ECONOMIC FEASIBILITY OF TWO TECHNOLOGIES FOR PRODUCTION OF A MYCOPESTICIDE IN MADAGASCAR

Abstract

AbstractThe net present value (NPV) approach to capital budgeting is used to determine the relative economic feasibility of two production models capable of manufacturing a fungi-based biopesticide in Madagascar. Sales revenues are projected at $10–12 per hectare for 20 000–80 000 ha annually, with recurrent costs estimated in Madagascar and investment costs from IITA (Cotonou, Benin) and Mycotech Corporation (Butte, Montana). These cash flows are discounted by an appropriate interest rate and risk factor, with positive results for both the labour-intensive model and the capital-intensive model under several scenarios. Cost advantages for the two models depend on both technology and scale. The labour-intensive model achieves a higher NPV in a market of 20 000 ha per annum as compared with the capital-intensive model. The capital-intensive model achieves a higher NPV in a market of 80 000 ha (including exports to southern Africa). Both models benefit from scale economies, although this benefit is relatively greater for the capital-intensive model. Consumers of mycopesticides in Madagascar could realize nearly 20% savings under a higher output scenario with a capital-intensive technology, than under a lower output scenario with a labour-intensive technology. Large-scale producers, however, would require nearly four times as much investment capital, and could find it difficult to produce for export from Madagascar. In the absence of a large-scale producer, small-scale production would be appropriate and feasible based on lower investment costs. Malagasy production is also protected from foreign competition because of current phytosanitary regulations.