José Contreras S.

, MSC

FORMULATION AND
EVALUATION OF
PROJECTS
AGRICULTURAL
PROLOGUE

The agricultural project is often defined as the instrument that

it allows estimating the economic-financial advantages and disadvantages, derived from
assign resources for the production of agricultural products.

This definition in conceptual terms encompasses the decision that will analyze the
advantages and disadvantages of investing existing resources, within the economy
it has multiple destinations.

The technique of formulation and evaluation of agricultural projects makes it possible to

rationalization and optimization of the scarce resources of a country dedicated to

The production of goods leads to the selection of prosperous investment alternatives.

Since the Training and Evaluation of Agricultural Projects is an activity

interdisciplinary that requires a team of engineers, economists,
administrators, public accountants, this book is aimed at everyone
university professionals in the country, linked to the agricultural sector. The
The book has a practical approach; its purpose is to guide professionals towards the
Formulation and Evaluation of Agricultural Projects according to the requirements
of the financial institutions in the agricultural sector.

The formulation and evaluation of a project before making investments is,

if not absolutely essential for achieving efficient and economical use
of capital and increase the chances of an execution in accordance with the plan
expected.

If the projects are not carefully prepared in all their essential parts
an ineffective investment will almost inevitably occur, a waste, which is
tragic for those countries or companies with scarce capital.

However, experience indicates the excessive frequency of projects in the country.

poorly conceived and hastily planned that are almost improvised upon
the ground, with fatal consequences for financial entities.

Agricultural Engineer Belkis Silva

INDEX

2
INTRODUCTION 5
Agricultural Projects 6
General concepts 6
Formulate a project 6
Evaluate a project 7
Types of projects 8
Classification of the projects 8
Origin of the projects 9
Characteristics of the agricultural project 10
Differentiating characteristics of the study levels of a project 13
Component elements of an agricultural project 14
AGRONOMIC DIAGNOSIS 19
MARKET STUDY 29
The demand in the project study 30
Stages of a market study 31
Demand Analysis 31
Demand projection 32
Analysis of the offer 38
Analysis of prices 39
Marketing Study 40
Concepts and generalities of Economic Engineering 42
AGROECONOMIC PLANNING 52
FARM PROJECTION AND PHYSICAL RESOURCES PLAN 54
INVESTMENT PLAN AND SCHEDULE 57
DEBT SERVICE 60
FINANCIAL PROTECTION OR CASH FLOW 63
FINANCIAL EVALUATION 65
Net Present Value (N.P.V) method 65
The Internal Rate of Return (IRR) 67
ECONOMIC EVALUATION 72
Cost-benefit relationship 74
SOURCES AND USES OF FUNDS 75
DEPRECIATION 78

3
STATEMENT OF PROFITS AND LOSSES 80
STATIC PROFITABILITY 82
CALCULATION OF BREAK-EVEN POINT 82
SENSITIVITY ANALYSIS 83
CONCLUSIONS 84
BIBLIOGRAPHY 85

INTRODUCTION

4
Investments in the rural sector have shown an increase in recent times.
years, as a consequence of the credit policies implemented by the
democratic governments, this has resulted in the necessity to create techniques of
development, selection, and monitoring of economic feasibility projects.
Financial, to prevent that the financial resources dedicated to agriculture are
incorrectly inverted. Hence, it is necessary to advance in the
technical perfection, having an organic instrument that rationalizes these
resources that are currently limited due to the economic situation of
country, this implies a collection and organization of the existing material, to
unify valid criteria throughout the country.

Filling this function is the objective of this book. Consequently, it does not intend
be original, although the simple task of sorting, compiling, of material
being scattered always involves effort and meticulous work that has its
value.

As a compilation, contributions from many authors and publications are collected from the

financial entities of the State, the author's experience in the different courses
dictated throughout the country.

This work has been made possible thanks to the support they have received in the
participants of extension courses.

To the national universities that have taken it as a guiding text, in suspension.

studies and all those professionals who have made suggestions to him.

I am sure that this book 'Formulation and Evaluation of Projects'

"Agricultural" fills a significant need, and in that regard, it will become
in a reference book for students and professionals connected with the
agricultural activity.

José Contreras Salas

AGRICULTURAL PROJECTS

General concepts

5
 The development of projects has a technical-administrative instrument and
of economic-social evaluation, both from the private point of view and from
public point of view. It then represents a logical and rational method that
replace the intuitive or empirical procedure that is generally used in the
investment decisions or others.

A project has been defined as a set of background information that allows

estimate the economic advantages and disadvantages that arise from assigning certain
resources of a country for the production of certain goods or services.
definition is, in this sense, the justification of a production program
a good or service and is also a technical-administrative mechanism that allows
minimize the inherent risks of the investment decision.

Agricultural Project:

It is the instrument that allows estimating the advantages or disadvantages.

economic implications that arise from allocating financial resources for production of
agricultural goods and aims to minimize the risks involved in investing resources
scarce.

Formulate a project

To establish a plan for all future activities that will be carried out
in the production unit in order to optimize the use of the factors of the
production (Land, labor, capital). The formulation can plan the
the most suitable combination of means of production through better
work methods, rational use of inputs, optimal use of machinery
and teams.

Optimize

It is the appropriate combination of the means of production (land, labor

of labor, supplies, capital) to reduce costs.

6
 The formulation of an agricultural project is the most important phase because
What is the poorly formulated project or necessarily when it reaches the
evaluation, the analyst will realize that this does not fit the parameters
used and (IRR, Static Profitability, NPV) and has to reformulate the
project.

To avoid this setback, it is recommended that efforts be made.

necessary to make a good formulation. The formulation of a project
part of the agronomic diagnosis up to the debt service table

Evaluate a project

It is to evaluate according to a scale of values (pattern) in order to compare.

their merits and justify to the financial organization the execution of the investment

Evaluating a project means verifying if it is feasible from the perspective

financial, allocating scarce resources to the production of agricultural items. In
In Venezuela, two types of evaluation are used: financial and economic.

Financial: it is the one used by most private financial institutions.

including the World Bank to evaluate agricultural projects, the criteria that
use are the following: Net Present Value (N.P.V), Internal Rate of Return
(T. I. R.), Static Yield and Capital Recovery.

Economic: it is the one used by public state agencies to evaluate.

projects from a social perspective, that is to say projects that cannot be
evaluate from a financial perspective.

The criterion used is the benefit-cost ratio (B/C)

Types of projects

Macro projects are those that encompass an area, a region, a state or the
country as a whole, is developed by a multidisciplinary team of
university professionals. In Venezuela, these are prepared by

7
CORDIPLAN, FUDEPO, CORPOZULIA, CORPOLLANOS, etc., for example the
next macro projects: URIBANTE-CAPARO, ZULIA COAL.
MILK OF THE WESTERN PLAINS, PIAR OF THE QUIBOR VALLEY,
etc.

Micro projects are those that encompass a production unit.

certain. They are made by one or two university professionals, by
example: projects for the production of fruit trees, aloe, annatto, etc.

Classification of the projects:

The projects will be classified as agricultural, livestock, mixed, industrial,

agro-industrial, tourist. In this book, only the projects will be analyzed.
agricultural.

Agricultural projects are those that are oriented towards the

production of agricultural items, for example: fruit project, sugar cane,
cacao, zabila, etc. These can be from Foundation, when the unit of
The credit applicant's production is not developed and requests resources.
financing to start production activities, generally these
only land is owned in some cases tractors, sheds, houses and
implements.

Consolidation, when the production unit requesting credit is

in operation and requests money for its expansion. For both projects
(foundation and consolidation) it is necessary to review the instructions of the
financial institutions to see what the credit conditions are and the
financing items.

In the case of borrowers from the Agricultural Credit Fund, it is

It is important to review the instructions for processing credit applications.
in force, which regarding fruit trees indicates the following:

Farms in foundation

Term: up to 15 years

8
Grace Years: up to 5 years

Deferred interests: up to 5 years

Coverage: up to 60%

Farms in consolidation:

Term: up to 15 years

Grace years: up to 3 years

Coverage: up to 60%

Financing items

- Deforestation and land leveling

- Irrigation, drainage, and land sanitation infrastructure
- Establishment and maintenance of the plantation
- Acquisition of machinery and equipment
- Main and worker housing
- Project cost (up to 2%)
- Technical assistance (up to 3%)

Origin of the projects

The nature of a country's planning largely depends on two

factors: its institutional structure and the stage of development it is in.
consequence, these factors are also determining the origin of the
projects like this many projects. They have their origin, whether in the plans
development integrals, in public investment plans or simply
it appears in a fragmented form according to the stage of development it is in
and according to its institutional structure.

The sectoral planning bodies (national or regional), son

those in charge of identifying projects in order to eliminate points of
strangulation of basic sectors, better utilize resources or to
introduce agrarian reform programs, colonization, extension, etc.
9
 A second source of projects is found in the results of
economic and technological research. These studies can be conducted by
public, private or mixed organisms.

Market studies, especially those conducted by the sector

private as a response to price, fiscal, exchange, financial stimuli
or of another nature constitutes another important source of projects. The company
private conducts this type of studies considering the possibilities of increase
export, import substitution, growth of demand
substitution of artisanal production by industrial and others of a similar nature.

Finally, there is another source of projects that is quite common in our

countries. It refers to those projects that arise from pressures of a natural nature
political or social, whether internal or external, for example, the problem of the
unemployment, land tenure, and other similar issues create pressures that
They force the government to study and identify concrete projects.

Characteristics of the agricultural project:

Agricultural projects do not differ at all from the basic concepts described in
The previous paragraphs. They have, however, certain characteristics that
they derive from the complexity of the agricultural sector and its organization.

1. Complexity of the agricultural sector:

a.-) Agriculture as a primary sector:

Agriculture as a primary sector is related to the others.
sectors of the economy. It maintains its productive function, provides
foods and raw materials. Provides and diversifies balances
exports and replaces imported products.
It completes its functions by generating employment for the rural population.

transfers labor surpluses to other sectors, generates

income in the rural population and these in turn tend to increase the
demand for goods and services from these sectors.

2. Agriculture as a biological process:

10
 The primary force of production in agriculture is biological.
agriculture works with living beings (plants and animals) on the
which can have serious consequences the changes in the
climatic conditions. Agriculture is also subject to damage from
unforeseen reasons, such as pests, diseases. On the other hand, the
previous conditions determine that agriculture has periods
seasonal production, which has repercussions on the
increase in prices and risks.

3. Agriculture as an economic process:

Agriculture as an economic process requires strong investments of
capital, whose mobility and recovery is slow, because the period of
production generally requires a long period. The financing
presents different problems compared to other types of businesses.
Due to agriculture being subject to adverse factors such as storms,
droughts, insect attacks or diseases and climate changes, the
Investments against these risks are difficult to obtain and relatively
Dear. That's why the interests and payment methods have to be differentiated.
from other types of businesses.

4. Size and organization of the production unit:

Another important feature of agriculture that is related in part
with the previous ones, it is the size and organization of the unit of
production. As a general rule, agriculture is organized around washing.
from farm to family, operated by the owner. These units of
production is numerous, they are dispersed, they are variable in their type of
exploitation and each one represents a decision unit.

5. Agriculture as a productive process.

In the production process, not only the resources land, labor and
capital. It is also necessary to involve several services, such as;
research, technical assistance and extension, credits, marketing and
peasant organization, risks and drainage, agricultural education or others
that contribute to the agricultural development process. Furthermore, the activity

11
 Agriculture is integrated by other subsectors of crops, livestock, and
forestry, each of which is quite complex.
Agrarian policies that have been formulated must also be considered.
legal and administrative dispersions of the sector as a whole. Everything
previously, it leads to a certain tendency in the agricultural sector to
to form a large number of institutions.

6. Depends on the public sector:

The characteristics mentioned in the preceding paragraphs determine
that agriculture should receive special treatment from
governments. Hence, it is both their part of administrative organization,
as in funding, agriculture depends to a great extent on
public sector.

7. Complexity of administration:
The large number of institutions that are created to address the various
subsectors and services of the agricultural sector complicate management
and inter-institutional coordination.

8. Complexity of the projects:

In practice, an agricultural project can have a greater content than
the one indicated in the definition given above. It is sometimes a little
it is complicated to identify the project itself, as the definition indicates very
clearly the inferred limit, which is determined by the
technical complementation below which cannot be "low" without
compromise the product itself.
However, the definition does not set higher limits within the
framework of the concept presented, therefore, there are projects where it seems

justifiable the inclusion of items that do not seem to be strictly related

with the purpose of the project.
For example, in an agrarian reform project whose essential objective
It could be to provide land to a group of farmers who can be included.
only public investments for land acquisition, supply
of water, credit and provision of technical assistance for agriculture, but

12
 also costs, infrastructure services, such as roads, hospitals,
schools, storage warehouses, etc. In general, it seems reasonable
consider these investment items as part of the project, always
that contribute to the achievement of its main objective. It is
it is likely then, that a project has a broader content than
he defined earlier and that can encompass the rural development of an area
on aspects such as: agrarian reform, technical assistance training,
marketing, agriculture, livestock, infrastructure works such as
schools, hospitals, roads, community services, and rural housing.

Differential characteristics of the study levels of a project:

Depending on the degree of precision and detail, a project includes the following
levels:

Preliminary study:
Simple study of statistical analysis and surface recognition
generalized, which allows providing the elements of judgment for a
reasoned decision on the suitability and unsuitability of assigning
resources to continue with more advanced studies. It emphasizes the
economic aspect.

2. Pre-feasibility study:
It includes broader and more systematic studies, in which are examined the
main and possible alternatives, the location and the size of the economy,
the organization and financing. Due to the lower degree of details that
this study contains, does not allow decision-making about the
investments.

3. Feasibility study:
In fact, we can define it as a preliminary project and it is the stage of
study that covered all aspects in detail, legal,
technological, financial y administrative matters related to the
elaboration, execution, and operation. This study must formulate judgments that are

13
 consistent and well-founded on the possibilities of executing and
operate the project and the advantages of allocating the required resources. No
It has the required details to execute or carry out the project.

4. Definitive study or investment project:

It is the final stage for the execution and operation of the project. It includes

manuals, technical specifications and other complementary aspects that

They make up the final study. Currently, the first three stages are
also known as pre-investment studies, due to the expenses
what is necessary to incur in the development of the same. The project of
investment differs in that it not only considers the costs of studies,
essentially, the investments necessary for the implementation in
march, execution and administration, that is, for total realization of the
project in its executive stage.

Component elements of an agricultural project:

The process of developing and selecting possible projects must go through the
next steps: definition and justification of the objective; market study,
size and location; technical aspects of the project; calculation of investments,
costos e ingresos
benefits; socio-economic effects of the project (evaluation), execution and
operation.

1. Definition and justification of the objective:

Before defining and justifying the objective, the guidelines must be established.
action and priorities indicated in the global programming process of
agricultural sector and based on them, specify in all its scope
the objectives that are intended to be achieved with the project. It should be developed

the proposed initiative, as thoroughly as possible. Through studies

statistical and widely recognized, but sufficiently
based, the repercussions that it will have must be analyzed and addressed.
to determine the advantages or disadvantages. This analysis will provide

14
 the elements of judgment to continue with more advanced studies in
the following stages.

2. Diagnosis:
This stage consists of:
a) Specify the nature and magnitude of the problems affecting the
activity that is examined, in relation to a normative model that
it can be expressed in terms of defined objectives or criteria
previously, sometimes in a preliminary form.
b) Analyze the resources available to address the problems
studied.

The diagnosis allows defining the degree of usefulness of the resources

existing, the causes that hinder greater performance and the results
what would need to be fulfilled to eliminate these causes. As a result
From the diagnosis, the necessary elements of judgment are obtained to
precise, qualitatively and quantitatively, the objectives being pursued, is
to say, to establish the objectives and goals for, subsequently, to be able to

determine the most advisable alternative, which will be the basis for development
of the project.

3. Study and selection of alternatives:

It is a basic aspect to consider by the designer, as it is the moment
to decide the most efficient and convenient way to use the resources
to achieve the goal.
However, that priority, according to the results among which
We will need to select those alternatives that represent the highest
benefit per unit of investment, but that is related to the
purposes established in the criteria formulated on the aspects
economic and social issues that are intended to be overcome.

4. Market study:
Specifically, it allows to establish the amount of goods and services
that the population would be willing to purchase at determined prices, of
the operational unit that generates the project.

15
5.Size
The size of a project is generally defined as the capacity of
production of the same over a certain period, which is considered
normal, depending on the type of project.

The concept of capacity can be defined:

a) From a technical standpoint, it indicates a maximum capacity of
production with the use of certain equipment.
b) From an economic point of view, it is defined as the level of
reduction that minimizes unit costs.

In the case of agricultural projects, there is some difficulty in applying

these criteria, due to their complexity.

For example, in the case of a rural settlement project, it is possible

to have at least three ideas of the size:

a) Number of families that will settle.

b) Total hectares involved in the project.
c) Total investment

In these, the costs and social revenues become more important.

which require special criteria for their measurement.

6. Location
It is related to the project's location. In general, it is accepted that the
the proper location of a project should be oriented towards them
objectives that are set for the optimal size. This is, towards the
maximum profit attention, if it involves private investments and
toward the minimum unit cost if the social perspective is taken into account.
In the case of agriculture, determining the location requires
various basic studies on: transportation, hydrology, ecology, topography,
soils, sociology, economics, and agronomy, which together
allow, according to the pre-established objectives and criteria,
determine the regions and agricultural sectors where it is most suitable
the location of a given project.

16
 Size and location have a close relationship due among others
factors, to the influence that the distribution of goods or services has
that will be produced in the project.

7. Technical aspects of the project

It covers all the technical aspects required for the project, such as:
characteristics of products, manufacturing processes, specification
of the teams and operation structures and work and in general, all
the plans, diagrams, and graphics that are required.

8. Calculation of investments.
It refers to the determination of both partial and total investments.
in national and foreign currency that is required.
It contains both those needed in the installation phase and those
what is required for its operation. It also includes a calendar of
investments.

9. Costs and revenues.

In the project's budget for expenses and income, it provides the basis for its
evaluation. It is an estimated calculation of the costs and revenues that result
from the launch of the project.

10. Investments and sources of financing:

Specify the sources of monetary resources, both national and
foreigners. Indicate the ways in which the resources will be channeled
project financials. Includes the amortization plan and payments of
commission.

11.Evaluation:
The evaluation aims to qualify and compare the project with others,
according to a certain scale of values, in order to establish their
order of precedence.

17
 In other words, the evaluation determines the priority of a project.
through a comparative analysis of the alternative uses that can
to have the resources that will be invested.

12. Administration:
It consists of preparing a detailed description of the Basque structure of
the project organization, the technical procedures,
administrative, financial, and legal aspects necessary to make it operate.
Include the use of PERT and CPM methods to plan and control the
execution that also refers to the preparation and presentation of
project to the corresponding financial institutions. It covers all the
bureaucratic steps required in the respective country before the
financial organism.

13.Execution:
It refers to the installation of the plant, the construction of the works of
infrastructure, such as roads, irrigation works, etc.

14.Operation:
It relates to the implementation and normal operation of everything
project.

AGRONOMIC DIAGNOSTIC

The formulation of an agricultural project must necessarily start from a

agronomic diagnosis of the production unit, allowing to know the
current and future availability of the resources it possesses, in this way we are
in the ability to detect its future potential and limitations. This includes

18
forage aspects, agrological, legal, socio-economic, agro-economic,
etc.

The diagnosis allows for the analysis of the optimal use of resources and also
correct the possible faults, this will allow for the best combinations to be made
crops that best adapt to the soils and that guarantee a
greater productivity. This includes an inventory of the available resources.
classified by their availability and suitability, which informs us about the
main problems affecting the production unit in such a way that
measures can be taken to solve the existing problems.

Steps to follow to prepare an Agronomic Diagnosis:

1. Land inventory:

It refers to the total area of the property.

1.1. Useful agricultural area (UAA): the area where it is

localized production, that is, that which is used for
sowing of annual crops, permanent crops, and pastures. This is the
we divide into:
Cultivated lands, which can be irrigated or rainfed.
Of permanent crops, natural grasses, introduced grasses.

1.2. Indirectly productive area: that area which provides

seat to the paths, fences, pens, constructions, lagoons,
etc., that is to say, it is susceptible to not being sown

1.3. Unproductive surface (U.S.): it is the one that is superior to which the

current economic resources that the farm has cannot be

put into production. It is composed of wooded areas, reserves,
channels of rivers, drainage channels for irrigation, etc.

19
1.4. Natural aspects: refer to the climate, soil, topography of the
land of the estate.

1.4.1. Climate; for the tropics it is essential to know: precipitation

rainfall
evaporation.

14.2. Precipitation: the rains determine the weather of the area,

thus we have a precipitation greater than 752 mm of rain
annual determines a humid area, from 500 to 752 mm. Sub-humid
from 200 to 375 mm, semi-arid from 100 to 200 mm, arid.

1.4.3. Height or altitude: this factor is very important for the

adaptation of crops and animals to warm, cold lands and their altitudinal zones
intermediate, as the ambient temperature is decreasing
an important factor of biological adaptation. This is measured in
meters above sea level.

1.4.4. Temperature: it is important for acclimatization of

certain crops that adapt better to a temperature
average. This is measured in degrees Celsius.

1.4.5. Winds: it is important to know the speed of the winds and

its direction, for the cultivation of certain crops such as corn, sorghum,
that can be affected by the winds.

1.4.6. Soils: the following should be taken into account:

Depth or thickness of the strata or horizons.
Color of the horizons.
Texture Content of sand, silt, clay in percentage.
Chemical and biological conditions (organic matter, nitrogen,
phosphorus, potassium, pH.

Drainage. Textural conditions of internal runoff, the

runoff both in flat and hilly areas.

20
 Erosion.
Natural vegetation: refers to the vegetation that the farm has.
It is necessary to name the type of vegetation, trees, bushes, etc.
1.4.7. Topography: refers to the shape of the land which can be:
plan. They have fertile conditions and climate, it is mechanizing,
They reach great value for seasonal crops, it is necessary
to assess the slope.
Accidented; it is less mechanized and adapts more to crops
permanents and grasses.

1.5. Socio-economic aspects: it refers to the geo-relationship

economic of the farm with the main points of attraction
commercial (proximity to the main markets), these conditions
are determined by three fundamental aspects:

Availability of land: in the region where the farm is located,

this is very important in relation to the market of products,
because of the proximity of the farm under equal fertility conditions
to another that is farther away, gives greater value.

Localization is important for the acquisition of supplies,

machinery, spare parts, a closer connection to companies
distributors of supplies and machinery gives it greater value.

-Communication routes: these play an important role when

the assets of the property will be evaluated. A property with good
Roads (external-internal) have a higher commercial value.
it is worthless for the property to be located near the markets
important if it is not connected by good means of communication, this
it would be equivalent to a property located hundreds of kilometers away from them

markets.

21
 1.6. Water aspects; it refers to the availability of water.
farm during the year. It is necessary to consider if the water sources
The farm's soils are either superficial or deep.

Superficial: they are made up of rivers, stream beds

anuo, dams, lagoons.
Observe whether the rivers have permanent flow or only have it in
winter.

Deep: (Underground sources) are the deep wells that

Use the farm. Be careful with the deep waters.
because according to the Water and Forest Law it is prohibited in
certain areas the drilling of wells is also
it's important to know at what depth the water table is and if the
water is water for consumption or for irrigation.

1.7. Forage aspects; it refers to the type of grasses that it has.

farm, that can be; natural and introduced.
Natural grasslands are indigenous, they grow spontaneously.
especially in savannas, its nutritional value is low therefore its
commercial value is also low. The introduced species are
Exotic ones have a greater nutritional and commercial value than natural ones.

It is necessary to include the common and scientific names of the

pastures, example:
Carpet grass Oxonopus copresuss
Mule's tail grass Sporobolus indicus
Cattle tail grass Andropogon bicornis
Gamelotillo pasture Pasalum plicatulum
Root straw Panicum lasum

The agronomic diagnosis made at Hato Las is shown below.

Trenches, in Guasdualito, Apure State.

1. DIAGNOSIS

22
1.1. Identification of the property and the owner:
The Hato is known as 'HATO LAS TRINCHERAS' whose
the owner is the Agricultural Company 'LAS TRINCHERAS'
whose address is the city of San Cristóbal, State of Táchira.

1.1.1. Boundaries
In light of the property documents, the general boundaries
the referenced lands are as follows.
NORTH: National Road Guasdualito via Elorza.
SUR: Orichuna Creek, Sabanas de San Pedro
ESTE: Eladio Hurtado Fund, Hato Campo Alegre.
WEST: Pedro Dugarte Plain, Los Camoruchos Plain,
Savannah The Revenge.

1.1.2. Tenure:
The land occupied by the herd is owned as it is
it is derived from the documentation submitted.

1.2. Physical Aspects.

1.2.1. Political Location
The lands corresponding to this herd are located in the
sector known as Baria, Munucuoui Guasdualito, road
Elorza, the savannas of the ranch are located in the sector
named as Buria, Municipality of Guasdualito, Páez District,
Apure State.

1.2.2. Practical location

Starting from Guasdualito, via Elorza, the plains of the ranch are
located 52 km from the town of Guasdualito.

1.2.3. Astronomical location:

Latitude: 07 14 07"
Longitude: 70 43 07"

23
Surface
According to the existing topographic survey, the herd has
an area of eleven thousand two hundred hectares (11,200), of
91% of which are occupied by savannas.
4% is occupied by light vegetation, 5% is
occupied by thorn, roads, and facilities. 95% of the
hectares are entirely designated for livestock farming,
distributed over five (5) estates; three of which have
their respective work facilities, more than four (4)
four (4) pipes.

1.2.5. Topography:
The topography of the ranch is flat at 100% with slopes of
1 percent.

1.2.6. Access and roadways

Access is via the Guasdualito dirt road.
Elorza, which is passable in summer, but in winter is
extremely problematic, difficult to use it properly
permanent.
The internal roadway consists of an embankment of 20 km.
4 m long and 1.50 m high, which connects the
main house and provides access to the five (5) properties, it is navigable

throughout the year, the farm also has a track for

compacted landing strip 1000 m long by 12 m wide.

1.2.7. Hydrology
The surface waters are represented first of all
for five (5) estuaries in the dry season, located in:
Two (2) in the water tank pasture
One (1) in the pasture breathed
One (1) in the Santa Inés pasture
One (1) in the Boca Caños pasture

24
 Other sources are: the Buria canal, which borders the El pasture.
I breathe, The Deer that borders the Venaito pasture and Lamedero.
Regarding groundwater, the water table level in the area
It is at 50 m in summer
There are eleven (11) wells drilled of different diameters and
depth, that provides water for all the drinkers of
the pastures and potentially for irrigation.

1.2.8. Soils
In the soils of the area, from a physiographic point of view,
the bank, bajío, and estuary units predominate.
In the banks, sandy textures dominate.
low natural fertility and with a pH of 5.00 to 5.20.
In the shallows and estuaries, the texture is variable, with predominance

of the low fertility natural clayey-limos soil,

drainage limitations are caused by high water table and
pending drops.

1.2.9. Climatology
Regarding precipitation in the area, the annual average is
20-year records is 1,705 mm, with a differentiation
stationary of the well-defined periods; the wet period
the winter that goes from May to November and the dry period or
summer that runs from December to April.
The average temperature is 27.55°C, with a maximum of 34.8.
°C, and a minimum of 20.3°C, the average evaporation is
182.6 mm per year.
The altitude above sea level is 128 and 130 meters.

1.3. Agro-economic aspects

The predominant explanation is livestock farming, under the system
extensive Vaca-Maute.
The breeding is based on the environmental conditions of the area in
the crossing of four breeds: Cebu, Brahman, Neclore, Guserat.

25
 The breeding herd consists of Cebu cows and a small lot of
creole animals. The females resulting from these crosses are
delicate to replacement and the males of 200 kg. They are taken to
market.

The market or marketing of the livestock product takes place in

the site to market prices. The mautes are sold at
weaning at a weight that varies between 150 and 200 kg at an age of
10 months.

The closest market to the herd, where most of

the operations and the available services and supplies are the
populations of Guasdualito 52 km Elorza and San Cristóbal
The predominant grasses in the physiological units and lowland
The following are estuary species: lamedora (Leersia hexandra), water straw (Hymenachne)

amplexicaulis), chiguirero gamelote (Paspalum fasciculatum), straw

root (Panicum laxum) gametolillo (Paspalum plicatulum)
Technical assistance is currently provided by
a Veterinarian.

1.4. Diagnosis Analysis

The result of the diagnosis indicates the low fertility of the
soils, drainage limitations, and a great potential for pastures
natural resources, which exploited in a technical way, are a resource
potentially nutritious.
In summary, the lands of the ranch are suitable for livestock.

1.5. Propositions and Alternatives

The goals proposed by the producer are to stabilize the herd in
3400 wombs. The herd has a total grazing area of
11,740 hectares. Of which 600 ha are covered in it.
majority by harmful weeds: Mimosa pigra and Cassia acuelata and
400 ha, covered by shrub vegetation.

26
Consequently, the effective grazing area is reduced to 10.10.
Ha. The herd is the exception of the area for having extensions.
considerable banks. However, the shallows and streams are
predominant. In addition to the chemical characteristics of the soil
they are considerable acidic soils with an average pH of 5.1 with levels

with low phosphorus and organic matter and moderate potassium. Plow
achieve an increase in the grazing surface capacity
it is necessary to undertake a weed control program, and in the
infested area, achieve establishing pasture seedbeds for
to eradicate any trace of a resurgence of harmful weeds is
it is essential to deforest the 00 ha of bushes as they are
spines that have little benefit due to their anatomical morphology.
In this way, the current area can be increased.
grazing on 11,710 hectares.
Due to the savanna climatic conditions, summer is usually
severe due to its high temperatures, high wind speed, which
it extends from December to April, so it is essential a
henification program to prevent nutritional stress during
this season and avoid the fluctuations that affect the
exploitation. For the purposes, currently in Venezuela,
specifically in the states of Cojedes, Guárico, Anzoátegui,
Monagas and Barinas, FONAIA has presented good results
with the savanna grass Andropogon gayanus 'CIAT' 621 with
dry matter yields of 24 tons per hectare per year.
It is also resistant to drought, responding to the conditions of
infertile acidic soils are not very demanding in terms of fertilization
nitrogen, phosphorus, and potassium more than any introduced grass
for the ability to tolerate acidity, deepen its system
radicular which allows for the extraction of moisture and nutrients from
the lower strata of the soil. In addition, it is a great producer of
seeds, which makes it easier to reseed for the next period of
growth.

27
 Erosion.
Natural vegetation: refers to the vegetation that the farm has.
It is necessary to name the type of vegetation, trees, bushes, etc.
1.4.7. Topography: refers to the shape of the land which can be:
plan. They have fertile conditions and climate, it is mechanizing,
They reach great value for seasonal crops, it is necessary
to assess the slope.
Accidented; it is less mechanized and adapts more to crops
permanents and grasses.

1.5. Socio-economic aspects: it refers to the geo-relationship

economic of the farm with the main points of attraction
commercial (proximity to the main markets), these conditions
are determined by three fundamental aspects:

Availability of land: in the region where the farm is located,

this is very important in relation to the market of products,
because of the proximity of the farm under equal fertility conditions
to another that is farther away, gives greater value.

Localization is important for the acquisition of supplies,

machinery, spare parts, a closer connection to companies
distributors of supplies and machinery gives it greater value.

-Communication routes: these play an important role when

the assets of the property will be evaluated. A property with good
Roads (external-internal) have a higher commercial value.
it is worthless for the property to be located near the markets
important if it is not connected by good means of communication, this
it would be equivalent to a property located hundreds of kilometers away from them

markets.

21
the entrepreneur can cover production costs with a reasonable margin
of use.

The market has been defined as 'the area in which they converge the
forces of demand and supply to establish a single price. To the
purposes of this book that definition must be interpreted in a broad sense
the existence of a group of individuals whose requests highlight
manifested the situation of supply and demand that leads to establishing the price and
From there, the need to specify which group of individuals it will encompass arises.
what the study is about.

In general, these sets are geographically delimited and the studies

market refers to certain proportions of the territory, to the whole
national territory to any other region of the world.

The knowledge of how consumers are distributed in an area

given geographic area, will include both in the amount of demand and in the
location of the farm. A good location can in turn build
to lower prices and expand demand.

It is also necessary to clearly distinguish between market research and

marketing study. In this study, marketing will be understood as
the relative movement of goods between producers and users, which is
it would be considered as a separate aspect of market study.

The demand in the project study:

To specify the concept of demand in relation to a project,

it is advisable to distinguish primarily between the total volume of transactions of
certain goods or services at a determined price and the demand that
it will exist for the production of the project under study. That volume represents the
total demand, which is certainly necessary to know, but the ultimate goal is
determine the volume of goods or services arising from a new unit

29
producer that could absorb the market. If the total existing demand does not
is duly satisfied, the production corresponding to the project is
it will add to the offer of other providers and only the volume will increase
current market transactions, focusing then on the study of
quantify this unmet demand. The possibility that there is a demand
Dissatisfied individuals hate to acknowledge it through two general types of indicators.

represented one by prices and the other by existence and interventions

of some kind if there is unmet demand for a certain good or service and there is not
price controls, the latter will reach very high levels in relation to
the production costs, that is, the suppliers of those goods or services
they will obtain relatively high profits. On the other hand, the need for
establishing price controls, rationing, or similar measures, implies that
in these prices there is an evident unmet demand and the objective of such
interventions is to correct that situation.

It may also happen that the new production does not increase the volume of the.
existing market, but displace other suppliers from that market,
achieving a demand for substitution. Such would be the case, for example, of a
production of goods or services of better quality than those offered in the
market, with which it would be possible to displace the current suppliers could
to deal with a project that, by introducing techniques, would reduce costs and evacuate
similar to other market products at the lowest price; in this case there could be
not only redistribution of the market among suppliers, but also a
possible additional demand, due to those lower prices. If the
displaced suppliers were the importers, it would be a project of
import substitution.

The projects to increase exports can be based both on the

supply of an unmet demand as in the displacement of
other suppliers from the international market.

The amount of any of these possible forms of demand in

relationship with the project, it can provide opportunities to install one or more centers
producers and the decisions regarding this will largely depend on the
geographical limits of the market, that is, of the location of demand. Of

30
here is one of the basic relationships between market study, size, and
the project location.

Stages of a market study

Like other studies, the market study comprises two stages; a)

collection of background information and the establishment of empirical bases for the
analysis, b) the preparation and analysis of those background. The stage of
analysis and elaboration of the data must answer the basic questions:
What happens in developing countries? Generally, the problem
there is a deficit of a large number of agricultural items, which is why the study of
The market, in a project, is not the most important part nor the hurdle to overcome.
On the other hand, the little importance that the quantification of demand has.
for the project it is due to the insignificant participation of the project in the
production volume at the national level. Still, taking into account the validity of
the previous considerations, the quantification of demand is
significant importance within the state of the product market
agricultural and livestock.

Demand analysis:

The estimation of current and future demand allows for the formation of some
of the main variables that must be precise through the study of
market.

Current demand: this can be calculated in different ways:

a) Using the data related to per capita consumption for years

previous ones and multiplying it by the number of existing inhabitants
currently.

b) Through the quantification of apparent national consumption.

The following formula is generally used for its calculation.

31
 CA = P + M - X
Apparent Consumption
National production
M = Importation
Export

c) Through effective consumption

CE = P + M - X ± VI
IV = Inventory variation

d) Through the estimated food requirements per inhabitant

by the National Institute of Nutrition.
In this way, the desired minimum consumption is obtained based on
of achieving a certain nutritional level; when comparing this data
with the existing offer once the corrections have been made
relevant, the amount corresponding to the demand will be obtained
unsatisfied.

Demand forecast:

Demand projection can be carried out through various

methods:

a) Extrapolation of the historical trend

b) International comparisons
c) Income elasticity coefficient of demand
d) Exponential trend analysis
e) Least squares line

The most commonly used method to project it.

demand for agricultural projects, is of coefficient of
income elasticity of demand, relating it to consumption
per inhabitant per year that we take as a base or assuming
like certain hypotheses regarding future behavior

32
 of income per capita to quantify the demand for the provocation
we are interested. The formula used for its calculation is as follows.

Future demand:

Year (n) = base year demand (1 + ACT)n

DF = DB (1 + ACT)n

Where from:

Future demand

Current demand (base year)

ACT = Total consumption increase

N = Difference in years (future year - current year)

Total increment calculation:

This is equal to the increment due to the effect of elasticity.

about the variation of income plus the increase of the
population.

Δ CT = (CeID x Δ IH) + Δ PO

Where:

CeID= Income elasticity coefficient of demand.

Δ IH = Increase in income per inhabitant.

Δ PO = Increase in population

Δ CT = Increment in total consumption.

Problem:

Calculate the demand for paprika for the year 2000 considering that the
current demand (year 1992) is 60.70 metric tons, and that the population
will evolve at 3.8% as an average annual rate and that the income of the
consumers (per capita) will grow at an average annual rate of 3.5%.
The income elasticity coefficient of demand for paprika is 0.39.

33
Solution:

Data:

CeID= 0.39

DA = 60.70 Tm

Δ PO = 3.8%

Δ IH = 3.5%

DF =?

n = 2000 - 1984 = 16 years

Calculation of the increase in total consumption:

ΔCT = (0.39 x 3.5%) + 3.8%

ΔCT= (0.39 x 0.0350) + 0.380

Δ CT = 0.0517

Calculation of future demand:

DF= 60.70 Tm (1 + 0.0517)16= 60.70 Tm (2.2401)

135.97 Tm

Another method used to project demand is Exponential Analysis

of Trends, which consists of projecting demand through the following
formulas:

DF= DA (1 + i)a, where:

DF = Future demand

Current demand

n = Number of years (difference between the base year and projected year)

34
i = Demand growth rate

i= √ - 1,where:

i= Growth rate

Greater amount

Cm = lesser amount

n = Number of samples

Problem

Calculate the banana demand for the year 2000 knowing the demand of the
following years:

YEAR DEMAND (T.M)

1987 439,064
1988 445,606
1989 452,244
1990 458,984

4 458,984 4
i= √ - 1 =√ 105- 1 = (1.05)1/4-1
439,064

i = 1.01 - 1 = 0.01 = 1.2272%

Demand calculation for the year 2000:

D2000= 458.984 (1 + 0,01)10

458.984 (1.13) = 518,156.41 Tm

This method is used when the demanded quantities are increasing or

decreasing. When the quantities demanded decrease from one year to another.
either increase, that is, no sustained growth or decline is observed
the Least Squares Line method is used.

35
Trend analysis using the Least Squares method:

This method is used when the amounts from one year to another may decrease.
to increase, that is, a sustained growth or decrease is not observed,
thus we have the following example:

YEAR X (X–X) (X-X)2 Y (Y–Y) (X–X) (Y-Y)

1981 0 -5 25 66.6–28.24 142.0
1982 1 -4 16 84.9–10.1 40.4
1983 2 -3 9 88, 9–10,1 19.2
1984 3 -2 4 78.0–17.0 34.0
1985 4 -1 1 96.8–1.8 -1.8
1986 5 0 0 105.2–10.2 0
1987 6 1 1 93.2–1.8 -1.8
1988 7 2 4 11.6–16.8 -33.2
1989 8 3 9 88.3–6.7 - 20.1
1990 9 4 16 117.0–22.0 88.0
1991 10 5 25 115.2–20.2 101.0

In this example, the quantities we are studying are in the column of

the 'Y', in which we can observe that in one year they go up, but in another they go down

in such a way that to be able to calculate any future amount we have to use
the following formula:

( )− Ῡ
Y -Ῡ=( ( −
) X–X
( − )2

Y = Tm

For the calculation of the Least Squares line, we substitute the previous formula with
their respective values and we have the following:

Typed by Eduardo from 42-44

434.10
− 95= ( ) ( −5 )
110.00

− 95= 3.95 − 19.73

36
 = 3.95 - 19.73+ 95

= 3.95 = 75.27

To calculate the corresponding amount for the year 1994, which corresponds to
to a X=14, substituting X=14 in the equation we have:

( )75.27
= 3.9514+

= 55.30+ 75.27

130.57 T

For the demand year 1994, the demand for the product will be 130.57 tons.

Main clients: it refers to a detailed description of the clients

current players in the sector, meaning who are currently the consumers of the
product that the project will generate.

Current and future market: list the states, regions or areas where it is located.
arriving the product, as well as the potential markets.

Regional demand for the product: calculate the quantity of the product that
consume the state where the project will be located.

Analysis of the offer:

The quantification of the supply, the spatial distribution of the suppliers and the
seasonality of production are the fundamental elements of
analysis of the offer.

Current offer:

This can be calculated by the number of hectares planted.

multiplied by the yield per hectare, this shovel the agricultural products,
37
for livestock products such as cattle, pigs, and poultry, it is calculated the
number of existing livestock or the number of existing birds.

Supply projection:

The projection of the supply of agricultural products can be calculated.

in two different ways:

a) Through projections of national production based on the lines

simple regression, with time as the independent variable
(trend adjustment).
b) Projections of national production, based on the hypothesis
alternative regarding year-on-year growth rates, of variables, such as
the planted area and the yield per hectare to be obtained.

The estimation of the supply of agricultural products, as part of

Market study serves to determine the deficits or surpluses of production.
and the time in which they will occur, thus allowing to know the
periods of greater or lesser influx of the market for certain products and with it
the establishment of recommendations regarding what to produce and in what
moment.

a) Provide a detailed description of the main product, by-products,

complementary substitute products
b) Describe what the current competing farms are, their location and
production.

Analysis of prices:

The study of agricultural product prices is important.

within agricultural projects, because the cost-price relationship is the
aspect that most influences the profitability of any agricultural sector.

It is necessary to lay the foundations that allow for rigorous prediction.

possible, the prices that will apply during the life of the project because of the results
The evaluation will largely depend on the prices used.

38
 It is important to know if the product of the project is subject to
minimum prices or if there are agro-industrial agreements that set the price with
anticipation.

The study of prices can be divided into three parts: analysis of the evolution
historical price data, analysis of the main factors that determine
prices and their projection for the project's lifespan.

a) Historical evolution of prices: this must begin with the collection

of statistical series. The most used series are those of prices at
Producer, wholesale prices, and consumer prices. It is important.
analyze the variability of the same over a minimum period of 5 years.

b) Determining factors of prices: in Venezuela, the intervention

of the state, is one of the factors that most influence the modification of
prices of conditioned agricultural products, (corn, rice, sorghum,
sesame, etc.). It also influences the prices of cattle and poultry.
c) Price projection: to proceed with the price projection
most important, two aspects must be considered: the first is the
future evolution of supply and demand, which will constitute a first
indicator of the expected movement of prices, if the supply is high then
they expect low prices and vice versa.
Second, the state's intervention to regulate or set prices at the level of
producer.

Marketing study:

The marketing process includes all the activities

necessary to put production into the hands of consumers, in case of
final consumer products and industries in the case of consumer products
intermediate.

The marketing analysis aims to formulate propositions.

tending to increase the efficiency, both physical and economic of the process.

The study must define what functions need to be fulfilled and how and why they will be.
carried out. The first step will be to analyze the process of

39
marketing from the perspective of its physical functions, these are
necessary for the product to be available to the consumer on time
desired place and form

And in this, the functions of storage, transportation must be considered,

classification and normalization, packaging.

The second step is knowledge of the marketing channels.

existing and the importance of each of them based on the volume
marketing of agricultural products.

In this way, we will be able to meet the channel's demand more.

favorable to determine which members of the channel should be eliminated.
of our possibilities, with the aim of keeping a part of their
profit margin. Next, we will show the existing channels of
fruits (mango, avocado, citrus (and cereals (corn, rice, sorghum),

DIAGRAM NO. 1

Current marketing channels for fruits.

WHOLESELLER

PRODUCER TRUCK DRIVER RETAILER CONSUMER

INDUSTRY

SUPERMARKET

40
SOURCE: Own design. Guanare 1992

The diagram in this case speaks for itself.

DIAGRAM No. 2

Marketing Channels for Cereals

WHOLESALE

PRODUCER RETAILER CONSUMER

SUPERMARKET

SOURCE: Own design Guanare 1992

The third step is to develop the marketing channels of the project.

Explaining which channels are going to be eliminated justifying the mechanism
of elimination.

The fourth step is the calculation of marketing margins, understood as

as gross marketing margin the profit percentage between the
producer and the other marketing bodies (industry, truck drivers,
wholesalers, retailers). That is, the price difference between what
receives the producer and what the final consumer pays.

Example of the gross marketing margin of the banana.

TABLE N°1

PRICE OF PRICE OF MARGIN

ORGAN OF THE
SALE PURCHASE ABSOLUTE RELATIVE
MARKETING
(bs/Kg) (bs/Kg) Bs %
Producer 12 7 5 78
Wholesaler 13 12 1 8

41
 Retailer 15 13 2 15

SOURCE: Own calculations Guanare, 1992

Fourthly, the participation of the State in the process must be considered.

marketing. One of the modes of action of the Venezuelan State is
the direct intervention in the reception of harvests, in the ADAGRO silos in
the private silos through an agreement between producers-state-industry. All
these actions will obviously influence the marketing margin,
due to the transportation cost of the product, which will depend on the assigned location
producer for the reception of the product.

Before formulating and evaluating an agricultural project, it is necessary to have

basic knowledge of Economic Engineering, in order to carry out the

calculations related to the debt service table, calculation of the internal rate
Return, calculation of the Benefit-Cost ratio.

The following explains the general concepts that should be understood about
Economic Engineering.

Concepts and generalities:

Value of money over time. It can be said that he who has money, it
search for the money. This is true in a democratic capitalist system. If a
A person who invests their money logically has the option to accumulate more money.
example: Mr. Juan Mancilla decides to deposit in the Bank of Venezuela Bs.
50000.00 on the day 02-09-91, one year later 02-09-92 decides to withdraw his money and the
Bank informs you that as of that date you have Bs. 66,000.00, that is, Bs. 1,600,000
but this accumulation of money over time is called interest, which is the
interest amount of money for having deposited it in the bank for a year.
it can also be defined as the difference between the final capital and the
initial capital (F-P=I), in the previous example we have Bs. 66000.00 - Bs.
50000.00 = Bs. 16000.00 what is the interest that Mr. Mancilla earned for depositing
or lend your money to the banking institution.

42
 When interest is expressed as a percentage of the original amount
(initial capital) per unit of time, the result is called Interest Rate.

This rate is calculated as follows:

é
Interest rate = x 100 = x 100

.16,000.00
i= x 100 = 0.32 = 32%
Bs 50,000.00

Clearing I, it results in I = p x i where I = 50.00, 00 x 0.32

16.000
I = Bs. 16,000 if we solve for p = = Bs. 50,000
0.32

The time period commonly used to express interest as a rate

the interest is one year. However, interest rates can also
monthly, quarterly and semi-annual.

Problem: Mr. Juan Araque deposited in the Bank of Venezuela on 02-09-91

Bs. 1,000,000.00 one year later withdraw Bs. 134,000.00. It asks to calculate:

a) Interest earned
b) Interest rate
c) Final capital (F)
Initial Capital (P)

I = CF - P = Bs. 134,000.00 = Bs. 34,000

I= Bs. 34,000.00

Bs.34,000.00
Interest Rate = 0.34 x 100 = 34%
.10.00

Final Capital = P + I = Bs. 100,000 + Bs. 34,000 = Bs. 134,000

Initial capital = F x i = Bs. 100,000 x 0.34 = Bs. 34,000.00

Simple Interest:

Interest is the payment received for the capital interest, that is, it is
the fruit generated by the invested capital. Capital is understood as value
Monetary value of the amount of goods invested in financial operations.

43
Simple interest is discussed when the capital invested or deposited in a
Financial Institution, earns interest for a certain period, but the
Interest does not continue to generate interest if the money remains deposited.

It is given by the following expression I = P x i.n. where P = Initial Capital, i = Rate

of Interest and n= to time.

Problem: Calculate the simple interest of Bs. 60,000.00 at 33% per year for 10 years.
months.

Solution:

P= Bs. 60,000.0

i = 0.33 =332.75% = 0.0275 monthly

12

n = 10 months

I = P x i.n. = Bs. 60,000.00 x 0.0275 x 10 = Bs. 16,500.00

I = Bs. 16,500.00

Currently, simple interest is not used in the field of finance, instead

place is using compound interest, which means that the interests
accrued interest, its formula is as follows:

F = P (1 + 1)n

Where P = Initial Capital

Final Capital

Interest Rate

n = Time

Demonstration of the formula F = P (1 + 1)n

Let’s assume that Mr. Juan Mancilla decides to deposit today (P) capital in the
Union Bank, this capital according to the time value theory must earn.
an interest, meaning it will be deposited at an interest rate i then the
interest on (P) in the first year will be P x i and the total amount of money at the end of the
The first year will be equal to the original amount (P) plus the earned interest (P x i)

44
that is: P + P x i, taking out common factor (P) it remains P (1 + i). If Mr.
Mancilla decides to leave the money in the bank for another year, the interest earned
it will be F (1 + i) x i and the total amount at the end of the second year will be P (1 + i) + P (1

+ i) i = P (i + 1) (1 + i) = P (1 i)2.following this reasoning it can be demonstrated

that the amount of money accumulated at the end of the third year will be P (1 + i)3and to the
the end of the fourth year will be P (1 + i)4and at the end of year "n" will be P (1 + i)n where is it

prove that F = P (1 + i)1+ P (1 + i )2+ P (1 + i )3+ P (1 + i )4+ P (1 + i )n= F

= P (1 + i )n

This formula is called compound interest or the future value of capital.

expression (1 + i)nit is called the benefit of singular compound capitalization and it is
represented in the Financial Mathematics tables as (F/P, i; n) that
to find the future value (F) given i, n.

Problem: The El Alacrán farm deposits into a savings account at the Bank of
Venezuela Bs. 6000.00 pays the bank an annual interest rate of 36%-

The estate wants to know how much money it will have in 6 years.

Solution:

P= Bs. 600,000.00

i = 36% = 0.36

n= 6 years

F=?

F = P (1 + i)nF = 600.00, 00 (1 + 0.36) =

F= 600,000.00 (6.3275) = 3,796,511.33 Bs.

Current value of a capital:

F = P (1 + i), solving for P, we have

1
F=F With this formula, you can calculate how much money there is.
(1 + )

present (P) equivalent to a future amount (F) if (P) were invested at a

1
compound interest rate over (n) years of expression , it is known
(1 + )

as a single compound update factor and is represented in the tables

45
of Financial Mathematics as (P/F, i, n) which means to find the value of (P)
known the values of i and n.

Problem: Calculate the present value of Bs. 3,796,511.33 that will be earned
through the El Alacrán estate in 6 years, at the Bank of Venezuela that grants
a 36% annual interest rate.

Solution:

F= Bs. 3,796,511.33

36% = 0.36

n= 6 years

P=?

1 1
P=F 3,796,511.33 Bs. 6 3,796,511.33 (0.1580)
(1 + ) (1 +0.36

P= 60,000.00 Bs.

This formula is important for updating future revenues in projects.

agricultural or livestock, when calculating the Internal Rate of Return (I.R.R.)

Annuities: They are equal payments at equal intervals of time for their calculation.
the following formula is used:

1
A= F(
1 + -) 1

Where A = Annuity

Future Value

n = Number of years

i= Interest rate

I = A constant

1
The expression is known as the compound amortization factor
( 1 + -) 1

multiple and appears in the Financial Mathematics tables with A/F, i, n that
it means calculate the value of 'A' knowing (F) knowing i and n. this formula

46
It allows to calculate the following: what is the amount A, that deposited for 'n!!
Adding an interest rate "i" gives a future value "F".

Problems: how much money does the estate 'PaloQuemado' have to deposit.
every year at Banco Unión, in order to save within 7 years
1,500,000.00 bolívares, if the bank offers an annual passive interest rate of 36%

Solution:

A=?

F= 1,500,000.00 Bs.

i = 36% = 0.36

n = 7 years

A = 71,001.94

If you want to calculate what the annual amount "A" that can be taken from a
Deposit present 'p' during 'n' years at a compound interest rate can be
calculate from the previous formula substituting the value of 'F', for example A = F
1
the value of F = P (1–i) is replaced, we have A = P (1 + i) nwe have
( 1 + -1
)
1
A = P (1 + i)( the expression (1 + i) is introduced inside the bracket and it remains
1 + -) 1
(1+ )
A=P is known as Capital Recovery factor and appears
( 1 + -) 1

In the tables of Financial Mathematics like A/P, i, n, what does calculate the mean?
Value of 'A', knowing P, i, n. It is called capital recovery factor.
because with him you can know the following: how much money he has to
cancel the customer every year so that the financial institution can
recover the capital lent at an interest rate "i" in "n" time.

Problem: the farm 'El Alacrán' acquired an International tractor for Bs. 1,200.00,
00 in ACO and CIA. The terms of the contract are as follows: 20% down payment.
30 installments payable monthly at an annual interest rate of 43%.

Calculate the value of each installment.

Solution:

P = 1,200,000.00 - 20% = 960,000.00 Bs.

47
A=?

i= 43%, 0.43 12 = 3.58%

n = 30 months

(1+ )
A= P( = 960.00 Bs. 0.549 = 52,720.95 Bs.
1 + -) 1

A= 52,720.95 Bs monthly

From the formula A=F( the following formula can be obtained by isolating a
1 + -) 1

(1 + ) -1 (1 + ) -1
F=A the expression is known as the capitalization factor

multiple compound and appears in the tables as F/A, i, n, which is read, calculate the
value 'F', knowing A, i, n.

Problem: How much money does a person save if they deposit Bs.
3,000.00 every month for 5 years at Banco Unión that pays a rate
interest of 36% per year.

Solution:

F=?

A= 3.00, 00 Bs.

i = 36% 12 = 3

n = 5 years x 12 = 60 months

( 1 +i ) n - 1
F= = 3.000 Bs. 163.05 = 489,160.31 Bs.
i

489,160.31 Bs.

(
i1+i )n
From the formula A = P n
the following formula can be obtained by isolating
( 1 +I- 1)

a "P"

( 1 +I ) n - 1 ( 1 +i ) n - 1
F=A , the expression is known as the updating factor
i ( 1 +i ) i ( 1 +I ) n

multiple compound and appears in the tables of Financial Mathematics as

P/A, i, n, which is read, calculate the value of "P" knowing i, n.

48
Problem:

What amount of money does one have to deposit today in Banco Mercantil, a
a professor who goes to study in Caractes and has to self-finance their
studies. He will remain for two years, and must withdraw monthly from the account
Bs. 8,000.00

Solution:

P=?

A= 8,000.00 Bs

i= 32% 12 = 2.67%

n = 2 years = 48 months

( 1 +i ) - 1
P=A 8.000 Bs.
i ( 1 +I ) n

P= 215,041.56 Bs.

The following are some problems that will help to better understand the
theoretical elements explained.

Problem No. 1. Suppose a buyer of a car that costs Bs.

92,000.00 in cash must pay 30% as a down payment and the rest in 24 installments.
monthly payments with an annual interest of 12% How much does he have to pay?

monthly?

In this example, instead of working with annuities, we work with

monthly payments, but the concept is the same, being able to use the tables,
12%
Since the period is monthly, the interest to be used will be 1%
12months

monthly, so the table should use an interest rate of 1 per

one hundred

Data:

i = 12% annual = 1% monthly

n= 24 months
A=?
P= 64,400.00

49
In the table, it is found that for i = 1% and n = 24 months.
The factor is equal to A: 0.04707 therefore the monthly payment will be A=?

(A/P), 1 % = 24 = 64,400 x0, 04707 = 3,031.31 Bs monthly.

Problem No. 2: Pedro Pérez plans to gather Bs. 20,000.00 within a timeframe of
6 years in the Bank of Venezuela, which pays 10% annual on fixed term, compounded.
Quarterly, how much should be deposited each quarter?

Data:

F= Bs. 20,000.00
i = 10% annual = 2.50% quarterly
n = 6 years x 4 quarters = 24 quarters
A=?
P = F (A/F, 250% 24) = 20,000 x 0.03091 = Bs. 618.26
How much will a person save if they deposit Bs. 1,000 annually?
for 10 years at an 8% annual interest rate, compounded annually?

Data:

A= Bs. 1,000.00
i= 8%
n = 10 years
F =?
P = A (F/A, i.n) = 1.000 x 14,486 = 14,486 Bs.
Problem No. 4: How much should he deposit this year in the Bank of Venezuela?
family father so that his son can withdraw Bs. 2,500.00 every month
during 5 years of residence in Mérida. The bank gives interest of 7% per year (not
there is money left in the Bank at the end of the fifth year)

Data:

A= Bs. 2,500.00
i = 0.58%
n = 60 months
P=?
P= A x (P/A 0.58, 60) = 2,500 x 50.55 = 126,375.39 Bs.

50
Bs. 126,375.39

AGROECONOMIC PLANNING

Agroeconomic planning involves setting up a program to

production through the study of the current available resources and
potentials, taking into account the technical relationships between the inputs
used and the products generated in a certain period of time. The
planning part of the agronomic diagnosis, where soils are analyzed,
the availability of water, temperature, rainfall, altitude, etc. When it
formulate an agricultural project, the agroeconomic planning is prepared by
hectare and per year in the case of perennial crops. If they are short-cycle crops
it is prepared monthly.

51
 In agro-economic planning, an estimation is made of the
required work (land preparation, cultural practices, planting, harvesting,
etc.).

When it comes to livestock projects, agro-economic planning

is replaced by the movement of the herd (bovine, swine, poultry, etc.).

The following is an example of agro-economic planning of the

killed.

See table on the following page →

TABLE NO. 2

SHE KILLED

AGROECONOMIC PLANNING

YEARS

WORKS
1 2 3

52
 1. Land preparation:
- A plow pass for Bs. 1,000 1,000.00
- Two harrow passes at Bs. 750 each 1,500.00
- Pre-emergent herbicides (Prowl) 4 liters
for ha. Bs. 360 each 1,440.00
- Application with sprayer coupled to the
tractor. 500.00

2. Sowing:
- 40,000 plants per ha. At Bs. 1.00 each 40.000,00
- Transport Bs. 0.25 each 10,000.00
- 80 days at Bs. 150 per day (one man)
sows 500 offspring per day 12,000.00
- Resowing of 500 plants at Bs. 1.25 plus 1
newspaper at Bs. 150.00 775.00
- Fertilizer: 200 kg at Bs. 4.05 each.
- Application. 1,008.00 1,008.00 1,008.00
260.00 260.00 260.00
3. Weed control:
- Clean by hand and I propose 8 days of work at Bs.

200.00
1,600.00
4. Harvest:
- 180 day laborers at Bs. 150.00 each.

- Contingencies 10% 27,000.00 27,000.00

- Capital costs 36%. 6,848.00 6.848,00 6,848.00
24,653.00 24,653.00 24,653.00

TOTAL COST PER HECTARE 99,984.00 59,769.00 61,369.00

Source: Own calculations. Guanera 1992.

PROJECTION OF THE FARM AND PHYSICAL RESOURCES PLAN

Projection of the farm:

This table indicates to the project what the expected production is during its
useful life, the expected and projected selling prices and how also the
total costs, the area to be planted and the yields per hectare.

53
 This table serves as a basis for preparing the cash flow, uses, sources of
funds and the income statement.

Physical resource flow plan:

This chart represents the emptying in physical terms (tons),

kilograms, plow passes, etc.) of the agro-economic planning.

This chart determines the benefits that are expected to be obtained from

project, specifying the opportunity in which each input and each

The product also allows identifying the year of consolidation of the project.

Below is an example of each one of them.

See the table on the next page

54
 TABLE NO. 3
FARM PROJECTION
Render.
No. Of Price
No. Of yield/plant Yield. / ha. Of Value of the
YEARS CULTIVATION plants/ international
ha. milliliters/plant Liters/ha. paste/h production Bs.
ha. l. Bs./Kg.
a. Kg.x

1 SHE KILLED 100 40,000 - 1.600 - - -

2 40,000 40 2.400 160 768 12,288,000.00
3 40,000 60 2.400 240 768 18,432,000.00
4 40,000 60 2.400 240 768 18,432,000.00
5-10 40,000 60 2.400 240 768 18,432,000.00

International price = 16 dollars at Bs. 48.00

10% of the total liters per hectare.

55
 TABLE No.4
PLAN OF THE FLOW OF PHYSICAL RESOURCES
(100 ha.)
LINES UNITS YEARS
1 2 3X 4 5 5-10
PLOW PASSES 100
NATION PASSES 200
HERBICIDE LITERS 400
PLANTS 4,000,000 UNITS
CARRIAGE 4,000,000 UNITS
SOWING JOURNALS 8,000
RESEEDING UNITS 5,000
FERTILIZER Kg 20,000
CLEAN BY HAND JOURNALS 800 800 800 800 800
HARVEST JOURNALS 18,000 18,000 18,000 18,000 18,000
PRODUCT LITERS 240,000 240,000 240,000 240,000
(ACIBAR)

Years of consolidation

56
INVESTMENT PLAN AND SCHEDULE

Here all financing needs will be included.

project throughout its useful life, describing its nature and the year it is
It is necessary to acquire it. If the project is going to request money from the Credit fund.

Agricultural, it is advisable to review the instructions for processing

credit applications from the Agricultural Credit Fund, which explains which
they are the fundable items, that is, the investments for which the institution
give credit.

Based on these items, the investment plan and schedule are developed. These
tables show financial institutions the exact amounts of
money that the project needs to execute it.

57
 TABLE No. 5

INVESTMENT PLAN

FOR 100 HECTARES

No. CANT. DESCRIPTION Unit Price TOTAL Bs.

1 100 Hectare of zabila 99,984.00 9,998,400.00
2 100 per hectare
Light deforestation 600 per hectare 60,000.00
3 1 100 m shed2 1.600 Bs/m2 160,000.00
4 10 Kilometers of near barbed wire with 8 strands 22.000 Bs/Km 220,000.00
5 1 Water tank with a capacity of 200 thousand liters 0.50 Bs/Liter 100,000.00
6 2 Tank for cooking syrup, with a 400-liter interior copper lining each.
7 1 Minor tools for maintenance and harvesting 115,000.00 330,000.00
8 1 280 m shed2 - 40,000.00
9 200 Wooden boxes for pasta packaging 1.600 Bs/m2 448,000.00
10 1 20 HP boiler 150. P51 100.00 20,000.00
11 60 Plastic tubes 169,000.00 169,000.00
12 12 Plastic drums 100.00 6,000.00
13 300 Plastic gutters with wooden support 2 meters long x 0.30 wide. 500.00 6,000.00
300.00 90,000.00
SUB-TOTAL 11,647,400.00
PREPARATION PROJECT (2%) OF THE SUB-TOTAL 232,948.00
TOTAL FINANCIAL REQUIREMENT 11,880,348.00

58
 TABLE No. 6

INVESTMENT SCHEDULE

INVESTMENTS FIRST YEAR TOTAL

CONCEPTS INVESTMENT
1st 2nd. TOTAL 1st 2nd. TOTAL
Semester Semester Semester Semester
Deforestation 60.00 60,000
4,999,200
Production costs 4,999,200 9,998,400
Construction of a 100 m shed2 110,000 160,000 160,000
Construction of 10 km of 8-strand fences 110,000 220,000
Construction of a tank to store water 50,000 50,000 100,000
Construction of tank for cooking syrup 330,000 330,000
Minor tools 40,000 40,000
448,000
Construction of a 280 m2 shed 250,000 448,000
20,000
Acquisition of 20 HP boiler 250,000
6,000
Acquisition of wooden boxes 6,000 20,000
Acquisition of plastic tubes 6,000
Acquisition of plastic drums 6,000
9.000 9,000
Acquisition of the gutters
SUB-TOTAL 10,587,400 1,060,000
PREPARATION OF THE PROJECT (2%) OF THE SUB-TOTAL 232.948
TOTAL FINANCIAL REQUIREMENT 11,880,348

59
DEBT SERVICE

Debt service refers to the payment by the producer of interest.

and installments of the amortization corresponding to the loans received.

In Venezuela, loans granted by financial institutions

The state has a series of conditions, depending on the type of project that
it will be carried out if it is for agricultural or livestock foundation or consolidation within

its modalities.

Generally, the characteristics of loans in Venezuela are:

For Foundation (milk):

- Term 20 years
- 5 years of grace.
- 5 years of deferred interest.
- 3.90% annual interest.

For Consolidation:
- Term: 15 years.
- 4 years of grace.
- 4 years of deferred interest
- 31.90% annual interest.

The same conditions apply to beef (breeding, dual purpose).

For fruit trees, the conditions are as follows:

For Foundation (milk):

- Term: 15 years
- 5 years of grace.
- 5 years of deferred interest.
- 31.90% annual interest.

Consolidation:

60
 - Term: 15 years.
- 3 years of grace.
- Without deferred interest
- 31.90% annual interest.

For zábila, which is the crop we are going to evaluate, the conditions are
following:

- Term: 15 years
- 2 years of grace.
- 2 years of deferred interest.
- 16% annual interest.

The Debt Service table is prepared based on the amount required in the
Investment plan and schedule, along with the characteristics or conditions established
by the Financial Institution.

Below is a Debt Service prepared according to the

set characteristics for the cultivation of Aloe Vera.

See the table on the next page

61
 TABLE No. 7

DEBT SERVICE

YEARS INTERESTS LOANS INTERESTS QUOTA BALANCE LOAN

ORDINARY DEFERRED ANNUAL PENDING

0 - - - - 10,820,348.00 10,820,348.00
1 1,731,255.68 - - - 11,880,348.00 1,060,000.00
2 1,900,855.68 - - - 11,880,348.00
3 1,900,855.68 834,288.64 454,013.92 3,189,158.24 11,046,059.36
4 1,767,369.50 967,774.82 454,013.92 3,189,158.24 10,078,284.54
5 1,612,525.23 1,122,618.79 454,013.92 3,189,158.24 8,955,665.75
6 1,432,906.52 1,302,237.80 454,013.92 3,189,158.24 7,653,427.95
7 1,224,548.47 1,510,595.85 454,013.92 3,189,158.24 6,142,832.10
8 982,853.14 1,752,291.18 454,013.92 3,189,158.24 4,390,540.92
9 702.486,55 2,032,657.77 454,013.92 3,189,158.24 2,357,883.15
10 377,261.30 2.357.883,15 454,013.92 3,189,158.24 0
CONDITIONS:
INTEREST RATE: 16% annual
DEADLINE: Ten (10) years
YEARS OF GRACE: Two (2)
DEFERRED INTEREST: Two (2)

62
FINANCIAL PROJECTION OR CASH FLOW

It is the fundamental tool that allows determining financial capacity.

from the farm to carry out the project also called Cash Flow
from the Fund, through which it will be verified if the property is capable of generating funds

required to carry out the project. This instrument is composed of

only and exclusively for cash inflows and outflows, it is not
They include in this table the depreciation expenses of tangible assets, because
they are considered as non-monetary or indirect expenses.

This table is prepared with the data of: total income and monetary expenses
totals, whose difference shows the years when the project has liquidity or
liquidity of money; if it has liquidity, it indicates that dividends can be distributed,
but if it has illiquidity, it indicates that it needs to seek its own resources to avoid
that the project does not have the ability to pay in the years in which it has to
cancel interest and loan amortization. This results in being rejected
by the Bank due to lack of payment capacity. With the net balances of this
In the table, the internal rate of return is calculated.

Below is an example of Financial Projection or Cash Flow

Box.

See the table on the next page

63
 TABLE No. 8
FINANCIAL PROJECTION OR CASH FLOW
(NOT ACCUMULATED)
YEARS
DESCRIPTION
1 2 3 4 5 6 7 8 9 10

ENTRIES
Sale of aloe vera paste 12,288,000 18,432,000 18,432,000 18,432,000 18,432,000 18,432,000 18,432,000 18,432,000 18,432,000
F. C. A Loan 10,820,348 - - - - - - - -
10,820,348 13,348,000 18,432,000

EXITS
Investment loan
F. C. A. 10.820.348 1.060.000 - - - - - - - -
Production costs - - 6,736,900 6,736,900 6,736,900 6.736.900 6,736,900 6,736,900 6.736.900 6,736,900
Ordinary interests - - 1,900,855 1,612,525 1,612,525 1,432,906 1,224,548 1,224,548 982.853 377.261
Deferred interests - - 454.013 454.013 454.013 454.013 454.013 454.013 454.013 454.013
Loan amortization - - 834.288 1,122,618 1,122,618 1,302,237 1,302,237 1,510,595 1,752,291 2,357,883

9,926,056
TOTAL OUTPUTS (II) 10,820,348 9,926,056 9,926,056 9,926,056 9,926,056 9,926,056 9,926,056 9,926,056

NET FLOW (I-II) 0 12.288.000 8,505,944 8,505,944 8,505,944 8,505,944 8,505,944 8,505,944 8,505,944 8,505,944

64
 FINANCIAL EVALUATION

Once the net flows have been obtained in the financial projection;
the existing criteria for evaluating projects are applied, the most commonly used are:

The Net Present Value (N. P. V.)

The Internal Rate of Return (I.R.R)
Net Present Value (N. P. V) Method:

The Net Present Value of a project is defined as the value obtained from the
difference between cash inflows and cash outflows updated
separately for each of the years at a predetermined interest rate,
during the project's useful life, minus the investment.

The interest rate used is the one that prevails in the capital markets,
currently in Venezuela, the rate is between 30 and 37% annually.
interest is also referred to as Cost of Capital.

This difference is updated from year one (1) until the end of its useful life.
from the project. The N.P.V. obtained for each of the years of life of
projects are added to obtain the value of the project. It is the total net present value,
the result is positive, the project must be accepted, if it is negative it must
to reject oneself. Mathematically, we express it this way:

1 2 3 4
V. A. N. =( + + + + )
(1+ ) 1 (1+ )2 (1+ )3 (1+ )

Here Bn2Bn3they represent the net cash flows, that is, the differences
between cash inflows and cash outflows:
It is the predetermined interest rate (Cost of capital)
C: is the cost of the project, that is, the investment
n: is the number of years of the project's lifespan.

The equation of V. A. N can also be expressed like this:

V. A. N =
n
Bn
∑ -C
(1 +i)n
1

Where Bn is the Total Updated Net Benefit

65
If the N. P. V. is positive, the return on investment is greater than the rate of
predetermined interest, if the N.P.V. is equal to zero, the project's profitability
is equal to the predetermined interest rate. Therefore, a project with
N.P.V. zero can be considered acceptable. If the N.P.V. is negative the
profitability is below the predetermined interest rate or cost of
capital and the project must be discarded.

If you have to choose between two projects, you should opt for the project with the V.
A. N. mayor.

The V. A. N can also be considered as an estimated investment rate.

that at least the project must achieve. The deficiencies of the N. P. V are: the
difficulty and the circumstance that the NPV does not indicate the rate of return
exact of the project. For this reason, the NPV method is not always
used as a criterion to assess projects from a private perspective,
the World Bank instead recommends the Internal Rate of Return (I.R.R.)
for the financial economic analysis of projects and the same is done by most
of other national and international financial institutions. Example
Calculation of the V.A.N (Table No. 9)

The project has a N.P.V of Bs. 5726.765, which indicates that it is positive and the
the company increases its value by this amount also indicates that at a rate of
36% interest, the project is feasible because it is above the cost of
capital, that is to say, the maximum interest rate that this capital would earn in a
financial entity currently. If the N.P.V had turned out negative the

66
 TABLE N° 9

CALCULATION OF NET PRESENT VALUE

(V. A. N)

FLOWS RATE OF
INVESTMENT V. A. N.
YEARS NIECES UPDATE
Bs Bs
Bs N AL 36%
0 - - 10,820,348.00
1 - 0.7353 ( 779,441.00
2 12,288.00 0.5407 6,643,598.00
3 8,505,944.00 0.3975 3,381,471.00
4 8,505,944.00 0.2923 2,486,376.00
10,820,348.00
5 8,505,944.00 0.2149 1,828,217.00
1,060,000.00
6 8,505,944.00 0.1580 1,344,277.00
7 8,505,944.00 0.1162 988,439.00
8 8,505,944.00 0.0854 726,793.00
9 8,505,944.00 0.0628 534,407.00
10 8,505,944.00 0.0462 392,946.00

VAN + 6,726,765.00

Project is discarded because it is below the maximum interest rate of

market. The criteria of financial institutions in Venezuela for the measure
the Net Present Value is positive when discounted at the opportunity cost of
capital, that is, at an annual interest rate of 37%.

The Internal Rate of Return (I.R.R.):

Another way to use the updated cash flow to measure the value of a
The project is to determine the Internal Rate of Return, which is defined as the rate
of interest that equates the Net Present Value of the Project with the investment. Also
is defined as the interest rate or discount rate that makes the Net Value
Net income equals zero.

67
The Internal Rate of Return is a very useful measure of the value of projects.
It is the one that the World Bank uses for all its economic financial analyses.
Venezuelans. The equation to calculate the Internal Rate of Return is:

Bn1 Bn2 B3 Bnn

+ 2 + + −−−−+ - C =0
(1 +i) (1 +i) (1 +i)3
1 ( 1 +i ) n

This equation can also be expressed like this:

n
Bn
∑ − C =0
(1 +i)n
1

In this equation, it is specified that the NPV is equal to zero and the value is found.
of what makes the NPV equal to zero.

Procedure to calculate the Internal Rate of Return (IRR):

First, transfer the net flows, calculated in the financial projection to

calculation table of the Internal Rate of Return, as shown in the Table
No. 10.

68
 TABLE N° 10
INTERNAL RATE OF RETURN
T.I.R.
RATE OF RATE OF
NET FLOWS INVESTMENT V.A.N V.A.N
YEARS UPDATE UPDATE
Bs. Bs. at 53% at 55% Bs.
Bs.
0 -- ---- (10,820,348) ----- (10,820,348)
1 -- 0.6536 ( 692.810 0.6452 ( 683.870
2 12,288,000 0.4272 5,249,263 0.4162 5,114,672
3 8,505,944 0.2792 2,374,915 0.2685 2,284,164
4 8,505,944 0.1825 1,552,232 0.1732 473.654
10,870,348.00
5 8,505,944 0.1193 1,014,531 0.1118 950.744
1,060,000.00
6 8,505,944 0.0780 663.092 0.0721 613.383
7 8,505,944 0.0510 433.393 0.0465 395.731
8 8,505,944 0.0333 283.263 0.0300 255.310
9 8,505,944 0.0218 185.139 0.0194 164.716
10 8,505,944 0.0142 121.006 0.0125 106.268

363.676 (145.576)

69
 Second, an interest rate is arbitrarily chosen, in real life
It is not possible, except by chance, to directly choose the upgrade house.
that makes the net flows minus the investment equal to zero, unfortunately there isn't
there is no formula to determine the Internal Rate of Return and it is necessary to resort
to trial and error methods.

In our case, from Table N° 10 a interest rate was chosen of

53%, the result of the N.P.V. was positive, which means that the Internal Rate of Return
Return is higher than the arbitrarily selected interest rate. As the
N.P.V. is positive at an interest rate of 53%, it is necessary to continue searching.
at guessing an interest rate that makes the N.P.V. negative, being careful that
the difference between the rate of positive NPV and negative NPV is not
greater than five points. By arbitrarily choosing the interest rate of 55%, the
the result of the N.P.V. was negative, which means that the formula must be used
next:

VP (I 2- 1I )
T.I.R. = I1+
VP+VN

Where:

I1Lower rate (53 %)

I2Maximum rate (55%)

VP = Positive VAN

Bn = Negative VAN

Applying the formula we have:

363.676 (2) 727.352

TIR = 53 + = = 1,43
363.676+145.576 509.252

54.43%

NOTE: to use this formula, it is necessary that the sum of the positive N.P.V.s
and negatives be in absolute value, that is to say without taking into account the negative sign

from V.A.N.

This rate of 54.43% in a certain sense represents the average profitability of the
investment made in the project throughout its life and at this rate the project

70
it reaches its break-even point, that is, it is obtained from all capital costs
and an operation of 54.43% due to the use of money over its 15 years,
that is to say that the Internal Rate of Return is the profitability of the project and that by

for every 100 bolívares invested, the project earns Bs. 54.43 throughout its lifetime
project.

71
ECONOMIC EVALUATION

Benefit-Cost Ratio:

This coefficient can be defined as the quotient between the updated value of
benefit flow and the present value of the cost flow, mathematically it is
express it this way:

n Bn
B ∑1(1 +i) BI amfIiosactualijados
= =
C Costosactualiwanteds

N
C
∑
(1 +i)n
1

For the calculation of the benefit-cost ratio, both revenues are updated.
as the expenses and you have to decide beforehand the discount rate that is
it will use. In general, there are two refresh rates to choose from
and a third one that is sometimes proposed, the most used is that of cost of
opportunity cost of capital, that is, the maximum rate that capital would earn in a
financial institution. In Venezuela, that rate is currently comprised of
between 30 and 37% annually.

Another discount rate that is often used to calculate the relationship.

cost-benefit, is the interest rate of the requested loan for execution
of the project.

When the benefit-cost ratio is less than one (1), from the point of view
the project is justified economically (although there are other non-economic factors)
that they justify them).

It is a case in which, at the assumed discount rate, the present value

the benefits would be less than the costs, and it would not be recovering
the investment made. It would be better to deposit the money in a bank account,
where I would earn compound interest, with no risk.

72
If the ratio is equal to one (1). The project could be considered marginal.
from an economic point of view, that is, the project does not generate profits but
of losses.

If the ratio is greater than one (1), the project is justified from the point of view
economic, because it generates profits.

As the ratio is greater than one (1), it is more economically justified.

Example of calculating the benefit-cost ratio at a discount rate of

36% (Current passive rate).

B/C =40,486,064= 1,82

22.220.792

We observe that the benefit-cost ratio is greater than one (1) at the rate
36% passive, which indicates that the project is feasible from the standpoint of
economic, because the profitability is above the maximum passive rate of
the banks and recovers 1.82 bolivars for each bolivar spent, that is
it earns a profit of 0.82 bolivars for every bolivar invested and 82 bolivars
for every one hundred (100) bolívares invested.

See Table on the next page.

73
 TABLE N° 11

COST-BENEFIT RELATIONSHIP

FACTOR FACTOR COSTS

BENEFITS BENEFIT NET COSTS
YEARS UPDATED UPDATED UPDATED
GRANDSONS UPDATED Bs.
AL 36% AL 36 % Bs.
0 -- --- --- --- --- ---
1 10,820,348 0.7353 7,956,138 10,820,348 0.7353 7,956,201
2 13,348,000 0.5407 7,217,263 1,060,000 0.5407 573.142
3 18,432,000 0.3975 7,326,720 9,926,056 0.3975 3,945,607
4 18,432,000 0.2923 5,387,673 9,926,056 0.2923 2,901,386
5 18,432,000 0.2149 3,961,036 9,926,056 0.2149 two million one hundred ninety-three thousand one hundred nine
6 18,432,000 0.1580 2,912,256 9,926,056 0.1580 1,568,816
7 18,432,000 0.1162 2,141,799 9,926,056 0.1162 153.407
8 18,432,000 0.0854 1,574,092 9,926,056 0.0854 847.685
9 18,432,000 0.0628 1,157,529 9,926,056 0.0628 623.356
10 18,432,000 0.0462 851.558 9,926,056 0.0462 458.583
TOTAL 40,486,064 22.220.192

74
SOURCES AND USES OF FUNDS

This statement of origin and application of funds indicates where it comes from
money that entered the project, and how it was used in detail,
resulting in the available cash for each year. This instrument
it allows determining the financial capacity of the project and verifies if it is capable
to generate the required funds to carry out the necessary investment.

The purpose of this statement is to inform, in detail, what has been done.
It will be done with the cash provided by financial institutions. It
own income from the project and that of the producer. This is integrated solely and
exclusively for cash inflows and outflows, that is, it does not
includes depreciation expenses as they are non-monetary expenses.

As this reflects both the origin and the use that will be given to the funds in
relationship with the project, is manifested in this way at what moment of
additional contributions may be required at times or, on the contrary, when they may
Withdraw funds as dividends from the project. It is necessary to accumulate the balances.
from each year because this allows for analyzing the financial feasibility of the project,
since a positive balance for all years indicates that the sources of funds
projected are sufficient to cover the intended uses.

The procedure indicated for the preparation of the table is to calculate all the
income or sources and all expenses or uses.

Income:

The term income refers to cash inflows (Cash flow) that, therefore
constitute sources of funds for the project. Among the concepts generally
included as income or sources, the following can be mentioned:

Sales of agricultural products

2. Loans received by financial institutions.
3. Sales of disposed assets.
4. Contributions of the product.

75
 Expenses:

Expenditures or uses of funds represent cash outflows.

and are generally produced by the following concepts:

Loan investments.
2. Direct operating expenses.
3. Loan interests.
4. Amortization of the loan.

Below is an example of Sources and Uses of Funds.

See Table on the next page

It is observed that the less used sources are positive, this allows the project
cancel the interest and the repayment of the loan and be able to distribute dividends
to make new investments.

76
 TABLE No. 12
SOURCES AND USES OF FUNDS
YEARS
DESCRIPTION
1 2 3 4 5 6 7 8 9 10

ENTRANCES
Sale of aloe vera gel 12.288.000 18.432.000 18.432.000 18.432.000 18.432.000 18.432.000 18.432.000 18.432.000 18.432.000
Loan F. C. A 10,820,348 - - - - - - - -
Balance Previous Year - - 12,280.00 21.093.942 29.599.884 38.105.826 46.611.768 55.117.710 63.623.652 72.129.594
TOTAL USES 10.820.348 13.348.000 18.432.000 18.432.000 18.432.000 18.432.000 18.432.000 18.432.000 18.432.000 18.432.000

USES
Loan investment F.C.A. 10,820,348 1,060,000 - - - - - - - -
Production costs - - 6.736.9000 6.736.900 6,736,900 6,736,900 6,736,900 6,736,900 6,736,900 6,736,900
Debt service - - 3,189,158 3,189,158 3,189,158 3.189.158 3,189,158 3,189,158 3,189,158 3,189,158

TOTAL SOURCES 10,820,348 1,060,000 9,926,056 9,926,056 9,926,056 9,926,056 9,926,056 9,926,056 9,926,056 9,926,056

NET FLOW (I-II) 0 12.288.000 21.093.942 29.599.884 38.105.826 46.611.768 55.117.710 63.623.652 72.129.594 80.635.536

77
DEPRECIATION

It is the loss of the value of assets due to their use, obsolescence, or by action.
of time. This is accounted for as a non-monetary expense, that is to say the project
does not disburse money to cancel or pay it, but rather considers it as an asset
X bolívares lose value over time and this is a loss of value.
it is what is called depreciation.

Types of depreciation:

Currently, there are two types of depreciation: tax and accounting.

Taxative: it is the one currently being used to depreciate assets in

the appraisals, because it takes into account the replacement value or of
market and not the purchase or initial value.

Accountable: it is the one used to depreciate the assets in the projects of

economic feasibility and it is the amount in bolivars reserved that has fulfilled its
useful life. Within accounting depreciation, there are the following methods:

straight line

Constant percentage initial value

-Number digits

The method used in projects is the straight line method, which consists of
use the following table.

See the table on the next page

78
 TABLE No. 13

COST-BENEFIT RELATIONSHIP

VALUE QUOTA
VALUE LIFE
DEPRECIATION OF ASSETS Residual Depreciation
Initial Bs. USEFUL
The Bs. ANNUAL Bs

100 m shed2 160,000.00 25 6,400.00 6,144.00

10 km. nearby 220,000.00 10 22.000,00 19,800.00
Water tank capacity 200 liters. 100.00 15 6,600.00 6,222.00
Tank for cooking syrup. 330,000.00 15 22,000.00 20,523.00
280 m shed2 448,000.00 25 17,920.00 17,203.00
20 HP boiler 25,000.00 15 16,666.00 15,555.00

Bs 85,457.00

−
*D= ANNUAL DEPRECIATION ALLOWANCE

VR

79
STATEMENT OF INCOME AND EXPENSES

Also called income statement, it is a detailed report in terms

monetary aspects of what happened on the farm during the economic exercise that
closes, is made with the balances of the nominal accounts or accounts
of income and expenses applicable to the generation of such income.

Its aim is to show the utilized (or lost) obtained, and detail the way
how it happened.

Just like the 'Balance sheet' and any accounting report, the 'Statement of
Profits and Losses" should be defined with a heading containing:
a) Name of the farm
b) Name of the state or Report
c) Dates of the Period covered
Classification of the Statement of Earnings and Losses

Main Revenues:
They are constituted by the sales of the estate and represented by the
nominal accounts that record the compensations received by the property,
for the agricultural or livestock products produced within it or by the
sale of services provided to other estates, excluding those incomes
eventual gains from the sale of discarded assets.
2. Production costs
They are made up of the cost of agricultural products sold by the
farm. They are divided into:
a) Variable costs
b) Fixed costs
3. Operating costs
They consist of sales expenses and also administrative expenses.
4. Other expenses and other income:
Other expenses:
They are made up of all those occasional expenses different from the
normal expenses of the farm

Other income
They are formed by income from interest, sales of assets.
discarded, etc.

See table on the next page

80
 TABLE No. 14
STATEMENT OF PROFITS AND LOSSES
YEARS
DESCRIPTION
1 2 3 4 5 6 7 8 9 10

INCOME
Sale of aloe vera gel - 12.288.000 18.432.000 18.432.000 18.432.000 18.432.000 18.432.000 18,432,000 18,432,000 18,432,000
TOTAL INCOME - 12.288.000 18.432.000 18.432.000 18.432.000 18.432.000 18.432.000 18.432.000 18,432,000 18,432,000

EXPENSES
Production costs - - 6,736,9000 6,736,900 6,736,900 6.736.900 6,736,900 6,736,900 6.736.900 6,736,900
Ordinary interests 1,900,855 1,767,369 1,612,525 1,432,906 1,224,548 982.853 702.486 377.261
Deferred interests - - 454.013 454.013 454.013 454.013 454.013 454.013 454.013 454.013
Depreciation Charge - 85.457 85.457 85.457 85.457 85.457 85.457 85.457 85.457 85.457
TOTAL EXPENSES - 85.457 9,177,225 9,043,739 8,888,895 8,709,276 8,500,918 8,259,226 7,978,856 7,653,631

NET FLOW (I-II) - 12.202.543 9,254,775 9,388,261 9,543,105 9,722,724 9,931,082 10.172.774 10,453,144 10,788,369

81
STATIC PROFITABILITY

It is the relationship between the net profits of a year and the capital employed to
get them

STATIC PROFITABILITY=NET INCOME OF A YEAR x 100

CINVESTED CAPITAL

This profitability represents the profit obtained in a year for every hundred.
(100 bolívares) of the invested capital.

Static profitability is calculated based on the own capital of the unit.

production based on own capital plus borrowed capital; for example.
Net utility
RE1 = ---------------------------------------* 100
Owner's equity

Net profit
------------------------------------------------------- * 100
EQUITY + loan

8.709276
RE2= -------------------------------------------------------- = 51.59%
16,880,348

CALCULATION OF BREAK-EVEN POINT

The break-even point is the control mechanism that indicates at what volume the
revenues exactly cover expenses. At any lower volume, the unit
Production will incur a loss and a greater volume would have a profit, for
its calculation is necessary to prepare a classified chart of fixed expenses and expenditures
variables (table No. 15) and use the following formulas:
CF 8632.104 Bs 8,632,104
a) PE (Bs.) = ------------- = -------------------- = ------------------
CV 63,742,057 0.60
1 - ------------- 1 - --------------------
Income 159,744,000
PE (Bs) 14,386,840 Bs 9.01
b) PE (%) = ------------------------ = --------------------- = ----------
Income 159,744,000

c) Safety margin:

Income–pf 159,744.00–14,386,840
MS= --------------------- = -------------------------------------- = 90.99 %
Income 159,744,000

82
The break-even point indicates the level of intensity in the operations of the
production unit, in which neither losses nor gains are recorded. The
the previous example indicates that the project must have minimum income
annual of Bs 14,386,840.00 to not be able to even gain, that is, it has a margin
of security of 9.05% to neither lose nor gain, that is, it has a margin of
90.99% security is considered good.

VARIABLE COSTS
ITEMS FIXED COSTS Bs
Bs
Production costs 53,895,200.00
Ordinary interests 9,846,857.00
Deferred interests 8,632,104.00
Total 8,632,104.00 63,742,057.00

SENSITIVITY ANALYSIS

The inherent risks of agricultural project analysis are due to

basically the variability that prices of products have in Venezuela
agricultural, input prices, product yields
agricultural

It is said that a project is sensitive when, for example, the prices are varied.
The inputs produce a significant variation in the rate.
internal rate of return or in the cost-benefit relationship. The sensitivity analysis
it allows determining the variation limits of some factor of the project with
regarding some of the chosen evaluation criteria.

In Venezuela, generally to calculate the sensitivity of a project

agricultural, it is used to vary the project costs by a percentage and analyze
the impact of that change on the updated net profit is calculated
again the financial projection and the rate of return. If the internal rate of return
return is modified by a not significant percentage we can say that the
the project is not sensitive to the increase in costs; on the contrary, if the rate is
modifies to a large extent, it is said that the project is sensitive to a
increase in direct costs. The same can be done by modifying the
sales prices of the project or with the yields of the products.

83
CONCLUSIONS

As we have been able to observe, the Formulation and Evaluation of projects,

it is a set of aspects that are very interrelated with each other, they follow a
sequence or logical order, that is to say it is not a scattered information but a
organized information.

For the purposes of presenting a project, it can be organized by

according to the following scheme

FORMULATION:

1. INTRODUCTION
2. INFORMATION ABOUT THE APPLICANT
3. DIAGNOSIS ON THE PRODUCTION UNIT
4. VALUATION
5. MARKET STUDY
6. MARKETING STUDY
7. AGROECONOMIC PLANNING
8. FARM PROJECTION
9. PHYSICAL RESOURCES PLAN
10. INVESTMENT PLAN
11. INVESTMENT SCHEDULE
12.DEBT SERVICE

EVALUATION

13. FINANCIAL PROJECTION

14.CALCULATION OF N.P.V.
15.CALCULATION OF T.I.R
16.STATIC PROFITABILITY CALCULATION
17. CALCULATION OF BENEFIT-COST RATIO
18. SOURCES AND USES OF FUNDS
19. DEPRECIATION CALCULATION
20. STATEMENT OF EARNINGS AND LOSSES
21.BALANCE SHEET
22. SENSITIVITY ANALYSIS
23. CONCLUSIONS AND RECOMMENDATIONS

84
BIBLIOGRAPHY

AGUILAR, Alfredo and collaborators. Agricultural Administration. Editorial

Limusa, Mexico, 1982.

BROW, Maxwel. Farm Budgets. From Farm. Income Analysis to Agricultural

Project Analysis. The World Bank. Washington. USA. 1984.

CONTRERAS, José. Valuation of Agricultural Companies. UNELLEZ, Cuanare,

1984

_________________, Methodology for Formulating and Evaluating Projects

Agricultural. UNELLEZ. Guanare, 1985

GITTINGER, J Price. Economic Analysis of Agricultural Projects. Publisher

Tecnos. Madrid. 1980

GOMEZ RONDON, Francisco. Financial Mathematics. Francisco Editions

Rondon. Caracas, Venezuela, 1982

WAR, Guillermo. Manual of Agricultural Enterprises. I.I.C.A., San José,

Costa Rica. 1978

LEON GUINAND, Marcos. Some reflections on formulation and evaluation.

of Private Projects. Publication of the Agricultural Credit Fund.
Caracas. 1978

MIRAGEM, Samuel, NADAL, Francisco and others. Guide for the preparation of
Economic Development Projects. Mexico, 1958

UNITED NATIONS, Economic Development Project Manual. Mexico.

1958

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PLASSE, Dieter, SALMON, Rafael. Cattle Ranching in Venezuela. Caracas.
1958

TARQUIN, Anthony, BLANK Leland. Economic Engineering. McGraw-Hill Publishing.

Hill. Mexico. 1980.

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