Cost of Rubber Establishment

V. ECONOMIC PERFORMANCE OF SMALLHOLDERS

5.1. Farm Budget Analysis and Profitability

This sub-section is all about rubber establishment in detail, specifically to describe the results of farm budget calculation including profitability in terms of costs and returns.

5.1.1. Cost of Rubber Establishment

The result of 30 years farm budget calculation based on 2007 macroeconomic assumption figures out that financially, the total expenditure NPV discounted spent on rubber establishment under monoculture system was found to be Rp 19 144 million per hectare, whereas under rubber agroforestry system was Rp 8 583 million per hectare Table 12. The biggest part of these expenditures was spent on labor input i.e. 60 for rubber monoculture system and 79 for rubber agroforestry system. The study reveals that most of the labor costs were spent under rubber garden maintenance and its related activities that are mostly done by hired laborer. Under smallholder rubber monoculture system the total expenditures spent on rubber garden maintenance was Rp 4 344 million 23 out of the total cost while, under smallholder rubber agroforestry system farmers spent Rp 2 630 million 31 out of total cost. Table 12 presents the cost structure of rubber establishment during 30 years period. Labor inputs increase during tapping period to increase on yields and decrease during the rainy season when there is reduced tapping. 66 Table 12. Cost Composition of Rubber Establishment in Private Prices Cost of Components Monoculture Rp 000ha Agroforestry Rp 000ha Tradable inputs 7 731 40 1 241 15 Non tradable 522 6 Labor 10 469 55 6713 78 Land clearing forest clearing 1 683 9 1 399 16 Rubber poly bag nursery 132 1 Rubber Planting activities 804 4 762 9 Making wild pig trap 1 241 6 863 10 Intercrops farming activities 2 148 11 971 11 Rubber garden maintenance 4 344 23 2 630 31 Rubber tapping preparation 117 1 88 1 Tapping and latex processing Harvesting of non rubber commodities Working Capital 943 5 106 1 Total cost 19 143 100 8 582 100 Source: Calculated, 2008 67 The peak time for labor allocation is 6 th year for rubber monoculture system and 9 th year for rubber agroforestry system i.e. when the two systems enter into the positive cash flow. What about the establishment costs for smallholders to develop rubber plantations? Or in another words, how much money do smallholder farmers need to develop their rubber plantations? Establishment costs here are defined as all inputs used to establish the systems, whereas the terms of “operational costs” are defined to be number of years of positive cash flow. Therefore, using these definitions, the two systems were analyzed during their years of positive cash flow. The discounted operational costs for both systems are financially ranging from Rp 24 797 million under agroforestry to Rp 48 168 million under monoculture, and economically ranging from Rp 37 977 million under smallholder agroforestry system and 75 224 under smallholder monoculture system Table 13 Table 13. Years of Positive Cash Flow and Operational Costs Rubber system Years of positive Cash flow at Private prices Discounted operational costs at private prices Rp 000ha Years of positive cash flow at social prices Discounted operational costs at social prices Rp 000ha Monoculture 6 48 168 6 75 224 Agroforestry 9 24 797 9 37 977 Source: Calculated, 2008 68

5.1.2. Return to Land and Return to Labor Assessment