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ABSTRACT
This study evaluates the financial feasibility of apple fruit production in Tiyo district of Arsi zone, Ethiopia. Data
were collected from 102 purposively selected households through structured interview. Field observation and market
assessment were also employed. The data were analyzed by employing cost benefit analysis. In the cost benefit analysis,
Net Present Value (NPV) and Internal Rate of Return (IRR) of apple fruit production were calculated. The results indicated
that the NPV of the apple fruit production was 12, 829.14/0.032ha and the IRR was 76.546%. It can be concluded that
production of apple fruit is financially feasible. Therefore, for the smallholder farmers to maximize net returns from their
land and resource inputs, the adoption of apple fruit production should be promoted in the study area.
KEYWORDS: Financial Analysis, Net Present Value, Apple Fruit, Internal Rate of Return
INTRODUCTION
Apple (Malus domestica) accounts for 50% of the worlds deciduous fruit tree production. China is the leading
apple growing country which is producing about 41% of the worlds apples; followed by the United States, India and
Turkey (USDA, 2013). In Africa the leading producer is South Africa, followed by Egypt and Kenya. Total apple
production in East Africa has not had a stable trend; it increased from 16.5 tonnes in 2002 to 21.0 tonnes in 2005. Since
then, production has reduced by 36.2% to 13.4 tonnes in 2011 (FAO Statistics). In Ethiopia the production level and
demands of temperate fruit did not match. Timoteos (2008) revealed that the current apple fruit production in the Chencha
area is about 15 metric tons per year while the overall country production is estimated to be about 50 metric tons. It is only
in the last 11 years that apple fruit production has started to increase in volume. German Technical Cooperation (GTZ)
program for Sustainable Utilization of Natural Resources for Improved Food Security (SUN) promotes apple fruits in the
highlands of Ethiopia, in particular in Oromia region. Tiyo District is one of the priority areas of the program. Smallholder
farm-households are the target groups supported with the main objective of contributing to improvement in the income of
the farmers and overall living conditions.
Regardless of the provision of apple fruit seedlings to the farmers of Tiyo district of Arsi zone, a scientific studies
that substantiate the profitability of apple fruit production was not conducted. Data from such studies is crucial to ensure
the dissemination of apple fruit tree. Hence, this study identified the financial feasibility of apple fruit tree production in
tiyo woreda of Arsi zone, Ethiopia.
METHODOLOGY
The study was conducted in Tiyo District of Arsi Zone. The Capital city of Tiyo district, Asella Town is located at
about 175 Km southeast of Addis Ababa. Geographically, Tiyo District is found approximately between 493609 534033
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ME and 858597- 887842MN. The study site is located between 508845 526600ME and 683000- 882343MN in Universal
Transverse Mercator. Its altitude ranges from 1850 to 4050 m.a.s.l. According to the National Meteorological Agencys
records, the mean annual rainfall of the wereda is 1100 mm. The mean annual maximum temperature is 23.1oC and the
mean monthly maximum values range from 21.1 to 25oc. The mean annual minimum temperature is 9.1oc and the mean
monthly minimum values ranges from 7.1 to 11oc.
Soil types of Tiyo district consist of Chromic Luvisols, Eutric Nitosols, Mollic Andosols, Orthic Luvisols, Pellic
Vertisols and Vertic Cambisols (Esayas et al, 2003). Vegetation of the district includes natural forest and plantation. The
natural forest vegetation belongs to the montane forest type, which is a complex of the high altitude forest tree species of
Ethiopia such as Podocarpus falcatus, Hagenia abyssinica, Juniperus procera, Ficus sur, Acacia albida, Measa
lanceolata, Erica arborea, and other broad leaved trees and shrubs. The most common plantation species are Eucalyptus
globulus, Eucalyptus grandis and Eucalyptus camaldulensis, Pinus patula, Cupperesus lusitanica and some Acacia spp.
The total population of the district is 86,761 and the average family size of the households was 6 individuals (CSA, 2008).
The livelihood of the households are largely depends on agriculture and they are known by producing barley (Hordeum
vulgare) and wheat (Triticum spp.)
( Bt Ct ) / (1 + r ) t > 0
(1)
t=0
Where, Bt are benefits flow at time t, Ct are costs of production at time t, t is year, and r is the discount rate.
Impact Factor (JCC): 4.3594
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Economic Analysis of Apple Fruit Production in Tiyo District of Arsi Zone, Ethiopia
IRR is equal to the discount rate (r) that brings the NPV down to zero.
n
(2)
t =0
All values were calculated based on current prices of inputs and outputs and the prices were set constant
throughout the life cycle of the practices. Ten years were considered in the analysis because according to the data collected
after 10 Years the yield of the fruit is start to decline. A discount rate of 12 % (bank interest rate) was used in this study.
It is difficult to predict the future input prices, output prices, yields and discount rates due to lack of data. Hence,
sensitivity analysis was carried out to show the effect of the change in these key variables on the NPV. Five assumptions
were made in the sensitivity analysis. Because in the adoption of new practices, farmers are not only concerned about costs
and benefits, but also considered risk associated with them. In the study site, most farm households are deriving their
livelihood primarily from agriculture, with which varieties of risk and uncertainties (tenure insecurity, recurrent drought,
diseases, pests, birds) are involved. Moreover, the farm households may attach high value on present income and discount
the future income at a higher rate.
ASSUMPTIONS
If yield increases by 10% and discount rate and cost decreases by 10% (best case scenario)
If yield decreases by 10% and discount rate and cost increases by 10% (worst case scenario)
Year
Cost In ETB
Benefit ETB
1180
1-10
4,030
32, 912.00
1-10
0-10
10.56
5220.56
0
32912
Relative (Total
Revenue/Total
Cost *100 )
630%
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NPV
14,458.36
11, 199.93
6776. 339
12482.84
29838.1
5557.68
Relative
(12,829.14=100%)
112.7
87.3
52.82
97.3
232.6
43.3
Change
12.7% increase
12.7% decline
47.18% decline
2.7% decline
32.6% increase
56.7 % decline
Results of sensitivity analysis showed that high rate of discounting affects the practice negatively; this is because
the benefits obtained from the practice starting from the 3rd year after planting through the 10 years.
ACKNOWLEDGEMENTS
I am grateful for the research grant offered by the Adama Science and Technology University, Ethiopia.
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Economic Analysis of Apple Fruit Production in Tiyo District of Arsi Zone, Ethiopia
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Eseyas, A, Tafesse, D, Belay, G. and Agezie, K.2003. Soils of Kulumsa Agricultural Research Center: National
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