When to switch from pasture to compost barn? An economic analy-sis of four scenarios in Minas Gerais, Brazil

Abstract

In Brazil, producers are migrating from pasture production systems to compost barns in search of greater profitability. These decisions are taken without an analysis of the cost, economic feasibility, and risks involved in this change. Our study investigates the economic feasibility and risk of implementing the compost barn system and compares it to pasture production in the state of Minas Gerais’ southern region. Four scenarios were developed using data from literature and a panel of experts. They inform the production margin, the evaluated production system, investment data, revenue data and cost data. The scenarios were evaluated using a Monte Carlo simulation model. All scenarios had negative minimum values for NPV and IRR, indicating the probability of not being economically viable and demonstrating the risks involved in the dairy activity. However, scenarios 2 (Pasture, from 501 to 1,000 liters/day) and 4 (Compost Barn, from 1,000 to 2,000 liters/day) had positive means for NPV, with the highest probability of occurring values greater than zero. The analysis of the IRR result reinforces the better performance presented by scenarios 2 and 4, with greater probabilities of positive return and, consequently, lower risk. Scenarios 1 (Pasture, up to 500 liters/day) and 3 (Compost Barn, from 501 to 1,000 liters/day) can be discarded by the producer as an investment alternative.