Premium
INVESTING IN GRAIN STORAGE FACILITIES UNDER FLUCTUATING PRODUCTION *
Author(s) -
Brennan Donna C.,
Lindner Robert K.
Publication year - 1991
Publication title -
australian journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.683
H-Index - 49
eISSN - 1467-8489
pISSN - 0004-9395
DOI - 10.1111/j.1467-8489.1991.tb00503.x
Subject(s) - investment (military) , production (economics) , capital investment , capital cost , capital (architecture) , business , natural resource economics , supply and demand , industrial organization , environmental economics , economics , agricultural economics , microeconomics , finance , history , archaeology , politics , political science , law , macroeconomics
Fluctuating annual harvest volumes create a peak load problem in the provision of grain storage capacity. There are a number of technologies for handling and storing grain, ranging from capital intensive to labour intensive methods. Optimal provision of grain storage capacity can therefore be analysed in the framework of the conventional peak load pricing model. An investment model of grain storage is outlined and the optimal technology choices are determined according to simple investment roles. Capacity of the more capital intensive storage types should be only provided if the extra capital cost is justified by the saving in operating costs, which depends on the expected utilisation of storage. Some level of supply failure is justifiable. An examination of grain storage costs in Western Australia revealed that horizontal storage was the best technology for dealing with most grain storage demand at sites where turnover is limited In the receival period. This concurs with the general investment choices in Western Australia. However, there appears to be a high level of overcapacity at many sites, implying that the cost of supply failure is perceived to be greater than the marketable value of the grain.