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

Rumana Akter
Dept. of Agricultural Economics, Bangladesh Agricultural University, Mymensingh-2202, Bangladesh

M. Serajul Islam
Dept. of Agricultural Economics, Bangladesh Agricultural University, Mymensingh-2202, Bangladesh

Golam Rabbani
Dept. of Economics, Hajee Mohammad Danesh Science & Technology University, Dinajpur, Bangladesh

Abstract/ Executive Summary:

The present study was conducted in 2015 to examine the profitability of litchi orchard production at Dinajpur sadar upzila in Dinajpur district where litchi orchards are generally leases out for 1 to 6 years by the owners known as “Deed”. In total 312 litchi orchard trees of which 254 were Bombai, 40 Madrazi, 20 China-3, 2 China-2 and 3 were Bedana, were selected to estimate the BCR, NVP and IRR of litchi production. The litchi trees were 18 to 22 years old. Project appraisal techniques and sensitivity analysis was done by using primary data to determine cost and benefits from litchi production. The study revealed that individual’s investment on litchi production is profitable. The study also found that in producing litchi Benefit Cost Ratio (BCR), Net Present Value (NPV) and Internal Rate of Return (IRR) were 1.93, Tk. 1643896 and Tk. 1230, respectively. Sensitivity analysis suggested that the investment in litchi production is profitable even for 10% increase in operating and maintenance cost or 10% decrease in gross benefit.

Keywords: Litchi, Cost benefit ratio, Net present value, Internal rate of return.

Location: Dinajpur district

Start Date: 00-03-2015

End Date: 00-05-2015

Program Area: Socio-economic and Policy

Non-commodity: Income generation

Objectives:

To assessment of the profitability of investment in litchi orchard from the view point of individual investor.

Methodology:

The present study was based on primary data collected from litchi orchard owners in Dinajpur district from March to May 2015. Primary data were collected through direct interviews by making personal visits were made by the researcher to the selected litchi growers. . A multistage sampling procedure was followed to select litchi growing areas. In the first stage, one litchi growing district (Dinajpur) with two Upazilas (Dinajpur Sadar and Kaharole) was selected purposively. In the second stage, two villages from each Upazila were selected randomly. Finally, a total of 60 were selected from the collected lists by adopting simple random sampling method from each village. The main purpose of the survey was to collect and analyze field level costs and returns data from the litchi orchard owners. Average values of cost and benefit were used. For this analysis, five-year production period of litchi orchard was considered (Growers' age limit of 18 to 22 year was given priority). These data were required to make future projection for the value of inflows and outflows over the life of a litchi tree to assess the profitability of the litchi orchard owners. Preliminary observation showed that farmers in Sadar and Kaharole Upazila of Dinajpur district are more interested in Litchi production rather than other crops because of higher profitability of litchi production then other crops. Therefore, the aforementioned study areas were purposively chosen. In this study, 5.75 acres of land with 312 litchi trees was selected. In the study area, different varieties of litchi like, Bombai, Bedana, Madrazi, Chaina-2, Chaina-3, and Mozaffari etc. are produced. But, because of its higher production and good taste, Bombai is more popular than any other varieties. However, Bombai, Bedana, Madrazi, Chaina-2, and Chaina-3 varieties were selected for this study. The data collected following different methods were coded, summarized and processed for the analysis. To meet-up the objectives of the study the following three discounting methods of project appraisal technique were used. Theoretical framework- Benefit cost ratio (BCR): The BCR is a relative measure, which is used to compare present worth of costs. The BCR is estimated by dividing the sum of present worth of gross benefit by the sum of the present worth of gross costs. Net present value (NPV): The NPV is an absolute measure, which estimates the project net present worth. NPV is obtained by deducing the present worth of cost from the present worth of benefits. Accept all projects when NPV is greater than zero (0) when discounted at opportunity cost of capital. Internal rate of return (IRR): The IRR is defined, as the average earning power of the money invested in a project over the project life. The IRR is that discount rate, which just makes the NPV of project equal to zero, and the BCR equal to 1 (Miah, 1987). Only financial analysis was followed for this study. For this reason, all costs and benefits were determined in local currency (Taka) using either farm gate prices or the prices at the point for first sale. For this study the prices at the point for first sale was chosen. The financial analysis from litchi orchard owner’s point of view has been performed considering both cash cost and cost of family supplied inputs assuming that all inputs were purchased. The cost of litchi orchard on the view point of individual investor can broadly be classified under the following two heads: (a) Investment cost; and (b) Operating and maintenance cost. For choosing discount rate the available literatures (Miah and Hadaker, 1988) suggest that in most developing countries the opportunity cost of capital between 8 to 15 percent. According to the manager of Bangladesh Krishi Bank (BKB), BAU Branch, Mymensingh had the leading rate of agriculture (production) loan of 11 per cent during the study period. Thus, a per cent discount rate was chosen for the appraisal of thresher projects.

Source of Information: The Agriculturists 14(2): 32-37 (2016)

Article Link (Online Journal):

Funding Source:

Budget:

Total Budget (Tk.) :

Achievement/Findings:

While agricultural products had increased manifolds, it is showing signs of diminishing marginal return. Given the scarcity of cultivable land and a still growing population, land use and cropping intensity are approaching a maximum. Considering BCR, NPV and IRR based on full cost basis, the present results revealed that investment on litchi orchard project is profitable. Following sensitivity analysis it may be concluded that investment on litchi orchard production project is profitable.

Knowledge Management: Journal