'n Ekonomiese evaluering van alternatiewe spilpuntbeleggingstrategiee in die Suid-Vrystaat substreek met inagneming van risiko
Meiring, Jan Andries
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The lack of reliable procedures for the economic evaluation of centre pivot investment alternatives results in unsatisfactory research results in respect of the economics of irrigation on the one hand, and often causes irrigation farmers to make investment decisions that are economically inefficient and financially unfeasible on the other hand. The purpose of the study was to develop and illustrate a scientific procedure to evaluate the economic profitability and financial feasibility of alternative centre pivot investments in the Southern Free State subregion, taking risk into account. There are approximately 112 land owners in the area studied, and approximately 80 per cent of the 8 500 hectare of scheduled irrigation area is under centre pivot irrigation. Data was collected by means of the group discussion and the Delphi technique. Data was also generated by means of the PUTU crop growth simulation model. The research methodology entailed, firstly, the development of a cost-accounting procedure for centre pivots which took the technical aspects of the systems into account. Eighteen representative centre pivot systems were compiled and designed for the southern Free State subregion. After irrigation costaccounting was done for all the systems, economic profitability analyses were carried out by means of the net presentvalue technique. Given a crop rotation system of wheat, maize and cotton, the economic analyses for a period of fifteen years were made and repeated twenty times for each investment alternative. Production and price risk were taken into account in the analyses by simulating yields and making time series analyses. The net benefit investment ratio was used to rank the centre pivot systems according to relative profitability. Subsequently financial profitability analyses for six profitable centre pivot investments were made by applying the cash flow technique. Finally risk efficient investment strategies were selected by means of stochastic dominance criteria. The main result of the study was that a procedure for the economic evaluation of appropriate centre pivot investment strategies was developed whereby irrigation farmers and advisers can analyse the economic profitability and financial feasibility of centre pivot systems satisfactorily. In general the objectives of the study were achieved to a sufficient extent. A cost-accounting procedure was developed that took the technical properties of centre pivot systems into account fully. Fixed and variable cost, as well as the marginal factor cost of centre pivot irrigation, can be estimated by hand method or computer programme for new or existing centre pivot systems. Eighteen typical centre pivots ranging in size form thirty to sixty hectare, with application capacities of 8 mm, 10 mm and 12 mm and pumping heights of -15 m and 10 m were developed for clay and sandy soils in the study area. An increase in pumping height and capacity led to higher fixed and variable costs, while clay soils also had higher irrigation costs than sandy soils. All eighteen typical centre pivot systems in the Southern Free state were economically profitable. A sixty hectare system with a static height of -15 m and a capacity of 12 mm on sandy soil under irrigation was the most profitable centre pivot investment with an aggregate net present value of R 563 238. Production and price risk caused big differences in the net present value that can be expected. Two of the six selected profitable centre pivot systems are financially unfeasible if a cooperative loan for a period of five years at an interest rate of 19,75 per cent is used. The probabilities that a cash flow deficit will occur during the five years of the investments are 65 and 70 per cent and the deficit can amount to R 20 678. Risk-efficient investment strategies were selected by means of first order stochastic dominance. The most important implication of the study is that the economic and financial analyses of the economics of irrigation must be extended to a total farm level.