A Stochastic Budgeting Analysis of Three Alternative Scenarios to Convert from Beef-Cattle Farming to Game Ranching

• Published in: Agrekon 2007-12, Vol.46 (4), p.514-531
• Main Authors: Grové, B, Taljaard, P R, Cloete, P C
• Format: Article
• Language: English
• Subjects: Agricultural economics; Agricultural management; Beef; Business strategies; Cattle; Farmers' income; Farming; Financial feasibility; Game ranching; Profitability; Risk simulation; South Africa
• ISSN: 0303-1853; 2078-0400
• DOI: 10.1080/03031853.2007.9523784

The main objective of this paper is to evaluate the profitability and financial feasibility of three alternative scenarios to convert from beef-cattle farming to game ranching. The analyses acknowledge the importance of quantifying the probability of failure or success when making investment decisions. Risk is incorporated into a standard net present value analysis using risk simulation. De-trended historical auction prices of live game and on-the-hoof prices of weaner cattle were used to quantify price variability. The stochastic net present value analyses indicate that game ranching is more profitable than cattle farming. Although an investment in a limited number of common game species is financially feasible, the cash flow analysis indicates a decreasing probability of making more money with game when annual cash flows are compared to those generated by means of cattle farming. Both the high-value game species scenarios are financially unfeasible during the first five years. These infeasibilities stem from a high probability of not covering instalments to finance game purchases, the extent to which these instalments are not covered, and the high probability of shortfalls in consecutive years.