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The Economic Returns to Bangladesh Sugarcane Varietal Research

J. G. Nagy
International consultant
Agricultural and Applied Economics, Saskatoon, Canada.

M. F. Alam
Bangladesh Agricultural University, Mymensingh, Bangladesh.

Abstract/ Executive Summary:

An ex post rate of return analysis was conducted to estimate the internal rate of return (IRR) to Bangladesh developed and released sugarcane varieties that have replaced the previously introduced and earlier released sugarcane varieties. The study estimated the economic return to post-1980 released sugarcane varieties emanating from the Bangladesh Sugarcane Research Institute (BSRI) during 2000.The IRR to the total investment in both sugarcane research and extension was calculated as 16%. The increase in production due to the higher yielding varieties also saved foreign exchange savings of TK 4.0 billion because of less sugar import. Under various assumptions about the magnitude of the benefits and the research and extension expenditures, the IRR ranged between 11 % to 27% and the foreign exchange savings ranged between TK. 3.0 billion to TK. 5.0 billion. The sugarcane research IRR is lower than the T. Aman rice (57%), Boro/ Aus rice (28%) and Wheat (32%) research IRRs estimated in the same study. However, the 16% IRR along with the foreign exchange savings of TK 4.0 billion can be considered acceptable rate of return to agricultural research and extension investments in Bangladesh.

Keywords: Economic returns, Sugarcane, Varietal research, Bangladesh

Location: BAU, Mymensingh

Start Date: 01-01-2000

End Date: 31-12-2000

Program Area: Socio-economic and Policy

Commodity: Sugarcane

Objectives:

To provide information to Bangladesh policy makers, donor agencies, research managers and the public on the contribution and rate of return to past investments in sugarcane research in Bangladesh.

Methodology:

The economic surplus approach is used in this study primarily because sufficient data and information exist in Bangladesh to make the approach operational. There are two distinct part to obtaining the rate of return of research and extension expenditures. The first is estimating the yearly stream of benefits in monetary terms that flow from an adoption intervention such as modern varieties. This was done by using the economic surplus methodology during 2000. Once the yearly benefits have been calculated, they are then related to the yearly costs of research and extension by calculating a benefit-cost ratio or internal rate of return (IRR). The concept of economic surplus model has been used to measure economic welfare and the changes in economic welfare from policy and other interventions. The economic surplus concept has been adapted to estimate the benefits from the adoption of improved varieties. The Bangladesh sugarcane/sugar market produces sugar domestically but also imports sugar from the world market. A commodity that is produced domestically and traded internationally, such as sugar in Bangladesh, is in an open-economy market. Open- economy markets are characterized as being either 'small' or 'large'. Calculating changes to producer and consumer economic surplus are described and used in this study. Output supply elasticity have not been estimated for Bangladesh sugarcane production. There are two estimated sugarcane area response elasticity. For this analysis, a 0.15 supply response elasticity is used. A perfectly elastic demand elasticity is used in the analysis because of the use of the small open-economy model. Cost differences are not likely to be large, and thereby an input cost change was not included in this analysis. BSRI developed varieties have replaced the introduced and Pre-1980 BSRI varieties starting in 1982-83. K = The overall yield advantage of improved varieties over old varieties weighted by the area sown to the new varieties and called the supply shifter. The IRR can be defined as the rate of interest that makes the accumulated present value of the flow of costs equal to the discounted present value of the flow of return's, at a given point in time. Yearly foreign exchange savings are calculated by multiplying the import sugarcane price by the amount of production in that year that cane attributed to research and extension activities (i.e. world sugar price x supply shifter k x total sugar production; one tonne cane x 8.0% = sugar production). Data requirements are in terms of : (1) market related data and (2) research related data. Market related data and information are generally from published sources and from the economic sections of the various research institutes throughout the country. Market related data requirements for this analysis include annual sugarcane prices and production, and sugarcane supply and demand elasticity. Research related data are obtained from scientists, extension workers, industry people, and other key informants. Research related data include annual area of varietal adoption by farmers, yield advantage of modern varieties, the input cost change, if any, and research and extension expenditures.

Source of Information: BANGLADESH JOURNAL OF SUGARCANE, Vol. 22, pp. 10-22, July 2000, ISSN- 1991-8925.

Article Link (Online Journal):

Funding Source:

1. Government

Budget:

Total Budget (Tk.) :

Achievement/Findings:

The results of the study investigated that the IRR to the total investment in both sugarcane research and extension was calculated as 16%. The increase in production due to the higher yielding varieties also saved foreign exchange savings of TK 4.0 billion because of less sugar import. Under various assumptions about the magnitude of the benefits and the research and extension expenditures, the IRR ranged between 11 % to 27% and the foreign exchange savings ranged between TK. 3.0 billion to TK. 5.0 billion. The sugarcane research IRR is lower than the T. Aman rice (57%), Boro/ Aus rice (28%) and Wheat (32%) research IRRs estimated in the same study. However, the 16% IRR along with the foreign exchange savings of TK 4.0 billion can be considered acceptable rate of return to agricultural research and extension investments in Bangladesh.

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