A Real Options Approach To Evaluating Agricultural Investments Under Uncertainty: When To Get In And Out Of Sugarcane Production
Journal Title: SocioEconomic Challenges (SEC) - Year 2018, Vol 2, Issue 1
Abstract
This case study presents an application of the Real Options approach to evaluate a farming enterprise under sugarcane in the lower Herbert district of north Queensland, Australia. It demonstrates how this approach may be used to calculate the value of a farming enterprise using real-world data as well as the critical prices at which it is optimal for the farm operator to exercise managerial options in order to maximise the value of their investment. In practical terms, this information is useful to assist farmers to make optimal decisions regarding whether or not to plant their field crops for the current season and at which price it is worth considering alternative uses for their crop land, such as rotating their crops or converting their land for other industrial uses. Results of the case study indicate that the value of the 99.25 ha cane enterprise in 2011-12 sugar pric-es was $1,380,000, which amounts to $13,904 per hectare ($5,629 per acre), and the average value of the enterprise over the period 1998-99 to 2011-12 was $762,500, which amounts to $7,683 per hec-tare ($3,110 per acre). The critical price at which to cease farming operations is shown to be $15.75 per tonne of cane (IPS sugar price of ~$188/t), while the price at which to recommence operations is $24.14 per tonne of cane (IPS sugar price of ~ $286/t). A significant finding from the case study is that the critical price to abandon sugarcane production on a previously decommissioned cane farm turned out to predict remarkably well a period of low sugar prices during which sugarcane growers within neighbouring districts actually exercised their option to exit the industry and the land was con-verted to managed-investment forestry schemes.
Authors and Affiliations
Marcus Smith
Keywords
Related Articles
- EP ID EP452532
- DOI 10.21272/sec.2(1).21-34.2018
- Views 121
- Downloads 0
Decoupling CO2 Emissions in Nordic countries: Panel Data Analysis
The paper summarizes the principal notions of Kuznets hypothesis and Environmental Kuznets Curve as well as their implications in Nordic countries as examined by eminent scholars.The survey of huge literatures on this is...
Evaluation of Applications of Sustainable Agricultural Development in Iraq
Iraq is situated in the Southwest Asia. It is one of the Middle East countries at latitude 33°19′15.60″ north, longitude 43°48′07.20″ east, in the Northern hemisphere. The major challenge for Iraq is the food security, w...
How To Do India Is An Enigma: A In-Depth Look Into Indian Workers, Consumers And Its Business Culture
India is making a transition from an underdeveloped country to a fast developing country. The economy has taken off in last 20 years and GDP growth has averaged over 7% in last ten years. It is expected to have the third...
Trade Liberalization – Labor Productivity Nexus: The Case of Sub Saharan Africa
This paper summarizes the arguments and counterarguments within the scientific discussion on the weak growth of labor productivity in poor but open economies. The main purpose of the research is to estimate the welfare e...
Modeling efficiency of the State Financial Monitoring Service in the context of counteraction to money laundering and terrorism financing
This article considers the peculiarities of scientific and methodical approach construction to the evaluation of the State Financial Monitoring Service effectiveness as a component of the national system for Prevention a...