Profitability analysis of wheat production

Profitability analysis of wheat production: A case study in north – western areas of Bangladesh
Abstract: This study estimated the profitability of wheat production among farmers in north western areas of Bangladesh. The study utilized simple random sampling technique to select a total of thirty farmers in the areas. The data was collected through a structured questionnaire from three upazilas in the study area. Descriptive statistics, farm budgeting tools and Cobb-Douglas production function were used for the analysis. The descriptive analysis showed that the farmers are highly productive between the age range of 18-30 and 31-40 years. Moreover, results also revealed land area cultivated by the farmers to be generally below two hectares. The findings further revealed the total cost per hectare for wheat production to be Tk. 48869.92 per production cycle, while total revenue of Tk. 72369 was realized by the respondents. The benefit cost ratio was calculated to 1.44 which implies the farmers having higher profitability. Findings from the Cobb-Douglas production function shows that Land used in hectares, human labor cost, tillage cost, quantity of pesticide use was positive while quantity and variety of seeds, irrigation cost, manures and fertilizers were negative factors affecting wheat output in the study area. Therefore, wheat production will improve in the study area if there is input support like fertilizers, land, improved seed variety, credit facility and improved education from the Government and Non-Governmental Organizations.

1. Introduction:
Bangladesh is mainly an agricultural country. Due to its very fertile land and satisfactory weather, variations of crops produce abundantly in this country. Agriculture sector pays about 17 percent to the country`s Gross Domestic Product (GDP) and employs more than 45 percent of total work force (Yearbook of Agricultural Statistics, 2016). It is the basis of primary food for 145 million people and the foremost source of livelihood for 16 million farm households. The crop and horticulture sector cooperatively contributed US$11,564 million to the economy, accounting for 11.4% of the gross domestic product (GDP) in 2011-12 (BBS, 2012). The main factors of production are land and contemporary inputs (e.g., HYV seeds, fertilizers and water control). Besides, the crop sector is the employer of last option and the main source of livelihood for the illiterate and less-educated people who do not have access to another employment opportunities in the non-crop sectors.

Financial profitability is based on the calculation of costs and returns esteemed at market prices of inputs and outputs that the farmers pay or receive for their crops. Farmers allot land and other resources in the production of different crops based on comparative financial profitability (Kazal et. al.). In most cases, financial profitability varies from economic (social) profitability because of alterations in the factor and product markets such as government taxes and subsidies, trade restrictions, monopoly elements in marketing and segmentations in the capital market, which are the major features in any developing economy. Therefore, it is necessary to determine economic profitability which includes deriving border/international prices of all inputs and outputs and adjusting those prices by the economic costs of transportation and marketing. The major food crops in Bangladesh are rice, wheat, maize, lentil, mustards etc.
2. Overview of the wheat production in Bangladesh:
Wheat cereal plant of the genus Triticum, especially, T. aestivum, of the family Graminae. Wheat is one of the core cereal crops in Bangladesh as well as in the world. Wheat is the second most vital cereal crop in Bangladesh, can play a noteworthy role towards ensuring food security and employment generation. An exceptional feature of wheat in Bangladesh is 100% adoption of modern varieties. Among the cereal crops, it is next to rice in importance (Rahman and Hasan, 2009). It occupies about 4 percent of the total cropped area and 11 percent of the area cropped in the Rabi season, and contributes 7 percent to the total output of food cereals. Wheat is a wintertime crop. Wheat seeds are sown in the month of November to December. Harvesting time of the wheat is March to April. There are total 28 seed varieties used in wheat production. The common cultivated varieties are locally known as Sonalika, Kanchan, Balaka, Ananda, Akbar, Barkat, and Aghrani. Most of the wheat produce comes from Dinajpur, Rangpur, Thakurgaon, Rajshahi, Meherpur, Sirajgonj, Panchagar district. Boro rice area is projected to decrease as farmers are expected to switch to more profitable crops, especially corn, contacts believe other possible alternatives may include wheat, mustard, lentils, and onions. From 1970s wheat production started in Bangladesh. Firstly, 4000 tons of ‘Sonalika’ and ‘Kalyansona’ seeds were imported from India in 1975 and disseminated to farmers (BARI 2010). Former to 1975–76, wheat was grown infrequently and was almost an unknown crop in Bangladesh (Banglapedia 2006). Between 1970–71 and 1980–81, the cropped area under wheat hopped from 0.126 million ha to 0.591 million ha and production rose 10-fold from 0.11 million tons to 1.07 million tons, a 24.93 % annual mean growth rate (BARI 2010).

Evolution of Wheat production in Bangladesh from 1970 to 2018:

Source: indexmundi, 2018a
Fig 1: Bangladesh Wheat production by year
3. Problem Statement:
Wheat has contributed added calories and protein to the world’s diet than any other food crop. Also, the world trade in wheat beats trade in all other food grains. Demand for wheat in the developing world is anticipated to increase 60 % by 2050 (Rosegrant and Agcaoili 2010). Bangladesh has developed as a leading wheat importer, mainly due to a change in consumers’ diet preference and prosperous baked food market. The country’s wheat import tripled in five years to 5.4 million tonnes in FY 2016-17 from 1.8 million tonnes in FY 2012-13. Bangladesh spent at least Tk 8,000 crore to end the huge import bills. The imported wheat is not totally consumed nearby as part of it is used by the bakery industry that exports processed wheat-based food items.

Source: indexmundi, 2018b
Fig 2: Bangladesh Wheat Trade Year Imports by YearThe USDA report titled “Grain: World Markets and Trade” projected that Bangladesh’s wheat import would hit 6.8 million tonnes in fiscal 2017-18, making the country the fifth prime importer of the grain in the world (Anonymous, 2017). From the figure 2 we can see that, there is an increasing growth rate in wheat import which is alarming situation for us. We can only produce 1milliom tonnes wheat while our consumption rate is increasing with our changing diet. Although many scientists assume that with increasing temperature due to global warming production of wheat will be decreased at 10-15%. Considering the fact, the wheat research institution in Bangladesh already started to make biofortified wheat seeds which will be temperature stress tolerant. So, for giving more light in wheat production we must evaluate the present situation of wheat production, profitability and factors which are the most influencing. From this study the researchers can find out the factors which are responsible for less production and finally they make a solution which will motivating the farmers for more production and ultimately the country can contribute more to fulfill the domestic consumption.
Research question:
What is the profitability of wheat farming in study area?
Which factors are more influencing in wheat production?
4. Research Objectives:
To document the socio-demographic status of the farmers in the study areas;
To estimating the profitability of wheat production in the study area;
To evaluating the factors affecting the wheat output in the study area.

5. Research methodology:
5.1 Study area: Thakurgaon district was purposively selected from AEZ of NW Bangladesh. Selected three upazilas were Thakurgaon sadar, Ranishankail and Pirganj upazila.

5.2 Sample size and sampling technique: The study employed farm level data taken from 30 farmers using simple random sampling technique from three upazilas of Thakurgoan district of Bangladesh.
5.3 Data: Data were collected through direct interview with the farmers using predesigned interview schedule. Data were processed and entered into computer using MS Excel and SPSS (Statistical Package for Social Science) programming and analyzed as per objectives by tabular and graphical method.
5.4 Analytical technique: To achieve the 1st objective, descriptive statistics like sum, average, percentage, and ratio were used. To achieve the 2nd objective following equations were used.

Total Revenue(TR) = Pm*Ym + Pb*YbWhere,
Pm = Price of main product per unit;
Ym = Total quantity of main produce;
Pb = Price of by-product per unit;
Yb = Quantity of by-product
Total cost(TC) = TFC+TVC
TFC = Depreciation cost (12%)
TVC = (Price of ith input per unit used for wheat production * Quantity of the ith input used for wheat production)
Profit = TR – TC; Benefit Cost Ratio = Gross Benefit/Gross Cost
Finally, Cobb-Douglas production function was used for achieving the 3rd objective. The equation is
ln Y = ?0+?1lnX1+ ?2 lnX2+ ?3 lnX3 +?4 lnX4 + ?5 lnX5 + ?6 lnX 6 + ?7 lnX 7+ ?8 lnX8 + Ui Where, ln = Natural logarithm;
Y = Observed farm output (kg/ha);
X1 =Area under wheat cultivation (ha);
X2 = Seed (kg/ha);
X3 = Human labor (man-days/ha);
X4 = Pesticide (kg/ha);
X5 = Tillage cost (Tk/ha);
X6 = Irrigation cost (Tk/ha);
X7 = Manure (kg/ha);
X8 = Fertilizer (kg/ha);
?0 = Intercept;
Ui=Error terms
6. Results and Discussions:
Descriptive Analysis of Socio-economics CharacteristicsThe socio-economic characteristics of wheat farmers directly or indirectly affect their farming operations. The result revealed that a high percentage of the farmers (30%) are between the age group of 18-30 and 31-40 years. This indicates that young adults are actively involved in farming. They can take more risk with the expectations of a larger profit than the older farmers.
Household size is an important source of family labor. The study found that majority of the respondents had family size ranging between 5-9 persons in the family (60%). This indicates that the farmers might have advantage about unpaid family labor availability which helps to reduce their production cost involving more profit.

Education is known to facilitate farmers understanding and use of modern crop production practices. From the Table 1 we found that most of the farmers had primary education (36.7%). And rest of the farmers had same percentage of secondary and higher secondary education (23.3%). This indicates that, the introduction of new technologies in that area may be expected to be with minimal or no resistance.

Table 1. Socio-economics Characteristics of Respondents
Item Frequency Percentage Item Frequency Percentage
Age Contact with Extension Agent 18-30 9 30 No connection 14 46.7
31-40 9 30 1-2 4 23.3
41-50 8 26 3-4 7 16.7
Over 50 4 13 4-5 5 13.3
Total 30 100 Total 30 100
Household Size Farming Experience Less than 5 5 17 Less than 10 18 60
5-9 18 60 10-13 8 26.7
Above 9 7 23 Above 14 4 13.3
Total 30 100 Total 30 100
Educational Attainment Land Size No Education 5 16.7 Less than 2 26 86.7
Primary 11 36.7 2-3 3 10
Secondary 7 23.3 4 or above 1 3.3
Higher Secondary 7 23.3 Total 30 100
Total 30 100 Source: Field survey, 2018
Concerning contacts with extension agents, the result show that majority of farmers (46.7%) had no contact with extension agents throughout the year. A rational number of the farmers (23.3%) had contact with extension agents ranging from 1-2 times per year, whereas 16.7% of the farmers had contact ranging from 3-4 times per year. These findings point toward insufficient extension visits in the study area.

Moreover, the finding shows that majority of wheat farmers (60%) had farming experiences less than 10 years. We know that farming experience is a determinant of the ability of the farmer to make good farm management decisions effectively. So, in that study area exist more versatile combination of input use in production hence influence the agricultural productivity.

The area of land cultivated by the farmers is also an important determinant to determines the extent of crop population on the farm and consequently the quantity of harvest. Table 1 shows that most farmers (86.2%) cultivated land size is less than 2 hectares. Besides 10% of the farmers cultivated land size ranging 2-3 hectares while a very smaller percentage about 3.3% land size equal or more than 4 hectares.

Results of profitability analysis in wheat production:
To determine the profit level, attempts were made to estimate the cost and return from wheat farming. The result as presented below shows wheat farming is profitable on that area. The profit is Tk. 23499/hectare and the benefit cost ratio is about 1.44 which indicates that they earned profit approximately 44% of their investment. So, in the study area wheat production is profitable for the farmers.
Table 2. Profitability analysis of wheat production
Variables Mean
Total revenue 72369.080
Total fixed cost 5236.0630
Total variable cost 43633.8583
Total cost 48869.9213
Profit 23499.1587
BCR 1.44
Source: Field survey, 2018Regression Analysis
The factors affecting total output of wheat are analyzed with SPSS. Here’s the result of the regression model:
From the ANOVA table we can state that, the overall regression model was significant, F (8,21) = 1.374, p ; .001, test using alpha = 0.05
-80645-15494000Cobb Douglas function is,
ln Y = 1.856 + 0.005lnX1- 0.144 lnX2+ 0.182 lnX3 + 0.008 lnX4 + 1.014 lnX5 – 0.067 ln X 6 – 0.047 ln X 7- 0.092 lnX8
Adj.R2 = 0.979 which indicates that, the variables can explain about 97% of the model. In other words, the 97% of the variability in the output of wheat was caused by the variables included in the model.
From the equation we can see that the intercept is 1.856 which means if the input use is zero than the change in output is 1.856 unit. Land used in hectares, human labor cost, tillage cost, quantity of pesticide use was positive and significant factors affecting output of wheat while quantity and variety of seeds, irrigation cost, manures and fertilizers were negative factors affecting wheat output in the study area. This indicates that if there is 1% increase in land use, labor cost, tillage cost and pesticide use, there would be 0.005%, 0.18%, 0.008% and 1.01% respectively in the level of wheat output. However, a 1% increase in the quantity of seeds, irrigation cost, manures and fertilizers would bring about 0.14%, 0.067%, 0.047%, and 0.092% decrease respectively in the quantity of wheat in the study area. Therefore, wheat production is a profitable and a viable business. Its production would be on the increase if the producers are sanctioned with necessary skills, knowledge, improved farm practices and production input.

7. Conclusion:
Wheat production in the study area is profitable. Hence, it is an important agricultural enterprise that should be encourage among farmers, since it is the most demanding cereal at now a day in Bangladesh. Despite many problems emerged in this sector for increasing temperature worldwide. Research institutions trying to evaluate different technologies for mitigating these problems. The promotion of wheat production among farmers will increase availability and affordability of the grain, increase domestic production of wheat, enhance income generation of farmers, and improve food security at the household and national level.

8. Recommendation:
Farmers should be enlightened by extension agents on the benefit of using improved variety of wheat.

Farmers should have better access to credit facilities with low rate of interest.

Furthermore, government should give subsidies in fertilizer.

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