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Scott, A.W. Jr., and C.S. Taylor. 1990. Economics of kenaf production in the lower Rio Grande Valley of Texas. p. 292-297. In: J. Janick and J.E. Simon (eds.), Advances in new crops. Timber Press, Portland, OR.

Economics of Kenaf Production in the Lower Rio Grande Valley of Texas

Andrew W. Scott, Jr., and Charles S. Taylor


  1. INTRODUCTION
  2. POTENTIAL ECONOMIC RETURNS
  3. CONCLUSIONS
  4. REFERENCES
  5. Table 1
  6. Table 2
  7. Table 3
  8. Table 4
  9. Table 5
  10. Table 6
  11. Table 7
  12. Table 8
  13. Table 9

INTRODUCTION

Kenaf (Hibiscus cannabinus L.) is an annual herbaceous member of the Malvaceae or mallow family and relative to cotton, okra, and hollyhock. Kenaf is a rapidly growing crop of great interest as a source of low cost natural fiber. The plant can be cultivated under a wide range of conditions and requires relatively little care compared to most row crops in the lower Rio Grande Valley of Texas.

Fibers, both natural and synthetic, are a mainstay of several major industries. The primary focus of the kenaf development to date has been on the newsprint industry with its annual world production near the 30 million tonnes level (Taylor et al. 1982). U.S. publishers and other users account for nearly half of the world's total consumption. Annual production of newsprint in the United States is approximately 5 million tonnes. Traditionally, imports have accounted for about 60% of U.S. consumption and demand has steadily increased at about 2.5% annually

Kenaf International has developed projections indicating that by 1998 the U.S. newsprint industry alone could require the kenaf production from more than 400,000 ha in the Southern United States without affecting significantly the volume of imports or the consumption of wood fibers. Kenaf fibers can also be used in the manufacture of a wide range of pulp, paper, and paperboard products and may be a substitute for fiberglass and other synthetic fibers.

The worldwide potential of kenaf as an industrial raw material could make it a major crop in local production areas. In addition, the crop provides excellent soil cover until field removal and could reduce the pressure and current political controversy regarding deforestation by providing an alternate fiber source for the pulp and paper industry that is managed as a low input agricultural crop.

What does this mean to farmers in the lower Rio Grande Valley of Texas? About one hectare of irrigated cropland in South Texas can generate enough fiber to produce about 12.25 tonnes of newsprint using the KTMP process developed by C-E Sprout-Bauer, Inc. and Canadian and Pacific Forest Products Limited (Kugler 1988). Kenaf International is working with several companies to develop the Kenaf Rio Grande Newsprint Project (K-Rio). K-Rio plans to manufacture about 235,000 tonnes of newsprint annually, requiring the production of about 19,200 ha of kenaf

About 60% of the Valley's 400,000 ha of cropland is irrigated. Given the size of the capital investment for a newsprint mill that will be completely dependent upon kenaf for its year round production, K-Rio expects to contract for at least 80% of its required acreage with farmers that are connected to the Valley's extensive irrigation system.

K-Rio is committed to supply good quality seed to local farmers, most of whom will enter into multiple year contracts to supply the mill with fiber. The farmer will be only responsible for growing the kenaf and the mill will harvest the kenaf and transport the field-dried kenaf stalks to its fiber yard. The critical challenge in this arrangement lies in creating an acceptable or advantageous economic situation for the production of kenaf while maintaining competitive prices for the finished product and attractive returns for investors.

POTENTIAL ECONOMIC RETURNS

Kenaf International first contracted with Rio Farms in 1981 to grow a kenaf seed crop. Since that first crop, nearly 165 ha have been grown for either seed or fiber. While most of the work has taken place at Rio Farms, five local farmers have also grown kenaf.

The above experience made it possible to develop general farm practices for the area. Continued work by Rio Farms and the USDA/Agricultural Research Service at Weslaco should improve the current recommendations for production inputs and practices.

The development of farm budgets for new crops is by definition an inexact science subject to continuous revisions. However, it remains a crucial part of assessing the potential commercialization of a new crop. Information from research plots is useful, and must be tested against experience gained from growing the crop on a commercial scale in farmers' fields. Input from local farmers who are potential growers of the new crop is vital. By being candid and selective with key farmers, project organizers can limit the risk of unrealistic expectations that often accompany the "promotion" of new crops.

Projected input cost estimates for irrigated and non-irrigated kenaf production are listed in Tables 1 and 2. The estimations are based on direct field experiences over several seasons. The returns projected by these budgets indicate that the crop should be profitable based on what are believed to be average yields. The farmer would incur limited and known costs and realize a secure market. Only existing equipment is needed for land preparation and planting and no harvesting or hauling expenses will be incurred. The kenaf crop will require relatively little management compared to other crops grown in the Valley.

The actual price for kenaf will be determined at the time of contract negotiations between K-Rio and local farmers. The price paid must consider the cost of growing kenaf, the comparable returns and risks of producing traditional crops, and the relative prices paid by competing newsprint operations for their fiber supply.

The primary variable for farmers in kenaf production will be yield. The price will be fixed contractually and the costs will be relatively uniform for local farmers aside from irrigated versus non-irrigated practices as input choices are minimal. Tables 3 and 4 examine the effect of five yield levels on the projected gross revenue, first net (gross revenue less variable costs), and second net (gross revenue less variable and land costs) for kenaf. The former is relevant to an owner-operator, and the latter is of interest to tenant operators.

In contrast to kenaf, current producers of white corn, grain sorghum (milo), and upland cotton face comparatively greater uncertainty as to yield and costs. Yields of these traditional crops are more vulnerable to weather, disease, and insects. Costs will vary as farmers attempt to control crop damage. However, prices for these established commodities constitute the principal variable for local farmers as they make their production plans. Tables 5, 6, 7, 8 examine the effect of five price levels on the projected gross revenue, first net, and second net of traditional row crops in the lower Rio Grande Valley

CONCLUSIONS

Projected returns from kenaf compare favorably with the returns that can be reasonably expected by local farmers from white corn, grain sorghum, and upland cotton. Once a firm market has been developed, kenaf should be a profitable crop alternative for Rio Grande Valley farmers.

A direct comparison between projections for irrigated kenaf with the anticipated gross revenues, first and second net returns for white corn, milo, and cotton is shown in Table 8. Remember, yields were varied for kenaf and prices were varied for the three established crops. The table shows the differences between the returns for kenaf and those for the other crops.

The positive differences shown above for the first and second net returns indicate that farmers should keep more dollars per hectare by growing kenaf than they generally can expect to receive from corn, milo, and cotton. The kenaf crop requires fewer inputs and is less vulnerable to agriclimatic and pest factors. The other crops are generally at risk throughout the growing and harvest seasons.

Alternatively, the mean expectations for each crop under irrigated conditions (i.e., kenaf yield of 16.8 tonnes/ha, white corn @ $3.50/bu, milo @ $4.50/cwt, and upland cotton @ $0.60/lb) can be calculated as shown in Table 9.

These budget estimates help to provide a means of comparing potential returns from kenaf against their expected returns from established crops. While this approach has its limitations and must be viewed and interpreted with caution, it gives us preliminary information about the comparative riskiness of kenaf production and an analysis that can be revised as more accurate data are obtained.

Other considerations that must also be factored into the farmer's decision making include the new crop's probable impact on crop rotations, government programs, crop insurance requirements of agricultural lenders, and returns to landowners. All things considered, the introduction of a new crop into U.S. agriculture is neither simple, quick, or risk-free. Rather it requires thoughtful and courageous decision makers throughout the evolving production-marketing-consumption system to make reality out of visions.

REFERENCES


Table 1. Budget estimates for irrigated kenaf productionz (assume an average yield of 16.8 tonnes/ha).

Task Unit $/Unit Mean $/ha Mean
($/tonne)
% of cost
Land preparation:
Chisel114.8314.830.883
Disc only113.5913.590.813
Disc/Herb./Disc213.5927.181.626
Apply preplant fert.18.658.650.512
Bedding116.0616.060.963
subtotals 80.314.7816
Agri-chemical inputs:
Herbicidey114.8314.830.883
Preplant Fertilizerx149.4249.422.9410
Sidedress Fertilizerw129.6529.651.766
subtotals93.905.5819
Seed & planting costs:
Seedv114.4049.422.9410
Planting119.7719.771.764
subtotals69.194.1214
Irrigation costs:
Wateru214.8329.651.766
Labor212.3624.711.475
subtotals54.363.2311
Other operation costs:
Apply sidedressing18.658.650.512
Cultivation19.889.880.592
subtotals18.531.104
Total variable costs 316.2918.8165
Provision for land chargest 172.9710.2935
Total estimated costs 489.2629.10100
Projected return or profits 221.4013.1745
zEstimates based on experience and conditions in the lower Rio Grande Valley of Texas.
yBased on using Treflan at label rate for cotton. Product not yet cleared for kenaf.
xBased on 225 kg of 9-29-0 in liquid form.
wBased on 112 kg of Anhydrous Ammonia.
vTo be supplied by Mill and deducted from payment.
uBased on application of 6 acre-inches.
tBased on value of cash rented irrigated cotton land.
sComputed at 70% of Variable Costs.


Table 2. Budget estimates for non-irrigated kenaf productionz (assume an average yield of 13.5 tonnes/ha).

Task Unit $/Unit Mean $/ha Mean
($/tonne)
% of cost
Land preparation:
Chisel 1 14.83 14.83 1.10 4
Disc only 1 13.59 13.59 1.01 4
Disc/Herb./Disc 2 13.59 27.18 2.02 7
Apply preplant fert. 1 8.65 8.65 0.64 2
Bedding 1 16.06 16.06 1.19 4
subtotals 80.31 5.97 21
Agri-chemical inputs:
Herbicidey 1 14.83 14.83 1.10 4
Preplant Fertilizerx 1 49.42 49.42 3.67 13
Sidedress fertilizerw 1 29.65 29.65 2.20 8
subtotals 93.90 6.98 24
Seed & planting costs:
Seedv 9 4.40 39.54 2.94 10
Planting 1 19.77 19.77 1.47 5
subtotals 59.30 4.41 15
Other operation costs:
Apply sidedressing 1 8.65 8.65 0.64 2
Cultivation 1 9.88 9.88 0.73 3
subtotals 18.53 1.38 5
Total variable costs 252.04 18.74 65
Provision for land chargesu135.91 10.10 35
Total estimated costs 387.95 28.84 100
Projected return or profitt 176.43 13.13 45
zEstimates based on experience and conditions in the lower Rio Grande Valley of Texas.
yBased on using Treflan at label rate for cotton. Product not yet cleared for kenaf.
xBased on 225 kg of 9-29-0 in liquid form.
wBased on 112 kg of Anhydrous Ammonia.
vTo be supplied by Mill and deducted from payment.
uBased on value of cash rented non-irrigated milo land.
tComputed at 70% of Variable Costs.


Table 3. Effect of varying irrigated kenaf yields on projected gross and net returnsz.

Assume: Projected price: $44/tonne
Variable cost: $316/ha
Land charge: $173/ha
Returns per hectare
Yield level
(tonnes/ha)
Gross1st nety2nd netx
14.8 $652 $335 $163
15.8 $696 $379 $207
16.8w $740 $423 $251
17.8 $784 $467 $295
18.8 $828 $511 $339
zEstimates based on experience and conditions in the lower Rio Grande Valley of Texas.
yProjected net return after subtracting variable costs from G ross Revenue as viewed by an owner/operator.
xProjected net return after subtracting variable costs and land charges from Gross Revenue as viewed by a tenant operator.
wExpected average yield level for kenaf in the Valley under irrigated conditions based on experience to date.


Table 4. Effect of varying non-irrigated kenaf yields on projected gross and net returnsz.

Assume: Projected price: $44/tonne
Variable cost: $252/ha
Land charge: $136/ha
Returns per hectare
Yield level
(tonnes/ha)
Gross1st nety2nd netx
11.95 $526 $274 $138
12.70 $559 $307 $171
13.45w $592 $340 $204
14.20 $625 $373 $237
14.95 $658 $406 $270
zEstimates based on experience and conditions in the lower Rio Grande Valley of Texas.
yProjected net return after subtracting variable costs from Gross Revenue as viewed by an owner/operator.
xProjected net return after subtracting variable costs and land charges from Gross Revenue as viewed by a tenant operator.
wExpected average yield level for kenaf in the Valley under non-irrigated conditions based on experience to date.


Table 5. Effect of varying irrigated white corn prices on projected gross and net returnsz.

Assume: Avg. yield: 85 bu/acre (210 bu/ha)
Variable cost: $450/ha
Land charge: $173/ha
Returns per hectare
Price level
($/bu)
Gross1st nety2nd netx
$2.50 $525 $75 -$98
$3.00 $630 $180 $7
$3.50w $735 $285 $112
$4.00 $840 $390 $217
$4.50 $945 $495 $322
zEstimates based on experience and conditions in the lower Rio Grande Valley of Texas.
yProjected net return after subtracting variable costs from Gross Revenue as viewed by an owner/operator.
xProjected net return after subtracting variable costs and land charges from Gross Revenue as viewed by a tenant operator.
wExpected average price level for white corn in the Valley under irrigated conditions.


Table 6. Effect of varying irrigated grain sorghum prices on projected gross and net returnsz.

Assume: Avg. yield: 111 cwt/ha
Variable costs: $378/ha
Land charge: $148/ha
Returns per hectare
Price level
($/cwt)
Gross1st nety2nd netx
$3.50 $389 $11 -$137
$4.00 $445 $67 -$82
$4.50w $500 $122 -$26
$5.00 $556 $178 $30
$5.50 $612 $234 $85
zEstimates based on experience and conditions in the lower Rio Grande Valley of Texas.
yProjected net return after subtracting variable costs from Gross Revenue as viewed by an owner/operator.
xProjected net return after subtracting variable costs and land charges from Gross Revenue as viewed by a tenant operator.
wExpected average price level for grain sorghum (milo) in the Valley under irrigated conditions. No provision made for government support payments.


Table 7. Effect of varying irrigated upland cotton prices on projected gross and net returnsz.

Assume: Avg. yield: 809 kg/ha
Variable costs: $741/ha
Land charge: $173/ha
Returns per hectare
Price level
($/kg)
Gross1st nety2nd netx
$1.10 $890 $148 -$25
$1.21 $979 $237 $64
$1.32w $1,067 $326 $153
$1.43 $1,156 $415 $242
$1.54 $1,245 $504 $331
zEstimates based on experience and conditions in the lower Rio Grande Valley of Texas.
yProjected net return after substracting variable costs from Gross Revenue as viewed by an owner/operator.
xProjected net return after subtracting variable costs and land charge, from Gross Revenue as viewed by a tenant operator.
wExpected average price level for upland cotton in the Valley under irrigated conditions. No provision made for government support payments.


Table 8. Differences between returns for kenaf and similar returns for traditional irrigated valley row crops. (Yields varied for kenaf; prices varied for other crops).

Gross
revenue
First
net
Second
net
Yield/price level Crop compared
with kenaf
(kenaf minus other crops, $/ha)
Low White corn 127 260 260
Grain sorghum 263 324 300
Upland cotton -238 187 187
Med. low White corn 66 199 199
Grain sorghum 251 313 288
Upland cotton -283 142 142
MEAN White corn 5 138 138
Grain sorghum 324 301 276
Upland cotton -328 97 97
Med. high White corn -56 77 77
Grain sorghum 228 290 265
Upland cotton -373 52 52
High White corn -117 16 16
Grain sorghum 216 278 253
Upland cotton -418 7 7
NOTE: Positive numbers indicate an advantage to kenaf, negative numbers indicate a disadvantage for kenaf.


Table 9. Summary comparisons of mean budget projections for kenaf and established valley cropsz.

Mean projections ($/ha)
Budget category Kenaf Corn Milo Cotton
Gross revenue 740 735 500 1,067
Variable costs -316 -450 -370 -741
1st net return 423 285 122 326
Land charges -173 -173 -148 -173
2nd net return 251 112 -26 153
zComparisons of mean projections from previous budgets; i.e., kenaf @ $44/tonne & 16.8 tonnes/ha, white corn $3.50/bu & 210 bu/ha, milo @ $4.50/cwt & 111 cwt/ha, and cotton @ $1.32/kg & 809 kg/ha. Based on actual crop experience in the lower Rio Grande Valley of Texas, 1987-88.


Last update March 10, 1997 by aw