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An Ex Ante Assessment of Investments in Texas Grapefruit under Uncertainty

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  • Elmer, Nicole A.
  • Thurow, Amy P.
  • Johnson, Jason L.
  • Rosson, C. Parr

Abstract

The Dixit-Pindyck model was applied to examine the hypothesis that uncertainty associated with grapefruit production costs and returns is an important determinant of Texas grapefruit growers' investment behavior. Freezes, price variability, and the effects of expanded trade were analyzed as risk factors. An investment decision rule based on a net-present value calculation would approve a 25-year commitment to a 20-acre grapefruit grove, given a 6-percent discount rate. The modified hurdle rate, calculated using an ex ante version of the Dixit-Pindyck model, is 24 percent. The major source of the risk borne by Texas grapefruit investors is from freezes, rather than from expanded trade.

Suggested Citation

  • Elmer, Nicole A. & Thurow, Amy P. & Johnson, Jason L. & Rosson, C. Parr, 2001. "An Ex Ante Assessment of Investments in Texas Grapefruit under Uncertainty," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 33(3), pages 391-401, December.
    • Handle: RePEc:cup:jagaec:v:33:y:2001:i:03:p:391-401_02
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    Cited by:

    1. Davis, Kathy J. & Thornsbury, Suzanne & Ward, Ronald W., 2002. "Consolidation In The Fresh Florida Grapefruit Packing Industry," 2002 Annual meeting, July 28-31, Long Beach, CA 19815, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Twine, Edgar E. & Omore, Amos & Githinji, Julius, 2018. "Uncertainty in milk production by smallholders in Tanzania and its implications for investment," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 21(01).
    3. Wenbo Zhang & Wilbert Wilhelm, 2011. "OR/MS decision support models for the specialty crops industry: a literature review," Annals of Operations Research, Springer, vol. 190(1), pages 131-148, October.
    4. Hardmann, PA & Darroch, MAG & Ortmann, GF, 2003. "Evaluating Potential Investments In The Pink Lady Apple Cultivar Under Uncertainty And Irreversibility," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 42(3).
    5. Thornsbury, Suzanne & Davis, Kathy J. & Ward, Ronald W., 2005. "Fresh Grapefruit Supply-Chain Adjustments: Consolidation in Produce Packing?," Journal of Food Distribution Research, Food Distribution Research Society, vol. 36(3), pages 1-12, November.
    6. Lindsey, Jeanne K. & Duffy, Patricia A. & Nelson, Robert G. & Ebel, Robert C. & Dozier, William A., 2009. "Evaluation of Risk Management Methods for Satsuma Mandarin," 2009 Annual Meeting, January 31-February 3, 2009, Atlanta, Georgia 46754, Southern Agricultural Economics Association.
    7. Lima, Dmitry & Colson, Gregory & Karali, Berna & Guerrero, Bridget & Amosson, Stephen & Wetzstein, Michael, 2013. "A New Look at the Economic Evaluation of Wind Energy as an Alternative to Electric and Natural Gas-Powered Irrigation," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 45(4), pages 739-751, November.

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