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Promotion of Improved Agricultural Mechanisation

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Promotion of Improved Agricultural Mechanisation

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Promotion of Improved Agricultural Mechanisation

  1. 1. 0 Implemented byImplemented by Presentation of Study Findings October 2017 PROMOTION OF IMPROVED AGRICULTURAL MECHANISATION
  2. 2. 1 Implemented by Agricultural Production and Farm Mechanisation - Background of the Study - Effects of Agricultural Mechanisation Models on the Profitability of Wheat Producing Small-Holder Farmers and on the Economics of Agricultural Service Provision in Arsi Zone
  3. 3. 2 Implemented by Agricultural Production and Farm Mechanisation - Background of the Study - 1. Technical Aspects of Farm Mechanisation 2. Effects on Wheat Production Systems • Smallholder Farmer Profitability 3. Economics of Improved Farm Mechanisation • Service Provider Profitability • Feasibility of Debt Financing 4. Recommendations for Improved Agricultural Productivity
  4. 4. 4 Implemented by Economics of Mechanisation • All calculations based on wheat production in the Arsi zone. • Calculations focusing on ploughing, seedbed preparation and planting. • Use of collected data and conservative estimates and assumptions. • Combine harvesting as a business model excluded because it is already relatively well established. • Animal draught and small machinery (2-wheel tractors) only included in gross margin projections for smallholder farmers for comparison, but not in service provider profitability calculations because unsuitable for their business model.
  5. 5. 5 Implemented by Mechanisation Models Agricultural Mechanisation Technology Level Low (L-1/BT) Intermediate (I-1/IT) High (H-2/AT)Animal Draught 2-Wheel Tractor Separate Field Operations 80 – 100 hp Tractor (Basis Technology) • 4-furrow disc plough • 2.8 m light disc harrow • 3.0 m seed drill rigid shares • Manually Fertilising, Broadcasting • Manually, Knapsack Sprayer Separate Field Operations 80 – 100 hp Tractor (Improved Technology) • 3-furrow reversible MB plough • 2.5 m light disc harrow • 3.0 m seed drill disc coulter • Manually Fertilising, Broadcasting • Manually, Knapsack Sprayer Combined Field Operations 125 – 150 hp Tractor (Advanced Technology) • 4-furrow reversible MB plough • 3.0 m power harrow with seed drill • Manually Fertilising, Broadcasting • Manually, Knapsack Sprayer Separate Field Operations 15 hp 2-Wheel Tractor (Impr. trad. Technology) • 2-furrow disc plough • 0,75 m rotary tiller • 0,75 m seed drill • Manually, Fertilising Broadcasting • Manually, Knapsack Sprayer Separate Field Operations (Traditional Technology) • Maresha Plough • Manually, Seed Broadcasting • Manually Fertilising, Broadcasting • Manually, Knapsack Sprayer
  6. 6. 6 Implemented by Economic Calculations Wheat Production Systems Gross Margin Calculation for: Wheat Unit: 1 ha Currency: ETB Gross output Unit Quantity ETB/Unit ETB Quantity ETB/Unit ETB Quantity ETB/Unit ETB Quantity ETB/Unit ETB Quantity ETB/Unit ETB Total yield dt 22 26 28 32 35 Wheat (baking) dt 22 850,00 18.700,00 26 850,00 22.100,00 28 850,00 23.800,00 32 850,00 27.200,00 35 850,00 29.750,00 Wheat (feeding) dt Total gross output 18.700,00 22.100,00 23.800,00 27.200,00 29.750,00 Proportional variable special costs Total seed costs 2.608,20 2.463,30 2.463,30 2.173,50 1.883,70 Total fert. costs 2.205,00 2.826,00 2.998,80 3.512,70 4.013,10 Total chemicals costs 2.072,00 2.057,00 2.057,00 2.027,00 1.997,00 Services Unit Quantity ETB/Unit ETB Quantity ETB/Unit ETB Quantity ETB/Unit ETB Quantity ETB/Unit ETB Quantity ETB/Unit ETB Ploughing ha 4 288,00 1.152,00 1 1.500,00 1.500,00 1 1.800,00 1.800,00 1 1.900,00 1.900,00 1 2.050,00 2.050,00 Disc Harrowing ha 2 900,00 1.800,00 Seedbed Preparation ha 1 288,00 288,00 1 1.000,00 1.000,00 1 1.000,00 1.000,00 Seedbed Prep. + Seeding ha 1 1.200,00 1.200,00 1 1.600,00 1.600,00 Fertilizer Distribution ha 2 125,00 250,00 2 125,00 250,00 2 125,00 250,00 2 125,00 250,00 2 125,00 250,00 Seeding ha 1 288,00 288,00 1 1.100,00 1.100,00 1 1.100,00 1.100,00 Spraying ha 3 50,00 150,00 3 50,00 150,00 3 50,00 150,00 3 50,00 150,00 3 50,00 150,00 Combine Harvesting ha 22 40,00 880,00 26 40,00 1.040,00 28 40,00 1.120,00 32 40,00 1.280,00 35 40,00 1.400,00 Total services costs 3.008,00 5.140,00 6.220,00 5.680,00 5.450,00 Total variable costs 9.893,20 12.486,30 13.739,10 13.393,20 13.343,80 Gross Margin 8.806,80 9.613,70 10.260,90 13.906,80 16.406,20 Animal Draught L-1/BT I-1/IT H-2/AT2-Wheel Tractor • Based on mechanisation models (all operations carried out by service providers) • Revenue calculation based on wheat yields of 2.2, 2.6, 2.8, 3.2 and 3.5 t/ha with appropriate inputs • Strong increase in variable costs from AD to 2-wheel tractor to L-1/BT due to mechanisation costs • Relative constant gross margins for the three lower models, thereafter clear rise
  7. 7. 7 Implemented by Seeds 20% Fertiliser 23% Chemicals 16% Machinery Services 41% 2-Wheel Tractor Seeds 26% Fertiliser 22% Chemicals 21% Machinery Services 31% Animal Draught Seeds 18% Fertiliser 22% Chemicals 15% Machinery Services 45% L-1/BT Seeds 16% Fertiliser 26% Chemicals 15% Machinery Services 43% I-1/IT Seeds 14% Fertiliser 30% Chemicals 15% Machinery Services 41% H-2/AT -15.000 -10.000 -5.000 0 5.000 10.000 15.000 20.000 25.000 30.000 Animal Draught 2-Wheel Tractor L-1/BT I-1/IT H-2/AT 18.700 22.100 23.800 27.200 29.750 -9.893 -12.486 -13.739 -13.393 -13.344 8.807 9.614 10.261 13.907 16.406 ETB/ha Gross Output, Variable Costs and Gross Margin Total gross output Total variable costs Gross Margin
  8. 8. 8 Implemented by 1. Smallholder farmer variable costs increase considerably moving from animal draught, to 2-wheel tractor, to the low technology level, whereas gross margin growth is insignificant. While raising the level of financial exposure of the farmer, this hardly improves farm income. 2. Higher mechanisation levels (intermediate, high) raise smallholder farmer gross margins significantly, whilst keeping variable costs and thus cash needs relatively stable. 3. Low level mechanisation is the most risk-prone in terms of yield variations, being the first production system to reach the zero gross margin line. High mechanisation level is most stable. 4. The step towards 2-wheel tractor and low level mechanisation seems to make little economic sense for smallholder farmers. 5. From the viewpoint of the farmer the highest mechanisation level would clearly be the preferred option. Summary of Conclusions
  9. 9. 9 Implemented by • Based on average prices, c.i.f. Addis Ababa • Excluding import tax and VAT • Investment costs from Intermediate level to High-2 level increase significantly • Across the entire range of mechanisation levels (L-1/BT to H-2/AT) investment costs increase by 1,541,000 ETB or 143% Service Provider Profitability 1.076.000 1.605.000 2.617.000 0 500.000 1.000.000 1.500.000 2.000.000 2.500.000 3.000.000 3.500.000 4.000.000 L-1/BT I-1/IT H-2/AT ETB Mechanisation Level Investment Costs Machinery Set +49% +63% +529,000 +1,012,000
  10. 10. 10 Implemented by • Based on ploughing, seedbed preparation and planting • Cost reduction due to higher efficiency and increased area output • Cost calculation includes fixed and variable costs • Investment costs are considered • Across the mechanisation levels (L-1/BT to H-2/AT) machinery costs are reduced by 1,701 ETB or 38% Service Provider Profitability 3.118 4.627 3.297 2.926 0 1.000 2.000 3.000 4.000 5.000 6.000 7.000 8.000 2 Wheel Tractor L-1/BT I-1/IT H-2/AT ETB/ha Mechanisation Level Total Machinery Costs per Hectare +48 -29% -11% +1,509 -1,330 -371
  11. 11. 11 Implemented by • Based on ploughing, seedbed preparation and planting for 1 ha • Revenue calculation using average actual or calculated mechanisation service fees • Total machinery costs as previous slide • Income increase from L-1/BT to H-2/AT by 651 ETB/ha • Gross income increases not significantly from I-1/IT to H2-1/AT (+21 ETB/ha or +3 %) Service Provider Profitability 3.700 4.700 4.000 3.650 -3.118 -4.627 -3.297 -2.926 582 73 703 724 -8.000 -7.000 -6.000 -5.000 -4.000 -3.000 -2.000 -1.000 0 1.000 2.000 3.000 4.000 5.000 6.000 7.000 8.000 9.000 10.000 2-Wheel Tractor L-1/BT I-1/IT H-2/AT ETB/ha Mechanisation Level Service Provider Gross Income per Hectare(Ploughing, Seedbed Prep., Seeding) Total Revenue Total Costs Gross Income
  12. 12. 13 Implemented by • Based on operations ploughing, seedbed preparation and planting estimated machinery utilisation under local conditions for 1 year • Revenue calculation and total machinery costs as previous slide • Gross income increases from L-1/T to I-1/IT (+47,000 ETB) • Income increase from L-1/BT to H-2/AT by 219,000 ETB Service Provider Profitability (Gross Income) 581.000 936.800 1.313.800 -561.200 -869.900 -1.074.800 19.800 66.900 239.000 -1.750.000 -1.500.000 -1.250.000 -1.000.000 -750.000 -500.000 -250.000 0 250.000 500.000 750.000 1.000.000 1.250.000 1.500.000 1.750.000 2.000.000 2.250.000 L-1/BT I-1/IT H-2/AT ETB/year Mechanisation Level Service Provider Annual Gross Income (Ploughing, Seedbed Prep., Planting) Total Revenue Total Costs Gross Income
  13. 13. 14 Implemented by Service Provider Profitability (Cash Flow) • During first 5 years of debt servicing) • All technology levels have a positive annual cash flow • L-1/BT: Lowest cash flow • I-1/IT: Highest cash flow • H-2/AT: Highest revenues and costs, cash flow below I-1/IT • Explanation: Investment financing costs 581.000 937.000 1.314.000 -494.000 -833.000 -1.222.300 87.000 104.000 91.700 -1.500.000 -1.250.000 -1.000.000 -750.000 -500.000 -250.000 0 250.000 500.000 750.000 1.000.000 1.250.000 1.500.000 1.750.000 2.000.000 2.250.000 L-1/BT I-1/IT H-1/AT ETB/year Mechanisation Level Service Provider Annual Cash Flow (Year1 - 5) Total Revenues (ETB/yr) Total Costs (ETB/yr) Cash Flow (ETB/yr)
  14. 14. 16 Implemented by 1. Investment costs increase significantly across the mechanisation models 2. Service provider gross income levels grow strongly from one mechanisation level to the next. 3. Annual cash flows are positive in all cases, highest value for the intermediate technology level in years 1-5 (period of debt repayment), thereafter the most advanced technology level takes over the lead 4. High interest rates and short debt servicing periods have significant negative effects on higher mechanisation technology levels 5. Intermediate technology model most likely the preferred option from viewpoint of service providers 6. Smallholder farmers visibly benefit from intermediate technology level upwards Summary of Conclusions
  15. 15. 17 Implemented by Agricultural production will need to grow 60% by 2050 to meet demand. 80% of production growth must come from yield increases. Food and Agriculture Organisation of the United Nations (FAO). World Agriculture Towards 2030/2050. The 2012 Revision.

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