Determining the Extent of Economical Sustainability of a Case Study Milk Farm in Bosnia and Herzegovina Based on the Real Options Model
Round 1
Reviewer 1 Report
1. The title of the paper is too ambitious. Authors do not deal with the term "sustainability", but only with one minor part of economic sustainability without analyzing all its prerequisites. The paper should be expanded by including other parts of sustainability or limit the title only to the analysis of the financial profitability of milk processing using Real Option approach.
2. In the introductory part of the paper, the authors use abbreviations (CB, NPV, DCF). Full names should be used on first mention.
3. Indian diary sector is not relevant for this paper, so the reference in line 65 seems unnecessary
4. In line 73, "Bosnia and Herzegovina" is repeated unnecessarily.
5. If "cattle breeding production accounts for more than 40% of the total agricultural production" then it is not a leading branch of agriculture as said in line 74. I assume that the leading sector is crop production.
6. In the view of reference Krizsan et al. (line 88) the year of paper is missing.
7. It is unclear why the example of formulation of a stock price process (line 263-283) is shown. No need for this in a scientific paper.
8. In Table 3, the authors have shown that, even according to the standard CB analysis, investing in the processing of milk into cheese is profitable. They calculated that the NPV is 155,607 euros. The authors need to explain why such a traditional CB analysis was not enough for them to make a conclusion about the profitability of the investment? Why to use Real Option analysis? What are the advantages of real option calculation in comparison to the standard analysis shown in table 3?
9. In the Discussion, the authors discuss the profitability of dairy farms in correlation with their size. They cite examples in which traditional methods of economic analysis were used to analyze the profitability of processing. In addition to this, it is necessary to compare results of this paper with those in which real options are used in order to get an impression of their necessity for work. Furthermore, the authors can use the Discussion chapter to answer the question in remark 8.
Author Response
Thank you a lot for your valuable contribution to improving the quality of our manuscript. We tried to accept most of your suggestions and adopted the initial text of the manuscript.
Author Response File: 
Author Response.docx
Reviewer 2 Report
The paper discuss the competitive position of dairy farms in Bosnia and Herzegovina (BIH).
Although the topic is worthy of analysis, the paper faces a few fundamental shortcomings in research design.
The analysis is based on one farm and conclusions are expanded on the whole country?
Ho is inappropriate. A hypothesis cannot contain more than one statement. In Ho you nested two statements. First you assumed that farms are not sustainable and that diversification is a solution.
The fact that farms are not sustainable is not tested. In a matter of fact, the number of cows in BIH is increasing (line 76 to 80). Would it be the case if dairy farms are not sustainable? Please clarify.
While reading the article one has an impression that the problem is adopted so that specific methods can be exercised. In scientific research, the opposite should be the case.
The term “typical farm” is quite biased. Is there such thing as typical farm? Especially when only one parameter is used to define a typical farm: the number of cows per farm. The authors must provide more details about dairy farming in BIH.
The authors claim that data are collected on the case study farms. Again, case study farm needs to be described in more detail. Information on farm management are lacking (productivity, herd management, cost structure, market channels...). The economic results of the farm should be compared with other farms in BIH, if possible.
Diversification is quite complex and depends on many factors: Decision the diversify in cheese production will depend on demand and consumer preferences, farmers’ investment capacity, resources, knowledge and education, food safety issues…All those factors should be incorporated in calculating NPV. In the case of the paper, the weights mentioned factors have on the final results should be assessed. Or, factors with a critical influence on NPV should be elaborated.
More attention should be paid to the policy aspects of the paper as well.
There are some technical issues as well:
Introduction- narrative should be better written. Mentioning C/B i DCF is not connected with the objectives of the paper.
Likewise, the text in the Introduction should support the necessity of such research.
Line 34-DCF-full meaning should be indicated.
Line 72- Please correct the following sentence: „…significant part of Bosnia and Herzegovina and Bosnia and Herzegovina…“
Line 75- RS Agriculture- full meaning of RS should be indicated
Line 84- what does ref no. [16] has to do with the situation in RS?
If C/B is the main method then title of the paper should be changed? Please rephrase line 156
Lines 305-307- source?
Author Response
Thank you a lot for your valuable contribution to improving the quality of our manuscript. We tried to accept most of your suggestions and adopted the initial text of the manuscript.
Author Response File: 
Author Response.pdf
Reviewer 3 Report
The subject of the article is interesting and worth describing. However, the method of implementation requires correction. In the Introduction, the authors presented an introduction to the subject. The Introduction section is deficient. It does not contain all the necessary elements. The main goal has been defined, but has no specific goals. The Introduction section should contain research hypotheses or research questions. Transfer hypothesis from section 2. Why is the hypothesis H0? It should be H1.
The main purpose of the work does not correspond to the title of the article. It seems that the authors are trying a little forcibly to adapt the title to the journal.
Sub-sections for section 1 would need to be created. The authors in section 1 deal with different aspects (methods of investment evaluation, animal production, including dairy cows in the world and in RS, consumption of dairy products, sustainable agriculture), so it would be worth separating this. A summary of the content of the article is also missing from section 1. It should be at the end of this section.
The layout of the work is not entirely correct. I have already listed the items that can be found in section 1 Introduction. In section 2, individual subsections can be created. This is also what the authors do, but wrongly in my opinion. They provide key figures at first, but no subsections. They create subsections only when describing the methods. In section 2, a flowchart can be prepared to help readers understand the stages of the research.
Doubts are raised regarding the selection of a farm for research. The authors provided information that it is a typical farm. I don't know the agriculture of Bosnia and Herzegovina. I think most readers don't have that knowledge either. It would need more justification. It is all the more important because the analysis concerns one farm.
There is a general lack of information about the farm, its characteristics, how many cows are kept, what is the cow productivity, what is the milk production, what is the price of milk, etc.
A discount rate of 3.6% may not be realistic. Currently, there is very high inflation, which results in high interest rates on capital. With a higher discount rate, the investment will be all the more unprofitable.
In the NPV method, the starting year is 0. This year, capital expenditures are made. Net cash will be negative. In such a case, table 2 should have a different numbering of years, starting with year 0 and ending with year 13.
In table 3, the investment starts from the 4th year. Here, the start should be from year 3, because year one is 0.
I understand a discussion as referring to other studies after presenting my research results. In my opinion, doing research without a clear comparison and reference to other research results in the fact that the obtained results cannot be properly assessed. In section 4, the authors first refer to studies that had no relation to the results obtained. Only 3 works were referred to, which referred to the research results obtained by the Authors. It is too little. The discussion should be broadened and more related to the results achieved.
Conclusion section is incomplete. You must certainly refer to the hypotheses or research questions posed. Is it possible to verify the hypotheses positively or negatively? The conclusions can be bulleted.
Other remarks:
Line 30. The abbreviation CB analysis appears. It has not been explained before what this abbreviation means. The same is the case with NPV and IRR. Not every reader needs to know these methods. When using an abbreviation for the first time, explain its meaning.
Line 34. What does DCF stand for? Similar remark as above.
Line 75. What does RS stand for?
Figure 1 is illegible. The numbers overlap.
Figure 2 is illegible. The font is too small. It is similar in the case of Figure 3.
Author Response
Thank you a lot for your valuable contribution to improving the quality of our manuscript. We tried to accept most of your suggestions and adopted the initial text of the manuscript.
Author Response File: Author Response.pdf
Round 2
Reviewer 2 Report
Thank you for improving the paper.
I'm sorry that the authors didn't understand my comments in regard to diversification. By "diversifying" (in the presented model, farmer actually almost completely switch) into cheese production, financial results are more promising, but exposure to the market risk is higher and flexibility is lower. Applied methods are useful in evaluating investments that involve technological uncertainty. Could you be so kind and discuss uncertainties in diversifying into cheese production?
Comment on policy aspects was directed toward policy aspects of cheese production. It is obvious that cheese production is not a “one size fits all” solution. What is the potential for diversification into cheese production? How many farms can enter the market? Preconditions? What are the necessary policy actions to provide enabling environment for (new) cheese producers? Subsidies? Loans and grants programs? Knowledge and extension? Fostering cooperation between dairy farmers…Quality standards, protected status…
Again, I noticed that authors use the term "typical" (chapter 2.1.) Please change it. I suggest Case study farm.
Line 479- feedr?
Author Response
Dear Reviewer, Thank you once again for your extremely useful suggestions. We, as authors, have tried our best to make this work as good as possible in accordance with the suggestions.
Author Response File: Author Response.docx
Reviewer 3 Report
The authors took into account most of the suggestions. I would have a few more comments.
The discussion is still insufficient. More publications and research by other authors should be referred to. In the Conclusions section, directions for future research should be specified. The conclusions can be bulleted. Then they will be transparent.
Author Response
Dear Reviewer, Thank you once again for your extremely useful suggestions. We, as authors, have tried our best to make this work as good as possible in accordance with the suggestions.
