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ESTIMATION OF COST BANEFIT RATIO OF BT COTTON GROWERS IN DISTRICT KHANEWAL-PAKISTAN.

Byline: Nasir Nadeem, Abdul Ghafoor Awan and Muhammad Abubakar Nawaz

ABSTRACT

This study has been designed to investigate the impact of BT cotton cultivation on the profitability of small, medium and larger farmers in terms of gross margin, net revenue and economic profit in district Khanewal, Punjab, Pakistan. For this purpose cost of various stages in the production technology, yield and prices of inputs and outputs has been collected to estimate the financial and economic returns of the farmers. Moreover, the benefit cost ratio has also been calculated for both economic and financial returns. Economic profit and gross margin depict the farmer's economic conditions. This study reveals that large farmers of Khanewal district earned more net revenue and gross margin as compared with Medium and small farmers of Khanewal district because of more inputs induction for the sake of more profitability.

The analysis of Benefit Cost Ratio (BCR) illustrates that BCR with imputed cost is less than one in all the cases i.e. small, medium and large while it is more than one in the case of without i mputed cost. It shows that farmers with imputed cost are unable to get profit. Financial analysis reflects that BCR is highest for small farmers followed by large farmers in the study area. It may be due to engagement of family members in all the operations of crop cultivation which results in saving of labor expenses.

Key words: Yield, BCR, Gross margin, Net Revenue, Economic Profit.

INTRODUCTION

Though, agriculture share in gross domestic product (GDP) has declined from 53 percent in 1947 to 21.4 percent in 2013- 14, yet it is considered a backbone of Pakistan's economy. Being the second largest sector of the economy about 44 percent labor force is engaged in this sector. Major crops include cotton, wheat, rice and sugarcane. It is not only the source of cheap raw material to local industry, but also a major source of foreign exchange earning of the national exchequer. Among the four main crops, cotton has a significant importance in terms of its share in national GDP [1].

Pakistan is the one of the main cotton producing countries. It is the 4th largest producer of cotton in the world with total production of 2.08 million tonnes in 2014. In terms of consumption, Pakistan is the 3rd largest consumer having total consumption of 2.49 million tonnes in 2014 [1]. China is the largest cotton producer which is producing 25% cotton of the world. USA is the second largest which is producing 19% cotton of the world, while India is on the third with 14%. USA is the main cotton exporter of the world as it exports 41% of the world's cotton exports and China is the main cotton importer as it imports 19% of the world's cotton imports [2].

Cotton crop has been under attack of various insects and pests. These not only cause the reduction in yield, but also a source of increase in the cost of production which results in decrease in profitability of the farmers. The intensification of pest attack was increasing since several years and due to this number of pesticide application was increasing. Farmers have to invest more to save their produce for the heavy load of pests. Besides decrease in profitability of the farmers, environmental concerns were increasing.

To overcome problems of cotton (attack of bollworms), BT cotton was adopted in recent years. Now a days, it is widely cultivated by different developed and developing countries of the world on 7.2 million hectors and these countries confirm remarkable results in the reduction of pesticides, insects, bollworms, fertilizers and increased in per acre yield [3].

BT cotton is one of the miracles which create an in-built mechanism of resistance against pests species especially bollworms which are the main damaging factors of cotton. Currently it is cultivated throughout the world for commercial purpose specially; Pakistan, India, China, United States, Mexico, Australia, South Africa, Argentina and Columbia. Many other countries want to adopt genetically modified cotton, but they are still observing the results of these varieties in the adopter's countries [4].

In the past, BT cotton was banned in Pakistan for commercial purpose because of its Due to certain disadvantages such as mealy bug, food security and cotton leaf curl virus (CLCV). Now Punjab Seed Council (PSC) and Federal Seed Certification and Registration Department (FSCRD) approved BT varieties for commercial purpose in Pakistan. On 23rd May 2013, Punjab Seed Council approved 15 new BT-cotton varieties which show that the government of Pakistan is now taking interest in genetically modified cotton. [5]. Genetically modified (GM) cotton varieties have changed the situation of agriculture sector regarding yield, income, lifestyle, etc. BT cotton cultivation has rapidly increased from 60% to 75% in Punjab while almost 80% in Sindh [6].

As for as the economic implications is concerned, this crop has the potential to reduce pesticide poisoning, labor cost and pest damages which can further enhance the socio-economic conditions of farmers [7].

Table 1. (a andb) Per Acre Cost Of Production Of BT Cotton In Khanewal District (Small Farmers) With And Without Imputed Cost.

a.###Per acre cost of production of BT Cotton in

###Khanewal district

###(Small farmers) with Imputed Cost(in Rs)

Ploughing cost

###4376

Leveling cost###1010

Seed Bed preparation cost###1244

Seed Cost###1483

Sowing cost###651

FYM Cost and app. Charges###412

Fertilizer and app. Charges###8059

Irrigation and app. Charges###11611

Hoeing andThining###3276

Pesticides and app. Charges###8551

T.Picking Cost###12008

Harvesting of Sticks###1055

Labor cost###1626

Land Revenue (Aabiana+Maliana)

###99

Land Rent###16557

###Per acre cost of production

###72018

.###Per acre cost of production of BT Cotton

###in Khanewal district

###(Small farmers) without Imputed Cost(in Rs)

Ploughing cost###3271

Leveling cost###813

Seed Bed preparation cost###1028

Seed Cost###1483

Sowing cost###651

FYM Cost###0

Fertilizer cost###7500

Irrigation cost###10005

Hoeing andThinning###0

Pesticides cost###7550

T.Picking Cost###12008

Harvesting of Sticks###0

Labor cost###0

Land Revenue (Aabiana+Maliana)

###99

Land Rent###0

###Per acre cost of production

###44408

Table 1. (a andb) Per Acre Cost Of Production Of BT Cotton In Khanewal District (Small Farmers) With And Without Imputed Cost.

c.###Per acre cost of production of BT Cotton in

###Khanewal district

###(Small farmers) with Imputed Cost(in Rs)

Ploughing cost

###4376

Leveling cost###1010

Seed Bed preparation cost###1244

Seed Cost###1483

Sowing cost###651

FYM Cost and app. Charges###412

Fertilizer and app. Charges###8059

Irrigation and app. Charges###11611

Hoeing andThining###3276

Pesticides and app. Charges###8551

T.Picking Cost###12008

Harvesting of Sticks###1055

Labor cost###1626

Land Revenue (Aabiana+Maliana)

###99

Land Rent###16557

###Per acre cost of production

###72018

d.###Per acre cost of production of BT Cotton

###in Khanewal district

###(Small farmers) without Imputed Cost(in Rs)

Ploughing cost###3271

Leveling cost###813

Seed Bed preparation cost###1028

Seed Cost###1483

Sowing cost###651

FYM Cost###0

Fertilizer cost###7500

Irrigation cost###10005

Hoeing andThinning###0

Pesticides cost###7550

T.Picking Cost###12008

Harvesting of Sticks###0

Labor cost###0

Land Revenue (Aabiana+Maliana)###99

Land Rent###0

###Per acre cost of production

###44408

Table 2. (a andb) Per Acre Cost Of Production Of BT Cotton In Khanewal District (Medium Farmers) With And Without Imputed Cost.

###a.###Per acre cost of production of BT

###Cotton in Khanewal district

###(Medium farmers) with Imputed Cost(in Rs)

###Ploughing cost###4047

###Leveling cost###1070

###Seed Bed preparation cost###1410

###Seed Cost###1771

###Sowing cost###644

###FYM Cost and app. Charges###599

###Fertilizer and app. Charges###8976

###Irrigation and app. Charges###11016

###Hoeing andThinning cost###2415

###Pesticides cost and app.charges###9507

###T.Picking Cost###14494

###Harvesting of Sticks###1000

###Labor cost###1543

###Land Revenue (Aabiana+Maliana)###98

###Management Charges###2617

###Land Rent###14950

###Per acre cost of production

###76157

###b.###Per acre cost of production of BT

###Cotton in Khanewal district

###(Medium farmers) without Imputed Cost(in Rs)

###Ploughing cost###2374

###Leveling cost###658

###Seed Bed preparation cost

###737

###Seed Cost###1771

###Sowing cost###644

###FYM Cost###400

###Fertilizer

###7976

###Irrigation###8361

###Hoeing andThinning cost###2415

###Pesticides cost###9507

###T.Picking Cost

###14494

###Harvesting of Sticks###0

###Labor cost###1000

###Land Revenue (Aabiana+Maliana)###98

###Management Charges###0

###Land Rent###0

###Per acre cost of production

###50435

Number of empirical studies such as [6-16] have also established significant impacts of BT cotton cultivation on profitability of growers.

Objectives of Study:

Followings are the main objectives of this study

1. To calculate the cost of production of BT growers.

2. To estimate the net revenue, gross margin and BCR of BT cotton growers.

3. To recommend policy guidelines.

MATERIAL AND METHODS

Data:

Stratified sampling methodology has been used to collect the data from Khanewal district. Data has been collected through a well-designed questionnaire. From the district two tehsils; Mian Channu and Kabirwala tehsil are selected and from each tehsil 5 village are taken randomly. From each village a sample of 8 farmers comprising of small (farmers having land less than 12 acres), medium (= 12 but less than 25 acres) and large farmers (farmers having land =25 acres) are selected randomly. Three small, three Medium and two Large farmers from each village of Mian channu and Kabirwala tehsils were taken. Thus a total of 80 farmers are interviewed for this study. Statistical Tool: After entering the data on all necessary inputs and outputs, cost of production, total revenue, gross margin, economic profit, business profit and benefit cost ratio (BCR) are calculated. Their formulas are as under; Total revenue (TR) = output produced per acre price of output.

Gross margin (GM) =TR- Total Variable cost (TVC) Economic profit = TR [explicit cost + implicit cost] Business profit = TR [explicit cost] Benefit cost ratio (BCR) = Economic profit/TC (When imputed cost is taken) Benefit cost ratio (BCR) = Business profit/TVC (When imputed cost is not taken)

RESULTS AND DISCUSSION

Table 1 (a) and (b) show the per acre cost of production with imputed and without imputed cost respectively for small farmers in district Khanewal. Per acre cost of production with opportunity cost is estimated Rs. 72018 while it is Rs. 44408 without imputed cost for small farmers in district Khanewal.

In case of medium farmers per acre average cost of production with imputed and without imputed cost is calculated as Rs.76157 and Rs. 50435 respectively. While large farmer's cost of production with and without imputed cost has been estimated Rs. 93641 and Rs. 62461 respectively.

Analysis reveals that average cost of production is highest on larger farmers followed by medium farmers. It is obvious as larger farmers usually do not face the problems of unavailability of fertilizer, pesticides, quality seed, water and credit availability for the use of the inputs on their lands. It has been observed that small farmers have to face the problem of financial constraints for the purchase of necessary

Table 3. (a andb) Per Acre Cost Of Production Of BT Cotton In Khanewal District (Large Farmers) With And Without Imputed Cost.

###a Per acre cost of production of BT Cotton in

###Khanewal district

###(Large farmers) with Imputed Cost(in Rs)

###Ploughing###4196

###Leveling###1311

###Seed Bed###1229

###Seed Cost

###1313

###Sowing###702

###FYM Cost###665

###Fertilizer

###10582

###Irrigation###13926

###Hoeing andThinning###2512

###Pesticides###12083

###T.Picking Cost###16295

###Harvesting of Sticks###1000

###Labor cost###4327

###Land Revenue

###100

###(Aabiana+Maliana)

###Management Charges###2622

###Land Rent###20778

###Per acre cost of

###93641

###production

###b Per acre cost of production of BT Cotton in

###Khanewal district

###(Large farmers) without Imputed Cost(in Rs)

###Ploughing###2453

###Leveling

###1151

###Seed Bed###867

###Seed Cost

###1314

###Sowing

###702

###FYM Cost###665

###Fertilizer###10582

###Irrigation###9410

###Hoeing andThinning###2512

###Pesticides###12083

###T.Picking Cost

###16295

###Harvesting of Sticks

###Labor cost

###4327

###Land Revenue

###(Aabiana+Maliana)###100

Table 4. (a andb): Per acre TR, Gross Margin and Economic Profit of Bt Cotton in Khanewal District (small farmers) With and Without Imputed Cost.

a. Per acre TR, Gross margin and Economic profit

of BT Cotton in Khanewal District

(Small farmers) with Imputed Cost (in Rs)

Per acre yield (in maund)###39

Average price/maund###2850

TR###111150

Av. Variable cost###53835

Gross Margin###57315

Eco Profit###39042

BCR###0.54

. Per acre TR, Gross margin and Economic profit

of BT Cotton in Khanewal District (Small

farmers) without Imputed Cost (in Rs)

Per acre yield###(in maund)###39

Average Price/maund###2850

TR###111150

Av.variable cost###44408

Gross Margin###66742

Business Profit###66742

BCR###1.50

Inputs. Small farmers have to face the problem of both affordability and accessibility as well Benefit Cost Ratio has been estimated for all categories. Benefit cost ratio (BCR) takes into account the amount of monetary gain realized by performing an economic activity versus the amount it costs to execute the economic activity. The higher the BCR the better the investment is. General rule of thumb is that if the benefit is higher than the cost, the activity is a good investment. Table 4, 5 and 6 reveal that benefit cost ratio BCR with imputed cost is less than one in all the cases i.e. small, medium and large while, it is more than one in without imputed cost. It means that farmers do not get nominal profit if imputed cost is included in total cost. BCR is highest for small farmers followed by large farmers. It may be due to engagement of all family members in all the operations of crop cultivation. So they save labor expenses for all operations.

This result is contrary to the result of [17]. It may be due to the fact

Table 5. (a andb): Per acre TR, Gross Margin and Economic Profit of Bt Cotton in Khanewal District (medium farmers) With and Without Imputed Cost.

###a. Per acre TR, Gross margin and Economic profit

###BT Cotton

###of acre

###Per###yield in Khanewal District

###(Medium farmers)###41

###(in maund)

###Average rate/maund

###with Imputed Cost (in Rs)###2850

###TR###116850

###Av. Variable cost###57047

###Gross Margin###59803

###Eco Profit###40693

###BCR###0.53

###b.Per acre TR, Gross margin and Business profit

###of BT Cotton in Khanewal District (Medium

###farmers)

###Per acre yieldImputed Cost (in Rs)

###without###41

###(in maund)

###Average rate/maund###2850

###TR###116850

###Av. Variable cost###49435

###Gross Margin###67415

###Business Profit###66415

###BCR###1.34

That they estimated the BCR for non-Bt cotton crop and for Multan district.

CONCLUSION AND RECOMMENDATIONS

The study concludes that cost of production of large farmers is quite high as compared with small and medium farmers. It is high because of more use of inputs by large farmers in Khanewal district. In the study area small farmers of Khanewal district having less revenue, while more business profit (due to less average variable cost) as compared with medium farmers. Large farmers of Khanewal district having more total revenue, gross margin, economic profit and also business profit as compared with small and medium farmers. Moreover, table 4, 5 and 6 reveals that BCR with imputed cost is' less than one in all the cases i.e. small, medium and large while it is more than one in without imputed cost. It means that farmers do not get profit if imputed cost is included in total cost. BCR is highest for small farmers followed by large farmers. It may be due to tengagement of all family members in all the operations of crop cultivation. So they save labor expenses.

Moreover, BCR with impute cost shows that it is less than one which indicates that farmers are actually not getting the returns of their all efforts which they put forward in cultivating the cotton crop. It may be due to many factors such as low average yield, high inputs cost, sub-standard inputs and low prices of their product as compare to international prices. Therefore, in order to further increase in yield of BT cotton especially for small and medium farmers the above factors must be rectified along with the availability and accessibility of modern technology. Moreover, the government should ensure the availability of

Table 6. (a andb): Per acre TR, Gross Margin and Economic Profit of Bt Cotton in Khanewal District (Large farmers) With and Without Imputed Cost.

a. Per acre TR, Gross margin and Economic profit

###of BT Cotton in Khanewal District

###(Large farmers)

###Per acre yield

###with Imputed Cost (in Rs)###50

###(in maund)

Average rate/maund###2850

TR###142500

Av. Variable cost###65914

Gross Margin###76586

Eco Profit###48859

BCR###0.52

.Per acre TR, Gross margin and Business profit of

BT Cotton in Khanewal District (Large farmers)

###without Imputed Cost (in Rs)

###Per acre yield###50

###(in maund)

Average rate/maund###2850

TR###142500

Av. Variable cost###58134

Gross Margin###84366

Business Profit###80039

BCR###1.38

True to type Bt seed varieties. For this purpose seed testing facilities should be established at-least at tehsil level.

REFERENCES:

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[3] GOP. Economic survey of Pakistan. Ministry of Finance, Government of Pakistan. (2014).

[4] Sabir, H. M., Tahir, S. H., and Khan, M. B. BT cotton and its impact on cropping pattern in Punjab. Pakistan journal of social sciences. Vol: 31(1), Pp. 127-134 (2011).

[5] James, C. Global status of commercialized biotech GM crops. ISAAA Brief No. 42, NY. (2011).

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[7] Daily Business Recorder (Karachi); September 10, 2013.

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