Evaluation of factors influencing farm profit in extensive ruminant systems using structural equations

Extensive livestock farming in general is more sustainable than intensive methods. However, its profitability is usually low, which can affect the motivation of young people to take up livestock rearing, and often leads them to seek employment elsewhere. The aim of this paper is to study the factors affecting the Farm profit of extensive ruminant farms in marginal areas of Southern Chile. To achieve this, we used Structural Equation Modeling (SEM), which provides an in- depth view of the relationships of different variables (items) with Farm profit (target variable). The exogenous construct that we obtained (Structural variable), consisting of the items Grazing area, Hired labor and Total Livestock Units (LU), exerts a direct, significant explanatory influence on the endogenous construct (Economic variable), which includes the items Hay cost, Total sales and Economic records, showing a significant, positive slope in the target variable (Farm profit). These structural variables largely condition the entire economic process. However, business decisions linked to farm management influence structural factors and affect the value of income, expenditure and Farm profit. Studying the factors which influence Farm profit sheds light on the main weaknesses of the system in terms of the financial operation, as well as on potential improvements, encompassing the social, technical and environmental dimensions.