Horticultural import diversification by U.S. cucumber processor: a Monte Carlo risk assessment

Development projects in developing countries are generally considered to be speculative investments. Potentially significant returns on investment opportunities are often overlooked by assuming that investment risks in developing countries are greater or less manageable than the risks of investment in developed countries. An import purchasing-risk evaluation identified the costs associated with the production and export of processing cucumbers (Cucumis sativus L.) from Hispaniola (Haiti and the Dominican Republic) to the United States. Although production and export analyses suggested that Hispaniola might not replace Mexico as the primary source of cucumbers for processing in the United States between November and April, Hispaniola affords the U.S. processing industry with an alternative investment option for reducing single-sourcing raw product risk. Therefore, an import diversification evaluation was conducted using Monte Carlo simulation to define a investment-risk model. Monte Carlo simulations of the means and variances of the components of cost and price were used to assess investment risk under various investment strategies. This model identified sources of cost variation which were then used to characterize export risks derived from growing processing cucumbers on Hispaniola. It was determined that U.S. processors can reduce overall purchasing-risk by diversifying Mexican production to Hispaniola. Through the creation of a strategic transportation alliance between the U.S. and Hispaniola project participants, the export-import costs were such that the investment-risk model identified the allocation of 80% of the production in Mexico and 20% in Haiti as the most favorable diversification strategy. This strategy offered less risk and greater potential longterm returns than purchasing cucumbers solely in Mexico.