Financial Analysis In Agricultural Project Preparation

Author : Etna Alvarado Romero
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (911 download)

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Download or read book Cost-benefit Analysis of an Agricultural Project Involving a Smallholder Production System written by Etna Alvarado Romero and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: "The appraisal of government-sponsored agricultural projects should examine the costs and benefits for society as a whole. The present thesis was developed in a context where the Ecuadorian government included poor small farmers from the province of Manabi as suppliers of Jatropha curcas, an endemic plant that produces oil seeds, which can be used as feedstock for biofuel. The government assumed that this initiative would improve the income of the involved farmers, but this assumption was not measured in quantitative terms. A study published in support of the project's development performed a financial evaluation that excluded the value of input resources to the national economy. Given this, the main objectives of this thesis were to measure the changes in welfare for the target group, and to construct a government cash flow that determined the project's net benefits with respect to the national economy. Cost-benefit analysis quantifies the impacts to all members of society arising from the implementation of a project or policy. In particular, the selected methodology was directed to agricultural projects involving smallholders. This method also proposes alternative projects and compares the net benefits with the status quo. In this case, the status quo was proposed by the government, and it involved farmers collecting Jatropha curcas seeds from living fences growing throughout the province. The alternative, proposed in this thesis, entailed that the smallholders cultivate the plant on their lands. Thus, financial analysis evaluated the farmer's resources placed in the project at market values, which resulted in the net benefits for the project's duration. On the other hand, the economic analysis considered values that represent the opportunity cost of input resources, and measured the project's impact to the national economy.The financial analysis determined that the annual net benefit in the status quo did not cover the farmer's investment. On the other hand, the alternative project showed positive total and incremental net benefits, implying that investment and operating costs would be covered. The government cash flow statements for the current and the proposed projects showed cumulative deficits. The economic analysis determined that the alternative project's incremental net benefit was positive. The net present value of the alternative project at the individual level was positive, representing a 41% increment with respect to the status quo. At the aggregate level, the net present value of the project's incremental net benefit was positive, which signifies an addition to the national economy. The results of financial analysis suggest that if the farmer switches from the status quo to the proposed alternative, his annual income would increase. It was also determined that the current government's initiative does not offer sufficient monetary incentive for farmers to engage in it. However, the net income change expected from the alternative project is positive, and is able to cover the initial investment and operating expenditures. The government's cash flow indicated that the project does not generate sufficient income to cover for the investment and recurrent costs. The results of the economic analysis suggest that the alternative project would produce a positive change in the net national income. Therefore, the analysis and results presented in this thesis might be used as a model for future evaluations of government investment intended to assist poor smallholders." --