Economic Analysis Of Drip Irrigation
Abstract
This research was conducted to help coconut growers make decisions regarding investments in Drip Irrigation (DI) systems. This analysis was aimed to provide an economic rationale for investing in DI systems. The paper examined the economic worth of investment in DI systems in North Western Province using field survey data were collected from 13 coconut estates using pre tested questionnaire, direct observation, field visit and personal interview. Three different project evaluation criteria; Net Present Value (NPV), Benefit Cost Ratio (BCR), Internal Rate of Return (IRR) were used to determine the worth to invest in the DI systems. Cost of production and benefits were calculated in the present value using discounting factor at interest of 12%.
Differential rates of interest rates (6%, 8%, 10%, 15%, and 20%) were assumed to represent the opportunity cost of capital. There are some leading DI design companies in Sri Lanka, according to the design company their fixed cost for one acre of coconut land vary from Rs. 70000 to Rs. 146666. The almost all selected estates have recorded a positive NPV (Rs. 21322. 48 to Rs. 968457. 17), BCR over one (1. 03 to 3. 61) and IRR greater than selected interest rate (17% to 236%) reflecting the economic viability as an investment. The sensitivity analysis has also been confirmed almost all selected estates have a positive NPV and BCR over one under three different scenarios. It can be concluded that the economic viability of DI technology is very high and is capable of generating a sufficient return to payback the capital investment within one to three years.
KEYWORDS: Benefit Cost Ratio (BCR), Drip Irrigation, Economic Analysis, Internal Rate of Return (IRR), Net Present Value (NPV)Proceedings of 17th Agriculture Research Symposium (2018) 1-5Jayasinghe and Gunathilake
Introduction
Sri Lanka is primarily an agricultural country, and its agricultural production depends on adequate availability of irrigation water supplies. One of the major challenge for agriculture development is how to produce enough food for an increasing population using less water for agriculture. In conventional irrigation methods the wastage in water application are large at the field level. These losses can be reduced into a good extent by adopting drip irrigation methods. According to the literature drip irrigation is the most efficient among all other irrigation methods. Currently in Sri Lanka, Drip irrigation is used by farmers for plantation crops i. e. Coconut, fruit crops Papaya, Banana, Watermelon, Pineapple etc; Vegetables i. e. Bitter gourd, Snake gourd, Cucumber, Chilli and in protected agriculture. In drip irrigation frequently application of required and measured quantity of water and fertilizer as discrete drops, continuous drops, tiny streams or fine spray through emitters, on or below the soil surface. The first drip irrigation system was introduced to Sri Lanka in 1970s. The government and other donor agencies have invested considerable sums of the money on the development of drip irrigation on a pilot basis since late 1990s. The Agricultural Development Authority (ADA) in association with various micro irrigation supplying companies played a major role in promoting drip irrigation technology among small farmers from 1998 onwards (Aheeyar et al. , 2005). There are more than ten companies involved in the micro irrigation business as suppliers in Sri Lanka.
The cost of the drip irrigation system varies depend on the brand of the product and crop to be irrigated. After the introduction of Drip Irrigation technology to farmers, although research and developments are carried out, farmer level of utilization is not satisfactory. According to some survey studies the major reason behind this situation is the slow application of water through drip irrigation has unable to fulfill the farmer who are used to speedy irrigation methods that demand a large quantity of water. This concept has led to the belief among farmers that water provided by drip irrigation is insufficient for healthy plant growth (Aheeyar et al. , 2005). No comprehensive studies have been done so far with regard to the social and economic feasibility of these technologies. Because of that there are no any reliable economic feasibility records for the coconut farmers to adopt drip irrigation systems available in Sri Lanka. Therefore it was decided to carry out Economic Analysis of Drip Irrigation Systems for Coconut (Cocos nucifera) in North Western Province, Sri Lanka with the following objectives. General objective was to assess the socio economic feasibility of drip irrigation technology. Specific objective of this research was evaluate the economic viability and benefits to the farmers of the drip irrigation technique in terms of Benefit Cost Ratio (BCR), Net Present Value (NPV), Internal Rate of Return (IRR) and Pay Back period.
Materials and Methods
This research study was carried out at North Western Province during June to November 2018. Sample SelectionDrip irrigated coconut estates higher than 1ac in North Western Province was taken as a population. Questionnaire SurveyData were collected from 13 coconut estates in North Western Province using pre tested semi structured questionnaire. The questionnaire consist of five sections which includes, (i) general information, (ii) attitudes and knowledge of farmers about drip method, (iii) crop production activities, (iv) information about drip system, (v) information about farm income. Attitudes and knowledge of farmers about drip method were rated using the 5-point liker scale. Each statement rated 1 to 5 in which case 1=strongly agree and 5=strongly disagree. The survey was conducted during July to September of 2018. Data AnalysisWhile estimating cash inflows and cash outflows of the drip investment the following assumptions were made
- The income stream from drip is treated as uniform over its entire life (Due to lack of temporal information).
- Crop cultivation practices are uniform over the period.
- Life span of drip system; Coconut 10 years & Papaya 3 years
- Cost of Production and benefits were calculated in the present value using discounting factor at interest of 12%.
- Differential rates of interest rates (6%, 8%, 10%, 15% and 20%) were assumed to represent the opportunity cost of capital.
Three measures were used in finding the present worth of the future values of a project: Benefit Cost Ratio (BCR), Net Present Value (NPV), and Internal Rate of Return (IRR). These were used by Bakhsh et al. ,(2015)and payback period are employed in this analysis. The NPV and BCR at different interest rates were calculated using total income. Annual costs were the sum of total variables costs, irrigation investment cost, and a yearly irrigation system operation and maintenance cost beginning in the second year. Total revenue, total variable costs, and the operation and maintenance cost for each year of the 10-year useful life of the drip irrigation system were discounted back to a present value the previously mentioned equations.
Almost all the respondents surveyed were aware about drip irrigation (DI) method in general. For instance, from the farmers 77% agreed that crops were received optimum irrigation requirement. Almost all respondents surveyed agreed that the coconut yield, size of nuts were increased and labor cost was decreased. From the respondents, majority (85%) agree that the initial cost of DI system was high and 62% agreed there was a disturbance to the cultural practices when the system was run. NPV, BCR, Payback period and IRR of all coconut estates which DI system was adopted were computed (Table1). From the computed data almost all coconut estates showed positive NPV (Rs. 21322. 48 – Rs. 864320. 90) and recorded BCR over one (1. 026 – 3. 606).
The price of coconut nuts (year 2017) of all selected estates were averaged (Rs. 42. 00) and 20% was increased (Rs. 50. 40) and 20% was decreased (Rs. 33. 60) based on the average price to calculate NPV. Even though the price was decreased 20%, most of the estates showed positive NPV values (Figure1). Usually the cost of cultivation vary with cost of fertilizer and labor. Therefore NPV was calculated for all selected estates by increasing 10% fertilizer and labor cost. Almost all estates have recorded positive NPV values. No. 10 estate has shown negative NPV values due to the low yield. No. 6 estate has shown negative NPV value for 10% increased labor cost only, because of there was a permanent worker who was paid Rs. 50,000 per month except other daily workers (Figure2). Overall, the sensitivity analysis under various scenarios indicates, that the DI investment remains economically viable in most of the instances.
Conclusions
Almost all coconut growers interviewed in this survey were reported positive results with the DI system, confirmed that DI would be a profitable investment. Because of this technique can provide crop water requirement precisely and continuously. DI technology can providing a sufficient income to payback the initial investment within one to three years.
DI system is not much popular in Sri Lanka, because of the perception of farmers that the amount of water is insufficient due to the emission as tiny drops by drippers to the crop. Other reason is lacking knowledge of farmers about the maintaining of DI system. Additionally, willingness of farmers to shift from conventional to DI system is very low due to high initial cost of DI technology.
Acknowledgements
Authors gratefully acknowledge Prof. J. C. Edirisinghe, Head, Department of Agri-Business Management, Faculty of Agriculture and Plantation Management, for his guidance and valuable advices and Mr. Kapila Hettiarachchi, Provincial Director of Coconut Development Board, Kurunegala for their support given to initiate the study.
