Economic appraisal of production flexibility in different regions of the Brazilian sugar and ethanol industry
PDF
PDF (Português (Brasil))

Keywords

Agricultural commodities
flexible production
real options
recombinant binomial tree
bivariate binomial tree.

How to Cite

Pantoja, D. E. L., Samanez (in memory), C. P., Castro, J. G., & Aiube, F. L. (2016). Economic appraisal of production flexibility in different regions of the Brazilian sugar and ethanol industry. Review of Business Management, 18(60), 226–244. https://doi.org/10.7819/rbgn.v18i60.2867

Abstract

Purpose – The main goal of this study is to demonstrate the value of flexibility within sugar and ethanol production. We use real data for the Southeast and Northeast regions of Brazil, which are subject to different taxes rates.

Design/methodology/approach – The framework of this study is based on Real Options valuation. We valued the option to switch between sugar and ethanol production. The dynamics of prices was based on the recombinant trees of Nelson and Ramaswamy (1990) and on the bivariate trees of Hahn e Dyer (2011). Empirical data is from the Center of Advanced and Applied Economic Studies (CEPEA), ESALQ-USP, from May/2003 through July/2014. Prices were deflated using the Brazilian Price Index (IGP-DI), available at the Ipeadata site based on July/2014.

Findings – The results show that, in both regions, flexible systems have greater value than those that produce only one product. Southeast plants exhibit greater value added if compared with Northeast plants, not only because of lower taxes, but also due to higher productivity.

Originality/value – This paper quantifies value added by the flexible system in the production of sugar and ethanol in two Brazilian regions subject to different taxes. Moreover, it demonstrates that regulators can use policies and incentives to establish flexible plants. In this way, both producers and fiscal authorities will achieve greater gains.

https://doi.org/10.7819/rbgn.v18i60.2867
PDF
PDF (Português (Brasil))

If a paper is approved for publication, its copyright has to be transferred by the author(s) to the Review of Business Management – RBGN.

Accordingly, authors are REQUIRED to send RBGN a duly completed and signed Copyright Transfer Form. Please refer to the following template: [Copyright Transfer]

The conditions set out by the Copyright Transfer Form state that the Review of Business Management – RBGN owns, free of charge and permanently, the copyright of the papers it publishes. Although the authors are required to sign the Copyright Transfer Form, RBGN allows authors to hold and use their own copyright without restrictions.

The texts published by RBGN are the sole responsibility of their authors.

The review has adopted the CC-BY Creative Commons Attribution 4.0 allowing redistribution and reuse of papers on condition that the authorship is properly credited.