Investment in curing units for Virginia-type tobacco

Ricardo Luiz Boettcher

Revista IPecege, 2017, vol. 3, issue 1

Abstract: Tobacco farming in the Southern region of Brazil is based on an integrated production system. Throughout the production process, there is a need to use curing and drying units (greenhouses), which represents a costly investment for the producer. Two greenhouse systems predominate, operating differently: conventional greenhouses (natural air convection) and those with forced air circulation. The forced circulation system is the preferred model for producers who choose to make new investments. The decision to invest demands a careful analysis of economic viability by the producer to minimize the risk of indebtedness. The objective of this study was to determine the financial viability of tobacco curing units under financing modalities with rural credit interest rates and subsidized rural credit interest rates. The financial tools used were Net Present Value [NPV], Internal Rate of Return [IRR], simple payback, and sensitivity analysis of the investment in relation to the productivity variable (kg ha⁻¹ ) . Using a minimum attractive rate of return [MARR] of 7.16%, the investment does not present economic viability in either of the two interest rate options, considering the historical average productivity, the selected greenhouse model, and the amortization period. Sensitivity analysis confirmed productivity (kg ha -1 ) as a determining factor in the project's viability. An increase of >10% in average productivity reverses the situation, and the project becomes economically viable in both amortization interest rate options.

Keywords: Crop; Production/Industries (search for similar items in EconPapers)
Date: 2017
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