Agriculture Reference
In-Depth Information
11.3
Material and Methods
Research data were collected during the period from August 2005 to January 2006
among a total of 100 households, including 60 farmers that have an agroforestry plot
and 40 farmers that only practice the seasonal crops of rice and wheat. Structured
interviews were used to gather data on species combinations, actual input and output
prices for both the agroforestry and the seasonal systems and the adoption factors of
agroforestry. Five in-depth household studies were carried out in order to determine
envisaged costs and benefits of both types of land use. Field observations were aimed
at identifying the actual species combinations of agroforestry. Other data was gath-
ered by way of open interviews with key informants (government, non-government
and public organizations) and by market prospecting. Secondary data were collected
from statistical yearbooks, local administration, and various other sources.
Quantitative analyses were carried out using descriptive statistics and economic
models, especially cost-benefit analysis at the household level. The net present
value (NPV), internal rate of return (IRR), benefit-cost ratio (B/C), return-to-land
and return-to-labor were calculated and compared for both types of land use.
The NPV determines the present value of net benefits by discounting the streams
of benefits and costs back to the beginning of the base year. The NPV is calculated
by the following formula:
(
BC
r
−
+
)
n
=
∑
NPV
=
t
t
t
(
1
)
t
1
where
B
t
- the benefits of production by a cultivation practice
C
t
- the costs of production by a cultivation practice
t
- the year time
r
- the discount rate
The IRR is equal to the discount rate (r) that brings the NPV down to zero. An
investment is considered financially attractive if the IRR is higher than the opportunity
cost of project financing (i.e. what one would pay to the bank for borrowing the invest-
ment capital). Following the definition, IRR is obtained by solving the equation:
n
BC
r
−
+
=
∑
(
t
t
t
=
0
1
)
t
0
The B/C compares the discounted benefits to discounted costs. A B/C of greater
than 1 means the project is profitable, whilst a B/C of less than 1 means the project
generates losses. The B/C is calculated as follows:
n
B
∑
(
)
1
+
r
B
C
t
=
0
=
n
C
∑
t
(
)
t
1
+
r
t
=
0
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