ECONOMIC ANALYSIS OF GREENHOUSE CULTIVATION

ECONOMIC ANALYSIS OF GREENHOUSE CULTIVATION

1. BIRSA AGRICULTURAL UNIVERSITY
Protected Cultivation and Secondary
Agriculture
LECTURE 12: ECONOMIC ANALYSIS OF GREENHOUSE
CULTIVATION
BY
DR. PRAMOD RAI
DEPARTMENT OF AGRICULTURAL ENGINEERING

2. Economic analysis of cultivation
GHcultivationiscapitalintensivetechnologybothinterm
ofinitialinvestmentaswellasoperatingcostascompared
totraditionalopenfieldcultivation.
Itistherefore,essentialthattheagriculturalproducefrom
GHisabletonotonlyoffsetthehighestcostofcultivation
butalsoregisteradequateprofits.
Thisconsiderationaloneshouldbethecriteriafor
selectionofsuitablecropsforcultivationinGHatany
givengeographicallocation.
Itistheareaofengineeringwheretheengineering
judgmentandcropproductionexperienceareutilized
jointlyintheapplicationofscientificprinciplesand
techniquestoproblemsofprojectcostcontrol,
profitabilityanalysis,planning,schedulingand
optimizationofoperationalresearchetc.

3. Economic analysis of Tomato cultivation
Itisaprocessfollowedbyexpertstounderstandhowkey
economicfactorsaffectthefunctioningofanprojectfor
makingrightchoice.
Numbersofstudiesarereportedforeconomicanalysisof
vegetablecultivationunderconventionalanddrip
method.
Butnoneofthemareanalyzedtheeconomicsof
cultivationindetails.TheyhavecalculatedonlytheB-C
ratioandpaybackperiodwhereasherein-depthanalysis
ofeconomicsoftomatocultivationaredone.
DifferentparametersofeconomicanalysislikeBenefit
costRatio,NetPresentValue(NPV)andpaybackperiod
isestimatedtoaccesstheeconomicfeasibilityoftomato
cultivation.

4. System considered for Economic analysis
Conventionalcultivation(openfieldcultivation)
Dripirrigation
Dripirrigationwithplasticmulch
Polyhouse(Greenhouse)

5. Methodology
Economicanalysisiscalculatedforareaof1000m
2
and
resultsareanalyzedtoaccessitsfeasibilityand
profitability.
Primarydatarequiredforcalculatingexpenditureand
pricerealizationfortomatocultivationarecollected
fromAICRPonPlasticultureEngineering&
Technology(PET)andPrecisionFarmingDevelopment
Centre(PFDC),DepartmentofAgricultural
Engineering,BAU,Ranchi.
Secondarydatarequiredforcalculatingeconomicsof
tomatocultivationarecollectedthroughpublished
informationfrombooks,journals,articles,internet
sourceetc.

6. Parameters considered for economic analysis
Benefitcostratio(BCR)
Netpresentvalue(NPV)
Paybackperiod

7. Benefit Cost Ratio (BCR)
Benefitcostratio
Where,
Bi= Gross benefit per year, r = Rate of interest, Ci= Cost per year,
t =Time, i= Number of years
TheBCRistheratioofbenefitsofaprojectrelativetoitscosts.
TheBCRisratioofthediscountedvalueofallcashinflowsto
thediscountedvalueofallcashoutflowsduringthelifeofthe
project.
IfaprojecthasaBCRgreaterthan1.0,theprojectisexpected
todeliverapositivenetpresentvalue.Ifaproject'sBCRisless
than1.0,theproject'scostsoutweighthebenefits,anditshould
notbeconsidered.

8. Net Present Value (NPV)
Net present value (NPV)
Where,
Bi= Gross benefit per year, r = Rate of interest, Ci= Cost per year,
t =Time, i= Number of years
NPVisthedifferencebetweenthepresentvalueofcash
inflowsandthepresentvalueofcashoutflowsoveraperiod
oftime.
ApositiveNPVvalueindicatesthattheprojectedearnings
generatedbyaprojectexceedtheanticipatedcosts.Itis
assumedthataninvestmentwithapositiveNPVwillbe
profitable,andaninvestmentwithanegativeNPVwill
resultinanetloss.
Adiscountfactorof15%wasusedtodiscountthenetcash
inflowrepresentingtheopportunitycostofcapital.

9. Pay Back Period
Payback period
Payback Period = Cost of investment/Annual net cash flow
Thepaybackperiodreferstotheamountoftimeittakestorecover
thecostofaninvestmentortoreachabreak-evenpoint.
Sincethecashflowisnotconstantfromyeartoyear,thePayback
periodisdeterminedbycalculatingthecumulativeaverageproceeds
insuccessiveyearsuntilthetotalreturnisequaltotheoriginal
outlays.
Shorterpaybacksmeanmoreattractiveinvestments,whilelonger
paybackperiodsarelessdesirable.
Thepaybackperiodiscalculatedbydividingtheamountofthe
investmentbytheannualcashflow.

10. Thelandpreparationwasdoneusingtractorwithrotavatorandthecost
forlandpreparationisestimatedasRs.560for1000m
2
area.
Plantingmaterialcostcomprisedoftray,lowtunnel,vermicompost,
cocopitandseedforthreeseasons(1year)areestimatedasRs14900.
FertilizerslikeUrea,DAPandMOPisselectedforfertilizerapplication
underconventionalcultivation.Therecommendeddosageoffertilizers
(RDF)fortomatoistakenas111:67:133kg/ha.Costoffertilizersis
estimatedaspertheratesgivenbyATIC,BAU,Ranchi.ThecostofUrea,
DAPandMOPfor1000m
2
areaareRs.375.97,Rs1174.99,Rs1222.57
respectively
Theseasonalcostofirrigationisestimatedforallthreeseasons(summer,
monsoon&winter).Thetotalnumberofirrigationconsideredwereis12,
4and6duringsummer,monsoonandwinterseasonrespectively.The
durationofirrigationconsideredas1hour/day/timeandunitrateof
irrigationistakenasRs.125/hour.
Thetotalnumberofmandaysrequiredfordifferentoperationslikebed
preparation,transplantation,irrigation,weeding,fertilization,spraying
andharvestingoftomatoareestimatedfromPFDCandPETproject.
Conventional cultivation (Open Field Cultivation)

11. S. N. Particulars Amount (Rs.)
1 Land Preparation Cost 560
2 Planting Material Cost 14900
3 Fertilizer Cost 2773.54
4 Irrigation Cost 2750
5 Spraying Cost 1200
6 Labour Cost 25935
Total Recurring Cost 48118.54
Table 1: Annual breakup of recurring cost

12. S.N.
Particulars
Amount(Rs.)
/Quantity(kg)
1
Plant population @ 6 plant/m
2
(6000 plants
x 3 seasons)
18000 plants
2.a.Production during Nov to Feb @ 25t/ha 2500 Kg
Less: Loss of produce (2%) 50 kg
Produce available for sale (kg) 2450 kg
Income from Sale of Produce @Rs 10/kg Rs. 24500
2.b.Production during March to June @ 18t/ha1800 Kg
Less: Loss of produce (2%) 36 kg
Produce available for sale (kg) 1764 kg
Income from Sale of Produce @Rs 20/kg Rs. 35280
2.c.Production during July to Oct @ 12t/ha 1200 Kg
Less: Loss of produce (2%) 24 kg
Produce available for sale (kg) 1176 kg
Income from Sale of Produce @Rs 30/kg Rs. 35280
3Total income from sale of produce Rs. 95060
Table 2: Production of tomato during different seasons and
income generated

13. S. N. Particulars
Year
FirstSecondThird
1Capital Cost 0 0 0
2Recurring cost Including
land preparation cost
48118.5448118.5448118.54
3Total Cost (1+2) 48118.5448118.5448118.54
4Total income from sale of
produce
95060 95060 95060
5Net Benefit (4-3) 46941.4646941.4646941.46
6Discount factor @ 15% 0.869 0.756 0.657
7Discounted Cost(3x6) 41815.0136377.6131613.88
8Total Discounted Cost 109806.50
9Discounted Benefit (4x6)82607.1471865.3662454.42
10Total Discounted Benefit 216926.92
NPV @15% 107120.42
BC Ratio 1.98
Payback Period 1.03 years
Table 3: Net present value, benefit cost ratio and payback period
of conventional cultivation

14. ThecostofUrea,DAPandMOPfor1000m
2
areaisRs.
375.97,Rs1174.99,Rs5304respectively.
Thetotalnumberofirrigationconsideredduringsummer,
monsoonandwinterseasonis40,14and24times,
respectively.Thedurationofirrigationconsideredas1
hour/day/timeandunitrateofirrigationistakenasRs.125
perhour.
Drip Irrigation

15. Table 5: Annual breakup of recurring cost
Table 4: Installation cost of drip irrigation system for area of 1000 m
2
S. N. Particular
Amount
(Rs)
Life
(Years)
Annual cost
(Rs)
1
Installationcostofdrip
irrigationsystem
25000 7 3571.4
S. N. Particulars Amount (Rs.)
1Depreciation on fixed cost 3571.4
2Land Preparation Cost 560
3Planting Material Cost 14900
4Fertigation Cost 6854.96
5Irrigation Cost 14000
6Spraying Cost 1200
7Labour Cost 21736
TotalRecurringCost 62822.36

16. Table 6: Production of tomato during different seasons
and income generated
S. N. Particulars
Amount(Rs.) /
Quantity(kg)
1
Plant population @ 6 plant/m
2
(6000
plants x 3 seasons)
18000 plants
2.a.Production during Nov to Feb @ 40t/ha 4000 kg
Less: Loss of produce (2%) 80 kg
Produce available for sale (kg) 3920 kg
Income from Sale of Produce @Rs 10/kg Rs. 39200
2.b.Production during March to June @ 30t/ha 3000 kg
Less: Loss of produce (2%) 60 kg
Produce available for sale (kg) 2940 kg
Income from Sale of Produce @Rs 20/kg Rs. 58800
2.c.Production during July to Oct @ 20t/ha 2000 kg
Less: Loss of produce (2%) 40 kg
Produce available for sale (kg) 1960 kg
Income from Sale of Produce @Rs 30/kg Rs. 58800
3Total income from sale of produce Rs. 156800

17. Table 7: Net present value, benefit cost ratio and payback period
for drip irrigation cultivation
S. N. Particulars
Year
FirstSecondThird
1Capital Cost 3571.43571.43571.4
2Recurring cost Including land
preparation cost
59250.9659250.9659250.96
3Total Cost(1+2) 62822.3662822.3662822.36
4Total income from sale of
produce
156800156800156800
5Net Benefit (4-3) 93977.6493977.6493977.64
6Discount factor @ 15% 0.869 0.756 0.657
7Discounted Cost(3x6) 54592.6347493.7141274.29
8Total Discounted Cost 143360.63
9Discounted Benefit (4x6)136259.2118540.8103017.6
10Total Discounted Benefit 357817.6
NPV @15% 214456.97
BC Ratio 2.50
Payback Period 8 months (less than 1 year)

18. Comparison between Conventional and Drip Irrigation
Table 8: Comparative economics of tomato cultivation
under conventional & drip irrigation
S. N. Particulars
Amount (Rs.)
Difference
%
Difference
over
conventional
Drip irrigationConventional
1Depreciation on fixed cost3571.4 (5.7) 0 (0.0) 3571.4 -
2Land preparation cost 560 (0.9) 560 (1.2) 0 0.0
3Planting material cost14900 (23.7)14900 (31.0) 0 0.0
4Fertilizer cost 6854.96 (10.9)2773.54 (5.8)4081.42 147.2
5Irrigation cost 14000 (22.3)2750 (5.7)11250 409.1
6Spraying cost 1200 (1.9)1200 (2.5) 0 0.0
7Labour cost 21736 (34.6)25935 (53.9)-4199 -16.2
Total Recurring Cost 62822.36 48118.5414703.82 30.6
Return structure
1Total annual yield (kg) 8820 5390 3430 63.6
2Gross return (Rs) 156800 95060 61740 64.9
3Net return (Rs) 93977.64 46941.4647036.18 100.2
4NPV @15% 214456.97 107120.42107336.55100.2
5BC Ratio 2.50 1.98 0.52 26.3
6Pay Back period (months) 8 12 -4 -33.3
Note-Figuresinparenthesesindicatetheirpercentagestototalcost

19. Itcanbeconcludedthattomatocultivationunderdripirrigation
ismorebeneficialthanconventionalcultivation.
TheNetpresentvalue,BenefitcostratioandPaybackperiodfor
tomatocultivationunderconventionalcultivationisrespectively
Rs.107120.42,1.98and12monthshowever,fordripirrigation,
itisrespectivelyRs.214456.97,2.50and8months.
Thegrossreturn,netreturnandnetpresentvalueishigherby
64.9%,100.2%and100.2%respectivelyfordripirrigationas
comparedtoconventionalcultivation.
Conclusions

20. Drip Irrigation with mulching
S. N. Particular
Amount
(Rs)
Life
(Years)
Annual
cost (Rs)
1
Costofinstallationofdrip
irrigationsystem
25000 7 3571.4
2Costofmulching - - 12000.0
Total 15571.4
S. N. Particulars Amount (Rs.)
1Depreciation on fixed cost 15571.4
2Land Preparation Cost 560
3Planting Material Cost 14900
4Fertigation Cost 6854.96
5Irrigation Cost 9750
6Spraying Cost 1200
7Labour Cost 20748
TotalRecurringCost 69584.36
Table 10: Annual breakup of recurring cost
Table 9: Installation cost of drip irrigation system with
mulch for area of 1000 m
2

21. S. N. Particulars
Amount(Rs.)
/Quantity(kg)
1
Plant population @ 6 plant/m
2
(6000 plants
x 3 seasons)
18000 plants
2.a.Production during Nov to Feb @ 70t/ha 7000 Kg
Less: Loss of produce (2%) 140 Kg
Produce available for sale (kg) 6860 kg
Income from Sale of Produce @Rs 10/kg Rs. 68600
2.b.Production during March to June @ 40t/ha4000 Kg
Less: Loss of produce (2%) 80 Kg
Produce available for sale (kg) 3920 kg
Income from Sale of Produce @Rs 20/kg Rs. 78400
2.c.Production during July to Oct @ 30t/ha 3000 Kg
Less: Loss of produce (2%) 60 Kg
Produce available for sale (kg) 2940 kg
Income from Sale of Produce @Rs 30/kg Rs. 88200
3Total income from sale of produce Rs. 235200.00
Table 11: Production of tomato during different seasons and
income generated

22. S. N. Particulars
Year
First Second Third
1Capital Cost 15571.415571.415571.4
2Recurring cost Including land
preparation cost
54012.9654012.9654012.96
3Total Cost (1+2) 69584.3669584.3669584.36
4Total income from sale of
produce
235200 235200 235200
5Net Benefit (4-3) 165615.64165615.64165615.64
6Discount factor @ 15% 0.869 0.756 0.657
7Discounted Cost(3x6) 60468.8152605.7845716.92
8Total Discounted Cost 158791.51
9Discounted Benefit (4x6)204388.8177811.2154526.4
10Total Discounted Benefit 536726.4
NPV @15% 377934.89
BC Ratio 3.38
Payback Period 5 months (less than 1 year)
Table 12: Net present value, benefit cost ratio and payback period
for drip irrigation cultivation with mulch

23. S. N. Particulars
Amount (Rs.)
Difference
%
Difference
over
conventional
Drip with
mulch
Conventional
1Depreciation on fixed cost15571.4(22.4)0 (0.0) 15571.4 -
2Land preparation cost 560 (0.8) 560 (1.2) 0 0.0
3Planting material cost14900 (21.4)14900 (31.0) 0 0.0
4Fertilizer cost 6854.96 (9.9)2773.54 (5.8)4081.42 147.2
5Irrigation cost 9750 (14.0)2750 (5.7) 7000 254.5
6Spraying cost 1200 (1.7)1200 (2.5) 0 0.0
7Labour cost 20748 (29.8)25935 (53.9)-5187 -20.0
Total Recurring Cost 69584.36 48118.54 21465.82 44.6
Return structure
1Total annual yield (kg)13720 5390 8330 154.5
2Gross return (Rs) 235200 95060 140140 147.4
3Net return (Rs) 165615.64 46941.46 118674.2 252.8
4NPV @15% 377934.89 107120.42270814.5 252.7
5BC Ratio 3.38 1.98 1.4 70.7
6Pay Back period (months)5 12 -7 -58.3
Table 13: Comparative economics of tomato cultivation under
conventional & drip with mulch
Comparison between Conventional and Drip Irrigation
with mulch
Note-Figuresinparenthesesindicatetheirpercentagestototalcost

24. Tomatocultivationunderdripirrigationwithplasticmulchingis
farmorebeneficialthanunderconventionalcultivation.
TheNetpresentvalue,BenefitcostratioandPaybackperiodfor
tomatocultivationunderconventionalcultivationisRs.
107120.42,1.98and12monthsrespectivelyhoweverfordrip
irrigationwithmulching,itisRs.377934.89,3.38and5months
respectively.
Thegrossreturn,netreturnandnetpresentvalueishigherby
147.4%,252.8%and252.7%respectivelyfordripirrigation
withmulchingascomparedtoconventionalcultivation.
Conclusions

25. Polyhouse (Greenhouse)
S. N. Items Rate (Rs./ m
2
)Amount
(Rs.)
Life
(Years)
Annual
cost (Rs)
1
Polyhouse
structure
800 800000 20 40000
2
Cladding
Material
135 135000 3 45000
3Mulching Cost 6 6000 - 6000
Total 91000
Table14:Estimatedcapitalcostandmeansoffinance

26. Table15:Yearwisebreakupofrecurringcost
S. N. Item/Year Amount (Rs.)
1Soil Sterilization 10000
2Land Preparation Cost 1000
3Planting Material Cost 9300
4Fertigation Cost 6351
5Irrigation Cost 7000
6Spraying Cost 800
7Labour Cost 19513
Total Recurring Cost 53964

27. S. N. Particular Amount(Rs.)/Quantity(kg)
1Plant population @6 plant/m
2
6000 plants
2Total production in kg @ 180 t/ha 18000 kg
3Less: Loss of Produce (2%) 360 kg
4Produce available for sale (kg) 17640 kg
5Income From Sale of produce @ Rs. 30/kgRs. 529200
Table 16:Production of tomato and income generated

28. Table 17: Year wise income & expenditure, net present worth, benefit
cost ratio and payback period for six year
S.
N.
Particulars
Year
FirstSecondThirdForthFifthSixth
1Capital Cost 910009100091000910009100091000
2Recurring cost 539645396453964539645396453964
3Total Cost(1+2) 144964144964144964144964144964144964
4Total income 352800352800352800352800352800352800
5Net Benefit (4-3) 207836207836207836207836207836207836
6Discount factor @ 15%0.8690.7560.6570.5710.4970.432
7Discounted Cost (3X6)12597410959395241827747204762624
8Total Discounted Cost 548253
9Discounted Benefit (4X6)306583266717231790201449175342152410
10Total Discounted Benefit 1334290
11NPV @15% 786036
12BC Ratio 2.4
13Payback Period 7 months (less than 1 year)

29. Table 18: Comparative economics of tomato cultivation under
conventional & polyhouse cultivation
Sr.
No.
Particulars
Amount (Rs.)
Difference
% Difference
over
conventional
Polyhouse Conventional
1Depreciation on fixed cost91000 (62.8) 0 (0.0) 91000 -
2Land preparation cost 11000 (7.6) 560 (1.2) 10440 1864.3
3Planting material cost 9300 (6.4)14900 (31.0)-5600 -37.6
4Fertilizer cost 6350.89 (4.4)2773.54 (5.8)3577.4 129.0
5Irrigation cost 7000 (4.8) 2750 (5.7) 4250 154.5
6Spraying cost 800 (0.6) 1200 (2.5) -400 -33.3
7Labour cost 19513 (13.5)25935 (53.9)-6422 -24.8
Total Recurring Cost 144964 48118.54 96845 201.3
Return structure
1Total annual yield (kg) 17640 5390 12610 234.0
2Gross return (Rs) 352800 95060 257740 271.1
3Net return (Rs) 207836 46941.46 160894.5 342.8
4NPV @15% 786036 107120.42678915.6 633.8
5BC Ratio 2.40 1.98 0.17 8.6
6Pay Back period (months) 7 12 8 66.7
Note-Figuresinparenthesesindicatetheirpercentagestototalcost
Comparison between Conventional and Polyhouse

30. Tomatocultivationunderpolyhouseisfarmorebeneficialthan
conventionalcultivation.
TheNetpresentvalue,BenefitcostratioandPaybackperiodfor
tomatocultivationunderpolyhouseisRs.786036,2.4and7
months,respectivelyhowever,forconventionalcultivation,itisRs.
107120.42,1.98and12monthsrespectively.
Thegrossreturn,netreturnandnetpresentvalueishigherby
271.1%,342.8%and633.8%respectivelyincaseofpolyhouse
cultivationascomparedtoconventionalcultivation.
Conclusions

31. Sr.
No.
Particulars Conventional Drip
irrigation
Drip with mulchPolyhouse
Annual recurring cost
1Depreciation on fixed cost0 (0.0) 3571 (5.7)15571 (22.4)91000 (62.8)
2Soil Sterilization 0 (0.0) 0 (0.0) 0 (0.0) 10000 (6.9)
3Land preparation cost 560 (1.2) 560 (0.9) 560 (0.8) 1000 (0.7)
4Planting material cost14900 (31.0)14900 (23.7)14900 (21.4)9300 (6.4)
5Fertilizer cost 2774 (5.8)6855 (10.9)6855 (9.9) 6351 (4.4)
6Irrigation cost 2750 (5.7)14000 (22.3)9750 (14.0) 7000 (4.8)
7Spraying cost 1200 (2.5)1200 (1.9) 1200 (1.7) 800 (0.6)
8Labour cost 25935 (53.9)21736 (34.6)20748 (29.8)19513 (13.5)
Total Recurring Cost 48119 62822 69584 144964
Return structure
1Total annual yield(kg) 5390 8820 13720 17640
2Gross return (Rs) 95060 156800 235200 352800
3Net return (Rs) 46941 93978 165615.64 207836
4NPV @15% 107120 214457 377934.89 786036
5BC Ratio 1.98 2.50 3.38 2.40
6PB period (months) 12 8 5 7
Table19:Comparativeeconomicsoftomatocultivation
Note-Figures in parentheses indicate their percentages to total cost.
Comparison between conventional, drip irrigation, drip
irrigation with plastic mulch and polyhouse

32. Thereturnsfromtomatocultivationunderconventional,
dripirrigation,dripirrigationwithplasticmulchand
polyhouseisgiveninTable19showedthat,theBC
ratioandpaybackperiodforallfourconditionsis1.98,
2.50,3.38,2.40and12,8,5&7monthsrespectively.
ThehighestB:Cratioisfoundfordripirrigationwith
plasticmulchbecauseinthiscasefixedandoperating
costislessincomparisontopolyhouse.
Incaseofdripirrigationwithplasticmulchthreecrops
canbetakenbutunderpolyhouseonlyonecropcanbe
takenfromJunetoFebruary.

33. Majorprotectionneededforcultivation(Oneparameteror
morethanone)
Temperature
Soil (minimum and maximum)
Air (minimum and maximum)
Relativehumidity
Light
Intensity
Spectrum
Windspeed
Insectandpestmanagement
Rainfall
Hailstorm
Snow
Irrigation
Weedmanagement
Polyhouse or protected cultivation

34. January
February
March
April
May
June
July
August
September
October
November
December
Activities month (cultivation or nursery raising or drying)

35. CategoryI
NVpolyhouse
Multi-purposegreenhouse
Detachableroofgreenhouse
Temporaryshadenethouse
Rainshelter
Rainshelter&shadenetstructure
Protectedstructurewithperipheralinsectproofnet
Plasticmulching
Drip/sprinklerirrigation
CategoryII
Plasticlowtunnelwithcladdingmaterials(Plasticfilm,shadenet
materials,Insectnetproof,cropcover)
Protection system

36. Cultivation
Conventionalcrops(Tomato,capsicum,cucumber,etc.)
Corianderleaf,spinach,cabbage,cauliflower,etc.
Nurseryraising
Vegetables
Fruits
Flower
Drying
Enterprise to be taken

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