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Comparative Profitability of Deep and Shallow Tubewell Irrigation Technology: a Sensitivity Analysis

M.A. Al-Mamun
Department of Agricultural Economics, Bangladesh Agricultural University, Mymensingh

M. Akteruzzaman
Department of Agricultural Economics, Bangladesh Agricultural University, Mymensingh

Hasneen Jahan
Department of Agricultural Economics, Bangladesh Agricultural University, Mymensingh

Abstract/ Executive Summary:

This study examines the comparative profitability of both deep and shallow tubewell irrigation technology. Regarding this, 3 DTWs and 11 STWs were randomly selected for farm survey. Kharera union of Kasba Upazila of Brahmanbaria district was selected purposively. Data were collected during the period of February 2000 to July 2000. Tabular method of analysis, as well as financial analysis and sensitivity analysis, were applied. Evidence shows that investment in STWs was found to be profitable especially electrically operated STWs were more profitable than diesel operated STWs. While the DTW operation appeared as a loosing concern from the owners' point of view. Results of the sensitivity analysis suggested that the investments in diesel-operated STWs were in break-even level with 20 percent increase in operation and maintenance cost while electrically-operated STWs were in the break-even level with 15 per cent decrease in gross benefits, other things remaining the same. The result of sensitivity analysis also suggested that with 15 percent decrease in gross benefit investments in diesel operated STWs were incurring loss. Thus, the investments in tubewell operation was largely affected either by increase in operation and maintenance cost or by the decrease in water price. Finally, based on the above findings of the study, some recommendations were suggested for policy implications.

Keywords: Privatization, Profitability, Water market, Internal rate of return

Location: Kharera union of Kasba Upazila of Brahmanbaria district

Start Date:

End Date:

Program Area: Comparative study

Commodity: Deep tubewell, Shallow tubewell

Objectives:

The command areas of hitherto monopolized DTWs have been encroached by the STW which caused a decrease in water price (Akteruzzaman, 1997). For this reason, the groundwater market has been transformed from a monopolistic situation to an oligopolistic structure after the introduction of STW. The previous studies mainly focused on the profitability of irrigation schemes and efficiency of tubewells in terms of command area but it was also found that the returns from tubewell operation vary from year to year and region to region. So the present study was a modest attempt to find out the comparative profitability of both DTW and STW irrigation technology.

Methodology:

The farm business survey methods were used in the present study because it was thought to be more advantageous than other methods. Primary data were used for the study. Data were collected through farm survey from a sample of 78 farmers at the Kharena union of Kasba Upazila of Brahmanbaria district. Firstly, a list of DTW and STW owners was collected from the Agricultural Office of Kasba Upazila. Out of all DTWs and STWs under Kharena union of Kasba Upazila 3 DTWs and 11 STWs owners were randomly selected for the fulfillment of the objectives. To examine the profitability of tubewell irrigation both tabular and project appraisal methods were used. The tabular method of analysis includes the classification of data in the form of table. Three alternative discounting measures are commonly applied for agricultural project analysis. These measures are Benefit-cost Ratio (BCR), Net present value (NPV) and Internal Rate of Return (IRR). These may be illustrated as.

The choice of an appropriate discount rate plays a vital role in the appraisal of projects. The available literatures (Giltinger 1994; Jaim, 1993; Rahman 1998; and Miah and Hardaker, 1988) suggested that in most developing countries the opportunity cost of capital varies between 8 to 15 percent. According to BBS (1998) the lending rates of nationalized commercial banks and specialized banks in agricultural sector lie between 12 to 14 per cent. In view of these circumstances only 14 percent discount rate had been chosen for the appraisal of economic use of DTWs and STWs.

Source of Information: J. Bangladesh Agril. Univ. 1(1): 171-179,2003

Article Link (Online Journal):

Funding Source:

Budget:

Total Budget (Tk.) :

Achievement/Findings:

It is clear from the above discussion that both electrically and diesel operated STWs were profitable in financial analysis, but the internal rate of returns of electrically operated STWs were higher than, diesel operated. It implies that more and more STWs may expand in the future. While the return on investment of DTW was lower (9 percent) than the opportunity cost of capital indicating that the DTW owners would be reluctant to operate in the future. The results of sensitivity analysis clearly indicate that operation and maintenance costs and gross benefits have a strong influence on the profitability of tubewell operations. The results of sensitivity analyses indicate that if operation and maintenance costs increased by 20 percent, the electrically operated STWs could earn marginal profit but diesel operated STW could run only at break-even level. SensitivitY.analysis also reveals that if 15 percent decrease in gross benefit, the diesel-operated STWs could maintain their return at opportunity cost level though the owners were faced serious competition to STWs in case of command area and water charge. The command areas of DTWs were decreasing every year and the water charge of DTWs also decreased for installation of cheaper STWs.

Knowledge Management: Journal