Investment Appraisal Process in Agricultural Projects and Its Profitability

Abstract

This research examines large-scale cereal production schemes (wheat, barley, and corn) in the Karabakh region in Azerbaijan, a key cereal production area, contributing around 15% of the country’s yearly wheat production through highly scientific techniques of investment appraisal. The research uses the exponential smoothing state-space (ETS) method in combination with yield analysis for the prediction of future harvests and income streams. Afterward, the research uses the cost-benefit approach in calculating the benefit measures (NPV, IRR). At the beginning of this research, the findings show high economic feasibility, including, for example, cumulative schemes like land restoration and modernization of irrigation systems, where the Internal Rate of Return is around 13.8% and the Net Present Value is strongly positive at the 7%-10% discount rate. Improved irrigation technology (pivot, drip irrigation, etc.) increases the efficiency rate of irrigation and production, and the use of precision agriculture technologies (Variable Rate Input Application, Global Positioning System guidance, etc.) minimizes costs through optimized inputs. The presence of government assistance in the form of subsidies for machinery and irrigation, high-quality seeds, and insurance cover increases the project feasibility, since high-quality inputs have already considerably elevated the production of cereals in the non-irrigated lands.