FINANCIAL FEASIBILITY ANALYSIS OF PEPPER FARMING IN NORTH LAMPUNG REGENCY OF LAMPUNG PROVINCE INDONESIA

This research was aimed at investigating the profitability and feasibility of pepper farming, which was conducted in North Lampung Regency of Lampung Province. The data were collected from November 2014 – February 2015 from 53 farmer respondents. This research used both primary and secondary data. The former was collected through survey by using questionnaires and interview with the farmers, while the latter was collected from the research-related institutions. The data were then analyzed through financial analysis including profit analysis, R/C ratio, B/C ratio, Net Present Value (NPV), and Internal Rate of Return (IRR). The results show that pepper farmings are profitable with R/C ratio of 5.98 and B/C ratio of 4.98 which are feasible to develop with the NPV value of Rp. 177.403.489,66. The Net B/C which was obtained from the calculation of the 15-year pepper farming is 10.87 with an IRR of 75%.

Indonesia is the second largest producer of pepper after Vietnam. There is every prospect of success for pepper market for it is highly needed to meet the world market, black pepper in particular. In addition to other agricultural commodities, pepper is one of the commodities that plays an important role in the economy, both as a source of income and farmers' livelihoods. According to International Pepper Community (IPC), the total amount of black pepper exports during the period of 2011 from six major exporting countries (Brazil, India, Indonesia, Malaysia, Vietnam, and Sri Lanka) was 242,450 tons. In December 2010, the price of black pepper composite was recorded at US$4,572 per metric ton, and white pepper at US$7,025 per metric ton, which was higher than the composite price in 2009 which was in row US$3,031 per metric ton and US$4,404 per metric ton. The total amount of pepper production in Indonesia in 2011 was 33,000 tons (18,000 tons of black pepper and 15,000 tons of white pepper) (IPC, 2012).
The data taken from the Ministry of Agriculture of the Republic of Indonesia (2012) indicate that the volume of Indonesia pepper exports had fluctuated with a declining trend since 2008 to 2012. The decline in demand of the pepper was because the destination countries were experiencing economic crisis. Although Indonesia's pepper exports went into a decline, however, the pepper production significantly increased. It shows that pepper plants in Indonesia still have the strength and chance to be cultivated and developed because the country has ample area and suitable climate for pepper plants.
The pepper production during the periods of 2008 to 2012 tended to increase, yet the area of pepper plantation decreased that the productivity increased with an average productivity of 748.40 tons/ha. The productivity is actually still low due to the intensity of pests/diseases attacking the pepper plants. Farmers have not yet used superior pepper seeds and well maintained the plants. In addition, they are also lack of capital (Directorate General of Plantation of the Republic of Indonesia, 2013).
Based on data taken from the Center for Data and Information Technology of the Secretariat General of the Ministry of Agriculture of the Republic of Indonesia (2013), Lampung Province is one of the largest pepper production centers in Indonesia. Pepper is one of income sources for Indonesia, therefore support from all parties to encourage improvement of quality and export of pepper from Lampung Province is highly needed. The production of pepper in the province has made an important contribution to the economy of the local people and the province itself. This situation, of course, is supported by the existence of large area of plantation, geographical location, temperature, and precipitation appropriate for its growth.
Based on BPS (the Central Bureau of Statistics) data of Lampung Province (2013), the pepper plants area and production in Lampung Province in the periods of 2004 -2012 fluctuated with an average area of 63,969.38 hectares, an average production of 22,734.88 tons, and an average productivity of 0.36 ton/ha. The productivity is much lower than the average productivity of pepper plants in Indonesia. It is caused by the age of the pepper plants that have been more than 10 years.
One of the biggest pepper producers in Lampung Province is North Lampung Regency. It is the largest area of pepper plantation and the largest pepper production in Lampung Province. The productivity is much higher than the average productivity in Lampung Province. The low productivity of pepper plants reduces the farmers' income. Therefore, in order to increase the income of the pepper farmers, the rejuvenation of pepper plants should be done in several pepper production centers in the regency.
Based on the descriptions above, the research questions underpinning this study are as follows: 1. Is pepper farming in North Lampung Regency profitable? 2. Are pepper plants cultivated in North Lampung Regency financially feasible?

METHODS OF RESEARCH
This research was conducted in North Lampung Regency, Lampung Province, Indonesia. This location was purposively chosen because this regency is the largest pepper producer in Lampung Province with a large number of pepper farmers.
The sampling technique was done through simple random technique with a total number of 53 farmer respondents taken from the following formula (Sugiarto, 2003). The data were collected through observation, interview, documentation, and questionnaires. The data were then analyzed in terms of revenue analysis, R/C ratio, B/C ratio, Net Present Value (NPV), and Internal Rate of Return (IRR).
According to Hernanto (1993), the amount of income earned is an assessment of the success of a farm. To perform a farming analysis, it is necessary to know the amount of revenue and expenditure or the amount of input required during the farming process. To calculate the income, the equation below is used. R/C Ratio refers to the ratio between revenue of an investment with the cost that has been spent. The formula is as follows: B/C Ratio refers to the ratio between revenue or benefit of an investment with the cost incurred. The formula is as follows: The eligibility criteria are as follows:  If B/C > 1, then the business is feasible;  If B/C < 1, then the business is not feasible to implement;  If B/C = 1, then the business is in a break even point position.
Net Present Value (NPV), a.k.a net cash value, is a method of calculating the difference between benefits or revenues and the costs or expenses. This calculation is measured by using current money value with the following criteria:  If NPV > 0, then the business is feasible;  If NPV< 0, then the business is not feasible;  If NPV = 0, then the business is in a break-even point position.
Simply put, the formula is as follows: Where: B = benefit that has been discounted; C = cost that has been discounted. The Internal Rate of Return (IRR) refers to an interest rate indicating the net present value (NPV) equal to the sum of all cash flow from a particular project. In other words, it can be referred to as an interest rate that yields NPV = 0.
The criteria are as follows:  If IRR > 1, then the business is feasible;  If IRR < 1, then the business is not feasible;  If IRR = 0, then the business is in a break-even position.
The formula is as follows: Where: I -discount rate at this time; i'' -discount rate that makes the NPV negative.

RESULTS AND DISCUSSION
Based on the results of the study, 96.83 percent of farmer respondents are in the productive age group. This means that they are, based on their physical capabilities, expected to conduct their farming activities effectively and efficiently. The number of farmers who graduated from high school or higher is 26.99 percent. This means that almost half of them are still in a relatively low education level that they are still unable to adopt or adapt information, innovation, or technology quickly. Those who have rejuvenated their pepper plants have more than 10 years of farming experience; most of them have an 11--20-year farming experience. This indicates that farmers who dare to rejuvenate their pepper plants are those who already have adequate skills to cope with and reduce the risk of failure in running their farming. The average of the farming area is in the range of 0.5 to 1.0 ha, 73.02 percent of the farmers. Most of the farmers who have rejuvenated their pepper plants tend to have a farming area of more than 1 ha. Production factors used include seeds, fertilizers, pesticides, and labor. The seeds used for pepper farming in North Lampung Regency are mostly obtained from the government and partly obtained from self-nurseries. The seeds used in pepper plant rejuvenation are mostly from local farmers. The seeds of pepper plants are cuttings of pepper crops grown on local pepper farms. There are three kinds of varieties of seedlings used to rejuvenate pepper plants in the regency, namely seeds from soil or worm seeds, seedlings from hanging tendrils, and seeds from stolon tendrils.
The fertilizers used by the pepper farmers in the regency are as follows: NPK and Manure. The average of fertilizer use for pepper farming in the regency for 1.14 ha plantation area is as follows: 74.53 kg of NPK fertilizer and 429.25 kg of manure, while per hectare, 65.29 kg of NPK fertilizer and 376.03 kg of manure. They apply neither urea, SP 36, nor KCL fertilizer because the price is too expensive. However, the lack of urea, SP 36, and KCL fertilizers can be replaced by adding NPK fertilizer.
Farmers do not use pesticides because they consider that HPT and weeds can still be technically controlled. The type of pesticide that is most frequently used by them is herbicide which is used to control weeds. The herbicide brand commonly used by them is Lindomin.
The activities of pepper farming in North Lampung Regency are mostly done by hiring workers who are neither family members nor relatives. The activities carried out by the hired workers include planting, fertilizing, and harvesting which requires a short time with a lot of energy. The activities that are usually performed by the workforce who are family members include HPT control, weed control, and pepper drying after picking.
The equipment used in pepper farming include hoes, machetes, crosses, bolts, triangular ladders, tarps, and crowbars. The depreciation of equipment in this study is calculated based on the linear calculation method of depreciation in which the number of equipment is multiplied by the purchase price which is then divided by the economic age.
Transportation cost refers to the cost spent to transport pepper crops from the plantation area to the farmer's house for further treatment. The common means of transportation used by the pepper farmers to transport them is motorcycle. The average transportation cost incurred by the farmers to transport the pepper crops from the plantation area to their house is Rp117.00/kg.
The average production of pepper in North Lampung Regency in 2014 was 407.44 kg/ha. The highest average production of pepper was in the age range of 4 to 11 years of pepper plants with an average production range of 800 to 1100 kg/ha. In addition to pepper plants, pepper farmers also have other plants on their pepper plantations because pepper plants, at a certain time, cannot produce at all. Therefore, all farmers rely on other crops besides pepper to meet their needs.
The results show that in farmer respondents' pepper farming, they use various inputs such as seeds, fertilizers, pesticides, labor, and various agricultural tools. The pepper seeds planted by them are mostly obtained from their own nurseries, however, some of which are also provided by the Agriculture Office of the local government of North Lampung Regency.
In addition, the respondent farmers also apply other inputs when planting pepper including the use of NPK fertilizer and that of manure. However, in time, they only apply manure as the main input to their pepper plants. They also apply pesticidesfungicide and herbicideto control the fungi and weeds that exist around the pepper plants so as not to exceed the threshold considered to be detrimental to their pepper farming.
Most of the activities of pepper farming are done by hired workers from outside the family. The activities that are usually performed by the workforce from inside the family include fertilization, weeding, HPT control, and pepper drying after picking.
They also usually use several equipment including hoes, machetes, small hoes, hole digging tools, tarpaulins, triangle ladder, and crowbar. In addition, they make of use of their own motorcycle or rent motorcycle as a means for transporting their pepper crops from the plantation to their house. A pepper plant begins to produce in the fourth year after planting.
The productive pepper farming is between the ages of 4 -12 years after planting. After 12 years, the production of pepper plants decreases significantly. Based on the results of the study, the pepper farmers in North Lampung regency still let their pepper plants reach the age of more than 12 years and have not yet rejuvenated the plants because they feel that the production is still quite satisfactory and the price of the pepper output is soaring to reach Rp100.000.
Based on the calculation of financial evaluation of pepper farming for 15 years, it can be seen that the NPV obtained by the pepper farmers for 15 years is Rp5.351.036.689,91, with a Net B/C value of 147.65, Gross B/C of 5.88, and IRR of 1.56.
It shows that the profit that pepper farmers have obtained for planting pepper for 15 years is equal to, in the present, Rp5.351.036.689,91. The net value of B/C indicates that the profitability ratio of pepper farmers have obtained for investing in pepper farming for 15 years is 147.65 and the profit ratio obtained compared to the cost incurred for the pepper farming is 5.88. The IRR shows that over the last 15 years, the pepper farming is still feasible to do as long as the bank working capital loan interest rate does not exceed 156 percent.
It indicates that the pepper farming that has been done by the pepper farmers for 15 years lately is profitable to do. However, to find out whether the pepper farming in the future remains profitable and feasible to do, a financial feasibility analysis of the pepper farming in North Lampung Regency is necessary to perform.
Based on the results of this research (See Table 2 in Appendices), the value of R/C ratio of 5.98 is >1. It means that the pepper farming is feasible to run. The value B/C Ratio of 4.99 is >1 means that the pepper farming is profitable. The NPV obtained from the pepper farming for 15 years is Rp177.403.489,66.
The net B/C obtained from the calculation of pepper farming for 15 years is 10.87. This means that the net profit received by farmers by expending an investment of Rp1 for 15 years is Rp10.87. The gross B/C of pepper farming is 4.72 which means that by spending Rp1 the farmers earn Rp4.72. The IRR of the pepper farming is equal to 0.75 or 75% which means that the pepper farming will experience a loss if the bank lending rate reaches 75%.
The feasibility analysis indicates that the pepper farming in North Lampung regency is feasible to run and develop. This supports the policy of the local government of North Lampung Regency in terms of pepper farming development. Based on the results of the evaluation and financial feasibility analysis of the pepper farming for 15 years before and 15 years after in the future, it can be stated that the pepper farming is profitable and feasible to develop in the future.
The analysis of the pepper farming shows that it is potentially profitable in the future, however, the time taken for the pepper plants to produce become one of considerations for farmers to rejuvenate their pepper plants that have reached the non-productive age. The costs incurred for pepper farming and those of incurred for household purposes are also other factors that become their considerations to rejuvenate their pepper plants.

CONCLUSION AND SUGGESTIONS
Based on the results and discussion, it can be concluded that the pepper farming in North Lampung regency is profitable with a value of R/C ratio of 5.98 and that of B/C ratio of 4.98. It is feasible to develop with an NPV value of Rp177.403.489,66. The Net B/C obtained from the calculation of a 15-year pepper farming is 10.87 with an IRR of 75%. In addition, this study has some implications and suggestions. Pepper farmers are expected to provide more nutrients such as manure and chemical fertilizer additions in order to increase pepper production. The government is also required to provide experts to counsel the local pepper farmers on how to successfully run and cultivate a pepper farming in terms of appropriate methods of tillage, when to apply additional fertilizers, and appropriate strategies to develop pepper farming.