Return to Land and Return to Labor Assessment

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5.1.2. Return to Land and Return to Labor Assessment

What farmers get from rubber during the first years of its establishment is not latex because it harvested after reaching positive cash flow i.e. from 6 th to 9 th year respectively for rubber monoculture and agroforestry but also from the first years they have a series of agricultural products that depend on the agricultural undertakings which are implemented. In general the main products they harvest and collect, besides rubber production are paddy and vegetables food crop farming, fruits mainly duku and durian. Financially, based on 2007 prices for farm budget calculations, total return discounted received by farmer during 30 years of rubber establishments ranges from Rp 37 353 696 million under rubber agroforestry and Rp 93 073 136 million under rubber monoculture system. Plantation stage contributes the largest share during systems 30 years of rubber establishment. The initial stage depends on the previous land cover i.e. smallholders collect timber and firewood while they are doing land clearing process. Unfortunately, the study did not get the information about the quantity of timber that was collected during land clearing process. Although it is well known that trees have high economic value when they are not cut and kept to grow, this thesis excluded the economic value of trees from the analysis. The details for agricultural products harvested and collected during 30 years of rubber establishment are presented in Appendix 6 and 7 This sub-section deals with the question whether smallholder rubber establishment under agroforestry system brings positive return to farmers or not. In other words “is it profitable for smallholder farmers to practice rubber agroforestry”? Two indicators were accountable for that: i.e. returns to land that is defined as the 69 ‘surplus’ remaining after accounting for cost of labor, capital, and purchased inputs NPV, and returns to labor - that is the wage rate that sets the NPV equal to zero. The calculation of return to labor converts the ‘surplus’ to a wage after accounting for purchased inputs and the discounting the cost of capital. Both are derived from farm budget calculation and discounted cash flow analysis for smallholder monoculture and smallholder rubber agroforestry establishment, which was calculated at private prices financial profitability and at social prices social profitability. Table 14 presents the returns to land and returns to labor year 2007. The table shows that return to land and return to labor under smallholder rubber monoculture and smallholder rubber agroforestry systems, all have positive sign both at private prices and at social prices calculation See the detail in Appendix 5 to 8. The positive sign for both returns to land and returns to labor is an indicator of converting existing land-use to smallholder rubber agroforestry and smallholder rubber monoculture through series of agricultural undertakings, as practiced in both villages, is an indicator that rubber production is financially and economically profitable but more profitable under rubber monoculture than agroforestry system. As seen in Table 14, the result of profitability assessment using 2007 macroeconomic estimated parameters show higher profitability as compared to the actual macroeconomic parameters of 2007. There was annual price increase in 2007 as compared to previous years See the prices in Appendix 1 and 2. Returns to labor and returns to land assessment figures out that rubber establishment for both smallholders under rubber monoculture and smallholders under rubber agroforestry systems are profitable. Based on 2007 macroeconomic 70 parameters, returns to land per hectare at private prices are 46 737 million for smallholder monoculture system and Rp 18 254 million for rubber agroforestry system respectively Table 14. Table 14. 30 Years Profitability Matrix for Smallholder Rubber Monoculture and Smallholder Rubber Agroforestry Systems Rubber System Return to Land NPV Rp 000ha Return to Labor Wage set to NPV equal to Zero Rppersonday NPV at private prices NPV at Social Prices NPV at Private Prices NPV at Social Prices Monoculture 46 737 119 492 50 829 66 476 Agroforestry 18 254 52 389 43 651 56 648 Source: Calculated, 2008 Economically farm budget calculation valued at social prices, returns to land for these systems are Rp 119 492 million smallholder rubber monoculture system and Rp 52 389 million smallholder rubber agroforestry system respectively. Similarly, for returns to labor, both systems provide more than double of the wage rate in Sumatra. These estimates indicate that establishing rubber is very attractive for farmers to operate under both systems.

5.2. Efficiency and Profitability with PAM Table Analysis