Feasibility Study of Establishing One Hectare of Organic Dragon Fruit Farm in Echague, Isabela

Date

3-2014

Degree

Bachelor of Science in Agribusiness Management

College

College of Economics and Management (CEM)

Adviser/Committee Chair

Hanna D. Miranda

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Abstract

Dragon fruit is now making its position in the Philippine market because of its high economic value and health benefits from roots to tip. In 2012, the country’s total production of dragon fruit was 255.12 metric tons (BAS, 2013). The local supply of dragon fruit is insufficient because more consumers are being aware of the product (Dacuycuy, 2013). This encourages all interested farmers to venture in this business. Organic farming should be incorporated to achieve sustainable agriculture and safety of the consumers.

The study was conducted to determine the feasibility of establishing one hectare of dragon fruit farm in Echague, Isabela. Specifically, it was intended to present the business aspects of establishing dragon fruit farm in Echague, Isabela for the entire project life and its planned area of operation; determine the market, production, organizational and financial viability of the business in Echague, Isabela; identify issues and barriers of implementing the project; and to recommend specific courses of action that were based on the findings of the study.

Descriptive and action research designs were used in the study. Primary data from interviews and communications with key informants were gathered. Secondary data from articles, books, manuals, internet websites, undergraduate special problems and theses were used. These data gathered were used in analyzing the viability of the project and in giving recommendations to the problems identified in the study.

The investor of the proposed 10-year business is Mr. Jesus C. Sabio who is the owner of the land. The project site is located at Villa Fermin, Echague, Isabela which is 30 minutes away from the house of Mr. Sabio. The slope is 8% and 28 meters above sea level which is very suitable for dragon cactus. It is very accessible because the road is concrete passing the national road. However, the road going to the project site proper is not concrete.

The red fleshed dragon fruits will be marketed to fruit vendors in Echague, Alicia, San Mateo, Santiago City and Cauayan City. These markets were consistent and have higher demand volume than the capacity of the proposed project to supply. The pricing strategy will be based on the prevailing price in the market.

The project will incorporate organic farming since dragon cactus grows best on soil with high organic materials. This practice also aims to achieve sustainable agriculture and safety of the consumers from chemicals. There were 1,104 concrete trellises and 4,416 plantlets needed. Infrastructures such as 24 square meters caretakers’ house, 24 square meters storage room, and 18 square meters organic fertilizer production area will be built. Dragon cactus will bear fruits 8 months after transplanting 6-month old plantlets. In Isabela, the fruits will be harvested from the last week of March or second week of April until October, and sometimes early November. After harvesting, the fruits will be wiped with dry towel and a sticker will be attached. This sticker will serve as a promotional tool. These fruits with stickers will be placed on plastic crates assorted based on the orders of the markets. It will be delivered every three days by a jeepney that will be rented. The expected output will be 10,654 kilograms on the 1st year and 15,980 kilograms on the 2nd to 10th year. Furthermore, there will be 10 kilograms per post on the first year and 15 kilograms per post on the second to 10th year. The total demand which is 17,280 kilograms yearly is higher than the total production capacity of the business.

The author who is the daughter of the investor will be the manager since she is capable and has background on the business. There will be secretary/operations manager, auditor/accountant, 2 caretakers, and contractual farm laborers that will be hired as part of the organization.

To analyze the viability of the project, financial tools such as Net Present Value (NPV), Internal Rate of Return (IRR) and Payback Period (PP) were used. The initial investment is PHP 882,542.00 which composed of pre-operating expenses amounted to PHP 7,050.00, working capitals of PHP 374,788.00 (Year 1) and PHP 355,550.00 (Year 2 to 10). Four scenarios were made to analyze how well the business is in the said industry. The base scenario has all prices of inputs and outputs held constant for the entire project life without spoilage or decline in production considered. In this scenario, the NPV is PHP 1,680,783.00, IRR is 54% and PP if 3.94 years. On the other hand, the optimistic scenario or Scenario 1 where inflation rates were considered as well as the assumption that total production capacity is equal to sales. This scenario has NPV of PHP 2,648,413.00, IRR of 66% and PP of 2.16 years. It has higher NPV and IRR and lower PP than the base scenario since the inflation rates in the output were considered on the later. Scenario 2 is the most likely to happen scenario which has 25% spoilage or reduction in production accounted. This has NPV of PHP 1,457,043.00, IRR or 44%, and PP of 3.32 years. The pessimistic scenario, Scenario 3, considered 54% decline in production due to intense typhoons, pests and diseases but this seldom happens. This has NPV of PHP 27,708.00, IRR of 16%, and PP of 6.08 years. Higher percentage of spoilage or reduction in production than 54% will make the project infeasible. The proposed business is feasible under the first three scenarios with positive NPVs and IRRs were higher than the cost of capital which is 15% but infeasible on the last scenario which is 55% reduction on the total production. The PP will took longer as higher decline in production is considered due to spoilage, pests, diseases and vagaries of nature.

Though the business is proven to be feasible, there were still risks and problems to undertake including prices of inputs fluctuations, invasion of pests and diseases, natural calamities, high capital requirement, not fully trained laborers, absenteeism, slacking off and disobedience among farm laborers, and incapability of the business to supply the demand of the market. These problems could be avoided when the following recommendations were employed: good packaging and promotional strategy to gain high market share; good farm management and cultural practices should be employed to avoid the infestation of pests and diseases; the workers should have proper training especially the ones who belong to top management; good relationship among the workers should be established; the business should consider expansion and new technology in producing more dragon fruits.

Language

English

LC Subject

Fruit trade, New agricultural enterprises

Location

UPLB College of Economics and Management (CEM)

Call Number

LG 993 2014 M17 S23

Notes

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Document Type

Thesis

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