Analysis of the operating capital requirement and the loan repayment performance of cattle farmer-beneficiaries of the cattle fattening project in Batangas City, 2009-2010

Date

4-2011

Degree

Bachelor of Science in Agricultural Economics

College

College of Economics and Management (CEM)

Adviser/Committee Chair

Corazon T. Aragon

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Abstract

The study was primarily conducted to determine the operating capital requirement and assess the loan repayment performance of the sample cattle raisers who availed of loans under the CPDO-OCVAS Cattle Fattening Project in Batangas City. The study utilized both primary and secondary data. Primary data covering the period October 2009 to September 2010 were gathered through personal interviews of 40 sample cattle farmer-beneficiaries using pre-tested interview schedules. The sample cattle farmer-beneficiaries were selected using random sampling method. Secondary data were collected from OCVAS and the CPDO, which were responsible for implementing the project. Several analytical tools were employed in the study. These included descriptive analysis, cost and returns analysis, cash flow analysis, and the t-test of means.

Findings of the study revealed that majority (67%) of the 40 sample cattle farmer- beneficiaries complained that the amount of loan provided under the Cattle Fattening

Project was inadequate. They added that the loan extended to them was intended for the purchase of cattle only and there was no loan provided for operating capital under the project.

Results of the study also showed that only 10 (25%) of the 40 cattle farmer- beneficiaries complied with the project’s lending policy of raising their cattle as fatteners

while most of them (75%) used their loans to buy cattle for breeding purposes. Considering that majority of the 40 cattle farmer-beneficiaries (75%) shifted from cattle fattening to cattle breeding, this indicates that the CPDO was lax in monitoring the farming activities of the farmer-respondents. Using 2011 prices of feed ingredients, the required operating capital for cattle fattening using the recommended feeding ration and drugs is PhP 5,032 per head, which is PhP 1,593 per head higher than the projected farmers’ operating cost (PhP 3,439/head) assuming that their feeding practices are the same as their practices during the previous year. As revealed in the study, the cattle farmer-beneficiaries’ loan repayment performance does not necessarily depend on their income from cattle production. Approximately 68 percent or 27 sample cattle farmer-beneficiaries (i.e., those engaged in cattle breeding enterprises) incurred financial losses from cattle production during their first year of operation and yet they were able to pay at least the loan principal due at the end of their first year of operation. This finding suggests that there are other factors that might explain the cattle farmer-beneficiaries’ loan repayment performance. Results of the cash flow analysis identified other factors that affected the cattle farmer-beneficiaries’ loan repayment performance. The 11 sample farmer-beneficiaries who were able to fully pay their loan (PhP 15,000) were composed of six farmers who ventured into cattle fattening enterprise and five farmers who engaged in cattle breeding enterprise. The reasons why the sample farmers who raised their cattle as fatteners were able to fully pay their loans were their positive net cash income from cattle production (PhP 5,262) and very high combined income from other household income sources (PhP 74,368) such as the farmers’ income from crop sales and other livestock sales, off-farm income and non-farm income as well as the household members’ income. Their average net cash flow before loan principal payment (PhP 40,888) was more than adequate to cover their 3-year loan principal payment of PhP 15,000. With regard to the three sample cattle farmer-beneficiaries who raised their cattle as fatteners and were able to pay their first year-loan principal, their average net cash flow before loan principal payment amounted to PhP 54,299, which more than covered their loan principal payment due during their first year of operation amounting to PhP 5,000. The reasons why they were able to pay their loan principal payment due during their first year of operation were as follows: (1) they received a positive net cash income (PhP

6,674); (2) their aggregate supplementary income from the farmer-beneficiaries’ non- farm income and household members’ income was high (PhP 126,500); and (3) their total

household income (PhP 161,500) exceeded their total household expenses (PhP 93,875). Findings of the study also showed that although 27 sample cattle farmer-beneficiaries who ventured into cattle breeding suffered from financial losses in cattle production during their first year of operation, they were able to pay either their 3-year or one-year loan principal payment because they had other sources of household income such as the farmer-beneficiaries’ off-farm income, non-farm income, income from crop sales and other livestock sales, and the household members’ non-farm income. The study also showed that the three sample cattle farmer-beneficiaries who raised their cattle as breeders and who failed to pay their first year loan principal not only incurred losses in cattle production (-PhP 21,740), but their average household income (PhP 28,000) could not cover their household expenses (PhP 46,433). Thus, their average net cash flow was - PhP 13,961, which was insufficient to pay their loan principal due during their first year of operation. Based on the results of the study, the following recommendations are suggested: (1) the CPDO and the OCVAS should increase the amount of loan intended for the purchase of cattle and additional loans for operating capital should be provided; (2) the CPDO and OCVAS should be stricter in monitoring the cattle farmer-beneficiaries since one of the reasons why some farmers failed to pay their loan principal or incurred a loss during their first year of operation was that most of them shifted to cattle breeding instead of cattle fattening; and (3) to cater to farmers who are interested in venturing into cattle breeding enterprise, the CPDO and OVCAS should also provide loans for cattle breeding by implementing a Cattle Breeding Project.

Language

English

Location

UPLB College of Economics and Management (CEM)

Document Type

Thesis

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