Rural Industries Research & Development Corporation

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Please note: In additon to the full report which you can download as a self-extracting zip file (3.4 megs), you can also download software in the form of Excel files to help make site-specific analyses for an actual investment (you will need Excel 97 or later, along with a working knowledge of the application - instructions are included in each spreadsheet) .

Executive Summary

This report is a stage II investigation following on from Financial Analyses of New Rural Industries, completed by Hassall & Associates for the Rural Industries Research & Development Corporation (RIRDC) in November 1998 and published in March 1999.  This study, Financial Analyses of New Rural Industries Stage II, examined 11 new industries and two benchmark industries utilising a two stage model developed for the Stage I report.  The first stage of the model provides preliminary static state analysis of financial viability.  The second stage of the model is a 20 year discounted cash flow that analyses the industries in terms of Net Present Value (NPV), Benefit-Cost Ratio (BCR), Internal Rate of Return (IRR) and the break even year. The table below outlines the results for the thirteen  industries examined.

 

Industry	NPV	BCR	IRR (%)	Break Even Point (years)
Wine Grapes	$814,072	1.56	13	13
Treasury Bonds	$9,596	1.13	7	20
Red Deer	$673	0.97	7	20
Alpaca	$357,235	1.30	12	13
Dairy Goats	$258,249	1.41	28	6
Emu	$1,216,217	1.37	27	6
Culinary Herb	$892,406	1.57	46	4
Medicinal Herb	$240,723	1.25	23	7
Persimmon	$12,722	0.99	8	20
Durian	$2,791,349	2.46	25	11
Jojoba	$858,047	1.63	16	11
Sesame	$234,048	1.40	16	9
South African Proteaceae	$211,861	1.08	10	17

All results are indicative of how the analysed new industries may perform in circumstances similar in size, variety, location, farming practices and price.  For individual enterprise opportunities the parameters used in the analysis should be varied to suit the particular circumstances.  This report also addresses the issues to be considered for the third stage of the model which involves site specific considerations for an actual investment.
 

1. Introduction
1.1 Purpose
The following report is the Stage II investigation of Financial Analysis of New Rural Industries.  The Stage I investigation was completed by Hassall & Associates in November 1998.  Stage I involved the formulation of a three part financial evaluation model and analysis of ten new rural industries.  This study builds on that work and analyses a further set of 11 new rural industries and contrasts them against two investment benchmarks.

1.2 Background
The New Rural Industries Financial Indicators was released by RIRDC at the ABARE OUTLOOK 99 conference.  Subsequent interest in both the method of analysis and the industries used as case studies has resulted in RIRDC commissioning a second series of case studies.

In addition, it was recognised that the value of the financial indicators provided could be enhanced by applying the analysis method developed for new industries to an established enterprise.  The resultant financial indicators would act as a benchmark for evaluations.

1.3 Study Approach
This study was divided into 5 key stages:
 

• Consultation with RIRDC with regard to selection of new and emerging enterprises and benchmark enterprises to be analysed;
• Data collection from past studies completed by both Hassall & Associates and RIRDC, industry associations, representatives and government agencies such as NSW Agriculture;
• Analysis of the enterprises using the financial evaluation model developed in the Stage I investigation;
• Review of analyses by relevant industry authorities; and
• Provision of conclusions and discussion.


1.4 Method of Analysis
This study uses the method of analysis as developed in The New Rural Industries Financial Indicators study.  As with the first investigation, allowance in the model is made for both crop and livestock enterprises.

The method comprises three stages.  Stage One uses a static analytical framework, which facilitates data collection and acts as a first round approval hurdle: should adverse indicators be produced in the first stage, the second stage of analysis becomes unnecessary.   Stage Two requires a more thorough set of data and models the timing of investment in a more realistic manner.  In this stage, the analysis is structured around a horizontal cash flow layout, with annual time steps and a maximum evaluation period of 20 years.  The third stage involves site specific considerations for an actual investment and this stage is triggered by positive second round findings and an actual investors interest in proceeding.

An explanation of the stage three approach is provided below. In order to develop the most applicable methodology for financial analysis, other industries were studied.
 
 

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Last updated: 23 February 2001
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http://www.rirdc.gov.au/reports/AFT/00-133.html