Facing a free trade agreement: Monte carlo analysis of small dairy farms in costa rica

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Author: 
Víctor Rodríguez Lizano and Mercedes Montero Vega
Abstract: 

Small dairy farms in Costa Rica are the most common; nonetheless milk and dairy industrialization is owned by few companies with large market power. The imminent entry to a free market, due to the Free Trade Agreement with United States, dairy imports are expected to increase in the upcoming years. This research analyzes through a Monte Carlo simulation, the probabilities of small and medium farmers to have higher internal return rates than their capital cost, variables considered for analysis were prices paid to farmers and price of urea, since feed costs are 51.82% of total production costs. Results show how when both, prices paid to farmers and prices of urea change according to their historical behavior and deviations, there is a 38.4% probability farmers would have losses according to an estimated 11.9% capital cost.

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