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Economic Cost and Returns from Research and Development: the Case of Chili in Bangladesh

Md. Kamrul Hasan
Spices Research Centre, Bangladesh Agricultural Research Institute

Bhagya Rani Banik
Spices Research Centre, Bangladesh Agricultural Research Institute

Abstract/ Executive Summary:

The study estimated the benefit and rate of returns to investment on chili research and development (R&D) in Bangladesh. The Economic Surplus Model with ex-post analysis was used to determine the returns to investment and their distribution between production and consumption. Several discounting techniques were also used to assess the efficiency of chili research. The adoption rate showed an increasing trend over the period. The yield of modern variety, BARI-Chilli-1, developed by the Bangladesh Agricultural Research Institute (BARI) was 72 percent higher than that of the local variety. Society received a net benefit of BDT 813.12 million (USD 10.42 million) from investment in chili R&D. The net present value and present value of research cost were estimated at BDT 289.14 million (USD 3.71 million) and BDT 78.49 million (USD 1.01 million), respectively. The internal rate of return and benefit cost ratio were estimated to be 55 percent and 5.48, respectively. This indicates that investment in chili R&D was profitable. The seed production program for BARI-Chilli-1 should be done to increase production by increasing its area of adoption.

Keywords: Chili, Economic cost, Adoption, Yield advantage, Benefit and Rate of return

Location: Spices Research Centre, Bangladesh Agricultural Research Institute

Start Date:

End Date:

Program Area: Socio-economic and Policy

Commodity: Chilli

Objectives:

The present analysis thus took into account the benefits from past chili research and its farm level extension in the country. This study seeks to provide information for policy makers, donors, researchers, extension workers, and the public on the contribution and the rate of return of investment in chili R&D in Bangladesh.

Methodology:

Sources of Data: Data were collected from both published and unpublished reports and informal interviews with scientists. The area, production, and yield of BARI Chilli-1 were collected from the SRC; adoption rates were collected through informal interviews with scientists; harvest price and consumer price index (CPI) were collected from various issues of statistical yearbooks (1994–2008) published by the Bangladesh Bureau of Statistics (BBS). The supply elasticity was taken from the study conducted by Dey and Norton (1993). SRC is the organization mainly responsible for chili research in Bangladesh; extension and promotion activities were done by DAE; BARC mainly provided the administrative costs. On farm yield data of BARI Chilli-1 were collected from SRC. Data on the input costs change was calculated by the researcher through analyzing increased production which claimed higher labor costs for harvesting, transporting, seeds, and used slightly more fertilizers per hectare for improved variety than for traditional varieties. Analytical Procedure: The collected data were analyzed using the following statistical techniques. 1. Estimation of Returns to Investment; 2. Empirical Approach; 3. The Supply Shifter (k); 4. Estimation of Net Present Value; 5. Internal Rate of Return.

Source of Information: Asian Journal of Agriculture and Development, Vol. 12, No. 1

Article Link (Online Journal): http://searca.org/ajad/files/102315152542_AJAD_2015_12_1_5Hasan%20&%20Banik.pdf

Funding Source:

Budget:

Total Budget (Tk.) :

Achievement/Findings:

The empirical results indicate that the expenditure on chili research and development paid a favorable rate of return and the society consequently benefited enormously out of it. The IRR to chili research and development expenditure was found to be 55 percent, a good rate of return. The consumer’s surplus is found to be very low due to a small open economy. But this situation might not be a good sign for economic prosperity. For the survival of the consumer, price support should be given by government. The annual adoption rate of BARI Chilli-1 may still be improved because of non availability of seed. A seed production program should be initiated by the government and nongovernmental organizations, so that farmers can get quality seed at a reasonable price.

Knowledge Management: Journal