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Is Growing Oranges in Florida a Good Investment?

Author

Listed:
  • Carlos J O Trejo-Pech
  • Thomas H Spreen
  • Marisa L Zansler

Abstract

We provide a financial model to evaluate an orange grove investment in Florida, the producing region supplying around 90% of U.S. domestic production of orange juice. A representative orange grower planting early-mid varieties for the processed market is featured in the case. The study assumes that an existing grove has become disease-infested to a degree that there is little, if any economic value in maintaining it. The grower is left with the choice to replant the grove or to convert the land to other uses. The replanting baseline model yields a 9.7% Modified Internal Rate of Return (MIRR) and the Monte Carlo simulation shows that MIRR is equal or higher than the 7.5% hurdle rate around 81% times the model is simulated. The risk of managing an orange grove is higher than a decade ago mainly due to the presence of citrus greening, a disease that reduces yields and degrades fruit quality, causing variability in productivity and operating costs. Opportunities for growers include planting incentive programs implemented by both the government and major citrus processors and from policy changes such as the possibility of changes in depreciation of new investment for income tax purposes. Readers of this case study are expected to challenge the assumptions of the financial model and consider additional elements of risk and opportunities on their assessment of the potential orange grove investment.

Suggested Citation

  • Carlos J O Trejo-Pech & Thomas H Spreen & Marisa L Zansler, 2018. "Is Growing Oranges in Florida a Good Investment?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 100(2), pages 625-639.
    • Handle: RePEc:oup:ajagec:v:100:y:2018:i:2:p:625-639.
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    File URL: http://hdl.handle.net/10.1093/ajae/aax107
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    References listed on IDEAS

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    1. Trejo-Pech, Carlos Omar & Spreen, Thomas H. & House, Lisa A., 2018. "Florida's Natural and the Supply of Florida Oranges: Case Study," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 21(3), March.
    2. Farnsworth, Derek & Grogan, Kelley A. & Bruggen, Ariena H.C. van & Moss, Charles B., 2014. "The Potential Economic Cost and Response to Greening in Florida Citrus," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 29(3), pages 1-6, September.
    3. Moseley, Katrina R. & House, Lisa & Roka, Fritz M., 2012. "Adoption of Mechanical Harvesting for Sweet Orange Trees in Florida: Addressing Grower Concerns on Long-Term Impacts," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 15(2), pages 1-16, May.
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    Cited by:

    1. Carlos Omar Trejo-Pech & James A. Larson & Burton C. English & T. Edward Yu, 2019. "Cost and Profitability Analysis of a Prospective Pennycress to Sustainable Aviation Fuel Supply Chain in Southern USA," Energies, MDPI, vol. 12(16), pages 1-18, August.
    2. Trejo-Pech, Carlos Omar & Spreen, Thomas H. & House, Lisa A., 2018. "Florida's Natural and the Supply of Florida Oranges: Case Study," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 21(3), March.

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