Economic Analysis of Investment Opportunities for Alfalfa Pellet Production

Alfalfa has considerable potential as high quality hay because of its high biomass production, perennial nature, ability to provide its own nitrogen fertilizer, and valuable co-products. Despite the potential for alfalfa as an important leguminous cover crop and by-products for animal feed, little research has been conducted in Tennessee and other southeastern states on its adaptability to various climatic conditions, or its profitability and market feasibility. Increased adaptation of alfalfa in current production systems is an important factor in sustainable agriculture. The aim of this study is to analyze the farmers’ perceptions of incorporating Alfalfa into production systems and evaluate the profitability of producing Alfalfa hay and pellets for feed market. The specific objectives of the research are to a.) analyze the structural changes in alfalfa hay market b.) evaluate the economic feasibility of investment for alfalfa palletization and c.) identify factors affecting willingness to invest for alfalfa palletization. The profitability analysis was based on secondary data including enterprise budgets from various university extension services and other published data sources. The pert distribution was used to measure the variation of input costs, yield and market price. The variability of net return was calculated using stochastic profit function. Monte Carlo simulation was performed to estimate profitability. The analysis show positive net return from alfalfa hay production. According to the sensitivity analysis, the selling price and hay yield were positively correlated with net return while unit production costs was negatively correlated with Alfalfa yield. Among these two variables, Alfalfa price is more correlated with net return. Considering financial constraints face by the small farmers, small scale palletization mills with two different capacities were used to analyze pellet production. Comparison of net return from Alfalfa hay vs pellet production shows slight advantage in processing hay into pellets than traditional hay production. Producer survey was conducted to identify producer’s willingness to invest for small scale alfalfa palletization unit. The analysis of binomial logit regression model shows mixed results. The findings of the study is useful to identify the opportunities and constraints in alfalfa hay production and how relevant it is for current and future famers in making investment decisions