REAL OPTIONS AND PRODUCTIVE RECONVERSION BY LOW-INCOME PRODUCERS: THE CASE OF HIBISCUS IN GUERRERO, MEXICO

Abstract

The growing demand for value-added agrifood products, combined with a changing economic environment and greater uncertainty, requires the application of flexible valuation methods that reflect the real value of an asset in the face of changes in investment. The objective of this study is to determine the impact of hibiscus (Hibiscus sabdariffa L.) price volatility on the decision to carry out a productive reconversion by low-income farmers who conventionally grow hibiscus in association with maize. It is stated that the producer will have greater incentives and will opt for a productive reconversion as the volatility of conventional hibiscus prices increases. This study was conducted in the state of Guerrero, Mexico, in 2020. Information on prices, yields, production, and harvesting costs was obtained from databases and interviews with producers. The interviews were conducted using the focus group method, while the binomial method was used to apply the option theory. The results revealed that the productive reconversion was profitable in no less than seven years. Additionally, a variation in volatility from 0.15 to 0.30 increased the likelihood of conventional hibiscus producers facing low prices by 27 to 44 %, improving the incentive to adopt a higher-quality production system. Therefore, it is confirmed that the real options theory is sufficiently flexible to model the impact of price volatility on producer investment decisions, in addition to providing a better understanding of low-income producers’ decisions to implement a productive reconversion system.