The Financial Valuation Risk in Pepper Production: The Use of Decoupled Net Present Value

Josefa López-Marín, Amparo Gálvez, Francisco M. del Amor and Jose M. Brotons
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Josefa López-Marín: Department of Crop Production and Agri-technology, IMIDA, 30150 Murcia, Spain
Amparo Gálvez: Department of Crop Production and Agri-technology, IMIDA, 30150 Murcia, Spain
Francisco M. del Amor: Department of Crop Production and Agri-technology, IMIDA, 30150 Murcia, Spain
Jose M. Brotons: Department of Economic and Financial Studies, Miguel Hernández University, Elche, 03202 Alicante, Spain

Mathematics, 2020, vol. 9, issue 1, 1-19

Abstract: Greenhouse peppers are one of the most important crops globally. However, as in any production activity, especially agricultural, they are subject to important risk factors such as price fluctuations, pests, or the use of bad quality water. This article aims to evaluate the viability of these types of crops by using discounted cash flows. Risk evaluation has been carried out through the analysis of pepper plantations for 2016 and 2017. The traditional application of this tool has significant limitations, such as the discount rate to be used or the estimation of future cash flows. However, by using discount functions that decrease over time in combination with decoupled net present value, these limitations are expected to improve. The use of decoupled net present value has permitted an increase in the accuracy and quantification of risks, isolating the main risks such as price drops (EUR 3720 ha −1 year −1 ) and structural risks (EUR 1622 € ha −1 year −1 ). The use of decreasing discount functions has permitted a more realistic investment estimation. Finally, the sensitivity analysis shows that decoupled net present value (DNPV) is little affected by changes in interest rates in contrast to traditional net present value (NPV).

Keywords: pepper; risk; decoupled net present value; discount function (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2020
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