AGRICULTURAL ECONOMICS REPORT 18 ISSN 0379 - OR27
THE ECONOMICS OF BANANA PRODUCTION IN CYPRUS
G. S, Panayiotou
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AGRICULTURAL RESEARCH INSTITUTE MINISTRY OF AGRICULTURE AND NATURAL RESOURCES
NICOSIA CYPRl'S
SEPTEMBER 1'):\7 THE ECONOMICS OF BANANA PRODUCTION
G. S. Panayiotou
SUMMARY
A study was conducted in 1985 that covered 33 farms in 6 villages of the Paphos coastal plain. The mean operated land was 2.9 ha/farm of which 0.6 ha was under bananas. Banana production is currently organized on a highly com mercial basis. The majority of farmers use trickle irrigation with which fertilizer is constantly fed, chemical weed con trol and nematicides. The labour requirements (675 h/ha) were covered mostly by family labour (89~). Gross re venue per ha averaged C£3823 and ranged between C£2153 and C£5031 for different yield groups. Variable and fixed costs per ha averaged C£I.578 and C£126O, respectively. Gross profit averaged C£2245 and ranged between C£916 and C£3069/ha. Net profit, which was negative in the lower-yield group, averaged C£985/ha. The average variable and to tal costs per ton of bananas were C£65 and C£l18, respectively, and were inversely related to yield. The break-even point occurred at 17.9 tons/ha, and about 70% of the growers were operating above it. The lowest-cost point. where the lowest cost per unit of product is incurred, was achieved at the level of 36.0 tons/ha but only about 12~ of the growers were operating at that level. Banana production in Cyprus is currently exceeding local demand and if export outlets are not secured in the near future, there will be a major cut back in production. This will be a very unfortu nate outcome because, despite a relatively low producer's price, bananas remain a profitable crop when yield exceeds 18 tons/ha. To secure export markets tall varieties of bananas with large-size fruits should be introduced.
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Under the effective protection of the import ban Farm Household Characteristics and following the expansion of irrigated land in the Only about 30% of the operators were full-time coastal plain of Paphos, the area under bananas farmers. The mean age of the farm owner was 42.7 started increasing rapidly, particularly in more years (range: 24 to 62 years). Operators had 9.1 favourable microclimates. As a result, the area un years of formal education. The family size of the der bananas increased from about 150 ha in 1976 to farm households studied was 4.1 persons (range: 2 420 ha in 1985 (i.e. exhibited an annual growth rate to 8) (Table 2). of 11%). Banana cultivation is now concentrated in the villages Peyia, Kissonerga and Khlorakas in the Factors of Production south (two thirds of the plantations) and Argaka, Ayia Marina and Pomos in the north (25% of the Land. The operated land of the mean farm studied plantations). Minor areas under bananas are found was 2.9 ha of which 0.8 ha (27%) was rented-in in the village of Kouklia and at Polis. Total produc land. The mean area under bananas was 0.6 ha (0.5 tion increased from 3250 tons in 1976 to 9500 tons in to 0.8 ha) per farm among the different yield 1985 and the value of production at current prices groups. increased from about C£0.5 million in 1976 to about Labour. The labour requirements for banana pro C£1.7 million in 1985 (Table 1). duction were around 675 h/ha. About 89% of the labour needed was supplied by the family. Family THE DATA labour, hired labour and total labour requirements by operation appear in Table 3. The technical and economic data were obtained Capital. The most important capital costs were those during 1985 from a sample of 33 banana farms from for irrigation water, fertilizers and chemicals. which 6 villages (Peyia, Kissonerga, Khlorakas, together represented more than 88% of the variable Kouklia, Argaka and Pomos). The mean area of costs. Types and quantities of fertilizers and chemi land grown with bananas per farm studied was 0.6 cals and the frequency of their use are shown in ha , while the total area in the sample accounted for Tables 4 and 5, respectively. The main fixed capital about 5% of the total area under bananas. The item owned by all producers was the irrigation sys analysis was carried out by yield group. The yield tem, which was valued at C£950/ha. groups used were: upto 20, 20-30 and over 30 tons/ha. RESULTS AND DISCUSSION
State of Technology Gross revenue. The gross revenue from bananas of the mean farm was C£2153 in the first yield group, Banana growing is organized on a highly commer C£4003 in the second and C£5031 per ha in the third cial basis. The field is well prepared by deep plough group. The overall 'mean gross revenue was ing and levelling and, where necessary, by correct C£3823/ha. ing the topsoil structure and texture by the addition of soil and manure. Improved irrigation systems, Variable costs. The variable costs of the mean farm mainly trickle irrigation, are used and constant averaged C£1578/ha and ranged from C£1237 to fertilizer feeding through irrigation (fertigation) is C£1962 in the different yield groups. The main items widely practiced, mainly in the southern coastal, contributing to total variable costs were: fertilizers plain. About 79% of the growers in the sample used (41%), irrigation (31%) and chemicals (14%). Vari trickle irrigation, 15% used mini-sprinkler irrigation able cost per ton of bananas was C£65 and ranged and only 6% used furrow irrigation. On the average from C£60 to C£89. 13700 m3 of water per ha was applied with a range of 8500 to 21000 m3/ha. Fixed costs. Fixed costs of the average farm were C£1260/ha with a range of C£1121 to C£1386 in the All producers used weedicides (4 applications on different yield groups. The family labour contribu average), and the great majority (91%) used tion was more than 55%. Some 34% of the fixed nematicides (1-2 applications). Application of fer costs were taken up by interest and depreciation of tilizers amounted to 815 kg of N, 146 kg of P, 277 kg the irrigation system and establishment cost for the of K. 12 kg of iron chelates and about 10 tons of ma plantation and the remaining II % by imputed rent nure per ha (Tables 4 and 5). of land and general costs. 2 Source: Department of Statistics and Research, 1976-1980, 1981 1985.
Table 3. Labour requirements for banana production by operation (h/ha).
Number Times Family labour Hired labour Total labour of obser per Operation vations formed M F M F M F
Fertilization 33 2-3 28 2 1 29 2 Manuring 24 1 41 28 2 43 28 Irrigation 33 21-70 105 6 105 6 Chemical application 31 2-6 50 2 4 54 2 Desuckering 33 1 82 62 18 14 100 76 Removal of flowers 33 1 28 2 28 2 Staking 19 1 20 4 20 4 Bunch covering 33 I 42 18 2 42 20 Harvesting 33 4-7 43 31 74 Other 33 30 10 30 10
TOTAL LABOUR 469 164 56 16 525 150
Total costs. Total costs include both variable and Relation of Yield to Economic Results fixed costs, and amounted to C£2838/ha in the mean farm. The respective values for the three yield Linear and logarithmic regression analysis was groups were C£2585, C£2857 and C£3083/ha. Total carried out for best fit relationship between yield cost per ton of bananas was C£118 and ranged bet (independent variable) and the different economic ween C£96 and C£186. parameters (dependent variables). The following equations were derived: Gross profit. Gross profit was positive in all groups and increased from C£916/ha in the first group to GR = -10.80 + 0.164Yd R2=0.880 (I) C£2532 in the second and C£3069 in the third group. VC = 73.92 + 0.033Yd R'=0.243 (2)
The average gross profit was C£2245/ha. TC = 222.34 + 0.029Yd R2=0.142 (3)
GM = -84.73 + 0.131 Yd R'=0.709 (4) Net profit. Fanners in the lower-yield group suffer red a mean loss of C£432/ha. However. since gross NP =-184.59 + 0.118Yd R2=0.682 (5) profit was positive. the sustained loss was in the In all the above equations the coefficients arc form of underpayment of own productive resourves statistically significant at the 99l7c level, but the R2 mainly labour and land. Net profit in the other two values indicate that yields are not significantly re groups was C£ll46 and C£1948. respectively. The lated to quantifiable inputs included in the variable overall mean net profit was C£985/ha (Table 6). and total costs. This is quite common in agriculture
3 Table 4. Types and quantities of fertilizers used in banana Table S. Types and quantities of chemicals used in banana production. production.
Type of Number Quantity of chemical fertilizer of users Quantity N p K Number Number of Actual Statistical ------kg/ha - - - - of users applications dose mean 21-0-0 13 159 33 33.5-0-0 26 759 254 - - L or kg/ha - - 46-0-0 24 1064 490 Weedicides 0-48-0 28 427 89 Grarnrnoxone 31 3-5 23.0 21.8 0-0-52 31 664 276 Fusilade 5 3-5 2.7 0.3 20-10-10 I 15 3 1 1 16.5-62-0 16 210 35 56 Nematicides Manure 24 9760 Nemacur 22 1-2 14.3 9.8 Vydate 2 1-2 6.0 0.2 TOTAL 815 146 277 Temik 1 1-2 15.0 0.4 Other 5 1-2 C£ 171.0 C£ 32.0 where productive conditions cannot be controlled to a great extent. The farmers usually apply the re Iron chelates Ferrostrene 19 12.0 6.5 quired inputs, but the actual yield depends in addi Sequestrene 4 19.1 3.8 tion on soil characteristics, weather conditions dur Iron sulphate 1 75.0 2.6 ing critical phases of the productive cycle, nematode infestation and other factors which are difficult to by line AR=MR=Price. The point of intersection of control (Panayiotou, 1987). the ATC and MC curves gives the level of produc The lines for variable cost (VC), total cost (TC) tion which incurs the lowest cost per unit of product. and gross revenue (GR) per ha are shown in Figure The lowest cost point is achieved at about 36.0 tons 1. The point of intersection of the lines for gross re per ha. Presently only about 12% of the growers in venue and total cost gives the break-even point for the sample are operating at this point. According to banana production. This point denotes the level of the theory of production, the banana growers will yield at which all factors employed receive full pay maximize their profits if they equate their marginal cost with their marginal revenue which, in this case, ment for their participation in the production pro cess. The break-even point for banana production coincides with the going price of bananas (Ferguson was 17.9 tons/ha and about 70% of the growers and Gould, 1975; Panayiotou, 1980). The level of production that maximizes profit is 39.8 tons/ha but were operating above this point. none of the growers in the sample is presently The implications from this analysis are that in the operating at this level, although this level appears to long-run all growers must operate at/or above the be possible and it has been achieved by some far break-even point in order to continue producing. In mers in the south coastal plain. the short-run, however, it is possible for a grower to
2 continue producing even below the break-even point GR z -lO.80+0.164Yd R z 0.880 2 provided he is covering his variable costs. In this ~ TC = 222.34+0.029Yd R = 0.142 2 case all banana producers had positive gross pofits g 4000 VC = 73.92+0.033Yd R = 0.243 (Table 6), i.e. they covered their variable costs. Jus-. ·0 u· tification for this behaviour lies in the expectation 3000 0 for better prices and/or higher yields in the future f-o · (Tomek and Robinson, 1972; Watson, 1972). 0 · 2000 ~· vc Variable cost and total cost per ton of bananas are · >· given in Figure 2. The curves are exhibiting down , 1000 ·0 ward slopes, because the higher the yield the lower ·> the cost per unit of output. The average total cost '"· curve (ATe) per ton of bananas together ,with the ·0 " 10 15 20 25 30 marginal cost curve (Me), which was derived from Yield (tons/ha) the total cost equation, are shown in Figure 3. The average revenue, which in perfect competition coin Figure 1. Relationship between Yield (Yd), Gross Revenue cides with marginal revenue and price, is depicted (GR). Variable Costs (VC) and Total Costs (TC) per ha. 4 Table 6. Costs and returns per ha of bananas by yield group.
Yield group (tons/ha)
up to 20 20-30 above 30 Average
Number of observations 12 12 9 33 Mean area (ha) 0.5 0.6 0.8 0.6
Yield (tons/ha) 13.9 24.6 32.1 24.1 Price (C£/ton) 155.0 163.0 156.7 158.6
A GROSS REVENUE C£ 2153 4003 5031 3823
Variable costs (C£) Fertilizers 502 646 788 654 Chemicals 171 179 317 226 Irrigation 407 476 576 492 Custom work 10 17 9 Hired labour 67 79 146 100 Other 27 28 33 29 Interest on operating capital 53 63 85 68
B. TOTAL VARIABLE COSTS C£ 1237 1471 1962 1578
C. GROSS PROFIT C£ 916 2532 3069 2245
Fixed costs (C£) Rent of land 131 l3l 131 131 Family labour 785 822 570 701 Interest and depreciation' 172 170 164 168 Establishment costs 226 226 226 226 General costs 34 37 30 34
D. TOTAL FIXED COSTS (C£) 1348 1386 1121 1260
E. TOTAL COSTS (B+D) (C£) 2585 2857 3083 2838
F. NET PROFIT (C£) -432 1146 1948 985
G. VARIABLE COST PER TON (C£) 89 60 61 65
H. TOTAL COST PER TON (C£) 186 116 96 118
, Interest and depreciation refers mainly to the irrigation system which costs C£ 950/ha and will be depreciated in 10 years at 9% interest.
O' 2 TC/ron = 1429. 36Yd- 776 R = 0.757 200 O•499 2", velton = 304. 39Yd- R 0.330 2 2.0.743 YATe" 358.74 - 14.7!Yd + 0.204Yd R 2 2 c YHC = 358.74 - 29.42Yd + 0.612Yd R • 0.743 5180 ~ 150 ~ v ~ 160 1-----....Jir-~=~i£----.....,f_--- v ~ · 100 } 140 e
~ ~· · i 120 ]· 50 ------vc . I 100
10 15 20 25 30 10 15 20 25 30 35 40 45 HeLd (tona/ha ) Yield (tona/he )
Figure 2. Relationship between yield (Yd). Variable Cost (Ve) Figure 3. Relationship between yield per ha and production and Total Cost (TC) per ton. costs and revenues per ton of bananas. 5 Demand Analysis and Marketing Prospects of bananas (Pb) and directly related to the price of apples (Pa) and disposable income (Y), but is not The area under banana production increased from significantly affected by the price of oranges (Po) about 150 'ha in 1976 to 420 ha in 1985 and total and mandarins (Pm)' The corresponding elasticities yield increased by three times in the same period. "ell) indicate that for every 1% increase/decrease in This was the result of the tremendous expansion of the price of bananas there will be a 1.01% de irrigated land in the Paphos district (the main area crease/increase in the quantity demanded (own for banana cultivation), the recent improvements in price elasticity), and for every 1% change in the banana management practices, and the effective price of apples and level of disposable income there protection of local production through the ban on will be a 0.35% and 1.26% change of the demand in banana imports. Preliminary results for 1986 and the same direction (cross-price and income elastic early 1987 show that the above increasing trend is ity, respectively). The cross-price elasticities with still in operation and that banana production has oranges and mandarins are negative but not statisti already exceeded the capacity of the local market. cally significant, and they can be ignored. As a result producer's prices sharply decreased in the 1986-87 season and large quantities of fruit were The retail price of bananas (Pb) is inversely re left to rot in the fields. lated to the quantity of bananas demanded (Qb) (law of supply and demand), inversely related to the Banana supplies to the local market start in quantity of apples demanded (Qa) (cross effect) but September and continue through May with the bulk also inversely related to disposable income (Y) of the production (about 60%) concentrated in the (Equation 7). The corresponding elasticities ('YJ) sug period December-March. About 75% of the produc gest that for every 1% increase/decrease in demand tion is marketed through co-operatives and only there will be a decrease/increase of 0.2% in the 25% through private wholesalers (Table 7). Most of price of bananas and for every 1% increase in in the producing villages possess their own degreening come there will be a 0.4% decrease in the price of chambers and packing houses, which are usually bananas. With regard to cross effects, equation 7 owned co-operatively, and sell the finished fruit to shows that there is no significant effect of the the wholesalers at the going price. Producers par change in apple demand on the price of bananas. ticipating in the co-operative marketing are charged The negative effect of consumer income on the price a small fee (about 4 cents/kg) to cover marketing ex of bananas is the result of the setting by Govern penses such as storage, electricity, packaging, losses, ment of the retail price of bananas at very low level etc. The fee is subtracted from the wholesale price compared to other fruits. Thus, the constant retail at the time of payment, which usually takes place af price ceiling (31.5 cents/kg) for the period 1980 ter the whole production is sold. Producers who sell 1985, over which the prices of other fruits had gone to the private wholesalers deliver their bananas up, rendered bananas the least expensive fruit. As a green and in whole bunches and are paid on delivery result, per capita consumption of bananas rose from at the agreed upon price irrespective of the price of 8.1 kg in 1980 to 17.0 kg in 1985, which is probably the finished fruit. not far from the saturation point.
Demand analysis based on disposable income, The above analysis implies that there is little room prices and consumption of bananas and other fruits, for any increase in demand and consumption of which may compete with them (apples, oranges, bananas in the local market apart from the normal mandarins), for the period 1970-1985 was carried increase due to increases in population and tourists. out using the ordinary least squares method (Tomek and Robinson, 1972; Panayiotou, 1983). Equation 6 It is evident, therefore, that the present level of shows that demand is inversely related to the price banana production cannot be sustained for long un-
Qb = 8.79-0.26P -0.19P -0.06P +0.0086Y b+0.09P a 0 m {1.59} {1.55} {0.98} {0.57} {2.74} {6}
_ aM ~p' n - aPj : -1.009 0.347 -0.371 -0.287 1.263
6 Table 7. Monthly distribution, trading channel and average producer's price for banana production in the sample.
Producer's Total production Marketing channel price
Co-op Private Months (tons) % % % C£/ton
September '25.6 5.6 91.6 8.4 200.7 October 30.7 6.8 85.3 14.7 199.3 November 36.1 7.9 89.1 10.9 198.2 December 84.1 18.5 82.6 17.4 189.9 January 58.3 12.8 58.8 41.2 161.2 February 71.5 15.7 60.9 39.1 143.5 March 58.9 13.0 74.9 25.1 121.7 April 74.9 16.5 75.3 24.7 120.2 May 14.6 3.2 31.3 68.7 130.1
TOTAL/AVERAGE 454.7 100.0 73.5 26.5 158.6
less alternative outlets are found. Efforts to estab damaged and the production seriously reduced. Th lish export markets for banana surpluses undertaken ese problems led to the collapse of the export mar by SEDIGEP (co-operative marketing company) on ket and resulted in the sharp fall of the producer's behalf of the producers were not successful due price in the local market later in the season. As the mainly to the small size of the fruit. Cyprus bananas retail price remained stable due to the oligopolistic are considered as Class B and fetch lower price. organization of the wholesalers, the demand did not respond to the oversupply and large quantities of A trade agreement concluded by SEDIGEP in bananas were left to rot in the field. 1985-86, which involved the exporting of 600 tons of bananas to Yugoslavia in exchange for beef imports, The 1985-86 experience convinced the farmers was not fully carried out because of the price differ that any quantity above 8000-8500 tons could not be ence between the local and the export markets. The profitably disposed of in the local market and. so price of the exportable quantities was 12.5 cents/kg they demanded from the Ministry of Commerce and while the price in the local market in the same Industry the opening up of new outlets for the period was twice as much. With half the price the surplus quantities through trade agreements. They producers were unwilling to supply any produce for also demanded the abandonment of the retail price the export market and thus, the exportable ceiling in the local market. In the 1986-87season the quantities had to be allocated among them on the abandonment of the price ceiling led to higher prices basis of previous production and the level of ex both at the retail and farrngate level for the early pected production. When the first consignments, produce, but in lower prices during the peak pro however, left the country, and the price of bananas duction period. The end result of this change was in the local market stabilized at a high level, the favourable to the producers because it led to the producers supplying the export outlet felt cheated consumption of larger quantities locally. However, and refused to deliver any more fruit to that outlet. as no export market was secured for the surpluses Some villages refused altogether to participate in the the prospects were even worse than 1985-86 due to export on the pretext that their plantations were increased production.
P 52.56 - 0.84Qb-0.22Qa-0.01Y R2=0.843 b (1.69) (0.62) (1.68) (7) aPi .!U n =aQj Pi: -0.215 -0.051 -0.367
7 The short-term solution adopted by the farmers Shepherd, G.S., G.A. Futrell, and l.R. Strain. 1976. Marketing was to export to Lebanon, which was the only mar Farm Products. 6th edition. Iowa State University ket available at hand, at whatever price they could Press, Ames, Iowa, USA. get, provided this price covered at least the harvest Tomek, W.G., and K.L. Robinson. 1972. Agricultural Product ing costs (Shepherd et al., 1976). Preliminary esti Prices. Cornell University Press, Ithaca and London. mates raise the quantities exported to Lebanon to almost 2000 tons and the price received by the pro Watson, D.S. 1972. Price Theory and its Uses. 3rd edition. Han ducers to C£60/ton, which barely covers variable ghton Mifflin Company, Boston, USA. costs. By deciding to sell at a low price producers covered the variable costs and lost the fixed cost while by deciding not to sell at all they would have lost the variable cost as well. If profitable export markets are not secured in the very near future a drastic cut back on production will follow. Many producers are contemplating the abandonment of banana cultivation, and probably they would have already done so, if it were not for the fact that there is no crop without marketing problems.
ACKNOWLEDGEMENTS \ The author thanks Mr. S. Papachristodoulou for valuable help and constructive comments on the form and contents of this report, Mr. J. Loizou and Mr. K. Charalambous for collecting and processing the data, Mrs Elli Photiou for assistance with the statistical analysis, and Miss Skevoulla Philippou for typing the report. He also wishes to thank the pro ducers for their cooperation.
REFERENCES
Department of Statistics and Research. 1976-1980. Agricultural Survey 1975-1979. Ministry of Finance, Nicosia, Cyprus.
1981-1986. Agricultural Statistics 1980-1985. Ministry of Finance, Nicosia, Cyprus.
Drakos, E.L. 1965. Cultivation of Bananas in Cyprus. Depart ment of Agriculture. Nicosia. Cyprus (Mineograph).
Ferguson, C.E. and l.P. Gould. 1975. Microeconomic Theory. Richard D. Irwin, Inc., Homewood, Illinois, USA.
Panayiotou, G.S. 1980. Interregional Variation in Production and Productivity of Wine Grapes in Cyprus. Agricultural Economics Report 11. Agricultural Research Institute, Nicosia, Cyprus.
1983. Demand and Price Analysis of Livestock Products in Cyprus. Agricultural Economics Report 14. Agricultural Research Institute. Nicosia. Cyprus.
1987. The Economics of Groundnut Production in Cyp rus. Agricultural Economics Report 17. Agricultural Research Institute. Nicosia. Cyprus.
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