Sri Lanka IRRIGATION IN SMALL HOLDER COCONUT CULTIVATION IN KERALA , INDIA-A FINANCIAL ANALYSIS C

Financial analysis of irrigation investments in existing as well as new plantations of coconut was conducted. The annualized capital costs and variable costs were included in the cost of irrigation. The Levelised Annual Cost Approach was used to compute the pumping cost. The study was conducted in a mixed cropping system. The effective area under each crop was computed and the allocation of irrigation costs was done accordingly. In all the land types the investments in irrigation was found to be highly feasible financially. The financial ratios were found to be higher in midland categories indicating that compared to the other regions, the midland region had higher potential for investment in irrigation.


INTRODUCTION
The importance of irrigation in crop production is highlighted in many studies.This is also true in the case of coconut.
Beneficial effects of summer irrigation of coconut had been recorded by different authors (Marar, 1963;NelHat, 1968;Mathew, 1972;Padmanabhan, 1973;Shanmugham, 1973;Venkitesan, 1973;and Nelliat et al., 1976).In another experiment conducted for a period of 11 years at Nileswar in Kerala the irrigation had found to record a 74 per cent increase in yield over that of control (Bhaskaran and Leela, 1978).Rao (1991) found that the soil moisture during summer months is the critical factor that influenced the nut yield.
The overall objective of the project was to study the general performance of irrigation investments in small holdings of Kerala.One of the specific objectives was to evaluate the financial feasibility of irrigation investments in coconut cultivation.

MATERIALS AND METHODS
The northern part of this state is facing a long dry spell of six months and abundant monsoon rains amounting to 3000 mm.This situation necessitates adoption of irrigation during summer months for maintaining productivity.Hence, the study was conducted in northern most district of the state, viz., Kasaragod.
A multistage random sampling method was adopted for the study.A sample of 127 holdings was distributed among different land types; lowlands (altitude less than 7.S m above MSL), midlands (lying between 7.5m and 75m above MSL) and highlands (more than 75m above MSL) and also among different irrigation sources (two major sources in each zone) and un-irrigated holdings for comparison.

-lowland well S4 -midland rivulets 52 -lowland river S5 -highland tanks 53 -midland well S6 -highland rivulets
The data collected pertained to the year 1992-93.The data were collected by conducting field surveys using pre-tested schedules.

Investment in Irrigation
In this study investment in irrigation refers to the expenditure on digging wells or tanks, motor plus pumps unit, electric accessories, pump houses and other associated costs.

Cost of Irrigation
In this study the annualized capital cost and variable cost were used for calculating the cost of irrigation.The total capital investment cost, expected life of the system and the bank rates were used for the computation of annualized cost.The variable costs like repair and maintenance costs, fuel cost and languor charges were also included in working out the variable cost of irrigation.

Costs and Returns per Hectare
The garden land agriculture in Kerala shows a peculiar pattern of multiple cropping with bearing and non-bearing palms along with annuals.
Hence, projection of total returns and total costs on per farm basis will not reflect the realistic figures.Hence, costs and returns were worked out on bearing palm basis and multiplied by the density of palms on pure plantation to give comparable values.
In the case of coconut, a stand of 200 palms (KAU, 1992) was taken for computations.

Cost of Irrigation and Pumping
The Levelised Annual Cost (LAC) approach which is equivalent to the Net Present Value (NPV) approach in which each of the cash flows is The annual energy output for the pumping systems is in proportion to the amount of water pumped in m 3 year' 1 for a given system.Hence, the annual water output is considered.
The Capital Recovery Factor (CRF) converts the initial investment into a series of equal annual charges which have the same NPV.CRF is a function of the discount rate and the system life time, and could be obtained from the equation.
where, r is the annual discount rate and OL is the operating life of the system.
In this study the annual discount rate was taken as IS per cent, being the lending rate of the banks (or the rate at which the farmer is able to borrow money) and the operating life of the system as 25 years.
The annualized cost is given by, AC = IxCRF + OMR + FC.
where, AC is the annualized cost, I is the capital investment, OMR is the annual operation, maintenance and repair cost, FC is the fuel cost (either electricity charges or Diesel/Kerosene/Petrol charges depending upon number of hours of operation in an year).
The water output will depend, besides other parameters upon number of the capacity of the system (HP) and the operating hours (N), and could be written as, W = KxHPxN where, K is a proportionality constant depending on total head, friction losses etc.
In this study the value of K was computed for each irrigation structure using the details of pumping structure, performance charts from the manufacturers (if available) and also based on the discussions with agricultural engineering experts.
The following formula was used.

xE K= T
where, E is the efficiency which ranged from 0.5 to 0.7 and T the total Head.
The LAC is given by, LAC = ACAV (IxCRFxOMR + FC) K.HP.N Since this study involved perennial crop, the sample included only those farmers who were irrigating their crops at least for the past three years.

Allocation of Effective Area Under Each Crop in a Mixed Cropping System
Coconut is cultivated as pure crop as well as mixed crop in the region.
Wherever it was cultivated as mixed crop it was necessary to find out the effective area under each crop in order to allocate they irrigation costs.This was done by using the method proposed by Kaseko (1976).Suppose A and B in mixed stands.Let A and B be densities of the same crops in a pure cropping system.The coefficient Q is that part of the cultivated area effectively occupied by crop i.

Allocation of Irrigation Costs to Individual Crops
Based on the total cost and total water output (discussed above), irrigation cost per unit of water (m 1 ) was computed out.For individual crops the cost allocation was done as follows.Based on the methodology explained above the effective area for each crop in the farm was found out.Then the area was allocated for bearing as well as non-bearing palms.Since the irrigation water used for non-bearing palms was about one-third of the bearing palms (based on the information from preliminary investigations) the area was adjusted accordingly.In the case of irrigation through shallow earthen channels leading to the basins of palms, a conveyance loss of 20 per cent was deducted from the total water pumped to the lead channels.Similarly, in few cases where the farmers adopted both basin flooding and whole plot wetting, a 10 per cent reduction was considered.Thus, the total water was allocated based on the above procedure, on a weekly basis, then on per palm basis and the cost was distributed accordingly.
The total cost was found out by using the annualized cost and the water output.Based on the water received in the effective area of each individual crop the total cost was allocated.

Other Cost Components
Other cost components were worked out as follows. (i) Labour cost for opening basins, transportation and application of manure, fertilizers and transportation of harvested nuts.Since crown clearing operations and harvesting were done on contract basic, their labour charges were accounted separately.
(ii) Input costs like cost of organic manure and fertilizers and pesticides.
(iii) Irrigation costs comprising fuel costs, maintenance costs of pumping units and pump sheds and labor charges.
Coconut cultivation in this part of Kerals is comparatively free from severe diseases or pests incidence.Hence, the plant protection expenses were negligible in the respondent farms and hence excluded from the analysis.
The investment cost in coconut included expenses on land preparation, digging pits, planting, shading, fertilization, irrigation and manuring up to the seventh year.The maintenance costs comprised of expenses on labour, irrigation, fertilizers, manure and harvesting costs.
Financial analysis was done in this study with an objective to assess the financial effects of the irrigation investments in coconut crop on farmers, public and private firms, and government operating agencies and any others who may be participating in it.It was undertaken to determine the attractiveness of irrigation investments in arecanut crop.It projected the effects of this particular investment on farm income and estimated the return to the capital engaged.
Discounted cash flow measures like Net Present Worth, Benefit-Cost Ratio, Net Benefit-Investment Ratio (N/K) were used for the analysis (Gittinger, 1982).Besides these present value summation methods, the annual amortization method was also used to find out the benefit-cost ratio.The Using the amortized establishment cost (establishment cost comprising the total investment cost viz., 7 years expenditure and compound interest thereon) the absolute profit that can be expected in an year from the plantation can be worked out by deducting this cost along with maintenance cost from gross return.The benefit-cost ratio can be derived as follows.

BCR= (AEC + MC)
where, GR -Gross Returns/ha/year AEC -Amortized Establishment cost/ha MC -Maintenance Cost per hectare This method was used only in the case of irrigation investments in new plantation.
Financial analysis was attempted with a view to assess the financial effects of irrigation investments or the profitability of irrigation in arecanut.
Using the 'with and without' approach the financial analysis was done over the useful life of the crop.The useful life period was taken as 60 years.The analysis was done using average prices of the year 1992-93.
The discount rate of this financial analysis was taken as 15 per cent, the revised rate at which banks are lending loans to the entrepreneurs.
Due to certain characteristic features of coconut, the estimation of the costs and returns needed special attention which differed in many respects from that of seasonal and annual crops.The characteristic features included the special nature of investment which was spread over many years.This crop has gestation period before bearing and involves large investments.Flow of returns continues for a considerable long period.The total period of 60 years can be distinguished as investment phase of 7 years and productive phase from 8 lh year to 60 th year.The structure of costs and rate of return also differed for each period.
Incremental costs flow were used for working out the different measures of project worth like Net Present Worth, N/K ratio and IRR (Gittinger, 1982).
Incremental benefit flows were worked out by deducting the benefits without irrigation investments from the benefits with irrigation investments, year-wise.Similarly investment cost flows were worked out by deducting the cost without irrigation investments from the cost with irrigation investments, year-wise.The B/C ratio was worked out as the ratio of the present worth of the benefit flows to the present worth of the cost flows.
The net benefit flows were worked out for with irrigation situation and without irrigation and without irrigation situation.The incremental net benefit stream was worked by deducting the incremental net benefits with irrigation situation from incremental net benefits without irrigation.The NPW, N/K ratio and IRR were worked out from the present worth of the incremental net benefit flows.
Two alternative investment scenarios were considered, viz., investment made in a new plantation (at the planting stage itself) and investments in full bearing plantation.Feasible scenarios alone were included in the financial analysis.The possibilities for either expansion of cultivation or introduction in existing gardens were practically nil in the lowland region due to unavailability of suitable lands and higher density of cropping.Hence, these scenarios were also excluded.

RESULTS AND DISCUSSION
The final results are presented as Table 1.The computational procedure followed for the study is illustrated with an example (for the S3 category, new plantation, new investment) in Tables 2.a. to Table 2.f.All the included financial measures such as Benefit Cost (B/C) ratio, Net Benefits/Investment (N/K) ratio, Net Present Worth (NPW) and Internal Rate of Return (IRR) of existing plantations were comparatively low in the lowland wells region, ie., 1.59,3.61,Rs. 38,228.15 and 38.42 per cent respectively.The probable reason could be that even the rainfed plantations were found to give higher yield in the region compared to the other zones in the region, due to more congenial soil and climatic conditions and proximity to the sea.
The incremental returns were not found to be proportionately high resulting in low ratios.The phenomenon is in conformity with the finding of Bhaskaran and Leela (1978) Who had conducted an irrigation experiment for 11 years at Agricultural Research Station, Nileswar, Kerala.They observed that the average increase over eleven years from the commencement of irrigation was maximum in the.low yield group (20 to 60 nuts) followed by medium yield group (40 to 60 nuts).
determined and discounted to a present value, is used to compute the pumping cost.The LAC is defined as, Capital Investment x CRF + annual operation, maintenance and repair costs + annual fuel costs d' A and d' B be densities of the same crops when they are mixed, and TB be areas effectively occupied by these crops and T be the total area.Let a A = d' A/ d A and a B = d' B/d B It is accepted that area occupied by A and B are proportionate to a A and a B respectively.It is also accepted that,

Table 1 :
Financial measures of irrigation investments in coconut cultivation -

072.92 23.65 Existing = Irrigation investments in full bearing plantations New = Irrigation investments in new plantationsTable 2 :
Computational procedure used in the study (Example: S 3 -New plantation, New investment) Table 2.a: Cost components of coconut cultivation and irrigation investments (without irrigation)

Table 2 .
c: Computation of financial ratios (NPV, N/K ratio and B/C ratio) a. Incremental costs

Table 2 .
e: Computation of financial ratios (NPV, N/K ratio and B/C ratio) a. Incremental net benefit flowsTable 2.f: Computation of Internal Rate of Return (IRR)