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Calculating the Cost: Commodities on Islands

By webstral

At some point, many players will find themselves in possession of an island blessed with one or more commodities. Examples of such islands include Jamaica, Newfoundland, and Ceylon. In addition, there are some mainland regions which effectively are islands from the standpoint of exporting commodities because they are not linked by roads to any other regions. Dutch and French Guyanas function this way, as does Montagnais. I’m less clear on Rupert’s Land and Northwest Territories because I haven’t definitively tested either region. Players in possession of such regions will want to develop the commodities on the islands to earn greater and greater profits. This article presents a simple method for comparing such investments with each other so that the most immediately profitable investments can be pursued.

The heart of the method is the calculation of ROI, which stands for return on investment. ROI measures how quickly the investment generates profits equal to the cost of the investment. ROI compares expensive and inexpensive investments equally. When I generate an ROI, I take note of the cost so I can continue to pursue growth during cash-strapped times; however, as a rule I pursue the investments that pay for themselves most quickly regardless of cost.

For the purpose of the model, let’s imagine that I’m playing Great Britain at the start of the game. Great Britain starts the game with Jamaica and the Bahamas. Jamaica starts the game with a small sugar plantation, while the Bahamas starts (if memory serves) without a plantation but with the ability to construct either a small coffee or small sugar plantation. Normally, I’d have no choice in the matter because Jamaica’s trading port at Kingston is operating at capacity by exporting 30 units of sugar. For the purpose of this model, let’s assume that I haven’t made any commodities investments on either island until completing research on division of labor, which allows me to construct commercial ports and thereby export additional Jamaican sugar.

ROI = [(yield of additional commodity in units) * (price of commodity per unit) + (the tax rate of the region) * (the product of commodity increase times the price per unit) + (increased tax revenues from the additional port wealth, if applicable)] / (cost of the new building + cost of the new port, if applicable)

It seems like a lot, but it’s really not as hard as it looks. A spreadsheet automates the task nicely. I’ll walk the reader through the process, which will seem very simple once you’ve done it a couple of times.

The first number to find is the additional yield of commodity in units. The additional yield is the quantity of goods produced by the new plantation (or warehouse) minus the quantity produced by the old plantation. In the case of Jamaica, the small sugar plantation already in existence is producing 30 units of sugar per turn. A large plantation will produce 50 units. The net gain is 20 units of sugar. So, in the space for yield of additional commodity in units, I insert 20. So far, so good.

The price of sugar varies throughout the game. I’ll just pick a price for the sake of illustration. Let’s imagine that sugar is trading at $16/unit when I am ready to invest in additional sugar production. I like to calculate my ROI on the conservative side because the market often responds to the introduction of a new supply of a commodity by dropping the price per unit. So I’m going to calculate the ROI for a large sugar plantation on Jamaica with the assumption that the price will drop to $15/unit. Under price of commodity per unit, I will enter $15.

The gross profits of the large sugar plantation equals the amount of new sugar times the price per unit. 20 units of sugar at $15/unit yield a gross profit of $300/turn. Not bad.

I’ve accounted for the lion’s share of the profits the new plantation will generate, since the sale of the sugar will go straight into my trade revenues. However, the investment will yield some additional revenue which will tend to lower the ROI (make it more favorable) by a few turns. Taxation of the sugar production and of the new port facility (I’ll need a commercial port to export the additional sugar) will bring in some welcome cash.

The tax rate of the region also is highly variable. Again, I’ll just pick a value for the sake of illustrating my point. Let’s say that the tax rate in Jamaica is 20% at this point in the game. I multiply the tax rate times the new sugar profits to account for the gain to tax revenues in Jamaica. $300 * 20% = $60. Mo’ money, mo’ money!

Finally, the new port will add to the regional wealth. The commercial port adds a base $100 to regional wealth. Kingston is a very poor town, so the base value isn’t modified. Guadaloupe in the Windward Islands is poor at the beginning of the game, so if I were building my commercial port there I’d add $125 to regional wealth. Sadly, this isn’t the case. $100 * 20% = $20. I’m not going to bother calculating the effects of additional town wealth because it won’t be significant on the time scale of this ROI.

Altogether, then, a new large plantation on Jamaica will yield $380/turn in profits. So what’s it going to cost me to get there?

The large plantation costs $2500. The new commercial port costs $2500. I’ll have to spend $5000 to get my $380/turn in profits. When I divide $5000 by $380 to determine how long it will take for the investment to pay for itself, I find that the investment will pay for itself in 13.16 turns. Since I use a spreadsheet for these calculations, the spreadsheet will automatically round down to 13. The ROI for this investment is 13.

Next, I’m going to look at the Bahamas. Since the Bahamas doesn’t have a plantation but does have a trading port, I don’t have to construct a new port to start sending out new product. I do have to choose a commodity, though—sugar or coffee. I’ll look at sugar first, since sugar is a higher-priced commodity.

A small sugar plantation in the Bahamas will yield 15 units of sugar. I’ll stick with my price of $15/unit. The new plantation will yield $225/turn in trade profits. I very seldom invest in a governor’s residence in the Bahamas early in the game, so the tax rate is 17%. Additional tax revenues from the new plantation are $38. There’s no additional money coming from a new port, so my total profit from the new plantation is $263. From this standpoint, Jamaica seems to be an obvious pick.

However, I don’t need to pay for a new port at Grand Bahama in order to export Bahamian sugar from a small plantation. Therefore, all I need to pay is $1500 for a small plantation. Dividing the cost of the plantation by the profits for each turn, I get an ROI of 5.7, which rounds up to 6. The small sugar plantation on the Bahamas will pay for itself in 6 turns.

Another option I have pursued on the Bahamas is coffee. Coffee typically trades at $12/unit early in the game. Fifteen units of coffee at $12/unit yields a trade profit of $180/turn, plus tax revenues of $31/turn. Profits of $221 yield an ROI of 7, which is still pretty good. One might ask why I might choose to invest in a lower-priced commodity like coffee when sugar is available. That’s an issue I’ll address in a later article.

Let’s take this one step further. Imagine that I already have developed small plantations on the Bahamas and Jamaica. Now I’m calculating ROI for large plantations on the Bahamas and Jamaica to determine where I should spend my scarce investment funds. Let’s assume, too, that I have the option of building a commercial port at Kingston, Jamaica. A large plantation in the Bahamas will yield 10 new units of sugar or coffee. Following the example laid out above with the appropriate values inserted yields a profit of $176/turn and $140/turn for sugar and coffee, respectively. A large sugar plantation in the Bahamas has an ROI of 14, while a large coffee plantation has an ROI of 18. Therefore, despite the greater cost of developing a large sugar plantation and commercial port on Jamaica, the more expensive development pays for itself slightly more quickly than a large sugar plantation in the Bahamas.

Players can use the tool of the ROI to compare investments based on profitability rather than cost. The cost of the investment is only one factor in determining the value of the investment. I readily acknowledge that ROI is a tool that has to be used alongside a player’s good judgment. Improvements to governance structures will make an ROI more favorable, while flooding the market with product from several new plantations (or trade theaters) can render a once-favorable ROI much less advantageous. However, so long as a player understands that ROI is about getting one’s capital back as quickly as possible, a player can make good use of the tool.

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