Assessment of Profitability in Sugarcane Production using Cost Benefit Analysis and Net Present Value Techniques in Kenya

Abstract

Data on input levels, costs and output have been limited hence no accurate information on profitability of sugarcane farming in Kenya. This study sought to determine input levels, costs and profitability of sugarcane farming in Kenya using a model farm-Kibos and farmers practice in Nyando zone. The study was carried out at the Kenya Sugar Research Foundation (KESREF) farm Kibos from 2004-2009. Two varieties (N14 and Ken 82-216) were planted on a one-hectare plot and managed through research recommendations. Input and output data (input levels, costs, output and prices on three harvests (plant crop and two ratoons) were recorded on pre-designed datasheet. Comparative data on the Nyando zone (farmers practice) was sourced from the KESREF sugarcane database. Economic techniques were used in and the performance of economic analysis: the Cost benefit analysis (CBA) or the benefit cost ratios (B/C) and net present value (NPV) in the determination of profitability of sugarcane farming. The findings showed that the overall crop cycle realized 284 tons ons in the model farm which was better than Nyando at 210 tons, giving 35% difference. The CBA showed that the cumulative cane production cost and net benefit added up to KES 329,089 and KES 294,311 respectively, while for the model farm the Nyando Zone had an overall cost of cane production of KES 242,362 and a net return of KES 167,138. When net benefits for the two sites were compared there was a difference of KES 127,173 (76%). The B/C ratios were greater than one in both cases: 1.89 in Model farm and 1.69 in Nyando, an indication of better performance of the model farm. The NPV results for the model farm on the entire crop cycle showed that the returns were KES 173,648 after a five-year period. discounting as compared to the initial value of KES 294,311 and KES 132, 998 after discounting from KES 167,138 in Nyando. The CBA and NPV techniques are equally important in analyzing profitability and should be used in complementarities as NPV incorporates the CBA. In order for the farmers to exploit the existing potential and maximize on their profits there is need for proper knowledge of optimal utilization ef resources, suitable choice of variety and adoption of cost reduction techniques (e.g. self cane development/financing) to lower cost/interests/fees on farm inputs. There is need for farmers to diversify their enterprises by including short term crops (e.g. beans) for quick proceeds while waiting for cane income which starts coming in two years.