Financial management for custom hire service of tractor in Bangladesh

Abstract

The main purpose of the study was to determine the economic parameters and effective schedules for tractor operation. Secondary data from various sources were used in this research. Some essential data were collected from primary sources through survey. Operating costs were calculated and project financial profitability was determined by four major factors on farm financial measurement techniques, namely, benefit-cost ratio (BCR), net present value (NPV), internal rate of return (IRR), and payback period. Considering the economic use, land topography and cropping pattern was developed to effective scheduling for tractor operation. The operating cost of tractor with implement was found to be US$ 9.25 per hectare. For replacement of the existing tractor on expiry of economic life, the entrepreneur has to save an amount of US$ 219 per year in a bank account. Based on the operating cost, annual savings for replacement and a profit margin for the entrepreneur, the rent-out charge of the tractor is estimated at US$ 11.58 per hectare. Considering 10% interest rate, the NPV of the tractor at existing condition is US$ 18 757. The NPV of tractor indicates that tractor entrepreneurship is considered financially sound and the project is financially viable, with an average IRR of 36.96%. This is because IRR of the tractor was higher than the bank interest rate and it is highly profitable from the viewpoint of individual investors. The Payback period of tractor with implement was determined as 2.03 yrs. The minimum tenure for an economic use of a common tractor used in agriculture is about 6 310 hrs. Above this critical use, the utilization of a tractor is economical for a tractor entrepreneur. Depending on the cropping pattern two major and one minor turn-around periods are available in between cropping seasons for tilling operation. The time available for tilling of land is estimated about 140 days at 12 hours a day in a year. To strengthen the existing capacity of the tractor customer hire service entrepreneurs and develop new entrepreneur, appropriate adoption and dissemination programs must be launched in all over Bangladesh.