INVESTMENT ANALYSIS OF AGRICULTURAL LAND RESTORATION PROJECTS: ADAPTATION TO UNCERTAINTY CONDITIONS

Abstract

Investment analysis of agricultural land restoration projects under wartime and post-conflict uncertainty requires a fundamental reassessment of conventional deterministic approaches. Standard methods such as NPV, IRR, and CVP were designed for relatively stable operating environments and prove methodologically inadequate when applied to restoration projects characterized by multi-period, nonlinear cost structures, highly volatile input and output prices, and significant uncertainty regarding both the timeline and the agronomic outcomes of land rehabilitation. The study proposes a four-module analytical framework encompassing a resource-land module for field diagnostics, a financial-investment module for discounted efficiency assessment, an operational module based on the adapted PWCVP model, and an institutional-legal module for evaluating the project implementation environment. A conceptually important distinction is drawn between nominal and realized investment potential: nominal potential reflects formally available land resources as recorded in cadastral data, while realized potential captures only the share of land that can be operationally engaged under existing constraints, including contamination, infrastructure destruction, and regulatory barriers. Failure to account for this gap systematically overstates NPV and produces unrealistic capital mobilization strategies. The core methodological contribution is the integrated Probability-Weighted CVP (PWCVP) model, which incorporates four innovations relative to the classical approach: strict separation of one-time restoration expenditures from recurring operational costs, a dynamic breakeven point calculated separately for each project phase, a probability-weighted expected NPV (PWNPV) derived from optimistic, baseline, and pessimistic scenarios, and a minimum grant financing threshold (Gmin) defined as the absolute value of a negative PWNPV. The revised Restoration Efficiency Index (REI) aggregates marginal income in the full-productivity phase against annualized restoration costs, operational fixed costs, and monetized ecosystem losses, providing a comparable, bias-free metric for prioritizing projects with varying degrees of land degradation. Sensitivity analysis confirms that demining costs and timelines, agricultural commodity price volatility, and the discount rate exert the greatest negative influence on PWNPV. The real options approach further demonstrates that the deferral option value may exceed a negative standard NPV, thereby justifying the retention of damaged land rights even under current loss-making conditions. The findings are applicable to investment decision-making at the enterprise, government, and international financial institution levels.