My officials have made a calculation of what the earning power of the scheme might be in a typical post- development year - not the year 1954-55. On this assumption and allowing for yields of 750 lbs. an acre and their estimate of price of £40 per ton for groundnuts and £27 per ton for sunflower, they estimate that there will be a deficit of £775,000 per year before charging any interests and without amortisation.
The vital assumptions of yields and price
11. (a) Yields. The experts still maintain that average yields of 750 lbs. per acre of both groundnuts and sunflower can be attained. While they have suggested that it would be prudent not to rely on yields of more than 580 lbs. in the development period the agricultural general manager in East Africa has assured me that he has not yet found any ground for believing that the 750 lbs. per acre cannot be achieved when the scheme is fully developed and the men are experienced. course, like all other farmers they have to accept the hazards of the weather, but in making the estimate of 750 lbs. due regard has been paid to this factor. While as laymen we may approach the experts' figure with caution, I cannot see any valid reason on which we can challenge their opinion.
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(b) Frices. Forward estimates of commodity prices are always precarious and while I recognise that my own experts are as capable as anyone in making an estimate I cannot fail to stress the margin of error to which these estimates are subject. When I submitted my original proposal for this scheme my experts advised that the price of groundnuts would "not fall below £20 per ton" this year. At the moment we have contracted to pay £53 per ton - a price even higher than that at which we were buying groundnuts in 1947. I use that illustration to show the danger of clinging too closely to a hypothetical balance sheet without regard to the uncertainty of the main assumption. On the Corporation's very favourable estimate of price the scheme will earn a margin of £1,000,000 a year; on the Ministry's more pessimistic estimate the scheme will lose £775,000 a year. There is so much uncertainty about these assumptions that no real decisive conclusions, my opinion, can be drawn from the financial estimates. The scheme might make a surplus, or a loss, mainly according to the prices reached for the product.
Is the new scheme "economic"?
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12.
One thing that is certain, however, is that the earning power of a 600,000 acre scheme will not be able to carry the overhead costs which were thought appropriate for 1,200,000 acre scheme (as was proposed a year ago) or 3,000,000 acre scheme (as originally suggested). Both the above calcu- lations have been made on the assumption that no allowance is provided for interest or amortisation of capital. Indeed the various calculations show that it cannot even be certain, because of variable factors of price and yield, that the 600,000 acre scheme will actually earn a surplus on current account. Therefore on purely financial grounds the scheme is not at all attractive. £32,000,000 has already been spent, and a further £16,000,000 is needed over the next four years to produce an asset which cannot even be guaranteed to cover its own operating costs. My officials feel that, in view of the uncertainties about price, on purely financial grounds it would not Page 604f11097 recommend the accePage 6041ofthe97 Corporation's plan, but they feel that the future of the scheme must be determined by references to wider considerations.