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close this bookThe Improvement of Tropical and Subtropical Rangelands (BOSTID)
close this folderPart I
close this folderThe economic context
View the document(introduction...)
View the documentRange systems
View the documentThe basis of range economics
View the documentProject analysis
View the documentDetermining costs and benefits
View the documentResource evaluation
View the documentMarket price determination
View the documentReferences

Market price determination

A number of problems confound the establishment of prices for use in project planning. Obtaining satisfactory price information is usually not a difficult problem in the United States. Merchants, dealers, and farm operators can usually provide satisfactory information on current levels of prices paid and received and wage rates. In developing countries, however, specific price information may be more difficult to obtain, and short-term price fluctuations are likely.

To the extent that markets exist and market price information is available, market prices should be used, but a few caveats must be considered. First, if market prices are generated from a location remote from the project area, then it would be necessary to make adjustments to account for differences from the project area because of transportation costs, any losses due to waste, spoilage, shrinkage, or death loss, and for transaction costs at the marketplace.

If prices tend to fluctuate in a completely irregular or random fashion or in a cyclical fashion, an average price or expected value may have to be used through a series of years.

Prices are one of the crucial assumptions in planning, and the importance of good price forecasting cannot be overemphasized. However, it is possible to become too fearful and exaggerate the consequences of errors. The effects of different prices can be ascertained quite easily by "sensitivity analysis" after the major budgets have been prepared. This may be desirable, both to test the stability of a particular budgeted solution against variations in prices, and also to ascertain the amount of possible loss if the price assumptions are in error. The probability of different occurrences may also be assessed.

In project planning, the determination of prices is a problem if satisfactory market or price reporting systems do not exist. Often the only valid way to place a value on forage is indirectly, by determining its value through the livestock production process. In that case, the costs of producing the forage as an intermediate product could be used. Placing a price on the forage directly is unnecessary.

As mentioned earlier in the chapter, valuation problems are very difficult for the so-called non market or social considerations involved in improvement and rehabilitation practices. For instance, it is very difficult to place values on such things as enhanced erosion or flood control, dune stabilization, or enhanced wildlife production. However, damage mitigation analysis (as used in water resource projects) can be applied. In such a situation, the before analysis would overstate the without analysis and the before-after comparisons would understate the benefits of the proposed project compared with the without-with comparison.

The analyses based on the without-with approach to projections is generally more complicated because it does require projections of two situations. The current before situation can only be taken as a data base or benchmark and guideline information. A before-after type comparison is based on the current situation as one projection and only one projection is required for the relatively unknown after situation.