Digester paper cost effectiveness

UGOCHUKWU E. AMANYEIWE Page
ALAN O. IBALE
Tubular Poly-Ethylene Digester Project: A Cost Benefit Analysis
HS 422f: Cost Effectiveness
Professor Donald S. Shepard
Introduction
The negative environmental externalities brought by backyard hog production in the
Philippines remain largely unabated. The economic viability of hog production seemed to
undermine the long term effects of poor waste disposal. Hog production in backyard scale
remains one of the sources of income of small farmers in the Philippines. Backyard hog
growers supply about 80 percent of meat and feed requirement of the country. These small
producers stay in business due to relatively attractive prices of pigs and cheap cost of
family labor in maintaining the livestock business (Delgado & Narrod, 2002). Despite the
huge number of hog growers and their contribution to food supply, the Department of
Agriculture has only accounted 100 small to medium hog growers who are using biogas
digester by yearend 2005 (Department of Agriculture, 2005). As an economic inquiry to
the low rate of utilization of biogas digester as a method of maximizing small-scale hog
production and addressing the environmental externalities of backyard hog production, this
paper will discuss the cost and benefits of installing a biogas digester for small scale hog
growers in the Philippines.
The Tubular Polyethylene Digester
The Tubular Polyethylene Digester (TEPD) uses polyethylene tubes to convert hog manure
into methane gas that is used for cooking. Moog et.al. (1997) reported that based on an
interview of 30 biogas digester users in the Philippines, they were able to save Pesos
160.00 per month on fuel. The capital they used in installing the biogas digesters were paid
back within 11 months. The respondents added that if they maintain a minimum of 16 pigs,
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ALAN O. IBALE
the gas produced by the digesters will be sufficient to supply the daily requirement for
cooking thrice a day for a family of 5 members. The TPED model used by these small hog
growers are usually developed by the Bureau of Animal Industry of the Department of
Agriculture. This TEPD model usually generates 1m3
of methane gas, is simple, easy to
manage and costs about 5,000 – 6,000 pesos (Department of Science & Technology,
2003). The other emerging TEPD model is designed by Engineer Gerardo Baron, it can
generate as much as of 5m3
methane gas. Baron’s model uses 1.5 mm high density
polyethylene tubes that makes hotter flame and is suitable for 50-sow hog farm. It costs
about 25,000 and can last for 10 years under proper care and maintenance (Department of
Science & Technology, 2003). This cost benefit analysis will focus on Baron’s model of
TEPD.
The Costs
The four cost categories will include: (1) Materials and equipment; (2) Skilled labor; (3)
Unskilled labor; and (4) Operation and maintenance. Materials will include polyethylene
tubular film, ceramic tubes, PVC adapters, PVC pipes, PVC elbows, PVC cement, PVC
“T” rubber washers and tying and support materials. Equipment will include single burner
stoves and accessories and installation equipment. Skilled labor will include the technical
expertise of Gerry Baron and a skilled mason in mounting and installing the digester.
Unskilled labor will include at least one worker who will assist the skilled mason in lay-
outing, digging and mounting of the digester. Operation and maintenance costs will
include the daily input of 2-3 parts manure and one part water into the digester;
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ALAN O. IBALE
maintenance of shade to digester to shield it from sunlight that will exterminate the gas
producing bacteria; fencing of the digester to keep astray animals and unmindful by-
passers from damaging it and ensure that detergent and disinfectant chemicals do not
contaminate the water flowing into the digester (Bureau of Animal Industry, 2005; FAO
Animal Production and Health Papers, 1995). These costs are computed for a period of 10
years as presented by table 1:
Table 1.0 Projected Cost
5m3
Capacity Tubular Polyethylene Digester
C1 C2 C3 C4 C5 C6
Year Materials & Skilled Unskilled Operation & Total Cost
Equipment Labor Labor Maintenance
0.00 20000.00 5000.00 600.00 0.00 25600.00
1.00 0.00 0.00 0.00 18000.00 18000.00
2.00 0.00 0.00 0.00 19800.00 19800.00
3.00 0.00 0.00 0.00 21780.00 21780.00
4.00 0.00 0.00 0.00 23958.00 23958.00
5.00 0.00 0.00 0.00 26353.80 26353.80
6.00 0.00 0.00 0.00 28989.18 28989.18
7.00 0.00 0.00 0.00 31888.10 31888.10
8.00 0.00 0.00 0.00 35076.91 35076.91
9.00 0.00 0.00 0.00 38584.60 38584.60
10.00 0.00 0.00 0.00 42443.06 42443.06
Assumption:
C4: 1 man labor/day = P 200 x 3 days
C5: year 1 O&M: 1 man labor/day = P 50 x 30 days x 12 months
succeeding year of O&M = previous year O&M x 10% increase
The Benefits
The four benefit categories will include: (1) Availability of fuel for cooking; (2)
Maximization of manure and (3) Savings in medical expenses. Engineer Baron computed
that a 1m3
capacity digester is equivalent to an 11 kg Liquefied Petroleum Gas (LPG) tank;
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ALAN O. IBALE
based on this calculation, the 5m capacity digester will give a corresponding benefit of 5
LPG tanks weighing 11 kg each per month. Maximization of manure will give a benefit
that will be monetized based on the prevailing price of organic fertilizer that cost about 500
pesos per 50 kg of manure as against the volume of manure that was used up in the
digester. Based on the Online Conversion website, 1 liter weighs 0.96 kg. Engineer Baron
computed that 1m3
capacity digester will need 5 liters of manure per day. This means that
5m3
capacity digester will need 25 liters of manure per day. Using this computation, 25
liters of manure will equivalently produce about 5 kg of manure per day and multiplying
this by 30 days will result into 150 kg of manure or 1,500 pesos per month. This is the
amount optimized by the hog raiser who is maintaining a 5m3
capacity digester. Nano
(2003) a municipal water Engineer in Aurora province computed costs of medication
brought about by waterborne disease and pollution at 5,583 pesos that is accumulating
every year at a rate of 24% in a period of 10 years. These benefits are presented in table 2:
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Table 2.0 Projected Benefits
5m3
C1 C2 C3 C4 C5
Year Fuel Maximization Savings Total
supply of manure medication Benefits
0 -
1 18,000 18,000 5,583 41,583.140
2 18,000 18,000 6,923 42,923.094
3 18,000 18,000 8,585 44,584.636
4 18,000 18,000 10,645 46,644.949
5 18,000 18,000 13,200 49,199.736
6 18,000 18,000 16,368 52,367.673
7 18,000 18,000 20,296 56,295.915
8 18,000 18,000 25,167 61,166.934
9 18,000 18,000 31,207 67,206.998
10 18,000 18,000 38,697 74,696.678
Assumption:
C2: 5m3
capacity digester gives 5x11kg LPG tank per month
C3: 1 liter of manure = 0.96 kg manure
C4: cost of medication = 5,583 x 24% incremental increase/year

ALAN O. IBALE
Cost Benefit Analysis
The 50 sow capacity tubular polyethylene digester project showed a positive NPV, spread
throughout the period of 10 years discounted at a rate of 3%. It implies that the project is
viable economically. This result is presented by table 3:
Table 3.0 Projected Cost Benefit Analysis
5m3
Year 0 1 2 3 4 5 6 7 8 9 10
Cost 25,600 18,000 19,800 21,780 23,959 26,354 28,989 31,888 35,077 38,585 42,443
Benefit - 41,583 42,923 44,585 46,645 49,200 52,368 56,296 61,167 67,207 74,697
Net benefit (25,600) 23,583 23,123 22,805 22,686 22,846 23,378 24,408 26,090 28,622 32,254
Rate 3% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3%
Discount factor 1.00 0.97 0.94 0.92 0.89 0.86 0.84 0.81 0.79 0.77 0.74
Net flow (25,600) 22,896 21,796 20,869 20,156 19,707 19,579 19,846 20,596 21,937 24,000
NPV 185,782
Sensitivity Analysis
With the assumption that potential medium scale hog growers’ purchasing capacity,
willingness to buy, buying preference and other factors remaining constant, the sensitivity
analysis for the project’s viability was computed based on 0%, 10% and 45% reduction in
total benefits. The computation yielded NPV results equal to +185,782; +140,730; and
-16,953 respectively.
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ALAN O. IBALE
5m3
Year 0 1 2 3 4 5 6 7 8 9 10
Cost 25,600 18,000 19,800 21,780 23,959 26,354 28,989 31,888 35,077 38,585 42,443
Benefit - 41,583 42,923 44,585 46,645 49,200 52,368 56,296 61,167 67,207 74,697
Less (10%) (4,158) (4,292) (4,458) (4,664) (4,920) (5,237) (5,630) (6,117) (6,721) (7,470)
Net benefit (25,600) 19,425 18,831 18,346 18,022 17,926 18,142 18,778 19,973 21,902 24,784
Rate 3% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3%
Discount factor 1.00 0.97 0.94 0.92 0.89 0.86 0.84 0.81 0.79 0.77 0.74
Net flow (25,600) 18,859 17,750 16,789 16,012 15,463 15,193 15,268 15,767 16,786 18,442
NPV 140,730
Table 3.1 showed that when total benefits are reduced by 10% the NPV remains positive
and makes the project still worthwhile. At 45% rate of benefit reduction the NPV becomes
negative and makes the project not viable economically. The computation for the 45% rate
of benefit reduction is presented by table 3.2:
5m3
Year 0 1 2 3 4 5 6 7 8 9 10
Cost 25,600 18,000 19,800 21,780 23,959 26,354 28,989 31,888 35,077 38,585 42,443
Benefit - 41,583 42,923 44,585 46,645 49,200 52,368 56,296 61,167 67,207 74,697
Less (45%) (18,712) (19,315) (20,063) (20,990) (22,140) (23,565) (25,333) (27,525) (30,243) (33,614)
Net benefit (25,600) 4,871 3,808 2,742 1,696 706 (187) (925) (1,435) (1,621) (1,360)
Rate 3% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3%
Discount factor 1.00 0.97 0.94 0.92 0.89 0.86 0.84 0.81 0.79 0.77 0.74
Net flow (25,600) 4,729 3,589 2,509 1,507 609 (157) (752) (1,133) (1,242) (1,012)
NPV (16,953)
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ALAN O. IBALE
The point whereat benefits can be lowered to its minimum positive range is between 40%
and 41%. Below this range the project will become economically undesirable. This
intersection is shown by graph 1.0 Sensitivity Analysis shown below:
Graph 1.0 Sensitivity Analysis
(40,000)
(20,000)
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
% reduction in benefits
NPV
The above sensitivity graph showed that at more or less at 41% reduction of benefits the
project becomes undesirable economically but the graph does not depict the buyers’
preference into account. To put the actual preference of 15 out of 100 randomly selected
hog growers that operate small to medium scale polyethylene digester, below is another
Sensitivity Analysis based on preferences in terms of sow-capacity:
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ALAN O. IBALE
Table 4.0 Sensitivity Analysis on Preference
Capacity Preference
Scenario Level by Rate
Range n=16
I under capacity 1-33 sow 69%
II base case 34-66 sow 13%
III over capacity 67-100 sow 19%
Table 4.0 showed that out of 16 randomly selected small to medium scale hog growers,
69% prefer to operate methane digesters that need less than or equal to 33 sow; 19% prefer
to operate digesters that require more than 67 sow; and lastly, only 13% prefer to operate
digesters within the range closer to the 50-sow level. The preferential option which is less
than the 50-sow level capacity implies that for the 100 registered digester operators in the
Philippines majority are small hog raisers. This further implies that, even though the 50-
sow level digester is economically viable, it is simply an overcapacity digester for their
hog raising business. For expansionary purposes, the 50 sow-level digester will be very
useful.
Conclusion
The positive NPV of the polyethylene digester does not immediately suggest that it will
have market. The sensitivity analysis on actual preference showed that, at this point in
time, the largest market segment for potential digester operators will only require less than
33-sow level capacity. However, in the near future, this 50-sow level polyethylene digester
will be useful as small hog growers scale up their operations.
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ALAN O. IBALE
References
Bureau of Animal Industry Philippine website Retrieved on 5 May 2007 @
http://www.gov.ph/news/printerfriendly.asp?i=13473
Delgado, Christoper L., Narrod, Clare A. (2002). Impact of Changing Market Forces and
Policies on Structural Change in the Livestock Industries of Selected Fast-Growing
Developing Countries Final Research Report of Phase I - Project on Livestock
Industrialization, Trade and Social-Health-Environment Impacts in Developing
Countries, Retrieved from FAO website on 5 May 2007 @
http://www.fao.org/wairdocs/LEAD/X6115E/x6115e00.HTM
Department of Agriculture Philippine website (2005)
Retrieved on 5 May 2007 @
http://www.da.gov.ph/cebu_livestockpoultry/output/rep_biogasp.php
Department of Science and Technology Philippine website (2003)
Retrieved on 5 May 2007 @ http://www.pcarrd.dost.gov.ph/CIN/SWIN/technology%20-
%20tped.htm
FAO (1995). Tropical animal feeding. A manual for research workers. Retrieved on 5 May
2007 @ http://www.fao.org/icatalog/search/dett.asp?aries_id=2299
Moog, F.A., et.al. (1997) Promotion and utilization of polyethylene biodigester in
smallhold farming systems in the Philippines. Livestock Research for Rural
Development, volume 9, Number 2, Retrieved on 5 May 2007 @
http://www.cipav.org.co/lrrd/lrrd9/2/moog92.htm
Nano, Romano (2003). Financial Analysis Rural Water Supply Borlongan, Dipaculao,
Aurora Philippines, Agrarian Reform Infrastructure Project Phase II Project Document,
Municipality of Dipaculao, Philippines.
Online Conversion website (2006) Retrieved on 5 May 2007 @
http://www.onlineconversion.com/forum/forum_1064237591.htm
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Digester paper cost effectiveness

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