Financial Risk Analysis for a Specialized Dairy Farm Project and Impacts of Government Interest Rate Subsidies

Juan Antonio Martinez Becerra () and Kathleen Salazar-Serna ()
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Juan Antonio Martinez Becerra: Pontificia Universidad Javeriana
Kathleen Salazar-Serna: Pontificia Universidad Javeriana

A chapter in Operations Research and Analytics in Latin America, 2023, pp 49-60 from Springer

Abstract: Abstract The increased popularity of specialized dairy farms, mainly in the Colombian Andean region, represents an investment opportunity and a contribution to national agricultural growth. In this way, the effort to strengthen the livestock legacy, especially by young entrepreneurs, focuses on technified facilities that bet on improving production conditions for farmers, but at the same time, that contribute to the development of the local dairy industry. On the other hand, the dealers of dairy products, together with government entities, have been improving conditions for their producers through financial facilities and incentives for good livestock practices. It seeks to encourage interest in investment in Colombian agriculture, especially in dairy farms. This work aimed to evaluate the financial feasibility of the installation and operation of a specialized dairy farm in Colombia. Based on projected cash flows, financial evaluation criteria were calculated for two credit line scenarios. Additionally, through the use of the RiskSimulator simulation software, risk analysis, and a sensitivity analysis were carried out to evaluate the cash flows from the investor's perspective, as well as to identify the critical variables for the success of the project. The results indicated the feasibility of implementing the dairy unit from the investor's perspective, using the government financing option (Finagro). It was also identified that the costs related to cattle feeding, the sale price of milk, and the amount of milk produced are the variables to which the project indicators are most sensitive. Therefore, they are generating the greatest source of volatility in the project.

Keywords: Financial feasibility; Dairy farming; Simulation; Risk analysis; Sensivity analysis (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/978-3-031-28870-8_4

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