Strategy evaluation based on rate of return figures in agricultural business planning

Increasingly difficult conditions within the agricultural sector require models for business planning which allow strategic alternatives to be compared. In the agricultural sector, quantitative business planning is often limited to cost calculation systems. However these methods do not sufficiently take into account cash flows and changes in the value of business assets. This paper presents a whole-business model for calculating profitability figures on the basis of the internal rate of return. It enables strategic alternatives to be evaluated consistently. Moreover, it also allows account to be taken of the often neglected interactions between the business sphere and the agricultural budget. Due to the importance of non-remunerated production factors in the agricultural sector, the data are aggregated at several levels. First, the components which influence payments are considered. In further steps calculation-related. components, such as labour time of family members or the agricultural land owned by the enterprise, are also included. The concept is illustrated using a model farm which is considering expansion through leasing of additional land.