Agricultural Economics Report No. 616 August 12, 2002 PROFITABILITY ANALYSIS OF BEAN PRODUCTION IN HONDURAS by Chhime Tshering Department of Agricultural Economics MICHIGAN STATE UNIVERSITY East Lansing, MI 48824-1039 MSU IS AN AFFIRMATIVE ACTION/EQUAL OPPORTUNITY INSTITUTION PROFITABILITY ANALYSIS OF BEAN PRODUCTION IN HONDURAS By Chhime Tshering This report also submitted to Michigan State University Department of Agricultural Economics as a Plan B Paper Submitted to Michigan State University in partial fulfillment of the requirements for the degree of MASTER OF SCIENCE Department of Agricultural Economics 2002 Copyright © 2002 by Chhime Tshering. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies. Profitability Analysis of Bean Production in Honduras By Chhime Tshering ABSTRACT In Honduras, dry beans are the second most important staple crop, next to maize, in terms of both production and consumption. During the past decade, agricultural scientists in Honduras, in collaboration with Bean/Cowpea CRSP scientists, have released numerous new varieties, developed improved bean-management practices, and actively worked with governmental agencies, NGOs, and farmer groups to ensure that these improved technologies are widely available to farmers. However, data on national bean production in Honduras fail to demonstrate that agricultural research has had an impact on bean production, yields, and area harvested. Given the situation, profitability analysis represents an alternative approach for assessing the farm-level impact of research. This study analyzes the record keeping data collected from Honduran bean farmers in the main bean-growing regions during the period 1998-2000. The study assesses cost and pattern of input and labor use, and analyzes the profitability of bean production for farmers growing traditional and improved bean varieties. Further, the study identifies ways to improve record keeping studies to reduce the cost of future data collection. The analysis showed that among the sample of farmers included in the record keeping surveys, farmers growing modern varieties had higher average yields and earned higher profits or suffered less loss than the farmers growing traditional varieties. However, the difference in yield for the traditional and modern farmers was statistically not significant (at 5% significance level) for three out of five of the data sets. The sensitivity analyses on enterprise gross margin showed that for traditional farmers, gross margins were more sensitive to yield and price changes than for modern farmers. The study found that none of the farmers in the sample completely followed the recommended practices for bean production and that the major share of the total production cost consisted of labor cost. It recommends that in the future, efforts to assess profitability should utilize a single- round (post-harvest) or a two-round (mid-season and post-harvest) survey and the sample size should be increased to at least 26 farmers for each farmer group (i.e., adopters and non- adopters of improved bean varieties). Furthermore, it is recommended that the standard labor parameters--which were computed from the pooled data sets--should be used to estimate total labor cost and labor cost by type of farming operations. The study suggests that in the future, possible farmers to be included in the survey should be pre-screened to insure that all “traditional” and all “modern” farmers are relatively homogenous with respect to inputs used and the sample should include only farmers with a bean area of 0.50 hectare or more. Finally, additional research is needed to better understand what factors are responsible for the high variability in farmers yields, why few farmers follow the recommended bean production practices, whether or not these recommended practices are appropriate for limited-resource farmers who grow beans in marginal environments, and the potential for identifying labor- saving technologies that are appropriate for small-scale bean formers in Honduras. ii ACKNOWLEDGEMENT I would like to acknowledge the support of several people and institutions that contributed to the completion of my Masters Program at the Michigan State University. First, I would like to express my heartfelt thanks and gratitude to my major professor, Dr. Richard Bernsten, for all his support, encouragement, and excellent supervision in the process of designing and writing this research paper. I am highly grateful to Dr. Bernsten for making the farm record keeping data available for my research. Many thanks are also due for my committee members, Dr. Eric Crawford, Dr. Irvin Widders and Dr. Stephen Harsh, for their kind support and valuable comments. Dr. Eric Crawford’s suggestions and comments in the profitability analysis were very helpful. I would like to thank Dr. Juan Carlos Rosas, Escuela Agricola Panamericana (El Zamorano), for allowing me to use the Honduran record keeping, which was collected by his staff, and for providing supplemental information about the record keeping sample. I would like to acknowledge and thank the USAID Bean/Cowpea CRSP Project (contract # DAN-G-FF-86-0000-8-00) for funding this study. I would like to extend my gratitude and appreciation to the Ministry of Agriculture, Royal Government of Bhutan, for giving me the opportunity and supporting my studies at the Michigan State University. Many thanks to David Mather and Pejuan Uceles Wolfgang for sharing information related to my research, helping me in translate the data sets from Spanish to English, and for making valuable comments on my drafts. Finally, I would like to thank the graduate students of the Department of Agricultural Economics and my friends at MSU for their moral and academic support, which I highly value. iii TABLE OF CONTENTS PAGE CHAPTER I. INTRODUCTION 1.1 Problem Statement 1 1.2 Objectives 3 1.3 Thesis Outline 3 CHAPTER II. AN OVERVIEW OF HONDURAS, ECONOMY, AGRICULTURE AND THE BEAN SUBSECTOR 2.1 Overview of Honduras 5 2.1.1 Land and Climate 5 2.1.2 Social Indicators 7 2.1.3 Honduras Government 7 2.1.4 The Honduran Economy 8 2.2 The Agriculture Sector 9 2.2.1 Major Crops 10 2.2.2 Government Policies Affecting Agriculture Sector 11 2.3 The Bean Subsector 13 2.3.1 Beans in the Honduran Diet 13 2.3.2 Consumer Preferences 14 2.3.4 Domestic Consumption 14 2.3.5 Bean Export and Import 17 2.3.6 Production Analysis 19 2.3.7 Production System, Farm Size and Commercial Orientation 24 2.3.8 Production Inputs, Credits and Extension 25 2.3.9 Bean Marketing System 29 CHAPTER III. LITERATURE REVIEW, DATA COLLECTION AND METHODOLOGY 3.1 Literature Review 32 3.2 Data Collection 34 3.3 Data Analysis 36 iv 3.4 Characteristics of the Study Area 39 CHAPTER IV. PROFITABILITY ANALYSIS OF BEAN PRODUCTION 4.1 Socio-economic Characteristic of the Sample Farmers 41 4.2 Department: Yoro, Honduras, Postrera 2000 42 4.2.1 Patterns and Cost of Labor Use 42 4.2.2 Patterns and Costs of Input Use 46 4.2.3 Profitability Analysis 48 4.2.4 Sensitivity Analysis 51 4.3 Department: Yoro, Honduras, Primera 2000 52 4.3.1 Patterns and Cost of Labor Use 52 4.3.2 Patterns and Costs of Input Use 56 4.3.3 Profitability Analysis 58 4.3.4 Sensitivity Analysis 61 4.4 Department: Olancho, Honduras, Postrera 1999 63 4.4.1 Patterns and Cost of Labor Use 63 4.4.2 Patterns and Costs of Input Use 67 4.4.3 Profitability Analysis 69 4.4.4 Sensitivity Analysis 72 4.5 Department: Olancho, Honduras, Primera 1999 74 4.5.1 Patterns and Cost of Labor Use 74 4.5.2 Patterns and Costs of Input Use 78 4.5.3 Profitability Analysis 80 4.5.4 Sensitivity Analysis 83 4.6 Department: El Paraiso, Honduras, Primera 1998 84 4.6.1 Patterns and Cost of Labor Use 84 4.6.2 Patterns and Costs of Input Use 88 4.6.3 Profitability Analysis 91 4.6.4 Sensitivity Analysis 93 4.7 Summary of Empirical Results 95 4.7.1 Yield and Prices 95 v 4.7.2 Cost of Production 95 4.7.3 Labor Use and Cost 96 4.7.4 Use of Inputs and Cost 97 4.7.5 Revenue and Returns 97 4.7.6 Sensitivity Analysis 98 4.7.7 Modern versus Traditional Farmers 98 CHAPTER V. IMPLICATIONS FOR FUTURE RECORD KEEPING ANALYSIS 5.1 Yield Difference, Significance and the Sample Size 100 5.2 Standard Labor Parameters by Operation 104 5.3 Farmers Actual Practices and the Recommended Practices 107 CHAPTER VI. SUMMARY, RECOMMENDATIONS FOR FUTURE RECORD KEEPING AND FUTURE RESEARCH 6.1 Summary 109 6.2 Recommendations for Future Record Keeping 110 6.3 Future Research 112 APPENDIX BIBLIOGRAPHY vi ACRONYMS AND ABBREVIATIONS BANADESA National Agriculture Development Bank (Banco Nacional de Desarrollo Agricola) CIF Cost Insurance and Freight CRSP Bean and Cowpea Collaborative Research Support Program DICTA Directorate Research, Science and Agricultural Technology (Direccion de Investigacion Ciencia y Tecnologia Agropecuaria) EGM Enterprise Gross Margin FAO Food and Agricultural Organization FOB Freight on Board GDP Gross Domestic Product GI Gross Income IADP Inter-American Development Bank IHMA Honduran Agricultural Marketing Institute (Instituto Hondureno de Mercadeo Agricola) LMDSA Law for the Modernization and Development of the Agricultural Sector (Ley de Modernizacion y Desarrollo del Sector Agropecuario) MNR Ministry of Natural Resources MV Modern Varieties NGO Non-Governmental Organization PROFRIJOL Regional Bean Research Program (Programa Cooperativo Regional de Investigacion en Frijol) RK Record Keeping RFL Return to Family Labor SAG Ministry of Agriculture (Secretaria de Agricultura) SAP Structural Adjustment Program SD Standard Deviation TEC Total Enterprise Cost TV Traditional Varieties vii LIST OF TABLES Page Table 2.1 Contributions to the Agricultural GDP by Principal Products 1989-1991 Compared to 1996-1998, Honduras.