AREC3001 Assignment 2017

Word limit: 1500

Background

The Fijian sugar industry is currently facing many challenges. Productivity in cane production is
low relative to other major exporters, land leases have been expiring on cane farms and many
have not been renewed, and the preferential trade arrangements with the EU that have
effectively delivered prices three times the world price are coming to an end. The Fijian
Government (majority shareholder in the Fijian Sugar Corporation (FSC)) has expressed interest
in using sugarcane to produce ethanol for the local market and potentially to export to other
Pacific nations. A linear programming model has been built in class to explore this option.

Aim
To estimate an ethanol supply function for the FSC to explore whether, and at what price, such
production might enter their production mix.

Specific tasks

1. Access the LP model that we have built in class on Blackboard (FSCLP) and solve the model.
2. Use parametric programming to generate a supply function for the production of ethanol.

3. Write a report that includes:

(i) a brief introduction
(ii) an interpretation of the solution from 1. (basis, shadow prices, allowable
increases/decreases etc)
(iii) the supply function you have estimated
(iv) a discussion of your results from (2)
(v) conclusions/recommendations for the FSC that arise from (i)-(iv)
Model Description
Objective function-maximise net revenue ($FJD)
Activities:
1. RSC - crush cane (1 tonne) cost $30/tonne
2. PSC - purchase cane (1 tonne) cost $88.49/tonne
3. RSLC domestic raw sugar (50kg bag) revenue $70/bag
4. RSX export raw sugar (1 tonne) revenue $724/tonne
5. MLC domestic molasses (1 tonne) $150/tonne
6. MX export molasses (1 tonne) $257.1/tonne
7. SETH ethanol production from sugar (580L) cost $0.92/L
8. METH ethanol production from sugar (250L) cost $0.92/L
9. ETHS sell ethanol (1L) $1.25/L
10. FERT sell fertiliser (millmud) (0.5 tonne) revenue $20/tonne
11. PELEC produce electricity (1 kWh) cost $0.17/ 55kWh
12. SELEC sell electricity (1 kWh) revenue $0.33/ kWh

Constraints:
1. Electricity (kWh)
2. Sugar cane purchase to production (tonnes)
3. Sugar cane availability (tonnes)
4. Sugar crystal pool (tonnes
5. Molasses pool (tonnes)
6. Ethanol pool (tonnes)
7. Bagasse pool (tonnes)
8. Millmud pool (tonnes)
9. Sugar export market (tonnes)
10. Sugar domestic market (tonnes)
11. Molasses export market (tonnes)
12. Molasses domestic market (tonnes)
13. Maximum vinasse (L)

Constraints 1-9 and 13 represent the production and use of products and bi-products from the
activities. These resources are made available in pools in the model.
Constraints 9-12 ensure that particular product quantities are available to maintain market
shares at approximately 2014 levels (consistent with the data on costs, revenues, productivity
etc).
The model will be presented in full and discussed in the next tutorial time slot.