Case Study 1: Paul V. Dietrich Farms Ltd.: Expansion Plan

In November 2020, Paul Dietrich, a seventh-generation Canadian farmer, was presented with an investment opportunity. A local farmland owner was selling a 150 acre parcel that adjoined some land Dietrich already owned. The current owner wished to sell the property privately and offered the opportunity to bid to only two businesses: Paul V. Dietrich Farms Ltd. (Dietrich Farms) and a local dairy farm. Dietrich knew that the local dairy farm was eager to expand its land base and was aggressive with tits plans to do so. Given that and the recent appreciation in land values, Dietrich estimated that a competitive bid would need to be offered to get the deal. Dietrich wanted to evaluate the attractiveness of this opportunity, considering the long-term financing required for a land purchase as well as short-term financing needs to navigate the seasonal nature of cashflows that came with growing field crops. He new it would be imperative to consider both how this opportunity would be perceived by his bank and how best to present this opportunity to his bank. He also wanted to evaluate whether an investment in tile drainage would be worthwhile should he be successful in purchasing the 150-acre parcel.

You are required to answer:

1.What risks and opportunities does Dietrich face in the field cropping industry?

2.Identify key success factors for this industry. Is Dietrich well-positioned for success?

3.Project Dietrichs cashflow for 2020-2023 and evaluate the farmland investment decision. Should Dietrich put in a bid?

4.If Dietrich purchases the land, is the investment in the tile drainage worthwhile?

5.How should Dietrich present his proposed plan to bank?