Farmer demand for financial record-keeping system attributes
Purpose – Investment decisions by agribusiness firms are costly and subject to high volatility and uncertainty. In many cases, the project value is not only determined by its cash-flows stream and financial side effects but also by the presence of substantial future uncertainty such as project implementation delay and growth opportunities. The purpose of this paper is to evaluate an agribusiness project taking into account these two options and to illustrate the how risks that evolve over time can affect sequential investment decisions in the oleic oil industry in Tunisia. Design/methodology/approach – The methodology used to capture the investment project value and analyze the impact of lags between the initial investment decision and its implementation on project value is based on a decision tree method and binomial lattice method (which adds growth option). The project valuation is based, first on actual data at the time of the initial decision and second the authors use the full information to report on the true value of the investment opportunity as real time evolved. Findings – Findings show that time to build is a very important factor in valuing an agribusiness especially when efficiency is strongly governed by climatic conditions and international market uncertainty. Our real options approach shows that production delays can deteriorate the follow-on project value by as much as 53 percent. The implicit growth option falls to only 27 percent of the total project value while it was about 58 percent according to the standard forecast. The delay in project implementation not only affects the firm project financing costs and the loss of revenue, but also it contributes to modify the initial marketing strategy. Originality/value – The paper is a first application of real option approach to the oleic oil industry. The methodology used in the paper can be adapted by practitioners and investors to adequately value oleic projects.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 71 (2011)
Issue (Month): 2 (July)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://emeraldgrouppublishing.com/products/journals/journals.htm?id=afr Email:
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- T.S. Jayne & Lawrence Rubey & Frank Lupi & David Tschirley & Michael T. Weber, 1996. "Estimating Consumer Response to Food Market Reform Using Stated Preference Data: Evidence from Eastern and Southern Africa," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(3), pages 820-824.
- Brian Roe & Thomas L. Sporleder & Betsy Belleville, 2004. "Hog Producer Preferences for Marketing Contract Attributes," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(1), pages 115-123.
- Wayne H. Howard & Glen C. Filson, 1994. "An Evaluation of the Ontario Farm Business Management Association Program," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 42(3), pages 327-341, November.
- Lawrence Rubey & Frank Lupi, 1997. "Predicting the Effects of Market Reform in Zimbabwe: A Stated Preference Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(1), pages 89-99.
- Wiktor Adamowicz & Peter Boxall & Michael Williams & Jordan Louviere, 1998. "Stated Preference Approaches for Measuring Passive Use Values: Choice Experiments and Contingent Valuation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(1), pages 64-75.
- Jayson L. Lusk & Darren Hudson, 2004. "Willingness-to-Pay Estimates and Their Relevance to Agribusiness Decision Making," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 26(2), pages 152-169.
- Maria L. Loureiro & Jill J. McCluskey & Ron C. Mittelhammer, 2003. "Are Stated Preferences Good Predictors of Market Behavior?," Land Economics, University of Wisconsin Press, vol. 79(1), pages 44-45.
- Tonsor, Glynn T. & Schroeder, Ted C. & Fox, John A. & Biere, Arlo W., 2005. "European Preferences for Beef Steak Attributes," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 30(02), August.
- Jayson L. Lusk & Jutta Roosen & John A. Fox, 2003.
"Demand for Beef from Cattle Administered Growth Hormones or Fed Genetically Modified Corn: A Comparison of Consumers in France, Germany, the United Kingdom, and the United States,"
American Journal of Agricultural Economics,
Agricultural and Applied Economics Association, vol. 85(1), pages 16-29.
- Lusk, Jayson L. & Roosen, Jutta & Fox, John A., 2001. "Demand For Beef From Cattle Administered Growth Hormones Or Fed Genetically Modified Corn: A Comparison Of Consumers In France, Germany, The United Kingdom, And The United States," 2001 Annual meeting, August 5-8, Chicago, IL 20684, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
- Arne Risa Hole, 2006.
"A comparison of approaches to estimating confidence intervals for willingness to pay measures,"
008cherp, Centre for Health Economics, University of York.
- Arne Risa Hole, 2007. "A comparison of approaches to estimating confidence intervals for willingness to pay measures," Health Economics, John Wiley & Sons, Ltd., vol. 16(8), pages 827-840.
- Gloy, Brent A. & Hyde, Jeffrey & LaDue, Eddy L., 2002. "Dairy Farm Management and Long-Term Farm Financial Performance," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 31(2), October.
- Cummings, Ronald G & Harrison, Glenn W & Rutstrom, E Elisabet, 1995. "Homegrown Values and Hypothetical Surveys: Is the Dichotomous Choice Approach Incentive-Compatible?," American Economic Review, American Economic Association, vol. 85(1), pages 260-66, March.
- Karen Blumenschein & Magnus Johannesson & Glenn C. Blomquist & Bengt Liljas & Richard M. O’Conor, 1998. "Experimental Results on Expressed Certainty and Hypothetical Bias in Contingent Valuation," Southern Economic Journal, Southern Economic Association, vol. 65(1), pages 169-177, July.
When requesting a correction, please mention this item's handle: RePEc:eme:afrpps:v:71:y:2011:i:2:p:259-276. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Louise Lister)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.