Economic feasibility of vegetable production under polyhouse: A case study of capsicum and tomato D. Sreenivasa Murthy, B.S. Prabhakar1, S.S. Hebbar, V. Srinivas2 and M. Prabhakar1 Section of Economics and Statistics Indian Institute of Horticultural Research Hesarghatta Lake Post, Bangalore – 560 089, India E-mail : srinivasiihr@yahoo.co.in ABSTRACT Polyhouse cultivation of vegetables is emerging as a specialized production technology to overcome biotic and abiotic stresses and to break the seasonal barrier to production. It also ensures round the year production of high- value vegetables, like capsicum, especially, during off-season. Cost is the major issue in sustaining this technology. The present study examined the economic viability of production of capsicum and tomato in a naturally ventilated polyhouse of medium cost category with drip irrigation system. Data were generated by cost accounting method for estimating the feasibility of production and was analyzed by using project evaluation methods, like Pay Back Period (PBP), Benefit Cost Ratio (BCR), Net Present Value (NPV) and Internal Rate of Return (IRR). Cultivation of capsicum in a polyhouse was found to be highly feasible as reflected in higher values of NPV (Rs.3,23,145/500 m2), BCR (1.80) and IRR (53.7%) with payback period of less than two years. Breakeven price for capsicum production in a polyhouse (Rs.11.80 /kg) was lesser than average wholesale price. Production of tomato in a polyhouse was found not feasible, as the breakeven price was more than the average market price and all the project appraisal parameters indicated that it was not feasible. Only at about 48% premium price over the prevailing market price or reduction of cost of polyhouse structure by 60% from Rs.400 to Rs.160 /m2, could make the tomato production viable in a poly house. Key words: Capsicum, economics, polyhouse, production, tomato, vegetables J. Hortl. Sci. Vol. 4 (2): 148-152, 2009 1. Division of Vegetable Crops, Indian Institute of Horticultural Research (IIHR), Bangalore 560 089 2. Progressive farmer, Bangalore INTRODUCTION The main objectives of cultivation of vegetables in a polyhouse condition are, to protect the crop against biotic (pests, diseases and weeds) and abiotic (temperature, humidity light,) stresses and to ensure round the year production of high-value quality vegetables like capsicum especially, during the off-season. Vegetable cultivation in polyhouse, not only increases the productivity but also, enhances the quality of vegetables and it is being practiced in more than fifty countries all over the world. However, in India, it is a new phenomenon and is still in its initial stage (Singh, 1998; Singh et al, 1999; Phookan and Saikia, 2003; Rai et al, 2004; Singh and Asrey, 2005). The cost of the polyhouse structure plays the decisive factor for adoption and sustainability of vegetable production. The cost of a polyhouse mainly depends on the quality of materials used for the structure and glazing and others like drip and mist systems. Polyhouses are of various sizes ranging from 1000 to 10,000 m2 depending on the requirement. Polyhouses differ in terms of cost as (a) low cost ranging from Rs.250-400/ m2, (b) medium cost ranging from Rs.500-1000/ m2 and (c) high cost polyhouse Rs.1000- 2000/ m2. The present study was taken up to examine the economic viability of production of capsicum and tomato in a naturally ventilated polyhouse of medium cost category with drip irrigation and misting system. MATERIAL AND METHODS In a mission mode project on ‘Protected cultivation of vegetables and flowers in plains and hills’ under the National Agricultural Technology Project (NATP) sponsored by one of the world Bank projects of Indian Council of Agricultural Research (ICAR), experiments were carriedout on standardization of production and protection technologies for capsicum and tomato and its economic feasibility in a naturally ventilated polyhouse at Indian Institute of Horticultural Research, Bangalore during 2002-2004. Capsicum and tomato were selected, as these two crops are known to be best suitable and mostly grown under 149 greenhouse in the world. Capsicum is a season specific crop, winter being the best suitable season in the tropics. It is a high volume and high value vegetable compared to tomato. On the other hand, tomato is a high volume and relatively low value crop, but in demand throughout the year. Though tomato is grown nearly in all seasons, the yields are low during summer and monsoon. Data were generated by cost accounting method from 2002 to 2004. Economic feasibility of investment on production of capsicum and tomato under polyhouse conditions was evaluated by using project evaluation measures. Payback Period (PBP), Benefit Cost Ratio (BCR), Net Present Value (NPV) and Internal Rate of Return (IRR) were used for project evaluation. Except PBP, which is an undiscounted measure, all others, BCR, NPV and IRR, are discounted measures of project worthiness (Berry et al, 1979; Gittinger, 1982). A discount rate of ten per cent was used in the present study to estimate these parameters. The average reference rate of interest given by the different financial institutions for the investment of long term projects was used as a decision criterion for selection of the discount rate. These project evaluation measures were derived based on certain assumptions. First and the foremost assumption was that the life span of present project is six years. Normally 5-6 months are required for one crop and hence, in the present study two crop seasons were included for every annual cash flow. For estimating the cash flows, actual data was used for first two years and the remaining years the cash flows were extrapolated appropriately based on the available information. An attempt was also made in the study to estimate the cost of production of the tomato and capsicum under polyhouse cultivation, which provides indication to farmers whether the cultivation of tomato and capsicum earning profit over the market price or not i.e, breakeven in terms of cost of production and market price. For this purpose, cost of production was estimated by accounting all costs included in the cultivation under polyhouse and compared with the prevailing market price. Estimation of cost of production is bit tricky as three types of costs were involved viz. establishment, annual production and seasonal costs. Annul and seasonal production costs were used directly and it is only a question of apportion the cost of establishment. It is well-known fact that ‘depreciation’, a systematic and rational process of distributing the cost of tangible assets over the life of assets, is used to apportion the cost. Straightline depreciation method was used in the present study to apportion the total value of the assets like GI pipes, polythene sheets, irrigation equipments, etc., depending on their life span. Once the annual costs of all items were estimated, the cost of production (Rs/kg) per crop (season) was estimated. The price prevailed in the market during same period was also obtained and compared for the profitability of production. RESULTS AND DISCUSSION Cost of Establishment Polyhouse production is a capital-intensive technology requiring a substantial investment especially during the initial establishment period. The details of cost components in establishing a poly house are given in Table 1. A non-land capital investment of Rs.2,36,000 (Rs.47.20 lakh ha-1) was required for erecting 500 m2 polyhouse. This includes, costs on initial land preparation, basic structure GI Square tubes, low-density polyethylene sheet (LDPE- UV Stabilized - 200- micron thick), 40 mesh nylon net, drip irrigation and mist system and construction costs. The LDPE sheet normally lasts for 2-3 years and needs to be replaced depending on wear and tear. Break-up of these establishment costs indicates that the major cost of establishment was incurred on GI frame (58.5%) followed by that on polythene sheet (12.7%) and labour (13.6%). Irrigation-fertization system, misting and shade net accounted for 3.8, 5.1 and 2.1% of the total establishment costs, respectively. The other costs involved in the establishment of polyhouse was grouped under miscellaneous costs such as initial land preparations costs, preparing bunds and making furrows, weeding, neem cake applied to soil, etc. which accounted for about Rs.5000/500 m2. Table 1. Cost of establishment of a polyhouse structure (2001-02) Sl No Particulars 500 m2 Per ha 1 Structure and Sheet 2,00,000(84.8) 40,00,000 A GI pipe 138000(58.5) 2760000 B Polythene sheet 30000(12.7) 600000 C Labour 32000(13.6) 640000 2 Irrigation and Fertigation system 9,000(3.8) 1,80,000 3 Misting 12,000(5.1) 2,40,000 5 Shade net (500 m2 @ Rs. 20 per m2) 10,000(4.2) 2,00,000 6 Miscellaneous (Initial land preparation cost, preparing the land for planting, initial weeding, incidental chargers, etc.) 5,000(2.1) 1,00,000 Total cost 2,36,000(100) 47,20,000 Figures in parentheses are the percentage to the total of that column J. Hortl. Sci. Vol. 4 (2): 148-152, 2009 Economic feasibility of vegetable production under polyhouse 150 Variable costs of cultivation of tomato and capsicum in polyhouse Normally two crops are taken in a year, as the crop duration for both crops is about six months. Two types of expenses are incurred on cultivation of vegetables in a polyhouse. (1) Inputs like farmyard manure (FYM), fumigating agents and mulching materials that are used annually. In the present case, these inputs lasted for two crop seasons and were grouped under annual variable costs. (2) Inputs used during each cropping period, such as nutrients; plant protection chemicals, seeds etc., were grouped as seasonal variable costs. The average annual variable cost for a poly house cultivation was Rs.10,340/500 m2 (Rs. 2.06 lakh ha-1), comprising cost on FYM, mulching and the fumigation (Table 2). The mechanism of fumigation and mulching as well as the recommended doses of FYM were same for both capsicum and tomato. The details on cost of these items are given in the Table. The details on seasonal variable costs (working expenses) incurred on cultivation of tomato and capsicum in a poly house are given in Table 3. The average cost of cultivation under poly house was Rs.12,494/500 m2 (Rs.2,49,880/ha) for tomato and Rs.16,334/500 m 2 (Rs.3,26,680/ha) for capsicum. The cost for capsicum was more because of its higher requirement of plant protection chemicals. The break-up of costs indicated that the highest cost was incurred on labour in both capsicum and tomato cultivation indicating that poly house cultivation is both capital and labour intensive. In capsicum, nearly 44% of the working costs were incurred on labour and 26.3% in capsicum. Tomato requires more labour for training plants and harvesting fruits. The cost incurred on plant protection was lower than that in open field production because of lower intensity of pests and diseases in the polyhouse. The other costs include twines, staking material costs and annual irrigation costs (imputed). The investment made on the Table 2. Annual working expenses (Rs.) of tomato and capsicum cultivation SL No Items Capsicum/Tomato 500 m2 Per ha 1 FYM (8 t /500 m2) 4,000 80,000 2 Formaldehyde (37%) @ 400 ml/m2 4,000 80,000 3 Mulching 2,340 46,800 4 Total 10,340 206,800 Table 3. Expenditure on cultivation of tomato and capsicum under polyhouse (2003-04) Sl No Particulars Tomato Capsicum 500 m2 Per ha 500 m2 Per ha 1 Labour cost * 5450 109000 4300 86000 2 Seedling cost ** 750 15000 2400 48000 3 Chemical fertilizers 1140 22800 3828 76560 4 Plant protection costs (Pesticides and insecticides) 704 14080 3006 60120 5 Other capital costs (twines, staking material costs, irrigation costs and miscellaneous) 4450 89000 2800 56000 Total 12494 249880 16334 326680 * The no.of seedling in tomato was 750/500 m2 and in capsicum it was 2400/500 m2 ** Human labour for tomato cultivation was 73 man days/500 m2 and for capsicum it was 57 man days/500 m2 # Fertilizers used were CAN, SSP, MOP and 19 all WSF Note : Standard plant protection procedures were followed for the management of pests and diseases irrigation structure for polyhouse cultivation like pump sets, mist units, drips systems, and conveyance pipes was separately accounted under establishment costs. . The average yield of capsicum during 2003 and 2004 was 126 t/ha/season in a polyhouse compared to about 22.3 t/ha/season in the open field. Cash flows of tomato and capsicum production The cash inflows and outflows were worked out for the project period of six years. Actual costs and returns during 2002-03 and 2003-04 in tomato and capsicum was documented and used for the cash flows. During this period four crops were taken. For remaining periods the costs and returns were projected based on the actual costs and returns. The year-wise details on the cost structure are given in Table 4. The polythene sheets which were used in polyhouse is normally replaced every two years and hence, every alternate years there is an additional costs, as seen in 3rd year, 5th years etc. Economic feasibility of production of tomato and capsicum in polyhouse Economic feasibility indicators (PBP, NPV, BCR, and IRR) were worked out for both tomato and capsicum using the cash flows presented in Table 4. The details of the economic feasibility indicators are given in Table 5. Sreenivasa Murthy et al J. Hortl. Sci. Vol. 4 (2): 148-152, 2009 151 Table 4. Cash flow of costs and returns of tomato and capsicum (500 m2) Year Tomato Capsicum SlNo Costs Returns Costs Returns 1 Base Year - 2001-02 236000 0 236000 0 2 First Year - 2002-03 35328 65859 43008 183707 3 Second Year - 2003-04 35328 65859 43008 183707 4 Third Year 50865 65859 58545 183707 5 Fourth Year 35328 65859 43008 183707 6 Fifth Year 50865 65859 58545 183707 7 Sixth Year 35328 65859 43008 183707 Table 5. Economic Feasibility of polyhouse cultivation of tomato and capsicum (2003-04) SlNo Economic Indicator Capsicum Tomato 1 Payback period (years) 1.5 More than 10 2 Net present value (Rs/500 m2) 3,23,145 -1,13,046 3 Benefit Cost Ratio 1.80 0.69 4 Internal Rate of Return (%) 53.71 -11.50 ••••• (10% discount rate) ••••• Actual market price prevailing in Bangalore market during different months was taken for calculating returns Capsicum: The pay back period for polyhouse production of capsicum was found to be less than two years or four production seasons. Total net returns (undiscounted) for six years period was of Rs.115.4 lakhs/ha (Rs.5.77 lakhs/500 m2) with an annual average net return of Rs.19.2 lakhs/ha (Rs.0.96 lakhs/500 m2). Net present value (NPV) of the total net returns at 10 % discount rate for six years period worked out to be Rs 64.62 lakhs/ha (Rs 3.23 lakhs/500 m2) with the benefit cost ratio (BCR) of Rs.1.80. Internal rate of return (IRR) in polyhouse production of capsicum is likely to be 53.71 per cent per annum. Therefore, production of capsicum in a polyhouse is highly feasible and profitable. The breakeven price for capsicum production in a polyhouse was Rs.10.25/kg and for both production and marketing was Rs.11.80/kg (Table 6). The average wholesale price prevailed in Bangalore market during 2003 was Rs.15.80 per kg. Tomato: Production of tomato in a polyhouse was not found to be economically feasible. Even continuous cultivation of tomato for six years was not even sufficient to recover the investment made. It takes nearly eleven years of continuous production to make it breakeven. The net present value of tomato production at 10% discount rate was negative (Rs.1.13 lakhs/500 m2), the benefit cost ratio (BCR) was less than one (0.69) and the internal rate of returns to investment was negative (-11.50% per annum), suggesting that the tomato production in poly house is not economical. Table 6. Estimate of cost of production of tomato and capsicum (per season) in polyhouse (500 m2) Particulars Cost details Tomato Capsicum Apportioned cost of fixed inputs Frame work (10 years) 10,000 10,000 Polyhouse sheet (2 years) 7,769 7,769 Shade net (5 years) 1,000 1,000 Drip and Fertigation (5 Years) 900 900 Misting (10 years) 600 600 FYM 2,000 2,000 Formaldehyde 2,000 2,000 Black Polyethylene mulch 1,170 1,170 Sub total 25,439 25,439 Working expenses 12,494 16,334 Interest on fixed inputs 11,800 11,800 Interest on working expenses 817 565 Total expenditure (Rs.) 50550 54130 Yield (Kg)* 7,775 5,280 Cost of Production (Rs./kg) 6.50 10.25 *Average yield realized for two seasons in polyhouse With about 48% premium price over the prevailing market price, tomato cultivation in a polyhouse is likely to be economical (Table 7). If the present cost of a poly house structure is brought down by 60% from Rs.400/ m2 to Rs.160, then only it will be feasible (Table 7). Table 7. Sensitivity analysis of costs and returns for tomato production in polyhouse (500 m2) Premium Payback NPV (Rs) BCR IRR (%) period (@10% (10% (yrs) discount) discount) No reduction and at Not market price sufficient -1,13,046 0.69 -0.115 Premium price 20 % premium price 7.5 -74207 0.80 4.50 30 % premium price 6.5 -48891 0.87 6.49 40 % premium price 5.5 -23576 0.94 8.35 50 % premium price 3.5 1740 1.00 10.12 Cost reduction 20 % reduction 9.5 -81930 0.76 2.05 30 % reduction 8.5 -60475 0.81 3.46 40 % reduction 7.5 -39021 0.87 5.22 50 % reduction 6.5 -17566 0.94 7.50 60 % reduction 4.5 3889 1.02 10.67 20 % reduction in cost and premium price No premium price 7.5 -81930 0.76 2.05 20 % premium price 6.5 -31298 0.91 7.22 30 % premium price 5.5 -5983 0.98 9.48 40 % premium price 4.5 19335 1.06 11.62 50 % premium price 3.5 44649 1.13 13.67 Economic feasibility of vegetable production under polyhouse J. Hortl. Sci. Vol. 4 (2): 148-152, 2009 152 With twenty per cent of reduction in the cost of polyhouse structure from Rs.400 to Rs.320/m2 and a premium price of 35% over the existing market price the tomato production in polyhouse is also likely to be feasible. The breakeven price for tomato production in a polyhouse was Rs.6.50/kg (not including marketing costs) as against the average wholesale price of Rs.4.90/kg prevailed in Bangalore market during the same period, which makes it very difficult to economically produce tomato in a polyhouse. An alternative technology to grow vegetables in a net house, where it is possible to reduce the cost of the structure to the extent of Rs.160 to Rs. 200/ m2, is being developed. The major policy implications based on the present study are as follows: Cultivation of capsicum under polyhouse with initial investment emerged as a profitable and economically viable option to increase the farmers’ income. Besides yield, the quality of fruits was found to be superior in terms of its size, colour and shining. Thus, there is a need to further strengthen existing institutional credit to provide initial capital requirement. The technology should also be promoted under different government and non-government schemes, as the returns for this technology is high. Protected technology breaks the seasonal barriers of production and thus, ensures availability of the capsicum throughout the year. By proper crop planning, i.e. coinciding production with the higher market price, the returns could further be enhanced. This aspect should be emphasized while delivering this technology to the farmers. Higher establishment costs as shown in case of tomato proved to be the major constraint for the viability of this technology. Therefore, research efforts should be initiated to reduce the cost of establishment of poly house so that this protected technology may be used for large number of vegetable crops. Production of vegetables under low-cost net house instead of polyhouse is already showing promising results. ACKNOWLEDGEMENT The authors are thankful to the NATP, ICAR, New Delhi for providing funds for investigation and to the Director, IIHR, Bangalore for facilitating the conduct of the investigation. REFERENCES Berry, P.J. Hopkins, J.A. and Baker, C.B. 1979, Financial Management in Agriculture, Danville, Illinois; The Interstate Printers & Publishers, Inc, USA Gittinger, J.P. 1982, Economic Analysis of Agricultural project, The John Hopkins University Press; Baltimore, USA Phookan, D.B. and Saikia, S. 2003. Vegetable production under naturally ventilated plastic house cum rain shelter. Plasticulture Intervention for Agriculture Development in North Eastern Region, Edt. by K.K. Satapathy and Ashwani Kumar, pp. 127-141 Rai, N., Nath, A., Yadav, D.S. and Patel, K.K. 2004. Effect of polyhouse on shelf-life of bell pepper grown in Meghalaya. 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