Agroforestry-Economics MAKRAND GUJAR
Agroforestry-Economics MAKRAND GUJAR
Agroforestry-Economics MAKRAND GUJAR
Why agroforestry?
GOOD INCOME
Produces saleable products Provides value-added opportunities Diversifies risk Increases property values Increases crop yields & livestock production Eligible for cost-share & land rental payments
Biological
Institutional factors
Social
Legal
Socioeconomic characteristics
Total land area in the LUS (km2 or ha) Total population in the LUS, Population density: persons/km2, Ethnic groups: religion, culture, etc., Tenure system: ownership or user rights for crops pastures, land, trees, Farm income: levels and sources, and Infrastructure: roads, electricity, commercial centers, etc.
Financial measures
NPV Net Present Value IRR (internal rate of return)
B/C ratio
NPV
Net present value is simply all future net income streams from the practice discounted to reflect their current or present value. This indicator is useful only as a basis for comparison. The net present value of the agroforestry practice can be compared to the net present value of other alternatives, such as a soybean monoculture, to see which practice is the most economically profitable. Assuming each practice is discounted using the same period of time and the same discount rate, the highest NPV would indicate the best alternative.
NPV= (Bt-Ct)/(1+r)t
Where
IRR contd..
However, the internal rate of return does not always capture the uncertainty of return over time. Using the savings account example, an investor is assured that the money put into a saving account is relatively risk free; however, investment in agroforestry practices may face uncertainties that were not predicted or planned.
1. What are the costs to establish the practice? (site preparation, planting, etc.) 2. What are the costs to maintain the practice? (chemicals, grafting, thinning, etc.) 3. What will it cost to harvest? (nuts, timber, etc.) 4. What will it cost to market the products? (advertising, transportation, spoilage, etc.)
4.
What does it cost to own the land? (current rental rates, interest payments on land, etc.)
Is there any capital that must be depreciated? (machinery, buildings, roads, etc.) When and how often will these costs occur?
5.
6.
Yield from agricultural crop, intermediate yield of thinning, Timber, fuelwood, fodder output
Project appraisal is concerned with assessing, in advance, whether a project is worthwhile and therefore if it should be proceeded with.
What is a Project?
..an investment activity upon which resources costs are expended to create capital assets that will produce benefits over an extended period of time and which logically lends itself to planning, financing, and implementing as a Unit.
The whole complex of activities for which money will be spent in expectation of returns
ex ante means before; ex post means after; the terms are taken from Latin
Ex ante analysis
"If you don't know where you're going, how will you ever know if you get there? Ex ante evaluation is a process that supports the preparation of proposals for new or renewed Community actions. Its purpose is to gather information and carry out analyses that help
to define objectives, to ensure that these objectives can be met, that the instruments used are cost-effective and that reliable later evaluation will be possible.
Ex ante analysis
Ex ante studies in agroforestry primarily rely on social and financial analyses of on-farm trials of agroforestry innovations
to assess the adoption potential of and to improve the effectiveness and efficiency of developing, modifying and disseminating new agroforestry practices.
Ex ante analysis looks at benefits and conflicts or problems likely to arise at the levels of:
farming system, with respect to household division of tasks and benefits, on-and off-farm activities, and resource use schedules; community or-village, with respect to obligations, organizations, management, and regional or catchment-level systems; and region or catchment area, with respect to land tenure, market incentives, credit and extension agencies.
There are four essential types of analysis involved in exante evaluation, namely:
Economic viability: benefit/cost ratio; net returns to land/labor/cash; risk and sensitivity analysis. Sustainability: analysis of the technology's capacity to meet objectives in short -and long-terms; also, analysis of expected changes and requirements related to soils, water, vegetation, management, and commercial input/output streams. (Macro D&D also plays a key role here.)
Farmer acceptability: comparability analysis with respect to resources and management; also, social analysis with respect to defined rules and responsibilities within household obligations, tenurial conditions, etc. Adoption potential: analysis of technology impacts in terms of number of farmers, regional development priorities, tenure rights, institutional and infrastructural support systems, etc.
Ex post evaluation
An evaluation of a completed project Once the project is completed (and possibly also several times during its implementation), it needs to be evaluated so as to enable analysts (borrowers or lenders) to assess its performance and outcome. It seeks to answer such questions as: has the project been successful in attaining its objectives? if not, in what respect has it failed? how might its design and/or implementation have been improved?
It allows a reworking of the estimates of the economic rate of return on the basis of actual implementation costs and updated information on operating costs and expected benefits. Evaluation thus helps to identify elements of strength and weakness, success or failure. The results are valuable in planning future projects and in attempts to avoid repeating or committing mistakes.
What is the state of the system? Answering this requires analysis of trends with respect to changes in the basic structure and/or functions of the system. Stability and sustainability are important considerations in this step.
Future Improvements
What are the objectives of the system manager(s) (e.g., farmer and household). What are the positive and negative effects on the system of the present component structures and/or functions?
How could they be modified or replaced to achieve higher levels of performance? Any proposed interventions must to be appropriate and acceptable to the manager(s).
What are the positive and negative effects on the system of exogenous factors, and What should be done about these factors to move the system in the desired direction?
THANK YOU
NPV= (Bt-Ct)/(1+r) where B is benefits in year t C is costs in year t r is selected discount rate
Where: NPV = Net Present Value cashflown= net income or net loss for the year n, for example cashflow1 is the net income from the first full year of production. i = discount rate, or the opportunity cost of investing. For example, the dollars could have been invested in the stock market with an expected return of 14 percent instead of being invested in an agroforestry practice, therefore, the opportunity cost of the agroforestry practice would be 14 percent. n = number of years included in the budget.