Group Case: Mayala$$s Farming

Mayala, born and raised in BC$,$ has been familiar with farming since childhood. Her grandparents owned

a $5-$acre piece of land in a farming town about an hour$$s drive away from the house she had lived in until

age $21.$ As an only child, she often got a chance to stay with her grandparents for parts of the summer,

when her parents travelled or wanted time to themselves. Mayala was always happy to help out on the

farm and take some fresh food home for her parents.

Mayala$$s grandpa, Rudy, recently passed away and the farm is too much for Grandma Lily to handle on

her own. Hence, she has reached out to Mayala for help. Since Mayala currently works as a financial

advisor, she is connected to many individuals who may be interested in investing in a farm. For this year,

a neighbour, Tyler, has agreed to rent the farm as is and will attempt to earn a profit off the yield. For

rent, he will be paying Lily a single payment of $$10,000$ on July $31$st$.$ He isn$$t willing to commit on the

same deal next year.

Currently, the farm has raspberry plants which are nearing the end of their lives, with declining yields.

Last year, the revenues amounted to $$24,000,$ with farm$-$related expenses of $$5,500.$ This year, Lily

expects yields to decline $5\%,$ with another decline of $5\%$ anticipated for the year after. She expects that

the plants would certainly need to be replaced at that point, as they would be $10$ years old.

Mayala is looking at options on what to do about the farm. She believes that the house and farm can sell

for $$800,000.$ However, it is the only home her grandma has ever known in Canada and believes it will

be difficult to convince her to sell, even with a giant profit $($it was purchased forty$-$five years ago for

$$11,000).$ By selling the farm, Lily would be able to buy a $$650,000$ townhouse in the city and invest the

remaining money at a $4\%$ rate.

Another option is to find a long$-$term renter for the farmland. Lily believes that Tyler offered her a

sweetheart deal out of friendship, but won$$t be interested in paying as much in the future when there

are higher expenses $($such as clearing land and replanting crops$).$ She believes that it is possible to find

someone who will pay $$7,000$ a year for the next five years for the farmland. She has Mayala to help her

determine if this is a good option.

Mayala has asked her grandma if hiring people to do the work is possible and Lily believes it can be

done. However, a decision must be made on what to grow on the land in one or two years. Replanting

raspberry $($expected life of ten years$)$ would require the purchase of $2,500$ plants at $$10$ apiece.

Additionally, there would be estimated labour of $$2$ per plant and direct materials of $$1$ per plant. The

raspberry bushes would collectively yield about $29,000$ of fruit in their first year and this would grow by

$5\%$ year$-$on$-$year for the next two years. Then, yield would remain steady for four years before declining

by $5\%$ a year until the plants$$ end of life. On average, the raspberry has been sold for $$0\mathrm{.}80$ per pound

and Lily expects that trend to continue.

Group Case: Mayala$$s Farming

Alternatively, $1,500$ blueberry bushes could be planted. These would cost $$8$ each, with $$2$ of direct

labour per bush and $$2$ of direct materials per bush. However, the yield would start off much slower,

with only $5$ pounds per plant expected in year one. This would increase incrementally at a $10\%$ rate for

nine years. Then, peak production would be reached and would be expected for the remaining life of the

plants $($another $40$ years$).$ Blueberries have historically sold for a slightly higher price and Lily projects $$1$

a pound on average in upcoming summers. With either blueberries or raspberries, there would be about

$120$ labour days each year $($non$-$replanting year$),$ with seven hours of labour on average. Lily believes

paying various labourers would average out to $$20$ per hour.

As a final consideration, Mayala has a unique idea. She is wondering if the land can be cleared and then

rented out in small pieces to people in town who don$$t have gardening$/$farming space. Mayala has

calculated that she can create $200$ ten$-$by$-$ten feet $$blocks$$ separated by walking paths. Each block can

be rented out to farmers$/$gardeners for $$200$ per summer. Additionally, she can offer watering and

weeding for $$20$ per block per month for those who can$$t commit to visiting their patch regularly. To do

this work, there would be full$-$time worker employed for four months of the year, earning $$20$ per hour.

This would be an added cost on top of regular farming expenses.

Mayala believes she can advertise about these patches in the local paper for $$100$ a month for four

months and achieve $60\%$ of total rental capacity in the first year $($the same advertising strategy would be

used each year$).$ Of course, this is an estimate so the rest of the land may need to remain vacant just in

case. She believes the occupancy rate will increase by $10\%$ a y