Nirmal Pansare ( Owner of Ratnagiri Alphonso Orchard)– to take a decision whether to lease the

orchard to merchant immediately or keep with himself?

RISKS

Unseasonable or heavy rain – Can damage 40% of the crop( Probability of unreasonable or heavy
rain damaging the crop)

Moderate rain- Improve fruit’s size and quality

District 4 seasons

1) Summer – March- May

2) Rainfall – June- September
3) Post Monsoon season- Oct and Nov
4) Winter season – Dec – Feb

Only Alphonso is produced – Premium mango type that had export potential

Orchard – 100 hectares of land

1 hectare – 1 tonne of mango harvested on an average

Grading of Mangoes as per weight

A 100-150 gm

B 150-200 gm

C 200-250 gm

D >250 gms

1 box – 10 kg of fruit

1 hectare of land – 120-140 trees

Fruits bearing – within 3-5 years of planting

FLOWERING – December to January

Threats during flowering

1) Unseasonable rain
2) Deep Frost – Dec- Feb

Most suitable temperature – 22-27 degree Celsius

DECISION

FIRST OPTION – CONTINUE OWNING and NOT LEASING

Initial Investment 60000 US$

P( Rain Hitting) = 0.50

P(R not hitting) = 0.50

P( Rain Hitting/ Loss occurring) = 0.40, Loss Amount 10000$ ( Revenue 50000$)

P( Rain Hitting/ Loss not occurring) =0.60

P( Rain not Hitting/ Profit) =Profit 30000$, (Revenue 90000$)

SECOND OPTION LEASING

Dec 12- Sept 13 Lease Earning 64000$, Initial Investment 60000$, Profits 4000$ and no loss of
10000$ as in First Option

CIMATOLOGY FIRM Fees charged to us 1000$

P ( Firm Predicted Rain/ Region Hit by Rain) =0.70

P( Firm Predicted Rain/ Region not hit by Rain) = 0.20

Lease No Lease
Rain 4000 -10000
No Rain 4000 30000

Predict Rain Predict No Rain

Rain 0.70 0.30
No Rain 0.20 0.80

Q1 Lease – Earning Rs 4000

10000
P( Raining) = 0.50 Net Loss – Rs 10000

No Lease

P( Not Raining) = 0.50 Net Profit Rs +30000

Overall in No Lease Earnings = 0.50*-10000+ 0.50*30000 = + Earning Rs 10000

Q2 PRIOR PROB CONDITIONAL PROBABILITY BAYES THEOREM JOINT PROB

P( R) = 0.50 P(PR/R)=0.70 P(R PR)=0.35

P(PR/NR)=0.20 P(R NPR)=0.15

P(PR)=0.45

P(NR) =0.50 P(NPR/R) =0.30 P(NR PR)=0.10 P(NPR) =0.55

P(NPR/NR) =0.80 P(NR NPR)=0.40

POSTERIOR PROBABILITY

P(R/PR) = P(R PR)/P(PR) = 0.35/0.45=0.78 Probability of rain given predicted rain

P(R/NPR) = P(R NPR)/P(NPR) = 0.15/0.55= 0.27 Probability of rain given no predicted rains

P(NR/PR)= P(NR PR)/P(PR) = 0.10/0.45= 0.22 Probability of no rain given predicted rain

P(NR/NPR) = P(NR NPR)/P(NPR) = 0.40/0.55=0.73 Probability of no rain given no predicted rain

Q3 and Q4 Earning
Lease E
+4000

P(R/PR)=0.78 Loss-10k

- P(PR)=0.45
No Lease
Lease P(NR/PR)=0.22 Profit+30k

So Net-10k*0.78+0.22*+30k= Net Loss-1200 in harvesting

Earning +4000
Lease E
P(NPR)=0.55
 P(R/NPR)=0.27 Loss-10k

No Lease
Lease
P(NR/NPR)=0.73Proft+30k

So Net-10k*0.27+0.73*+30k= Net Profit 19200 in harvesting

Net Earnings from both outcomes is 19200*0.55+ 4000*0.45 = 12300

Q5

If Panesar continues to harvest the orchard and does not leases , he will have to bear the loss of
10000 US$ on his investment of 60000 US$

Best possible outcome that Panesar achieved was when he predicted there is no rain and he did not
opted for lease option. His estimated profit would be 19200 US$

Q6 Final Conclusion

Max Value with Climatologist Report – Max Value without Climatologist Report – Climatologist Fees
= 12300-10000-1000 =1300

So Panasar should consider climatologist report as it would provide him with best profit without
leasing his firm to Fruit Merchant

Win-Win situation for Pansare would be not to lease the orchard ultimately as based on estimations,
the probability of predicted unseasonal rain is 45%. If there is no predicted unseasonal rain, Pansare
shall be earning a net profit of 11300 US$ after making a payment of 1000 US$