354 



THE INDIA RUBBER WORLD 



The Evaluation of Rubber Plantations. 



Bv Kelts Colfax Baker, M.S.F-. 



THE evaluaiion of rubber plantations is a subject of increas- 

 ing importance to the rubber world. The aggregate value 

 of the planting industry is increasing rapidly because of 

 increased acreage and increased yields per acre. Tlie price of 

 crude rubber is at the same time decreasing, or must necessarily 

 do so in the near future, thereby leaving a smaller margin of 

 proiit to the producer. Hence arises the rapidly increasing need 

 for a careful and scientific evaluation of plantation properties. 

 The laxness of the industry in general in realizing the impor- 

 tance of this is seen in the fact that the e.xact value which most 

 properties are to their owners has never been decided upon. Not 

 only have these evaluations never been made, but there has been 

 no system for calculating values yet evolved which is mathemati- 

 cally correct, and which will hold in court. Innumerable needs 

 for this knowledge might at any time arise, common instances 

 of which might be in the case of damage suits, unjust taxation, 

 any need for accurate assessment, or in the case of selling and 

 buying properties. It will, in short, allow planters and invest- 

 ors to maintain a complete and accurate inventory of their plan- 

 tation investments. 



Every large planter and investor in plantation securities must 

 already have had some instances arise in which a definite system 

 for evaluation would have been of great assistance, and would 

 have added greatly to their sense of security in their investment. 

 In most past evaluations of properties, taking, for example, the 

 late evaluation of one of the largest hoMins? in the Orient, 

 there have been no two men who have calctilakil in the same 

 manner, and as a consequence no Iwo evalualions are strictly 

 comparable. For instance, one eminent V. .\.— Mr. A.— calcu- 

 lates on the basis of a seven year-' |inrchasc c,f profits, while an- 

 other equally eminent V. A.— Air. 1'.. "u tin niher hand, figures 

 on the basis of a ten years' purchase of i.K.lits, and a third- 

 Mr. C. — figures on still another system wliieh im liidcs a seven 

 years' purchase of profits with some son (if an ailililion to in- 

 clude the value of the buildings, machinery, etc., on the property. 

 Why is Mr. A. justified in assuming that the value of the prop- 

 erty is seven years' profit while Mr. B. assumes that it is worth 

 ten years' profit? It comes down merely to a question of the 

 personal fancy of the evaluator. What is the basis of Mr. C.'s 

 addition of an inventory to a seven years' pr.jfit' This instance 

 is not exceptional, but typical. 



There is more than a merely theoretical difference between 

 a "guess" and "estimate." Any fisure in order to be an estimate 

 must have been derived from the combination of some basic 

 assumptions with some definite and logical method for calcula- 

 tion. Otherwise it is a .sness. It does not seem to the writer 

 that it is reasonable for tlic planting industry to guess at the 

 value of properties when there is every probability that by study 

 of the priihletn there can be evolved a definite and mathemati- 

 cally corrct method for estimating their value. The evolving 

 of this method does not mean pioneering to any great extent, as 

 the methods used by modern public utility engineers in evaluat- 

 ing their properties and the method used by bankers in evaluating 

 long-term bonds can be used as guides. This value when ob- 

 tained should be a maximum value in case of buying properties 

 and a minimum value in case of selling properties. It may often 

 be possible to purchase considerably below this maximum valu- 

 ation or it may be possible to sell considerably above this mini- 

 mum valuation, but in each case the negotiator wotdd be very 

 sure that he was doing so rather than merely guessing that he 

 was. 



In a- memorandum replying to my letter of some months past 

 to Mr. B., the prominent V. A. mentioned before, the advisability 



of formulating some definite system was questioned on the point 

 that by so doing "all the individuality of the reports of the dif- 

 ferent men would be lost." In answer to that the writer may 

 say that any system of calculation, to be of any value whatever, 

 must be elastic, but the calculations may be so systematized that 

 we will have this elasticity, and yet have all the advantages of a 

 definite method of calculation. In engineering reports and in 

 the evaluation of engineering projects certain formulae are used, 

 and certain evaluations are made by prescribed methods, yet 

 engineering reports cannot be said to be "cut and dried" propo- 

 sitions in which no individuality can be shown. The assumptions 

 of the planter may necessarily be less accurate than those of the 

 engineer, but his methods of calculation should be just as accur- 

 ate and as axiomatic as engineering methods. It is said that 

 figures never lie, but it cannot be said that a system of figuring 

 never lies. ', 



In the memorandum mentioned above, the advisability of hav- 

 ing a definite system was questioned by the statement that "al- 

 though we should have a system, no two reports on one estate 

 would agree." In answer to that the writer may say that this 

 statement in itself is an admission that the use of a definite sys- 

 tem for the calculation of estimates and values does not prevent 

 the elasticity which is desired. On the other hand, it will allow 

 two reports which vary in results to be really compared. If the 

 systems of calculation are dififerent they cannot be compared in 

 the proper sense, because the effects of the dififerent systems of 

 calculation used may nullify or increase the effects of any dif- 

 ferences in basic assumptions, as to future yields, future prices, 

 future costs of production, etc. 



In considering the standardization of any system for calcula- 

 tions there appear to the writer to be at present four main 

 variables, three of which (No. 1, No. 2, No. 3) will ever reinain 

 variables, but one of which (No. 4) should become standardized. 

 In order to make the reports on any particular property strictly 

 comparable, No. 2 and No. 3 should also be standardized for that 

 particular property. These variables are as follows : 



No. 1. Estimates as to yields and cost of production. 



No. 2. Estimates as to the price of the product and the profit 

 per pound. 



No. 3. Interest desired on the money expended. 



No. 4. Method of calculating the value of the profits after the 

 above have been ascertained. 



The "estimates as to the yield and cost" (No. 1) will vary with 

 the different men examining the property. In order to give the 

 system the desired flexibility, and to allow each examiner an op- 

 portunity of using his individual judgment, this particular branch 

 of the valuation cannot be systematized except in a very general 



The "estimates as to the price of the product" (No. 2) should 

 be fixed in most cases by the investors^ — not the V. A. (and in 

 many valuations this has been fixed at an arbitrary figure by 

 them at 40 cents gold per pound of dry rubber). This, with the 

 estimates of the V. A., as to yields and cost of production, 

 (No. 1) will give the "profit per pound." 



The third item, or the "interest desired on the money ex- 

 pended," must be furnished by the investors for whom the valua- 

 tion is being made. In this relation it must be considered that 

 the rubber-planting industry represents an investment which 

 ordinarily lies at a great distance from the investor, and that 

 its success is in very many w-ays absolutely beyond human con- 

 trol — as is the case in all planting enterprises. It is possible to 

 control quite completely the manufacturing and. Bales departments 

 of the rubber industry, but the success of the planting and of the 



