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SPIS Toolbox - Basic decision-making tools
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1. Basic Decision-Making Tools
An investment decision usually requires an assessment of whether the investment is feasible. This due diligence process will minimize the risk of losing any funds committed to the investment. In essence, this means: if I invest my capital, will I increase my capital, or at the very least avoid losing my capital?
A solar powered irrigation system (SPIS) is generally a long-term investment choice to reduce farm operating expenses or increase agricultural productivity or both. This requires an understanding of the farm enterprise, as a business, in terms of all costs and incomes. The INVEST – Farm Analysis Tool, contained in this Toolbox on SPIS, allows for conducting an assessment on farm profitability. It provides entry sheets for adding various farm expenses and incomes and automatically calculates the farm profit margin. It also highlights which fixed and variable costs are most prominent and where savings could have a significant impact. The tool generates a Farm Income Statement, which can be presented to a lending institution.
The tool is useful for:
- Determining the current level of profitability (pre-investment base line)
- Determining the anticipated profitability of the investment (post-investment projection)
Even when the profitability of the farming enterprise is confirmed, however, this does not automatically imply that an investment into an SPIS is the most sensible choice. This is especially true if other pumping technologies are readily available on the market. A Diesel or Grid-connected eletric pump might be more feasible where water pumping is only required for a limited time per year. The INVEST – Payback Tool considers and compares solar powered irrigation systems with other pumping technologies. Basic data is collected from technology suppliers and the payback period against the farm profit and the different technologies is automatically calculated.
Outcome/Product
- Assessing pre-investment and post-investment profitability;
- Determining most financially viable pumping technology option.
Data Requirements
- Current farm expenditure and income;
- Projected farm income and expenditure;
- Capital costs (capex) for different pumping technologies;
- Operating expenses (opex) for different pumping technologies
- Interest rates from lending institutions
- Inflation and fuel increase rates
People/Stakeholders
- Financial service providers;
- Associations of producers / potential borrowers;
- Technology providers.
Important Issues
- An annual re-evaluation of farm profitability allows for monitoring improvements, recognizing risks timely and identifying future investment opportunities.
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