Financial Analysis of Litchi (Litchi chinensis Sonn.) Production in Dinajpur District of Bangladesh

Transcription

1 The Agriculuriss 14(2): (2016) A Scienific Journal of Krishi Foundaion ISSN (Online), ISSN (Prin) Indexed Journal Impac Facor: (GIF, 2014) Financial Analysis of Lichi (Lichi chinensis Sonn.) Producion in Dinajpur Disric of Bangladesh Rumana Aker 1 *, M. Serajul Islam 1 and Golam Rabbani 2 1 Dep. of Agriculural Economics, Bangladesh Agriculural Universiy, Mymensingh-2202, Bangladesh; 2 Dep. of Economics, Hajee Mohammad Danesh Science & Technology Universiy, Dinajpur, Bangladesh Absrac *Corresponding auhor and rumanaakerria4013@gmail.com Received: 28 Ocober 2016 Acceped: 12 December 2016 The presen sudy was conduced in 2015 o examine he profiabiliy of lichi orchard producion a Dinajpur sadar upzila in Dinajpur disric where lichi orchards are generally leases ou for 1 o 6 years by he owners known as Deed. In oal 312 lichi orchard rees of which 254 were Bombai, 40 Madrazi, 20 China-3, 2 China-2 and 3 were Bedana, were seleced o esimae he BCR, NVP and IRR of lichi producion. The lichi rees were 18 o 22 years old. Projec appraisal echniques and sensiiviy analysis was done by using primary daa o deermine cos and benefis from lichi producion. The sudy revealed ha individual s invesmen on lichi producion is profiable. The sudy also found ha in producing lichi Benefi Cos Raio (BCR), Ne Presen Value (NPV) and Inernal Rae of Reurn (IRR) were 1.93, Tk and Tk. 1230, respecively. Sensiiviy analysis suggesed ha he invesmen in lichi producion is profiable even for 10% increase in operaing and mainenance cos or 10% decrease in gross benefi. Keywords: Lichi, cos benefi raio, ne presen value, inernal rae of reurn. 1. Inroducion Esablishmen of an orchard is a long erm invesmen where a careful planning and managemen is essenial o ensure economic reurn (Marini, 1997). Lichi (Lichi chinensis Sonn.) orchard is no excepion in his regard. To esablish an orchard and o analyse he producion and reurn, knowledge on invesmen coss analyses is needed which help growers in assessmen of he profiabiliy and evaluae fuure venures. In , he oal area of culivaion and producion of lichi were abou 4602 acres and meric ons, respecively in Bangladesh (BBS, 2014). The nuriional value of lichi places i on he cres of our edibles. This frui conain viamins and minerals in large quaniies. Lichi has long been culivaed as a very popular frui in Bangladesh. I has also a long hisory of accepance in China and many pars of he Souheas Asia. The culivaed lichis have been originaed in he regions of souhern China, norhern Vie Nam and Malaysia. A presen China, Taiwan, Thailand, India, Souh Africa, Madagascar, Mauriius and Ausralia are major lichi producing counries in he world (Singh e al., 2012). In Bangladesh, he leading lichi growing disrics are Dinajpur, Rajshahi,

2 33 Financial analysis of lichi producion Rangpur, Jessore, Pabna, Chiagong, Dhaka, Sylhe and Mymensingh. A surplus producion of lichi in our counry migh open an opporuniy o expor our fruis o ohers counries for earning foreign currency. Several sudies have been conduced on producion, growh, disease and pes infesaion of lichi producion, bu here is no adequae sudy on financial analysis. I has long been demanded o sudy he profiabiliy of lichi producion and herefore, he presen sudy was underaken. The oucome of presen sudy would help he growers, reailer, raders, consumers, exension workers and researchers in heir effors for he improvemen of producion and markeing of lichi in Bangladesh. The specific objecive of his sudy was o assessmen of he profiabiliy of invesmen in lichi orchard from he view poin of individual invesor. 2. Mehodology 2.1 Daa Sources The presen sudy was based on primary daa colleced from lichi orchard owners in Dinajpur disric from March o May Primary daa were colleced hrough direc inerviews by making personal visis were made by he researcher o he seleced lichi growers.. A mulisage sampling procedure was followed o selec lichi growing areas. In he firs sage, one lichi growing disric (Dinajpur) wih wo Upazilas (Dinajpur Sadar and Kaharole) was seleced purposively. In he second sage, wo villages from each Upazila were seleced randomly. Finally, a oal of 60 were seleced from he colleced liss by adoping simple random sampling mehod from each village. The main purpose of he survey was o collec and analyse field level coss and reurns daa from he lichi orchard owners. Average values of cos and benefi were used. For his analysis, five-year producion period of lichi orchard was considered (Growers' age limi of 18 o 22 year was given prioriy). These daa were required o make fuure projecion for he value of inflows and ouflows over he life of a lichi ree o assess he profiabiliy of he lichi orchard owners. Preliminary observaion showed ha farmers in Sadar and Kaharole Upazila of Dinajpur disric are more ineresed in ichi producion raher han oher crops because of higher profiabiliy of lichi producion hen oher crops. Therefore, he aforemenioned sudy areas were purposively chosen. In his sudy, 5.75 acres of land wih 312 lichi rees was seleced. In he sudy area, differen varieies of lichi like, Bombai, Bedana, Madrazi, Chaina-2, Chaina-3, and Mozaffari ec. are produced. Bu, because of is higher producion and good ase, Bombai is more popular han any oher varieies. However, Bombai, Bedana, Madrazi, Chaina-2, and Chaina-3 varieies were seleced for his sudy. The daa colleced following differen mehods were coded, summarized and processed for he analysis. To mee-up he objecives of he sudy he following hree discouning mehods of projec appraisal echnique were used. 2.2 Theoreical framework Benefi cos raio (BCR): The BCR is a relaive measure, which is used o compare presen worh of coss. The BCR is esimaed by dividing he sum of presen worh of gross benefi by he sum of he presen worh of gross coss Ne presen value (NPV): The NPV is an absolue measure, which esimaes he projec ne presen worh. NPV is obained by deducing he presen worh of cos from he presen worh of benefis. Accep all projecs when NPV is greaer han zero (0) when discouned a opporuniy cos of capial Inernal rae of reurn (IRR): The IRR is defined, as he average earning power of he money invesed in a projec over he projec life. The IRR is ha discoun rae, which jus makes he NPV of projec equal o zero, and he BCR equal o 1 (Miah, 1987).

3 Aker e al. /The Agriculuriss 14(2): (2016) 34 Mahemaical Framework of he seleced discouned measure is as follows: BCR = NPV = n 1 n 1 B (1 i ) C (1 i ) B C n 1 (1 i) The IRR is ha discoun rae i, he formula of inernal rae of reurn is, IRR = Lower discoun rae + Difference beween he discoun rae X Sum of Presen wo rh of incremenal benefi sream (cash flow) a lower discoun rae he presen worh of incremenal ne benefi sreams(cash flow) a wo discoun rae, sings ignored Where, B =Benefi in each year (Tk./Year) C = Cos in each year (Tk./Year) = 1, 2,.., n n = Number of years i = Ineres (discoun) rae Table 1. Sudy design and disribuion of sample of lichi growers Disric Upazila Village Number of lichi growers Dinajpur Dinajpur sadar Shunderban village 15 Shadarpur village 15 Shundarpur village 15 Kaharole Dhonikgram village 15 Toal lichi growers 60 Only financial analysis was followed for his sudy. For his reason, all coss and benefis were deermined in local currency (Taka) using eiher farm gae prices or he prices a he poin for firs sale. For his sudy he prices a he poin for firs sale was chosen. The financial analysis from lichi orchard owner s poin of view has been performed considering boh cash cos and cos of family supplied inpus assuming ha all inpus were purchased. The cos of lichi orchard on he view poin of individual invesor can broadly be classified under he following wo heads: (a) Invesmen cos; and (b) Operaing and mainenance cos. For choosing discoun rae he available lieraures (Miah and Hadaker, 1988) sugges ha in mos developing counries he opporuniy cos of capial beween 8 o 15 percen. According o he manager of Bangladesh Krishi Bank (BKB), BAU Branch, Mymensingh had he

4 35 Financial analysis of lichi producion leading rae of agriculure (producion) loan of 11 per cen during he sudy period. Thus, a per cen discoun rae was chosen for he appraisal of hresher projecs. 3. Resuls and Discussion 3.1 Cos of Lichi orchard considering i as an agriculural projec In he sudy area, i was observed ha maximum respondens used o lease in or ou heir lichi orchard for 1 o 6 years. The owners of lichi orchard are no direcly involved in lichi producion. This process of leasing is known as deed in local language. One person or a group of persons who ake lease of he lichi orchard is known as pary locally. 3.2 Invesmen Cos In he sudy area, he farmers have no wrien record on he cos and benefi of lichi producion. Therefore, hey replied from heir own memory. The paries pay a fixed amoun of money o he lichi orchard owner for his period and ake he whole ownership of he lichi orchard. The oal amoun of lease money which he responden farmer paid o he orchard owner was considered as an invesmen cos. I was Tk. 13,50,000 for five years enure. 3.3 Operaion and Mainenance Coss In he lichi orchard he operaing and mainenance cos include he expendiures relaed o proecion of lichi orchard from hief, fencing around he garden, ferilizer applicaion as and when needed. This cos depends on he amoun of lichi flower, if he number of flower is more he cos become more and i also gives more benefi. The operaional and mainenance coss are shown in Table 2. From he analysis of daa he oal operaing and mainenance cos is Tk Benefis Earned From he Projec Benefis were derived on he basis of field level daa. Among he 312 lichi rees here were differen varieies e.g. 254 are Bombai, 40 are Madrazi, 20 are China-3, 2 are Chaina-2 and 3 are Bedana. Some lichi varieies bear he crieria of alernaive bearing. Among hese varieies, Bombai and Madrazi varieies bear fruis every year. So, in his sudy only hese wo varieies were aken o calculae he benefi of 5 years projec of lichi which is shown in Table 3. Table 2. Toal operaing and mainenance cos of he lichi orchard SL No. Cos iems Amoun (Tk.) per orchard 1 Cos of human labour Cos of ferilizer Cos of pesicide Cos of irrigaion Culural and managemen operaion Toal Table 3: Benefis Earned from he lichi projec SL Types of lichi Number of rees Quaniy in Price per housand Toal (Tk.) No. housand/ree (Tk.) 1 Bombai Madrazi Toal

5 Aker e al. /The Agriculuriss 14(2): (2016) Discoun Rae The resul of cos-benefi analysis is highly sensiive o he discoun rae, he choice of appropriae discoun rae, herefore, plays a vial role in he appraisal of a projecs. Unforunaely, ineres rae policy for rural credi is highly complex and debaable issue in he LDCs such as Bangladesh (Rashid, 1993). The policy is based on no only economic crieria bu also on sociopoliical facors. 3.6 Calculaions of BCR, NPV and IRR Table 4 shows he BCR, NPV and IRR of imporan in lichi producion. In financial analysis, ineres is cenred on he individual farm or uni. The main purpose is o deermine he profiabiliy of an individual projec. Thus, he analysis gives a measure of he araciveness of a projec o an individual enrepreneur. I can be seen from Table 3 ha BCR is greaer han 1 or uniy NPV is posiive hough i is a highly profiable projec, and IRR is very high. These resuls indicae ha invesmen on lichi orchard is highly profiable. 3.7 Sensiiviy Analysis Reworking an analysis o see wha happens under hese changed circumsances is called sensiiviy analysis (Giinger, 1982). The aim is o see he profiabiliy under he changed circumsances. Sensiiviy analysis shows how he profiabiliy of he projecs changes wih changes in he value of any variable/variables in he discouned cash flow analysis. 3.8 Effecs of Sensiiviy Analysis on Lichi Orchard Projec Form financial analysis which was saed earlier i is proved ha he lichi orchard is a source of grea profi. A firs, sensiiviy analysis was conduced on he assumpion ha invesmen cos of he projecs would remain he same, however, wha would happen if only operaing and mainenance cos coss increase by 10 percen. In second case, sensiiviy analysis has been conduced based on he assumpion ha all cos would remain he same, hen wha will happen in he profiabiliy if gross benefi is decreased by 10 percen due o fall in producion of lichi for naural hazard or fall in price of lichi. Under he changing circumsances, he sensiiviy analysis will reflec he change of lichi producion. Table 4 indicaes ha BCR is 1.87 which is greaer han 1 or uniy, NPV is posiive ha is Tk and IRR is percen. Those resuls sugges ha invesmen on lichi orchard is profiable even if he operaing and mainenance cos increase 10%. Table 5 indicaes he resuls which explain ha lichi producion is profiable even if he gross benefi is reduced by 10%. Table 4. Summary resul of he financial analysis SL No. Discouned measures 5 years projec of lichi 1 Benefi-cos raio (BCR) a 11% Ne Presen Value (NPV) a 11% (Tk.) Inernal Rae of Reurn (%) Table 5. Summary resul of sensiiviy analysis considering 10 percen increase in operaing and mainenance cos SL No. Discouned measures 5 years projec of lichi 1 Benefi-cos raio(bcr) a 11% Ne Presen Value (NPV) a 11% (Tk.) Inernal Rae of Reurn (%)

6 37 Financial analysis of lichi producion Table 6. Summary resul of sensiiviy analysis considering 10 percen decrease in gross benefi SL No. Discouned measures 5 years projec of lichi 1 Benefi-cos raio(bcr) a 11% Ne Presen Value (NPV) a 11% (Tk.) Inernal Rae of Reurn (%) Conclusions While agriculural producs had increased manifolds, i is showing signs of diminishing marginal reurn. Given he scarciy of culivable land and a sill growing populaion, land use and cropping inensiy are approaching a maximum. Considering BCR, NPV and IRR based on full cos basis, he presen resuls revealed ha invesmen on lichi orchard projec is profiable. Following sensiiviy analysis i may be concluded ha invesmen on lichi orchard producion projec is profiable. References BBS, Bangladesh Bureau of Saisics, Saisical Year Book of Bangladesh, Agriculure Saisical Wing, Minisry of Planning, Gov., of he Peoples Republic of Bangladesh, Bangladesh, 154 p. Giinger, J. P Economic Analysis of Agriculural Projecs. 2 nd edn, The Johns Hopkins Universiy Press, Balimore and London, 361p. Marini, R.P Growing peaches and necarines in Virginia, Virginia cooperaive exension. Virginia Tech. Virginia Sae Universiy. Publicaion Miah, M. T. H Appraisal of Deep and Shallow Tube-well Irrigaion Projec in he Tangail Disric in Bangladesh. MEc Disseraion, Deparmen of Agriculural Economics and Business Managemen, Universiy of New England, Ausralia. Miah M. T. H. and Hardaker J. H., Benefi Cos Analysis of Deep and Shallow Tubewell Projecs in Tangail Disric in Bangladesh. Bangladesh Journal of Agriculural Economic. XI (1):1-29. Rashid, M.H A comparaive analysis of deep ubewells wih buried pipe and deep ubewells wih open channel irrigaion sysem in a seleced area of sakhipurhana of angail disric, MS hesis, Bangladesh Agriculural Universiy, Mymensingh, Bangladesh. Singh, G., Nah, V., Pandey, S. D., Roy, P. K. and Singh, H. S The Lichi, Food and Agriculural Organizaion of he Unied Naions, New Delhi, India (hp://mnehs.gov.in).