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Is Growing Oranges in Florida a Good Investment?
Author(s) -
TrejoPech Carlos J O,
Spreen Thomas H,
Zansler Marisa L
Publication year - 2018
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1093/ajae/aax107
Subject(s) - orange (colour) , internal rate of return , agricultural economics , economics , rate of return , investment (military) , return on investment , sowing , agricultural science , business , production (economics) , finance , horticulture , environmental science , macroeconomics , biology , politics , political science , law
We provide a financial model to evaluate an orange grove investment in Florida, the producing region supplying around 90% of U.S. domestic production of orange juice. A representative orange grower planting early‐mid varieties for the processed market is featured in the case. The study assumes that an existing grove has become disease‐infested to a degree that there is little, if any economic value in maintaining it. The grower is left with the choice to replant the grove or to convert the land to other uses. The replanting baseline model yields a 9.7% Modified Internal Rate of Return (MIRR) and the Monte Carlo simulation shows that MIRR is equal or higher than the 7.5% hurdle rate around 81% times the model is simulated. The risk of managing an orange grove is higher than a decade ago mainly due to the presence of citrus greening, a disease that reduces yields and degrades fruit quality, causing variability in productivity and operating costs. Opportunities for growers include planting incentive programs implemented by both the government and major citrus processors and from policy changes such as the possibility of changes in depreciation of new investment for income tax purposes. Readers of this case study are expected to challenge the assumptions of the financial model and consider additional elements of risk and opportunities on their assessment of the potential orange grove investment.