The uncertain analysis of micro agricultural project investment

Abstract：We conduct uncertain analysis of micro agricultural project， including the break-even analysis of single product micro agricultural project， the boundary break-even points analysis of the double product micro agricultural project. We find out the critical point and the critical line of the break-even. We analyze the ability to resist risk. This analyses help the micro agricultural project’s investors to price reasonably， forecast the earnings and make the correct decision.

Keywords：uncertainly analysis； break-even analysis； risk analysis

I. HEADING

Micro agricultural projects are the agricultural projects that are engaged in the production of the single or double product with the small scale of production. The uncertainly analysis of output and price of the micro agricultural projects can help the investors to price reasonably， forecast the earnings and make the correct decision.

Uncertainty is the possible result that the decision maker couldn't know it in advance exactly. In terms of the risk management， that is break-even level for the financial situation in the future. The uncertain analysis is based on the scientific methods to calculate how the different uncertain factor makes effects on the cost-effectiveness， to forecast the ability against the risk of the investment project， thereby help to make the right decision of investment project and to forecast the possible situation in the future and to support the investment project to avoid the risk and cut loss.

The most common uncertain analyses are： the break-even analysis， the sensitivity analysis and the probability analysis. The break-even analysis also is called the volume-cost profit analysis， that is to analyze the critical point of the output and the price when the cost and revenue reach equilibrium to judge the uncertain factors on the impact of the project economic effects. The sensitivity analysis is the incidence of the economic evaluation index to find the sensitivity factors of the project and put forward the specific measure to help the project decision.

The probability analysis is to research the probability distribution of the different variety uncertain factors and the influence of the economic effects to make the correct judge of the risk situation. This article chooses to adapt the break-even analysis to make the uncertain analysis of the micro food firms.

II. THE BREAK-EVEN ANALYSIS

A The fundamental assumption of the break-even analysis

The pitch of the break-even analysis is the income equal to spending that is the cost equal to profit. The fundamental assumption of the break-even analysis：1 the output equal to the sales， that are collectively known as production and sales；2/the cost could be divided into the fixed cost and the variable cost 3.the price did not change in a certain time and a certain production and sales.4.the rate of the production sales did not change in a certain time and a certain production and sales.

B The analysis of the break even point

The break-even analysis normally uses the assumption to analyze one product and calculate the critical point of various indicators when it got the break-even. Take the agricultural firm for example， throw into the buildings， purchase the equipment and the apply for building the firm， totally are F yuan. the salary are counted by the piece G yuan one piece. The cost of one piece material is V Yuan， the rate of every piece of product is R% of the sales price， and the price is P Yuan one piece， the production and sales is Q， so we can make the break-even equation： P×Q =F+（G+V+P×R%）×Q， one equation to solve one unknown， through the break-even equation we can calculate the critical point of variable， such as the critical point of the price： p=（F+GQ=VQ）/[（1-R%）×Q]； The critical point of the fixed cost is： F=PQ-（G+V+P×R%）×Q

The critical point of the production and sales are ：Q=F/（P-G-V-P×R%） and so on.

C The boundary of the break-even

When the agricultural firm produces two productions， the break-even analysis can not calculate the critical point of the variable productions directly， but we can analyze through the mechanism of the break-even to find the break-even areas， to support the firm to make the right decision. example if one firm product A、B two productions， the fixed cost of A is F1， and the variable cost is V1， the production and sales are Q1； the fixed cost of B is F2， and the variable cost is V2， the production and sales are Q2； the rate are R%， so we can got the break-even identical equation： （P1×Q1+P2×Q2）（1-R%）=F1+V1×Q1+F2+V2×Q2. the fixed cost is certain and known， the variable cost such as the cost of labor and the cost of material， we can got it from the old data and experience， those can be treated as the constant in the equation. So the identical equation only has P1、P2、the production and sales Q1、Q2 are uncertain one， they need to make the uncertain analysis. If the price of A、B are certain ，so we can got the linear of the production and sales ： （P1×Q1+P2×Q2）（1-R%）-F1-F2=V1×Q1+V2×Q2， the line is the critical line of the and sales break-even ， if it is in the first quadrant area price it is the profit area， the triangle AOB in the left is the loss area.， it is the production and sales at the boundary that make the firm could make the break-even. If the production and sales are reasonable ， they are the same. With the price given as an example， if the production Q1 is X， production Q2 is Y， then the function is F1+F2=[P1×（1-R%）-V1] ×X+[P2×（1-R%）-V2] ×Y， others are known except the X，Y， so we can get the straight line， as shown in the picture 1， then the coordinate of A、B is：{（ F1+F2）/[P1×（1-R%）-V1]，0}，{0，（F1+F2）/[P2×（1-R%）-V2]}.The production could not be the negative value， so the line should be the segment.

As shown in the Figure 1

III. APPLICATION EXAMPLE

Take the example of one strawberry planting specialist in Changsha： the farmers rent dozens of acres of farmland near the farmers to plant strawberry to reach a certain scale of planting， they have two kinds of taste， one is the sweet strawberry and other is the milk chocolate strawberry.

According to the interview survey， the cost includes： （1） strawberry seed procurement costs： to ensure the production of strawberry， each year need to purchase the strawberry seeds； （2）： leased land： rent expenditure； （3） cost of labor： hire temporary workers to fertilize the strawberry， pull the old leaf， scaffolding and so on； （4） facilities cost： film， scaffold， fertilizer applicator， applicator， hoeing tool； （5） the drug： the cost of manure organic fertilizer and the pesticide chemicals expenditure. In addition to production and sales volume and price uncertainty， other data could get from the past planting experience， in this case we do not consider the tax. The data are shown in Table 2：

（a） Considering the break-even balance of only one product alone

According to the calculation of unit area， take the sweet strawberry as an example， the break-even balance equation：

3000+1000+10000+3000+2000=PA ×QA （1）

If the calculation is according to the minimum yield of 1500 kg， the break-even price PA* =12.7 （yuan / kg）， as long as the sales price reached 12.7 yuan per kilogram that we can guaranteed， every kilograms of sales price is higher than 12.7 yuan can profit. Similarly， according to the lowest selling price 20 yuan per kilogram， the break-even production QA *is 950 kg： QA * =950 （kg）， namely we can balance if the production and sales volume get to 950 kg. Because of the calculation break-even point above are the conservative values， and the calculated production and sales and prices are lower than the lowest one， that means the investment risk is low. At the same time， through the break-even analysis， we can not only calculate the critical production， price， also can find the main ways of reducing risk -- to reduce the unit cost.

（b）Considering the break-even balance of two species

The total cost of sweet strawberry unit is 19000 yuan， the milk strawberry is 24000 yuan， the break-even balance equation：

19000×12+24000×10=12×PA ×QA +10×PB ×QB （2）

If the price is established， according to each product minimum sales price ， the prices were substituted into equation （2）， we can get：

468000= 240× QA +300 ×QB （3）

Intersection of straight line and vertical coordinates， the abscissa is A and B， A coordinates as： （0，1560）； B （1950，0）， because of strawberry A、B yield were no more than 2500 kg and 2000 kg，

The Break boundaries Fig. 2：

We can got 3 conclusions from the fig.3：

Conclusion one： All of the points （QA， QB） that fall in the straight line are the profit and loss equilibrium of two strawberry.

Conclusion two： 468000= 240 ×QA +300 ×QB ， the line is a boundary of the profit and the loss . If the outputs of two kinds of strawberry fall in the left of regional boundaries， the project is loss， if the outputs of two kinds of strawberry fall the right of regional boundaries， then the project is profitability.

Conclusion three： when the point （QA， QB） is away from the straight line， and the outputs are constantly improved， the earnings will continue to expand.

The actual situation will be some different from the theory. In fact， the outputs may not be less than or equal to 0. According to the instance data， we can get the fig.4

IV. THE BREAK-EVEN PIONT RISK ANALYSIS

According to the known data and the break-even analysis， we can calculate and get the break-even production and the break-even price ， it will benefit the investors to make reasonable price and forecast profit； Through analyzing cost-volume-profit， it will conducive the strawberry planting investors to understand well the impact of the cost of profit， and take targeted measures to reduce the cost and increase profit space. At the same time， calculating break-even point can provide the basis for anglicizing the ability of adaptability evaluation and project risk. Taking it as an example， 3000+1000+10000+3000+2000=PA×QA， if the lowest price is 20 yuan per kilogram， the break-even output will be 950 kilograms， it is less than the minimum value of the forecast output， the risk degree is zero.

In conclusion， the agricultural investment project is carried on the project break-even analysis and uncertainty analysis， it not only can calculate break-even yield， determine the breakeven price， profit forecast and so on； it can also be used for risk analysis and risk probability calculation for the selection of projects and provide us with the data for reasonable risk aversion.

Reference

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