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economics ECONOMIC CONSIDERATIONS IN PISTACHIO PRODUCTION Karen Klonsky and Steven C. Blank anaging a pistachio orchard requires numerous economic decisions over the long productive life of the trees. You have to first determine the orchard design, including the orchard location, type of irrigation system and floor management. Subsequent decisions require regular assessments of production practices such as pest and disease management, pruning, fertilizer program and irrigation scheduling. A feasibility study is a business analysis tool designed to determine if a specific alternative is economically sound. Therefore, a feasibility study (either formal or informal) should be conducted anytime a firm considers any change in its present operating situation. The ultimate purpose of conducting a feasibility study is to avoid the costs associated with making a wrong decision. This chapter uses a feasibility study framework to present a brief discussion of the economic issues faced by pistachio growers in establishing, expanding or replanting a pistachio orchard, as well as in ongoing production. Readers can use all or part of this outline when studying their own situations. ASSESSING ECONOMIC FEASIBILITY OF PISTACHIO PRODUCTION There are several basic business analysis tools that are invaluable components of feasibility studies for analyzing the myriad of decisions facing the pistachio orchard manager. They include 1) whole farm budgets, 2) enterprise budgets, 3) partial budgeting, 4) cash flow projections and 5) capital budgeting. Choice of a budget type for analysis depends on the decision being made. Whole farm budgets are appropriate when the manager wants to know how the proposed change will affect the entire business, which may include income tax management. In particular, the timing and magnitude of resource requirements may impact the functioning of other enterprises. Enterprise budgets are appropriate when the manager is concerned with the potential profitability of the change and the enterprises are not competing for resources. Partial budgets are extremely useful when the impact of the change can be clearly identified and the unchanged costs can be ignored. Capital budgeting is a useful tool for analyzing changes that will have an impact over a long period of time, with the impact varying over time. This may be important because of the alternate bearing nature of pistachios. Examples of an enterprise budget and cash flow budget will be presented in the "Analysis" section of this chapter. No attempt will be made to describe the mechanics of capital budgeting, however. The reader is referred to any standard textbook on farm management for a more detailed treatment of these approaches. Any feasibility study is designed to look at the impact on the farm business of a particular change in the orchard operation. A feasibility study can be divided into four parts: (1) market situation; (2) resource constraints; (3) the production process; and (4) analysis. In the following sections, each of these topics is introduced as it relates to the establishment, replanting or expansion of a pistachio orchard, as well as to the management of an established orchard. Market situation Pistachio production in California has increased dramatically from 1,700 bearing acres in 1977 to 93,000 in 2004. A decision to establish, expand or replant an orchard requires knowledge of current and potential consumption (domestic and abroad) and the price history (variability and projections) to project consumption patterns, competition and M 1