Donald W. Reid

A Farm Firm Model of Machinery Investment Decisions

This article presents a multiperiod mixed integer programming (MMIP) model of optimal machinery decisions. Infinite horizon valuation models of replacement and other investment situations are conceptualized in the context of a finite programming model. Dual properties of the MMIP model are used to identify and value opportunity costs involved in investment decisions of farm machinery. The interdependent nature of investment and production relationships necessary for solving these values emphasizes the importance of a holistic firm perspective in analyzing farm machinery investment strategies. An empirical situation is used to demonstrate model application.

Consideration of Investment Tax Credit in a Multiperiod Mathematical Programming Model of Farm Growth

Marginal federal income tax rates on farm firms have been increasing due to higher taxable incomes from increasing farm size, increasing off-farm income of farm families, and inflation. Krause and Shapiro and Barry (p. 29) have noted that agricultural economics research on the impact of these increased taxes is limited. The investment tax credit is a provision of federal income tax law that has received especially limited research attention. Kay and Rister analyzed the impact of this provision on beef cattle replacement, and Chisholm considered its impact on farm machinery decisions. However, the investment tax credit has not been considered in mathematical programming models of farm firm growth in the same manner as other income tax provisions (Vandeputte and Baker, Barry and Willmann). The purpose of this paper is to present a method of incorporating investment tax credit provisions in a multiperiod mathematical programming model. Specific objectives include: review of the theory of capital budgeting in reference to the investment tax credit, consideration of a tax submatrix for a programming model which includes investment tax credit, and presentation of an empirical example.

New maize technology in Zaire: An application of risk analysis

Abstract The risk associated with new maize technology and the impact of mandatory cotton production on traditional farmers in the Kasai Oriental Region of Zaire were evaluated using stochastic dominance analysis. Net returns for four levels of maize technology for the primary and secondary rainy seasons were evaluated in combination with three staple food crops for four cropping systems with and without mandatory cotton cultivation. The results indicate that cropping systems including new maize technology are first-order stochastic dominant in both seasons, over cropping systems using local maize. Also, the increase in expected net returns for new maize technology appears to compensate farmers for its increased variability; and mandatory cotton production is not risk efficient at current price and yield levels.

Using breakeven methods to assess financial feasibility in food processing firms: A case study in pecan shelling

Linear and nonlinear cash breakeven analyses are applied to a pecan shelling firm to assess the feasibility of acquiring a long-term loan for operating capital. The linear analysis is used to find effects of varying volume under average price conditions. The nonlinear breakeven is developed and applied to capture the effects of changing margins due to aggregate production changes. Combination analyses are used to examine effects of changes in market share and aggregate production.

Opportunities for leasing in the broiler industry

This study develops theoretical models of leasing from the perspectives of both the lessor and lessee. The models address effects of tax distortions and imperfect debt markets on the value of leasing. Analysis of the broiler industry shows that leasing is an important financing consideration for broiler houses and equipment which can benefit both the lessor and lessee because of the tax and debt market environment.