-1-r?
100 120 140 160

180

200

220

Figure 1: Standard deviation

(million drachmas).

240

260

280

of gross margin

not be less than

1.464

the other economic

results,
Considering
most
6
is
and
achieves
the
profitable
plan
a higher return on labor and capital in
income than the
and a higher-farm
five plans even though it is based
on the same fixed costs. More
specifically,

vested
other

INTERFACES16:4 8
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FARM PLANNING
the net profit

for plan

6 is 335,077 million

fact,

to 2,072 drachmas

creases

drachmas,
equivalent
or 95,197 drachmas
stremma
per
on each

ily member

per fam
farm of the

are family farms. On the other

the return on labor increases as
hand,

corresponds
hours, while
much
much

drachmas,

to 1,141 drachmas
the farm income

as 1,769 billion drachmas,

as 502,825 drachmas
per

which
per eight
increases as
or to as

use

productive
the capital invested.
A Comparison
of the Existing Plan,
E-V Plan, and the Linear and

plan

and

the mixed-integer
in the land area cov

plan
programming
ered by certain crops.

The E-V model

compared with
plan includes more wheat
the LP and MIP plans and more corn and

of

tomatoes.
the

However,

the E-V model

less land to tobacco

signs
be picked

and

as

to cotton

to

the
compared with
by machine
the MIP models.
Family labor,
farm owned machinery,
and the capital
a bit more effi
invested are all utilized

LP and
results

ciently by the LP and MIP plans through

the more

programs.

farm plan suggested

by the E-V
model
differs from the existing plan. It in
creases or decreases
the land area covered
The

the area cov

by some crops; specifically,
ered by corn, cotton to be picked by
In
hand,
sugar beet, and alfalfa increases.
contrast,
by cotton to be
for
picked by machine,
barley, tomatoes
These
decreases.
and
beans
processing,
lead to a better use of the family
changes
the area covered

the capital

(about four percent greater).

farm plan suggested
by the E-V
also differs from the linear pro

gramming

or expected with
the existing
plan and the plans suggested
by the E-V
and
the
the
model,
linear,
mixed-integer

and

is true for the profits

(about 20 per
cent greater),
the return on labor (about
five percent greater),
the return on capital
and
from 6.5 to 7.1 percent),
(increases

model

achieved

labor available

same

The

Plans

Program
Mixed-Integer
Table 4 shows the economic

are better

farm income

two members
for a family with
working
on the farm. Finally, the return on capital
to as much as 7.1 percent,
increases
a more

resources

Available

with
the expected
gross margin
three percent greater even though
it is based on the same fixed costs. The

family
on the farm. Farm in
working
come is the farm family's living; this liv
for a family
ing then is 502,825 drachmas
and 1,005,750 drachmas
with one member

shows

harvesters.

about

member

which

increases 0.6
of machinery
for
30
for sugar
tractors,
percent
percent
for corn
beet harvesters,
and 20 percent
utilized,

gion

as 1,170 billion

in
employment
while
annually,

the utilization

working
are significant be
These
region.
figures
cause the majority
of the farms in this re

much

the degree of family

about 6.1 percent

invested.

In

crops of tobacco and

productive
cotton. The gross margin
for the
expected
LP plan is 2,000.845 million
for
drachmas,
the MIP plan it is 2,000.573 million
drach
mas

and for the E-V model

million

drachmas

fixed costs. As

all based
a result

it is 1,978.546
on the same

of this difference,

the LP
higher profit is expected with
and MIP plans than with
the E-V plan.
This profit affects return on labor and
farm income
capital
The

slightly, while
remains unchanged.

farm plan

resulting

the return on

from the LP

July-August 1986 9
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MANOS, KITSOPANIDIS
Farm

and
Enterprises
Economic
Results

Farm Plans in Stremmas and Economic Results in 1,000Drachmas

_MIP

E-V_Existing_LP
A.

Farm Enterprises
1. Wheat
2. Barley
3.

38,068
1,458
2,391
18,983
26,256
5,258
25,213
6,620

Corn

4. Alfalfa
5. Alfalfa
6.

1
2

Tobacco

7. Cotton (hand picked)

8. Cotton (machine picked)
9. Sugar beet
10.

Tomatoes

11.

Beans

12.
13.
14.
15.
16.
17.
18.

Various
Peaches
Peaches
Peaches
Peaches

19.

Pears

20.

Pears

B. Gross Margin

2. Standard deviation

C.

Fixed

(ct?)

Return

= 95.45%

Costs

F.

Return

G.

Farm

on

Labor
per

tities

2,501

2,501

2,501

781
391

781

333

333

781
391
333

781
383
333

555

_167

_167

161,672

161,672

161,672

161,672

1,978,546.0
257,211.0

1,923,803.0
242,244.0

2,000,845.0
278,306.0

2,000,573.0
278,019.0

13.0

12.6

13.9

13.9

1,464,124.0
2,492,968.0

1,439,316.0
2,408,290.0

1,444,233.0

1,444,535.0

2,557,457.0

2,556,611.0

1,643,469.0

1,643,469.0

1,643,469.0

1,643,469.0

280,334.0

existing

357,104.0
1,191,790.0

7.1

6.5
1,705,447.0

1,769,440.0

of the E-V plan with

357,376.0
1,192,062.0

1,115,020.0
7.1

cent

compared with
it better utilizes

efficient

because

plans
the resources
(land, labor, machinery,
This is true under
available.
capital)
ditions

2,501

one and those suggested

7.1
1,783,108.0

1,783,380.0

by the linear and

Programs.

is the most

the other

504

504

2,437

1,169,763.0

Table 4: A comparison

model

21,600
1,458
2,391
20,284
26,795
32,610
25,638

2,437

335,077.0

on
Capital
Income

mixed-integer

20,658
1,458
2,391
20,309
26,813
33,385
25,544

2,437

coefficient

D. Net Profits
E.

23,790

(E)

1. E

4. Pr(E?2a?)

2,400

2,437
89

_167

Total

3. Variance

18,888
17,182
31,910
20,540
7,207
1,100
504

504

irrigated crops
(table) 1
(table) 2
(processing) 1
(processing) 2
1
2

Apples
Apples

29,005
1,441
26,385
1,458

29,667

con

for prices and quan

of certainty
used in the
of all parameters

are not
But these conditions
planning.
certain in actual practice; planning
agri
in this region is based
cultural production

on parameters
that are averages
for the
cannot
1976-81.
the
LP
So
period
plan
that the economic
results ex
guarantee
are
achieved.
the
other
On
hand,
pected
stable from
plan is more
and
both the technical
the economic
point
of view, because
it takes into account
the
the E-V model

variances
gins

and covariances

for the various

crops

of gross mar
in the period

INTERFACES16:4 10
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FARM PLANNING
In fact, the variance

1976-81.

in the E-V model

gross margin
plan is
13.0 percent
instead of 13.9 percent as it
is in the LP plan. This is true for the min
imum expected
(with 95.45
gross margins
of the two plans:
percent probability)
1.464 billion drachmas
for the E-V plan
and 1.444 billion
plan.
gin

for the LP

drachmas

gross mar
expected minimum
for the E-V model
plan will thus be
drachmas

than

higher

LP model
corresponding
plan.
minimum
gross margin
pected

The

V=

where

a 9= ( covic^Cj) i+]
i=j
\ var(c})
ex
and mutually
independent
r
of
size
of
gross margins
samples
r
of
for
each
(one sample
years
activity ;)
=
we take estimations
|x( E) and V
n
=
2 CjXj= ex,
|X

the

ex

of the E-V
nn

plan is higher than that of the LP plan;

therefore,

under

conditions

of risk and

the former must

uncertainty,
Conclusions

be chosen.
where

was

The E-V model

used

in farm plan
Macedonia

for a region in Central

(formerly the Lake of Giannitsa),

ning

lying area with

good

quality
that yield

a low

soil. The

the highest
crops
specifies
com
minimum
gross margin
expected
pared to the existing plan and those pro
duced by the LP and MIP models.
The

plan

model

is used

by the Greek agricultural

in collaboration with
the Agri

authorities
cultural

Economics
Research Department
to produce
regional farm plans for the
farmers to give them not just the highest
but also the most
stable economic
results.

APPENDIX
that c; represents
random
(1) Assuming
distributed
variables,
normally with mean
|x; and variance a2y, the total gross margin
=
(E ex) of the production
plan, as a linear
combination
of them, will follow a normal
with mean
distribution
n

[i= E(cx)

From

clusive

The

19,589 million

nn
= 22
Var(cx)
cr^Xy,

of the total

S
=
y l

=
XjE(c})

and variance

2
=
y l

Xjfy,

1
are

the

c;=

(Cu- ?,) . (Ck

s.y= -?\

of

estimates

i
r

cK;,

o-?,.

ct?

fc=l

is the expected
K=

c?)

l,2,...r

gross margin
is

the

observed

of activity
value

;.

of

of activity j on the year k of

gross margin
sample /.
the k plan xK> 0 of
(2) Algebraically,
E-V model
is optimum
if the conditions
of
are satisfied,
Kuhn-Tucker
that is, if there
is a vector yK> 0 such that
=
DxK
yKA
0
yK{AxK_b)_= =
0
(DxK -yKA)xK
where
is
vector
the
dual
of
values that
yK
to
the
of the E-V
constraints
correspond
a local opti
model.
This optimum
is
plan
if the function x'Dx is convex
then it is also the global
(i.e. x'Dx^O)
optimum.
(3) The set of efficient pairs-solutions

mum,

but

(E2,V2),..., presents
(?j,^),
increasing
followed by increasing
its
gross margin
variance
(Figure 2).

July-August 1986 11
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MANOS, KITSOPANIDIS
Uncertainty, Prentice Hall, Englewood
New

Jersey.
P. 1971,

Hazell,

?-\
>(0

ratic

and

farm

planning

"Linear

to

alternative

semivariance

quad
for

programming

under

Cliffs,

American

uncertainty,"

Journal of Agricultural Economics, Vol. 53, No.

53-62.

1, pp.
R.

and

How,
Gross Margin

certainty,"
E. Res.

A.
r)rr *

The

ratio ??->
dE

,which

rate of increase

gives

of the standard
=
of the gross margin
(v? \fV)
to the increase of gross margin
tive and greater
than one. This
that the rate of increase of the
than the rate of increase
higher
for high
gross margin, mainly
gross margin.
The selection
is achieved

Econ

New

Ithaca,

University,

York,

250.

Kitsopanidis, G. 1966, "Programming proce

dures for farm planning under variable

the

deviation
in relation
E, is posi
means
variance
of the
levels of

coefficients,"

input-output
nomic Review,

2, pp.

XXt|vlkt|

ming

1967,

"TeTpo^coviKo?

plan
ways:
from each farmer the
(a) by selecting
on the
him
suitable
for
depending
plan
in relation
desirable
level of gross margin
to its variance.
intervals
confidence
(b) by constructing
for the gross margin
of the production
the one whose
gross
plans and choosing
of
has the highest probability
margin
being positive.
or graphi
(c) by finding algebraically
the farm
cally the production
plan when
er's utility function
is known.
the second method,
(b), the most
Using
the probability
used,
Pr(E^O)
commonly
is calculated
for each plan with gross
E. Then a confidence
interval,
margin
which
the expected
includes
gross margin
E with a given probability
level, is con
is

B.

program

to Greek
Vol.

farming),

49, No.

1, pp.

Greece.
1984,

?)p7iKT|<;

vlt

(Quadratic

Economics,

19, Athens,

crrnv

<pap|uio7T|

?)p7ia"

An application

Agricultural

Manos,

257-274,

Greece.
G.

npO7pa|X|X0tTia^xo<;-MLa

is

Eco

Agricultural

11, No.

Vol.

Thessaloniki,
Kitsopanidis,

of the most efficient pair

in one of the following

structed. The most efficient plan then

has the
the plan whose
gross margin

of quadratic
un
under

planning
of Agricultural

Department

Cornell

omics,

"Use

1968,

in farm

programming

Figure 2: Standard deviation of gross margin

versus the level of the gross margin.

P.

Hazell,

"IIpo7pa|X|xaTicr|xo?
TTapa7<ji)7T|<; T <o<;Xl(xvt)s

(1)v" (Planning of agricultural

in Giannitsa

Lake

tion, Thessaloniki

Ph.D.

region),

University,

Tiav

production
disserta

Thessaloniki,

Greece.

Tinter, G. and Sengupta,

Economics;
Programming,

Stochastic

J. 1972, Stochastic

Processes,

Academic

and

Control,

Press,

New

letter from Elias Meletiadis,

York.

Director

of the Agricultural
Service of provincial
that "we have a close
confirms
Giannitsa,
contact with

the Department
of Agricul
tural Economics
Research
of the Univer

in regional farm
sity of Thessaloniki
This department,
using techni
planning.
cal and economic

data of this region,

farm plans which we

pares optimum
to apply in practice
local agriculturists

in collaboration
and

interested

farmers."

of being negative.
smallest probability
References
Fairer, D. F. 1962, The Investment Decision under

INTERFACES16:4 12
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All use subject to JSTOR Terms and Conditions

pre

try
with