La Hacienda Musa

1625 Words Dec 14th, 2012 7 Pages
La Hacienda Musa1
La Hacienda Musa was a long way from Leuven, Belgium. But for Maria Keller, the transition was as natural as it could be. She had spent twenty years in Leuven studying banana genetics at the Catholic University of Leuven’s Laboratory of Tropical Crops, the world center of banana research. She had learned about the challenges the banana-growing industry faced from a variety of diseases, why bananas seemed to be especially susceptible, and how difficult it is to develop new strains of the world’s most popular fruit. But after two decades of study, Maria was ready for something new. She did her homework, packed her few possessions, and headed to her newly purchased banana plantation in Costa Rica. To say that La Hacienda
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The price (paid to the grower) for conventional bananas was normally distributed with a mean of $220 per tonne and a standard deviation of $28 per tonne. Because large yields for La Hacienda Musa tended to occur at the same time as large yields from other banana plantations, large yields tended to correspond to lower market prices. Thus the market price was negatively correlated with Maria's yields for conventionally grown bananas, having a correlation coefficient of -0.50. Organic bananas would sell at a premium over conventional bananas, but how much this premium would be was uncertain. Maria thought the percentage premium would have a lognormal distribution with a mean of 15% and standard deviation of 2.5%. (A premium of 5%, for example, meant that the price paid for organic bananas would be 5% more than the price for conventional bananas.) This premium depended mainly on market factors – how many growers were in the organic business, consumer demand for organic produce – and was independent of all of other uncertainties Maria faced. Finally, the costs associated with growing bananas were uncertain and approximately normally distributed with a mean of $1800 per hectare and a standard deviation of $300 per hectare. Because the uncertainty in growing costs was primarily due to labor rates and water use, the growing costs were identical under the two growing methods. These costs were uncorrelated with the other uncertainties. Maria

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