The document discusses the effects of different agricultural mechanization models on wheat production in Arsi Zone. It analyzes the profitability for smallholder farmers and service providers across mechanization levels ranging from animal draught to advanced tractor technologies. For smallholders, higher mechanization levels significantly increase gross margins while keeping costs stable. For service providers, gross income and revenues increase with each mechanization level, though annual cash flows are highest for intermediate technology during the debt repayment period of 5 years. Investment costs rise substantially with more advanced mechanization models.

1. 0
Implemented byImplemented by
Presentation of Study Findings
October 2017
PROMOTION OF
IMPROVED AGRICULTURAL
MECHANISATION

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. 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
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
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
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
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
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
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
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
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. 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. 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. 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. 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.