Publications - Faculty - Recently Submitted Faculty Publications 2010
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Morris - Journal of Agricultural and Applied Economics
Optimal Asset Replacement under Conditions of Technological Change: The Case for Advanced Citrus Production Systems to Mitigate Endemic Citrus Greening
Robert A. Morris, Ronald P. Muraro, and William S. Castle
Abstract.Prior to the discovery of HLB, or citrus greening, in Florida in 2005, resetting diseased/unproductive trees was usually the most economically viable strategy to maximizing the economic life of citrus groves. In some situations, replanting the grove was required but the replanting decision was obvious since the grove had probably been destroyed from a freeze, hurricane or been removed as part of the canker eradication program. However, the introduction of endemic greening into Florida citrus groves has made the grove replacement decision critical to maximizing the profitability and economic life of citrus groves.
It is assumed that the grower’s objective is to maximize the net revenues generated by the operation of a citrus grove and its replacements over their lives. For grove replanting decisions, this objective is best accomplished through marginal analysis, where the net revenues from operating the grove for another season are compared with the opportunity to earn higher future net revenues that would be initiated by replanting the grove during that season. Quantifying the value of the opportunity to earn higher future net revenues involves the annualization of the value of a stream of net revenues that also depends on the future replacement policy for the replanted grove. The optimum economic life of a citrus grove (or any revenue-generating asset with declining net revenues at some point) cannot be determined in isolation from the economic life of each replacement grove extending as far into the future as the firm’s planning horizon. Thus, the rate of attrition of the replacement grove and its replacement will affect the optimum time to replace the existing grove.
Expected fruit prices, yields, tree attrition rates, and operating costs for both the existing grove and the replacement grove are all key variables that affect optimum replacement times. Also, capital required for replanting and any other variables that will affect the performance of the replacement grove must be included in the analysis. Thus no industry-wide grove replanting policy can be developed from this model.
This analysis showed that replanting HLB-infected groves to advanced production systems (APS) groves gives the grove perpetual life if tree resetting is practiced and an economic life greater than 25 years, if resetting is not practiced. Thus, APS technology offers the potential for growers to economically survive until a cure is found for HLB
