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International Journal of Agricultural

Science and Research (IJASR)


ISSN(P): 2250-0057; ISSN(E): 2321-0087
Vol. 4, Issue 6, Dec 2014, 165-170
TJPRC Pvt. Ltd.

ECONOMIC ANALYSIS OF APPLE FRUIT PRODUCTION IN TIYO


DISTRICT OF ARSI ZONE, ETHIOPIA
YESHIMEBET AYELE TEGENIE
Adama Science and Technology University, School of Agriculture, Asella, Ethiopia

ABSTRACT
This study evaluates the financial feasibility of apple fruit production in Tiyo district of Arsi zone, Ethiopia. Data
were collected from 102 purposively selected households through structured interview. Field observation and market
assessment were also employed. The data were analyzed by employing cost benefit analysis. In the cost benefit analysis,
Net Present Value (NPV) and Internal Rate of Return (IRR) of apple fruit production were calculated. The results indicated
that the NPV of the apple fruit production was 12, 829.14/0.032ha and the IRR was 76.546%. It can be concluded that
production of apple fruit is financially feasible. Therefore, for the smallholder farmers to maximize net returns from their
land and resource inputs, the adoption of apple fruit production should be promoted in the study area.

KEYWORDS: Financial Analysis, Net Present Value, Apple Fruit, Internal Rate of Return
INTRODUCTION
Apple (Malus domestica) accounts for 50% of the worlds deciduous fruit tree production. China is the leading
apple growing country which is producing about 41% of the worlds apples; followed by the United States, India and
Turkey (USDA, 2013). In Africa the leading producer is South Africa, followed by Egypt and Kenya. Total apple
production in East Africa has not had a stable trend; it increased from 16.5 tonnes in 2002 to 21.0 tonnes in 2005. Since
then, production has reduced by 36.2% to 13.4 tonnes in 2011 (FAO Statistics). In Ethiopia the production level and
demands of temperate fruit did not match. Timoteos (2008) revealed that the current apple fruit production in the Chencha
area is about 15 metric tons per year while the overall country production is estimated to be about 50 metric tons. It is only
in the last 11 years that apple fruit production has started to increase in volume. German Technical Cooperation (GTZ)
program for Sustainable Utilization of Natural Resources for Improved Food Security (SUN) promotes apple fruits in the
highlands of Ethiopia, in particular in Oromia region. Tiyo District is one of the priority areas of the program. Smallholder
farm-households are the target groups supported with the main objective of contributing to improvement in the income of
the farmers and overall living conditions.
Regardless of the provision of apple fruit seedlings to the farmers of Tiyo district of Arsi zone, a scientific studies
that substantiate the profitability of apple fruit production was not conducted. Data from such studies is crucial to ensure
the dissemination of apple fruit tree. Hence, this study identified the financial feasibility of apple fruit tree production in
tiyo woreda of Arsi zone, Ethiopia.

METHODOLOGY
The study was conducted in Tiyo District of Arsi Zone. The Capital city of Tiyo district, Asella Town is located at
about 175 Km southeast of Addis Ababa. Geographically, Tiyo District is found approximately between 493609 534033
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166

Yeshimebet Ayele Tegenie

ME and 858597- 887842MN. The study site is located between 508845 526600ME and 683000- 882343MN in Universal
Transverse Mercator. Its altitude ranges from 1850 to 4050 m.a.s.l. According to the National Meteorological Agencys
records, the mean annual rainfall of the wereda is 1100 mm. The mean annual maximum temperature is 23.1oC and the
mean monthly maximum values range from 21.1 to 25oc. The mean annual minimum temperature is 9.1oc and the mean
monthly minimum values ranges from 7.1 to 11oc.
Soil types of Tiyo district consist of Chromic Luvisols, Eutric Nitosols, Mollic Andosols, Orthic Luvisols, Pellic
Vertisols and Vertic Cambisols (Esayas et al, 2003). Vegetation of the district includes natural forest and plantation. The
natural forest vegetation belongs to the montane forest type, which is a complex of the high altitude forest tree species of
Ethiopia such as Podocarpus falcatus, Hagenia abyssinica, Juniperus procera, Ficus sur, Acacia albida, Measa
lanceolata, Erica arborea, and other broad leaved trees and shrubs. The most common plantation species are Eucalyptus
globulus, Eucalyptus grandis and Eucalyptus camaldulensis, Pinus patula, Cupperesus lusitanica and some Acacia spp.
The total population of the district is 86,761 and the average family size of the households was 6 individuals (CSA, 2008).
The livelihood of the households are largely depends on agriculture and they are known by producing barley (Hordeum
vulgare) and wheat (Triticum spp.)

Figure 1: Map Showing the Study Site


Tiyo district was purposively selected because it leads in apple fruit production in Arsi Zone. From 14 kebeles
found in Tiyo district 5 kebeles, namely, Burkachilalao, Dosha, Denkaka Konicha, Haro Bilalao and Shala Chebeti were
purposively selected based on its experience of apple fruit tree planting and accessibility. The sample households were also
purposively selected based on farm households experience in apple fruit tree cultivation. Thus, a total of 102 farm
households were purposively selected from 764 apple fruit tree cultivating households of the five kebeles.
The data were analyzed using cost benefit analysis. In the cost benefit analysis economic performance indicators
such as the NPV and IRR were calculated (Gittinger, 1984; Chandra, 1998). The NPV determines the net returns by
discounting the streams of benefits and costs back to the beginning of the base year using appropriate discount rate over the
life time (analysis period) of the production system. It is calculated using the following formula:
NPV

( Bt Ct ) / (1 + r ) t > 0

(1)

t=0

Where, Bt are benefits flow at time t, Ct are costs of production at time t, t is year, and r is the discount rate.
Impact Factor (JCC): 4.3594

Index Copernicus Value (ICV): 3.0

167

Economic Analysis of Apple Fruit Production in Tiyo District of Arsi Zone, Ethiopia

IRR is equal to the discount rate (r) that brings the NPV down to zero.
n

IRR = ( Bt Ct ) / (r + 1) t = 0 , IRR > r

(2)

t =0

All values were calculated based on current prices of inputs and outputs and the prices were set constant
throughout the life cycle of the practices. Ten years were considered in the analysis because according to the data collected
after 10 Years the yield of the fruit is start to decline. A discount rate of 12 % (bank interest rate) was used in this study.
It is difficult to predict the future input prices, output prices, yields and discount rates due to lack of data. Hence,
sensitivity analysis was carried out to show the effect of the change in these key variables on the NPV. Five assumptions
were made in the sensitivity analysis. Because in the adoption of new practices, farmers are not only concerned about costs
and benefits, but also considered risk associated with them. In the study site, most farm households are deriving their
livelihood primarily from agriculture, with which varieties of risk and uncertainties (tenure insecurity, recurrent drought,
diseases, pests, birds) are involved. Moreover, the farm households may attach high value on present income and discount
the future income at a higher rate.

ASSUMPTIONS

If yield increases/decreases by10%, keeping other key variables constant

If cost of production increases by 10%, keeping other key variables constant

If discount rate increases by 10%, keeping other key variables constant

If yield increases by 10% and discount rate and cost decreases by 10% (best case scenario)

If yield decreases by 10% and discount rate and cost increases by 10% (worst case scenario)

RESULTS AND DISCUSSIONS


The results showed that an average of 0.032ha per sampled household was covered with apple fruit tree.
According to the field observation made on plot of the sample household, an average of 22 apple fruit trees (Anna and
Princeasa species) were planted per 0.032 ha of land. Furthermore, the apple fruit was harvested starting from year 3 and
on average 11kg was harvested from single apple fruit tree and it was harvested once per year. The result of the market
survey indicated that the average price of one kg of apple fruit was 17ETB and set constant through the life cycle of the
system. The average price of single seedling was 40 Ethiopian Birr (ETB).
Table 1: Management Cost and Financial Benefit of Apple Fruit Tree Production ETB/0.032ha
Operation
Establishment activities : Site
preparation, cost of seedling and
planting
Management activities
:weeding, hoeing watering,
harvesting and transporting
Land Tax
Total Cost and Total Revenue
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Year

Cost In ETB

Benefit ETB

1180

1-10

4,030

32, 912.00

1-10
0-10

10.56
5220.56

0
32912

Relative (Total
Revenue/Total
Cost *100 )

630%
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168

Yeshimebet Ayele Tegenie

Note: 1$= 19 ETB in March, 2013


The result showed that the total benefit obtained from apple fruit production is 6.3 times higher than cost of
production. The NPV of apple fruit production was 12829.14/0.032ha of land (400,910/ha). A study conducted in Uganda
also notified the same result (Ntakyo et al, 2013). They found out that though production of apple fruit depends on plant
density and site it is very profitable. Similarly, the IRR is approximately 76.55% is much higher than the bank interest rate
(r =12%).
Results of the sensitivity analysis showed that the NPV was highly sensitive to worst case (10 % increase discount
rate and wage increase as well as 10% yield decrease). It was found to be 56.7 % lesser than the base NPV. The NPV was
more sensitive to discount rate change and it was 47.18% lesser than the base NPV (Table 2).
Table 2: Sensitivity Analysis with Change in the Key Variables
Change of Key Variable

NPV

Yield increase (10%)


Yield decrease (10%)
Discount rate increase (10%)
Cost increase (10%)
Best case scenario
Worst case scenario

14,458.36
11, 199.93
6776. 339
12482.84
29838.1
5557.68

Relative
(12,829.14=100%)
112.7
87.3
52.82
97.3
232.6
43.3

Change
12.7% increase
12.7% decline
47.18% decline
2.7% decline
32.6% increase
56.7 % decline

Results of sensitivity analysis showed that high rate of discounting affects the practice negatively; this is because
the benefits obtained from the practice starting from the 3rd year after planting through the 10 years.

CONCLUSIONS AND RECOMMENDATIONS


Apple fruit production in Tiyo district is a profitable enterprise as depicted by positive returns and NPV.
The result of a sensitivity analysis indicated that the NPVs of apple fruit production were highly reduced with reasonable
increases in discount rate and a decrease in fruit yield. In addition, NPVs was still positive under a worst case scenario
analysis (i.e. simultaneous increase in discount rate and cost as well as reduction in crop yield), therefore, apple fruit
production is less risky. Thus, apple fruit tree production should be promoted by the smallholder farmers in the study area
and the nearby localities where the biophysical and environmental set up can support such practice. In addition, supplying
the farmers with improved (drought and disease resistant) varieties of apple fruit seedlings are also essential in order to
avoid fruit yield decrease.

ACKNOWLEDGEMENTS
I am grateful for the research grant offered by the Adama Science and Technology University, Ethiopia.

REFERENCES
1.

Central Statistics Agency (CSA). 2008. Summary and Statistical Report of the 2007 Population and Housing
Census: Population by Age and Sex. Addis Ababa, Ethiopia.

2.

Chandra, P. 1998. Projects: Planning, Analysis, Selection, Implementation and Review. Fourth Edition. Tata
Mcgraw-Hill Publishing Company, New Delhi.

Impact Factor (JCC): 4.3594

Index Copernicus Value (ICV): 3.0

Economic Analysis of Apple Fruit Production in Tiyo District of Arsi Zone, Ethiopia

3.

169

Eseyas, A, Tafesse, D, Belay, G. and Agezie, K.2003. Soils of Kulumsa Agricultural Research Center: National
Soil Research Center, Soil survey and land evaluation section, Ethiopia.

4.

Gittinger, J. P. 1984. Economic Analysis of Agricultural Projects. Baltimore and London: The John Hopkins
University Press

5.

National Metereology Agency. 2013. Adama Ethiopia

6.

P.R. Ntakyo, J. Mugisha and G. Elepu. 2013. Socio-Economic Factors Affecting Apple production In
Southwestern Uganda. African Crop Science Journal 21 (4): 311 - 321

7.

Timoteos Hayesso. 2008. Hope in Apples. Agriculture, Fruits and Vegetables. Ethiopia.

8.

United States Department of Agriculture Foreign Agricultural Service. 2013. Fresh deciduous fruit (apples, grapes
and pears): World Markets and Trade. A study report by USDA, USA.

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