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What Is Making Vineyard Investment in Northwest Victoria, Australia, Slow to Adjust?

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  • Seyoum-Tegegn, Emayenesh
  • Chan, Chris

Abstract

This paper reports a use of the real-options valuation methodology to analyze wine grape vineyard investment under price and yield uncertainty. Threshold annual rates of revenue per hectare to trigger entry and exit, respectively, were calculated for three different sizes of wine grape vineyards in northwest Victoria, Australia. The modeling identified lower exit and higher entry triggers than would be indicated by a conventional approach that ignores the uncertainty underpinning adaptive investment decisions. Between these triggers is a relatively wide gap of estimated indeterminacy in vineyard investment that highlights the intertwined influence of numerous economic factors—cost structure, economies of scale, market volatility, transaction costs, and sunk and salvaged asset valuation. Drawing on these determinants of vineyard investment and disinvestment, the paper discusses the role of investment incentives in affecting industry transformation and the scope for policy intervention to assist structural adjustment of the wine grape sector. (JEL Classification: C61, G11, I25, Q12)

Suggested Citation

  • Seyoum-Tegegn, Emayenesh & Chan, Chris, 2013. "What Is Making Vineyard Investment in Northwest Victoria, Australia, Slow to Adjust?," Journal of Wine Economics, Cambridge University Press, vol. 8(1), pages 83-102, May.
    • Handle: RePEc:cup:jwecon:v:8:y:2013:i:01:p:83-102_00
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    Cited by:

    1. Seyoum, Emayenesh & Karanja, Francis, 2014. "Investment decisions of dairy farmers in south-west Victoria under price and yield uncertainty," 2014 Conference (58th), February 4-7, 2014, Port Macquarie, Australia 183419, Australian Agricultural and Resource Economics Society.
    2. Raisa Pérez-Vas & Javier Hervés-Estévez & María Dolores Garza Gil & Raquel Fernández-González, 2024. "Valuation of an innovative investment project using real options approach: A case study of a viticulture company in Spain," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 70(2), pages 91-100.

    More about this item

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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