Returns to Farmer Investments in Precision Agriculture Equipment and Services

Swinton, Scott M.; Ahmad, Mubariq

doi:10.2134/1996.precisionagproc3.c124

Cited by 9 publications

(4 citation statements)

References 1 publication

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“…Operational planning (the lowest stage) focuses on the day-today scheduling of harvest machines and determining how to meet delivery demands (e.g., Epstein et al [66]). Traditionally, DCF analysis has been used to evaluate the forest planning, including investment in conservation tillage (Stonehouse,[67]), precision agriculture [68,69], technology adoption [70], new crop varieties and rotations [71,72], extension programs [73], and the value of ecosystem services and environmental restoration [74][75][76][77].…”

Section: Identifying Transformations Options Of a Forest Companymentioning

confidence: 99%

Valuing Forestry Agronomic Potential under Seasonal Mean-Reverting Prices

León

Marin

Toscano

2023

Forests

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In the valuation of forest resources, the alternative use of the land is one of the central themes. In most cases it is made without taking into account the uncertainty and the possible flexibility of the alternative use. Within these alternatives, the strategy of shifting to a more profitable and sustainable crop is a well-studied topic in forest research. Although the transformation opportunity could add great value to the project, the valuation of this flexibility is obviated by traditional discounted cashflow criteria (NPV). The application of real options theory (ROT) makes it possible to assess this flexibility based on the uncertainty that the transformation entails. However, the hypotheses that are made about the future evolution of the underlying asset, in this case the value of the new crop, may condition the precision of the result. Usually some researchers model these conversions under the hypothesis of geometric Brownian motion (GBM), hypotheses that are not plausible when the new crop has a strong seasonal component. In this work, an adapted model framework is proposed to evaluate forest transformation opportunity into another crop when land use has both high agronomic potential and high seasonal component, a context in which classic real options framework is not applicable. As a work based on a theoretical model, after methodological motivation, the strawberry crop is chosen as alternative due to its seasonal component. Using private data for this crop, we model through the Ornstein–Uhlenbeck process, with mean-reversion (MR) to a seasonal component, and then we use of Longstaff and Schwartz’s algorithm to calculate the option value. The results show that when considering flexibility in option valuation it leads to an increase on the return of more than 4%. Furthermore, robustness analysis evidence shows that option value is very sensitive to seasonal component, reinforcing previous evidence that suggests that the MR process offers a more accurate and appropriate valuation over the traditional GBM in the arena of agronomic potential valuation. Specifically, the result of valuing this transformation through the MR process is between 1.5 and 1.7 times the value of the NPV, which results in approximately a 13% annual return. If GBM had been used, the valuation would have been a 72% annual return, an unrealistic result in this context, due to the non-consideration of the seasonal mean-reverting prices process.

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Section: Identifying Transformations Options Of a Forest Companymentioning

confidence: 99%

Valuing Forestry Agronomic Potential under Seasonal Mean-Reverting Prices

León

Marin

Toscano

2023

Forests

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“…The assessment focused on the relation between the intra-and inter-season economic benefits of VRA adoption, and on the total investment costs in relation to the amortization of equipment. The relative advantage (Robertson et al, 2012) in terms of income risk reduction or environmental benefits, as done by Swinton and Ahmad (1996), was not explored.…”

Section: Quantifying the Relative Advantage Of Vra Adoptionmentioning

confidence: 99%

Opportunities for variable rate application of nitrogen under spatial water variations in rainfed wheat systems—an economic analysis

et al. 2022

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In fields of undulating topography, where rainfed crops experience different degrees of water stress caused by spatial water variations, yields vary spatially within the same field, thus offering opportunities for variable rate application (VRA) of nitrogen fertilizer. This study assessed the spatial variations of yield gaps caused by lateral flows from high to low points, for rainfed wheat grown in Córdoba, Spain, over six consecutive seasons (2016–2021). The economic implications associated with multiple scenarios of VRA adoption were explored through a case study and recommendations were proposed. Both farm size (i.e., annual sown area) and topographic structure impacted the dynamics of investment returns. Under current policy-price conditions, VRA adoption would have an economic advantage in farms similar to that of the case study with an annual sown area greater than 567 ha year−1. Nevertheless, current trends in energy prices, transportation costs and impacts on both cereal prices and fertilizers costs enhance the viability of VRA adoption for a wider population of farm types. The profitability of adopting VRA improves under such scenarios and, in the absence of additional policy support, the minimum area for adoption of VRA decreases to a range of 68–177 ha year−1. The combination of price increases with the introduction of an additional subsidy on crop area could substantially lower the adoption threshold down to 46 ha year−1, making VRA technology economically viable for a much wider population of farmers.

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“…Weiss (1996) registers several benefits of precision farming: increased crop yields, applying inputs and minimizing cost through improved process control and reducing relocation of agrochemicals to the environment. Swinton and Ahmad (1996) classified benefits into: those that affect profitability; those that affect business risk; those that affect environmental quality. Profitability depends on the extent of spatial variability of soil conditions, the size of a field and uncertainty about output and input prices (Murat and Madhu, 2003).…”

Section: Economic Studiesmentioning

confidence: 99%

“…Profitability depends on the extent of spatial variability of soil conditions, the size of a field and uncertainty about output and input prices (Murat and Madhu, 2003). The increased income from improved yields combined with improved input control could give gross margin benefits within seasons (Swinton and Ahmad, 1996).…”

Section: Economic Studiesmentioning

confidence: 99%

Precision Farming – Concepts and Perspectives

Beluhova-Uzunova

Dunchev

2019

Problems of Agricultural Economics / Zagadnienia Ekonomiki Roln

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The development of technologies in the 20 th century led to evolution of precision agriculture concept. Nowadays, precision farming is usually associated with the use of GPS and satellite navigation, GIS, unmanned airplanes and drones, variable rate of application, as well as complex and sophisticated computer systems and software. On the other hand, the main question is related to the profitability and efficiency of these technologies and the opportunities for their adoption. The main purpose of the research is to investigate the most popular concepts of precision farming and to analyze the technical and economic efficiency of different technologies based on literature review. The results indicate that the adoption of precision farming technologies is closely related to the farmer's perception of and needs for institutional support. The promotion of precision farming under the Common Agricultural Policy is necessary in order to overcome the number of economic and environmental challenges and ensure sustainable development and green growth.

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Returns to Farmer Investments in Precision Agriculture Equipment and Services

Cited by 9 publications

References 1 publication

Valuing Forestry Agronomic Potential under Seasonal Mean-Reverting Prices

Valuing Forestry Agronomic Potential under Seasonal Mean-Reverting Prices

Opportunities for variable rate application of nitrogen under spatial water variations in rainfed wheat systems—an economic analysis

Precision Farming – Concepts and Perspectives

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