Case Study Analysis

On
PAUL V. DIETRICH FARMS LTD

Group number 15
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Patel Snehal Arvindbhai [email protected]
5
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Pradeep Chand Katoch [email protected]
4
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Arvind Vaidhya G [email protected]
3
2022MB5300 Nandakumar
[email protected]
2 Ananthanarayan
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Vimalan Balasubramaniam [email protected]
1
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Nikhil Mahna [email protected]
6
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Vidya Doiphode [email protected]
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Shivam Sharma [email protected]
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Case Study: PAUL V. DIETRICH FARMS LTD.: EXPANSION PLANS
1. What risks and opportunities does Dietrich face in the field cropping industry?
Answer:
Below are the risks and opportunities Dietrich face:
Risks:
1. Labor Availability: Field are labor intensive, and a shortage of labor can
increase in costs and delay in timely cropping reduce crop yields.
2. Crop diseases and pests: Pests and Outbreaks of diseases can significantly
reduce crop yields due to chemical and fungicides, leading to lower revenues
and increased costs for prevention or treatment.
3. Market volatility: Changes in commodity prices, international trade policies,
and demand for certain crops can create significant price volatility, which can
impact profitability.
4. Climate and weather conditions: Weather conditions like droughts, floods, or
extreme temperatures can negatively affect crop yield or damage and increase
production costs.
5. Regulatory and policy changes: Changes in environmental regulations or
agricultural policies can have a significant impact on farming operations.

Opportunities:
1. Increasing demand for organic and locally sourced food: Increasing consumer
demand for organic and locally sourced food can create new market
opportunities for farmers.
2. Technology adoption: Technology advancements such as precision agriculture,
can improve crop yields, reduce costs, and increase efficiency.
3. Cop diversification: Growing a variety of crops can reduce risks associated
with crop failures or price volatility.
4. Government scheme/support benefits: Government programs, such as crop
insurance or subsidies, can provide financial support to farmers during
challenging times.
2. Identify key success factors for this industry. Is Dietrich well-positioned for
success?
Answer:
Key success factors:
 Efficient operations: Efficient use of labor, machinery, and water can reduce costs and
increase profitability.
Effective risk management: Proper management of risks associated with weather,
pests, and market volatility can help ensure financial stability.
Access to capital: Farming operations require huge capital investment for land,
equipment, and inputs (seeds, pesticides, water, fertilizers etc)
Adaptability and innovation: The ability to adapt to changing market conditions and
adopt new technologies can improve crop yields and reduce costs.
Dietrich Farms seems to be well-positioned for success, given their experience as a
seventh-generation Canadian farmer, and their existing land base, which can provide
economics of scale and efficiency. They have a good understanding of the seasonal
nature of cash flows in the field cropping industry and the need for both long-term
and short-term financing. However, the success of their bid for the additional land
parcel depends on the competitiveness of their bid and the dairy farm's bid.
3. Project Dietrich’s cashflow for 2020-2023 and evaluate the farmland investment
decision. Should Dietrich put in a bid?
Answer:

  2021 2022 2023

  Corn Soybeans Wheat
Land-Number of Acres-(A) 150 150 150
Expected Yield / Acre-(B) 220 58 105
Expected Price / bushel ($)-(C) 5.3 16 7
No. of Acres X Expected Yield-
A*B-(D) 33000 8700 15750
Income from Expected yield $-
C*D-(E) 174900 139200 110250
Total Production Cost by crop per
Acre $ -(F) 528 387 347
Expenses (Cash Outflow)- A*F-
(G) 79200 58050 52050
Net Cash Flow $– E-G –(H) 117960 110190 75000

150 acre farm Purchase Cost, if bid @$20,500/acre = $30,75,000/-,

bank finance available for land purchase 75% i.e. $23,06,250/-, $7,68,750/-
down Payment to be made by Dietrich.

It seems that high initial investment is required and the relatively low returns from
field crops.

In view of the above facts, we are of the opinion that the investment would not be
profitable i.e. Dietrich should not Bid.
4. If Dietrich purchases the land, is the investment in the tile drainage worthwhile?
Answer:

Tile drainage is a system for removing excess moisture from soil below the surface.
Estimated cost to install a full systematic drainage system on the 150 acre parcel
would be $1500 per acre. Implementing the tile drainage will only boost 10% to his
yields, over and above his expected yield; in very wet weather years, the yield benefit
from tiling could be closer to 20%.

Initial Investment of ($1500*150) = $2,25,000 will impact on the cash flow and the
profitability of the investment.

In view of the above facts, we are of the opinion that Dietrich Farms may pursue the
investment in tile drainage to improve the productivity and profitability of the
farmland, if dietrich purchases the land.
5. How should Dietrich present his proposed plan to bank?
Answer:
When presenting the expansion plan to the bank, Dietrich should prepare a
comprehensive business plan that includes a detailed financial analysis of the
proposed investment. The plan should provide information about the potential returns,
risks, and the strategies that will be used to mitigate those risks.
Dietrich should highlight his experience and expertise in the field cropping industry
and his long-standing relationship with the bank as a trusted customer. He should also
emphasize the fact that the investment is in a strategic location that adjoins his
existing farmland and that the purchase of the additional land will allow for greater
economies of scale and efficiencies in his farming operations.
To further increase his chances of securing the necessary financing, Dietrich may
consider offering collateral, such as his existing farmland or other assets, to mitigate
the bank's risk and demonstrate his commitment to the investment.
Overall, Dietrich should present a clear and detailed business plan that highlights the
strengths of his operation, the potential benefits of the expansion, and his plan to
manage any associated risks. By doing so, he will be better positioned to secure the
financing he needs to take advantage of this investment opportunity.