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- J. Bangladesh Agril. Univ. 1(1): 171-179,2003 ISSN Comparative profitability of deep and shallow tubewell irrigation technology: A sensitivity analysis M.A. Al-Mamun, M. Akteruzzaman and Hasneen Jahan Department of Agricultural Economics, Bangladesh Agricultural University, Mymensingh Abstract This study examines the comparative profitability of both deep and shallow tubewell irrigation technology. Regarding this, 3 DTWs and 11 STWs were randomly selected for farm survey. Kharera union of Kasba upazila of Brahmanbaria district was selected purposively. Data were collected during the period of February 2000 to July 2000. Tabular method of analysis as well as financial analysis and sensitivity analysis were applied. Evidence shows that investment in STWs was found to be profitable especially electrically operated STWs were more profitable than diesel operated STWs. While the DTW operation appeared as a loosing concern from the owners' point of view. Results of the sensitivity analysis suggested that the investments in diesel operated STWs were in break-even level with 20 per cent increase in operation and maintenance cost while electrically operated STWs were in break-even level with 15 per cent decrease in gross benefits, other things remaining the same. The result of sensitivity analysis also suggested that with 15 per cent decrease in gross benefit investments in diesel operated STWs were incurring loss. Thus, the investments in tubewell operation was largely affected either by increase in operation and maintenance cost or by decrease in water price. Finally, based on the above findings of the study, some recommendations were suggested for policy implication. Keywords: Privatization, Profitability, Water market, Internal rate of return Introduction Provision of controlled irrigation is very important as it creates conditions for the rapid expansion and use of other inputs, Development of irrigation facilities is of course a necessary precondition in any agricultural modernization effort. Guaranteed supply of irrigation water greatly reduces the risks and uncertainties of crop production particularly rice. Irrigation offers an opportunity to produce crops throughout the year, which helps to achieve food security. The spread of high yielding varieties (HYVs) of rice in Bangladesh is contingent on the provision of irrigation. The use of HYVs and fertilizer has largely followed the spread of irrigation. Irrigation therefore has been termed the leading input(Palmer Jones, 1988). Groundwater irrigation abruptly increased after the mid 1980's due to series of changes in irrigation policies in Bangladesh. As a result the price of the DTW increased while the cheaper STW entered in groundwater market. Thus, STWs increased dramatically and covered new areas under irrigation. The deregulation policy encouraged the farmers to install the cheaper STW with the potential command area of DTWS. The groundwater market therefore, faced a competitive situation. The actual DTW command area declined due to STWS and the rate of return decreased in DTWS. The DTW owners felt 172 Comparative profitability of deep and shallow tubewell reluctant to own and operate DTWS (Jaim, 1995). A number of DTWS thus were already shut down and most of the remaining DTWS have been facing a serous management crisis. The donor agencies have now been rethinking whether the rehabilitation of the DTWS will be profitable at all. But there is no alternative to increase the irrigation area to maintain existing growth of agricultural production. A number of studies have been conducted on groundwater irrigation system. Jaim and Rahman (1978) in their study found that the relative profitability HYV Boro under different systems of tubewell irrigation showed that DTW was more profitable than STW and STW was more profitable than HTW from both private and social point of view. But Nur Islam (1992) in his study found that STW projects were more profitable than DTW projects from the view point of the individual owner/manager. The net return per unit of land was significantly higher in irrigated than in non irrigated area but the cost of production was also higher in irrigated areas (Alam 1983). Miah and Hardaker (1988) found that DTW and STW were profitable from the viewpoint of the participating farmers and managers but unprofitable from the viewpoint of society. The operation and maintenance costs of diesel operated DTWs were higher than those of electricity operated DTWS. The findings of Mujibullah (1987) and Akteruzzaman (1990) were to show the similar trend which supports the above hypothesis. Mandal and Parker (1995) determined that the average net returns of STWs were higher in advanced districts than those in less advanced districts. Mannan (1996) and Saidur Rahman (1997) showed that investment in electricity operated STWs was more profitable than that of diesel operated STWs. Udclin (1992) showed that the diesel operated STWs and DTWs under cash payment systems were profitable which turn into electrically operated DTWs. After electrically operated DTWs under cash payment systems were making losses since the managers were required to pay a huge amount of bribes to the officials of Bangladesh Power Development Board for electricity connection. The command areas of hitherto monopolized DTWs have been encroached by the STW which caused a decrease in water price (Akteruzzaman, 1997). For this reason, the groundwater market has been transformed from a monopolistic situation to an oligopolistic structure after the introduction of STW. The previous studies mainly focused on the profitability of irrigation schemes and efficiency of tubewells in terms of command area but it was also found that the returns from tubewell operation vary from year to year and region to region. So the present study was a modest attempt to find out the comparative profitability of both DTW and STW irrigation technology. Materials and Methods ••• The farm business survey methods were used in the present study because it was thought to be more advantageous than other method. Primary data were used for the study. Data were collected through farm survey from a sample of 78 farmers at the Kharena union of Kasba upazila of Brahmanbaria district. Firstly, a list of DTW and STW owners was collected from the Agricultural Office of Kasba Upazila. Out of all DTWs and STWs under Kharena union of Kasba Upazila 3 DTWs and 11 STWs owners were randomly selected for the fulfillment of the objectives. To examine the profitability of tubewell irrigation both tabular and project appraisal methods were used. The tabular method of analysis includes classification of data in the form of table. Three alternative discounting measures are commonly applied for agricultural project analysis. These measures are Benefit cost Ratio (BCR), Net present value(NPV) and Internal Rate of Return (IRR). These may be illustrated as. Al-Mamun et al. 173 Bt t-=-1 (i+ )t BCR = Ct t=i 0.+Ot Bt — Ct NPV = E t=1 (i+Ot Bt Ct 0 IRR = E t=1 (1+ Ot where, B,= Present worth of benefit = Present worth of cost n = Number of years t = Discount rate For calculating IRR interpolation method was usually used which was approximated by: Present worth of cash flow at Lower the lower discount rate Difference between the two IRR= discount + Absolute difference between • discount rate rate the present worth of the cash flow at the two discount rates. The choice of an appropriate discount rate plays a vital role in the appraisal of projects. The available literatures (Giltinger 1994; Jaim, 1993; Rahman 1998; and Miah and Hardaker, 1988) suggested that in most developing countries the opportunity cost of capital varies between 8 to 15 percent. According to BBS (1998) the lending rates of nationalized commercial banks and specialized banks in agricultural sector lie between 12 to 14 per cent. In view of these circumstances only 14 percent discount rate had been chosen for the appraisal of economic use of DTWs and STWs. Results and Discussion Financial Analysis of DTW and STW Irrigation Technology The benefit of tubewell owners derived from selling water to the farmers. The water charges were fixed before the irrigation season. The benefits of the tubewell owners however, include water charge and salvage value of the tube well at the end of life cycle of the tubewell. The salvage value for the DTW was 10% of the original value and for STW it was 5% when the average life cycle for DTW and STW were considered as 20 years and 10 years respectively. Further, investment cost is the fixed cost of tubewell operation. Investment cost includes the cost of engine/motor, pump, filter, pipe, hand tubewell, installation cost, cost of electricity connection etc. Operation and maintenance cost of STWs and DTWs varied from owner to owner but the average figure represented the actual -cost of the DTWs and STWs in the irrigation season. The different components of operation and maintenance cost for DTWs and STWs are diesel and mobil cost, cost of spare parts, cost of mechanics, cost of electricity, salary of driver and linemen, cost of channel making and repairing and interest on operating capital. 174 Comparative profitability of deep and shallow tubewell Table 1. Benefits derived from DTWs and STWs (Diesel and Electrical) Average command Per hectare water Total water Salvage Item area (hectare) charge (Tk.) charge value (Tk.) (Tk.) DTW 15.168 7081 107400 21000 STW (Diesel) 4.968 8233 40900 2200 STW (Electrical) 5.223 8233 43000 2275 STW (All) 5.095 8233 41950 2237.5 Source: Field survey, 2000 To get a complete picture of financial profitability of DTW and STW operation it is better to accomplish through use of the project appraisal technique (Gittinger, 1994). The analyses were performed considering only Boro season. In Boro season HYV Boro is produced completely depending on irrigation. It is evident frond Table 2 that investments on both diesel and electrically operated STW were profitable. It is also evident from the table that BCR of the DTW and both types of STW were also profitable at the selected 14 per cent discount rate.

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