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W.E.Holmes Principal Agricultural Economist DPI&F, PO Box 1085, Townsville, Qld 4810

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A HERD BASED APPROACH TO COMPARATIVE DCF ANALYSIS OF GLM OPTIONS FOR BEEF CATTLE ENTERPRISES USING BREEDCOW & DYNAMA SOFTWARE. W.E.Holmes Principal Agricultural Economist DPI&F, PO Box 1085, Townsville, Qld 4810. INTRODUCTION.

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A HERD BASED APPROACHTO COMPARATIVE DCF ANALYSISOF GLM OPTIONS FOR BEEF CATTLE ENTERPRISESUSING BREEDCOW & DYNAMA SOFTWARE

W.E.Holmes

Principal Agricultural Economist

DPI&F, PO Box 1085, Townsville, Qld 4810

introduction
INTRODUCTION

Breedcow and Dynama herd budgeting software is usedto predict and improve the profitability of extensive beef cattle enterprises – or to measure the $ sacrifice of implementing change to achieve environmental outcomes.

Breedcow & Dynama begin with herd structure and turnoff, then builds on the financial outcomes

Breedcow & Dynama applications include:

  • scenario development over time (10 yrs), and
  • stable state modelling of start and endpoints
  • investment analysis (DCF) of change based on comparisons of “do nothing” versus “change”
the process
THE PROCESS

Using Breedcow or Bcowplus program, develop a stable state representation of the herd before implementing the change

Again, with Breedcow or Bcowplus develop a stable state representation of the herd in 10 year’s time both without and with the change.

In Dynama, by transferring Breedcow or Bcowplus file components, develop “do nothing” and “change” scenarios for years 1 – 10, and (optionally) for years 11 – 20.

By transferring Dynama file components to the Investan program, compare year-by-year cash flow and terminal asset values for either a 10 year or 20 year period.

Note the outputs of NPV, IRR, annualised return, peak deficit & payback period.

For socially desirable but unprofitable change, determine the value of incentives needed to make the change acceptable.

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Evaluating Change

Using Breedcow and Dynama

Scenario Budget (Dynama “change” file)

“Change”

(after 10 yrs)

Now

(Define with Breedcow, transfer to Dynama)

Benefits

“Do nothing”

(after 10 yrs)

Costs

Scenario Budget (Dynama “do nothing” file)

applications
APPLICATIONS
  • Testing Grazing Land Management (GLM) strategies for profitability
  • Analysis of weed control proposals e.g. AA Coy woody weed program $2m+ approved by Board after IRR estimate > 12%
  • Evaluating property purchase or improvement, or changes to husbandry or marketing practices
  • Calculating breakevens for biodiversity or conservation tender schemes
conclusion it s not just the bottom line
CONCLUSION:IT’S NOT JUST THE BOTTOM LINE
  • Economics is not about money – it is about choice in the face of resource scarcity
  • Outcomes from change can be of at least three types:
    • Things we can measure and value
    • Things we can measure but not value
    • Things we can neither measure nor value
  • If we mistake the “bottom line” for the decision, then we base our decisions on only one of the three outcomes
  • Conventional discounted cash flow analysis DOES enable us to measure $ sacrifices against desired outcomes that cannot be valued or perhaps even measured, and thus enables us to calculate breakevens for conservation oriented tender schemes.
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