I. INTRODUCTION
The Philippines is primarily an agricultural country due to its terrain and tropical climate condition. However, a slow growth in this sector is due to many factors including the conversion of arable lands to residential subdivisions and other industrial or commercial areas. Moreover, the country’s geographical location makes it particularly susceptible to the adverse effects of climate change and the associated risks of natural disasters. With climate change, agriculture and fisheries are extremely vulnerable. Despite efforts to enhance food production and food security, these gains are threatened by looming losses and damages due to increasing frequency and scale of extreme weather events, such as typhoons, El Niño-related droughts and dry spells, severe flooding, and La Niña, as well as unforeseen impacts resulting from atmospheric changes and other natural disasters, including volcanic eruptions. The consequences of climate change have far-reaching implications, extending to the agricultural and fisheries production systems. These adverse effects not only compromise the overall sustainability of these sectors but also result in annual losses in Gross Domestic Product and a decline in the economic well-being of farmers and fisherfolk (National Agriculture and Fisheries Modernization and Industrialization Plan, 2022: 52).
As a response to these challenges the Philippines Department of Agriculture (DA) makes efforts to modernize and strengthen its sector. One of which is the requested grant aid to the Korean Government for the introduction of the use of smart greenhouse facilities and capacity building.
The first smart greenhouse was established through the project entitled Enhancing Productivity and Producing High Quality Tomato through Smart Greenhouse in the Philippines. This project is a USD 2.43 million grant assistance from the Korean Government through the public private partnership arrangement of the Korea International Cooperation Agency (KOICA), Korea Agency of Education, Promotion and Information Service in Food, Agriculture, Forestry and Fisheries (EPIS) and other Korean private companies with a Government of the Philippines (GOP)/DA counterpart of around USD 1.794 million. This project intends to improve agricultural technology through introduction of development model for horticultural facility by greenhouse cluster farming system with Korean advanced technology and experience. Nine (9) smart greenhouses were established at the DA Bureau of Plant Industry Baguio National Crop Research Development and Production Support Center in Baguio and ten (10) at the DA Rizal Agricultural Research and Experiment Station in Tanay Rizal (Amended, 2019; Project MOA, 2018).
To further push the development of the smart greenhouse technology in other regions of the country, the DA requested another project entitled Establishment of Smart Greenhouse and Capacity Building in the Philippines. This project is a 3.15 billion Korean Won or approximately USD 2.645 million (PHP 138.07 million) grant assistance from the Korean Government through the Ministry of Agriculture, Food and Rural Affairs (MAFRA) with a GOP/DA counterpart of around USD 0.92 million (PHP 47.971 million). It intends to enhance production competitiveness of small and mid-sized farmers by establishing smart greenhouses with appropriate technologies for value-added agro-products. This was implemented by the DA Regional Field Offices in Western Visayas (DA RFO 6) and Northern Mindanao (DA RFO 10) in partnership with the EPIS until December 2023. Ten (10) smart greenhouses were established at the DA Western Visayas Integrated Agricultural Research Center (WESVIARC) in Hamungaya, Buntatala, Jaro, Iloilo City and eleven (11) at the DA Northern Mindanao Agricultural Crops and Livestock Research Complex (NMACLRC) in Dalwangan, Malaybalay City, Bukidnon. These smart greenhouse facilities served as the learning school for farmers, DA technical staff and researchers in both project sites. Selected farmers are trained on crop production and smart greenhouse operation for the whole cropping season (Project MOA, 2020).
Smart agriculture provides promising and trending technologies to contribute in achieving the overall goals of the Philippines’ agriculture sector. The development and implementation of smart greenhouse technology in the country are at the infancy stage and conducting a cost-benefit analysis is a critical undertaking that can contribute to the DA’s initiative of introducing this technology to Filipino farmers. Determining the profitability of establishing a smart greenhouse facility can help local farmers in their decision making of adopting the said technology.
II. LITERATURE REVIEW
Most cost benefit analysis covers only conventional greenhouse crop production. Some of which only focused on the productivity and prices while others mostly on the advantages and benefits of establishing greenhouses but not directly providing information on its financial viability. There is no literature available yet on the cost benefit analysis for establishing smart greenhouse technology, hence this study will contribute in addressing this gap.
For example, a recent study by Park (2024: 123-124) has been conducted for international development cooperation projects on smart greenhouse for high value crops being carried out in four (4) countries (Philippines, Cambodia, Vietnam and Indonesia) targeting the small to medium scale farmers. For the Philippines, results showed that the productivity of tomatoes increased by more than six times (from 1.4 kg/m2 in 2020 to 10 kg/m2 in 2022). The producer sale price of tomatoes also increased from 70 pesos per kilogram to 150 pesos per kilogram. While this has been the case, there is no evidence that shows its financial viability considering that the investment cost for establishing the facility is significant.
Montero et al. (2011: 12-14) on the other hand, compared the economic profiles of the greenhouse production systems in Europe. A multi-tunnel greenhouse tomato production in Spain showed that tangible assets and labor accounted for almost 60% of the total costs. The structure of the greenhouse and other equipment made up almost one-third of the total cost. The variable costs for crop protection and energy were low at 3%–4% while fertilizer constituted about 7% of the total costs. In Hungary, tangible assets, labor, fertilizers and energy contributed 75% of the total costs in a venlo greenhouse for tomatoes. In comparison, the Netherlands’ greenhouse production is more capital intensive than those in Hungary and Spain. This is mainly due to greater investments in greenhouse structure, climate control systems and fertigation systems. The total costs mainly depended on natural gas consumption, tangible assets and labor, with energy accounting for about 31% of total costs.
In Alberta Canada, the most significant cost items for greenhouse crop production in the 2017 Report on the costs and returns (Laate, 2018: 7) were labor (hired and operator), material inputs (growing media, seed/cuttings, fertilizer and chemicals, trays, boxes and other packaging materials), marketing and natural gas.
It is expected that greenhouse production offers advantages such as season extension, increased yields, and reduced pesticide use. However, investment costs are substantial, and financial viability remains uncertain. Athearn et al. (2018: 102) analyzed the costs and returns of small-scale greenhouse tomato production in Florida. Results showed that a grower must achieve a USD 2.50/lb average retail price in order to be profitable with a Net Present Value (NPV) of USD 23,517 or an Internal Rate of Return (IRR) of 13%. The most significant cost items are the operation and maintenance of the greenhouse and environmental controls, labor, and energy, which together account for 60% of the total annual costs.
Meanwhile, Oruç & Gözener (2020: 107) showed that tomato production in Antalya Province in Turkey, especially in the greenhouse system, generally provides a return above the expenses. The level of profitability varies significantly.
III. RESEARCH OBJECTIVES AND METHODOLOGY
This study is generally aimed at determining the profitability of establishing a smart greenhouse facility through analyzing the projected costs and benefits (or opportunities) of establishing a Smart Greenhouse technology and the profitability for farmers to own or establish their own smart greenhouse.
This research involved a comprehensive review of various Project-related documents. The researcher also assessed the projected costs and benefits of the smart greenhouses through a developed online survey form. The primary data for this analysis were collected from representatives of the DA RFO Western Visayas and Northern Mindanao from 21 November 2023 to 25 March 2024. In addition, online interviews were also conducted to key focal persons of the DA RFO VI Project implementers on 5 March 2024 and of the DA RFO X Project implementers on 6 March 2024, to validate the collected data.
The raw data obtained were processed and analyzed using several financial metrics calculated using Microsoft (MS) Excel:
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1) Financial Internal Rate of Return (FIRR) to measure the profitability of an investment. The IRR is the rate that makes the investment’s costs and returns equal over time. Based on the IRR rule, an investment is acceptable if the IRR exceeds the required return.
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2) Financial Net Present Value (FNPV) to measure how much value is created or added today by undertaking an investment. If the project is economically feasible, its NPV is greater than zero. When the NPV is positive, it means that the benefits of the project are greater than its costs.
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3) Benefit-Cost Ratio (BCR) to compare the present value of benefits to the present value of costs to assess the efficiency of an investment. A BCR greater than one (1) indicates that the benefits of the project outweigh the costs, making it a potentially good investment.
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4) Return on Investment (ROI) to measure the gain or loss generated relative to the amount of money invested. A positive ROI means that the total gains from an investment exceed the total costs. The higher the ROI, the more desirable the investment.
Financial metrics are calculated in Philippine Pesos (PHP), with conversions to US Dollars (USD) using the average exchange rate for 2023 of PHP 55.6304 to USD 1, as provided by the Bangko Sentral ng Pilipinas.
This study is focused on the established smart greenhouses in Iloilo City, Western Visayas and Malaybalay City, Bukidnon, Northern Mindanao. This is a grant assistance project from the Korean Government that provided all the facilities in kind. Thus, the costs obtained are part of the grant proceeds which may only be an estimation based on the data provided and validations from key persons. There will also be some factors that can affect the production (benefits) figures such as diseases and/or other related production concerns that were not considered due to limited data. Furthermore, this study primarily focuses on the determination of the costs and benefits of the established smart greenhouses and does not undertake analysis on the technology’s technical feasibility as well as its impact in the Philippine setting.
IV. RESULTS AND DISCUSSION
Ten (10) smart greenhouses were established at the WESVIARC project site for the cultivation and training of cherry tomatoes, paprika, honeydew melons, netted melons and shiitake mushrooms. The construction costs of these greenhouse structures vary, ranging from about PHP 1.2 million (USD 21,500) to PHP 3.5 million (USD 62,900), depending on the size and intended purposes. Among these structures, an 844.8 sqm interlocking unit was constructed amounting to PHP 3.5 million (USD 62,900) which is used for the production and training of high value crops such as cherry tomatoes and paprika. Additionally, three (3) single units, varying in size from 273 sqm to 314.6 sqm with construction costs from PHP 800,000.00 (USD 14,000) to PHP 2.4 million (USD 43,000) are used for the production and training of high value crops, including netted melons and honeydew melons (specifically the Jade Lady variety). Moreover, five (5) 185 sqm single units are used for the production and training of mushrooms, while one (1) 273.8 sqm single unit serves as a nursery for mushrooms, equipped with the necessary laboratory tools for preparing mushroom fruiting bags. Its construction costs range from PHP 600,000.00 (USD 10,700) to PHP 1.1 million (USD 19,700) per unit.
For the purpose of this study, the researcher obtained the costs for the establishment of a smart greenhouse for the honeydew melon, netted melon and shiitake mushroom production.
The total investment required to establish a single unit smart greenhouse for honeydew melon and netted melon production in WESVIARC amounts to approximately PHP 5.9 million (USD 106,000). About 66.44% of the total investment is accounted for by the land. Land in Jaro Iloilo City is considered a prime lot with an average cost per square meter of PHP 12,500.00 (USD 220). Accounting for around 20.04% of the total investment or around PHP 1.2 million (USD 21,500) is the greenhouse equipment costs wherein bulk of it comes from the costs of the essential equipment such as computer, control server and solar system for the greenhouse to operate smartly. Representing about 13.52% of the total investment is the costs associated with constructing the physical structure of the greenhouse amounting to PHP 800,000.00 (USD 14,300) (<Table 1>).
The estimated average production cost of cultivating honeydew melon and netted melon is approximately PHP 317,295.00 (USD 5,700). The bulk of these costs comprises annual depreciation, accounting for about 45.51%, followed by fertilizer procurement at 17.55% and internet subscription fees at 15.93%. Other input costs include seeds, seedling tray, plastic mulch, decomposed sawdust, vine clipper, trellising vine with hooks, insecticides and fungicides (<Table 2>).
The establishment of a smart greenhouse for shiitake mushroom production in WESVIARC requires an investment of approximately PHP 8.9 million (USD 160,000). Similarly, in melon production, the majority of the investment, around 64.11%, is allocated to land acquisition. Approximately PHP 1.7 million (USD 30,500) or 19.23% of the total investment covers the construction of the physical structure of the greenhouses. A larger area is designated for the nursery, which includes an incubation area. Additionally, 16.67% of the total investment or about PHP 1.5 million (USD 27,000) represented the costs of procuring the necessary equipment for the nursery, including the cold storage (<Table 3>).
The estimated average production cost of shiitake mushroom cultivation is approximately PHP 842,237.00 (USD 15,100). These costs are primarily composed of utility expenses, with electricity accounting for 52.63%, which is crucial for maintaining the moderate temperatures necessary for optimal mushroom growth. Other input costs include sawdust, rice bran and polypropylene bags (<Table 4>).
Based on the initial greenhouse operations, the average production per cycle of honeydew melons, netted melons and shiitake mushrooms is 386.7 kg, 388.2 kg, and 623.6 kg, respectively. Currently, honeydew melons are sold at PHP 120.00 (USD 2.16) per kilogram, netted melons at PHP 100.00 (USD 1.80) per kilogram, and shiitake mushrooms at PHP 700.00 (USD 12.58) per kilogram. Melons and mushrooms can be cultivated at two (2) cropping cycles annually in the smart greenhouse facilities (<Table 5>).
Crops harvested | Quantity per cycle (kg) | Price per kg (PHP) | Total (PHP) |
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Honeydew melon | 386.7 | 120.00 | 46,404.00 |
Netted melon | 388.2 | 100.00 | 38,820.00 |
Shiitake mushroom | 623.6 | 700.00 | 436,520.00 |
Eleven (11) smart greenhouses were established at the NMACLRC project site for the cultivation and training of strawberries, cherry tomatoes, lettuce, melon and for research of white potatoes. Among these structures, an 800 sqm interlocking unit was constructed amounting to about PHP 5.7 million (USD 102,000). This has a high-tech smart technology with an irrigation system and climate environment system. Moreover, nine (9) 400 sqm single units with construction cost of about PHP 2.8 million (USD 50,300) per unit are used for the production and training of high value crops. These units have a medium-tech smart technology with fertigation and climate sensor. Some of these greenhouse units are also utilized for the mother plant nurseries, irrigation/control house and storage house with cold storage facility.
For this study, the researcher obtained the costs for the establishment of a smart greenhouse for the strawberry (interlocking unit) and cherry tomato (single unit) production.
The total investment required to establish an interlocking unit smart greenhouse for strawberry production in NMACLRC amounts to approximately PHP 7.2 million (USD 129,000). About 78.76% of the total investment is accounted for construction of the greenhouse physical structure amounting to PHP 5.7 million (USD 102,000). Around 11.45% of the total investment or PHP 824,000.00 (USD 14,800) is spent on greenhouse equipment where bulk of the costs is on essential equipment such as control panel, smart farm system, computer, control server and solar system for the greenhouse to operate smartly. Unlike in Iloilo City, the land acquisition cost in Malaybalay City, Bukidnon is cheaper, about PHP 880.00 (USD 15.82) per square meter (<Table 6>).
The estimated average production cost of strawberry cultivation is approximately PHP 667,342.00 (USD 12,000). Similar to honeydew melon and netted melon at WESVIARC, the bulk of these costs, about 49.50% are from annual depreciation. Approximately, 22.78% of the total production costs are attributed to the procurement of inputs such as growing medium, planting materials, chemicals and fertilizer. Labor payments also account for 21.48% of the total production costs, with a field worker being paid PHP 400.00 (USD 7) per day for six (6) months (<Table 7>).
The establishment of a single unit smart greenhouse for cherry tomato production in NMACLRC requires an investment of approximately PHP 3.5 million (USD 62,900). Similarly, in strawberry production, the majority of the investment, around 79.29%, is allocated for the construction of the physical structure of the greenhouse. Procurement of the necessary equipment is approximately PHP 388,000.00 (USD 6,900) or 10.86% of the total investment (<Table 8>).
The estimated average production cost for cherry tomatoes cultivation is approximately PHP 455,423.00 (USD 8,200). Similar to strawberry production, the bulk of these costs are attributed to annual depreciation, followed by labor payments, which is about 31.4% of the total. Additionally, about 26.68% of the costs are allocated to the procurement of inputs such as planting materials, chemicals, fertilizers, growing media and other necessary supplies (<Table 9>).
Based on the initial greenhouse operations, the average production per cycle of strawberries is 478 kg, marketed at PHP 500.00 (USD 9) per kilogram. Further, the single unit greenhouse produces an average of 1,209 kg of cherry tomatoes with a market price of PHP 150.00 (USD 2.70) per kilogram. Both high value crops can be cultivated in two (2) cropping cycles annually in the smart greenhouse facilities (<Table 10>).
Crops harvested | Quantity per cycle (kg) | Price per kg (PHP) | Total (PHP) |
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Strawberry | 478.0 | 500.00 | 239,000.00 |
Cherry tomato | 1,209.5 | 150.00 | 181,425.00 |
The analysis was calculated over 20 years with the weighted average cost of capital or WACC computed at 6.05%.
The negative FIRR indicates that melon production is financially not viable, as it is expected to lose value over time. It signifies that the returns are not sufficient to cover the initial investment. The substantial negative FNPV corroborates the negative FIRR, reinforcing that the project is expected to result in a significant financial loss. Further, a BCR less than one (1) signifies that the costs outweigh its benefits. This further confirms that it is financially not feasible, suggesting that it does not provide sufficient value to justify the investment. Despite the modest ROI of 2.75%, the negative FIRR and FNPV and the low BCR indicate that melon production is not financially feasible when accounting for the time value of money and overall cost-benefit analysis. Moreover, the researcher was not able to compute its payback period over the 20 years. Same scenario was shown in the sensitivity analysis, wherein it is more likely that it will not withstand changes under more challenging conditions: (a) increased in expense; and, (b) decreased in revenue (<Table 11>).
In contrast to the melon production, producing shiitake mushroom in a smart greenhouse facility shows positive financial feasibility with an FIRR of 19%. This suggests that it expects a return of 19% higher than the cost of capital, indicating a robust profitability. Along with its positive FNPV of 27,380,670.20 reflecting a healthy surplus after covering all costs. Furthermore, a BCR of 2.82 which is greater than one (1) signifies that its benefits outweigh its costs, confirming its feasibility and attractiveness. An ROI of 48.33% also implies that for every peso invested, shiitake mushroom production is expected to generate a return of PHP 48.33, showcasing excellent profitability. The researcher also computed its payback period to about nine (9) years. On the other hand, the shiitake mushroom production is not sensitive to various shocks/uncertainties based on the result of the sensitivity analysis showing positive values (<Table 12>).
For the strawberry production, all the provided financial metrics shows a weak financial viability. The FIRR of 1% suggests that the returns are minimal and likely insufficient to cover the cost of capital. The negative FNPV shows that it will generate significant net loss. The BCR of 0.76 further indicates that for every peso invested, it will generate only PHP 0.76 in benefits which signifies that it is not financially viable. While a positive ROI of 5.81% indicates some level of profitability, it is still relatively low and might not be sufficient to justify the investment, especially when considering the low FIRR, negative FNPV and low BCR and a payback period of about 19 years (<Table 13>).
A similar scenario with the strawberry production was generated for the cherry tomato production. The low FIRR and ROI, combined with the negative FNPV and low BCR, suggest that the cherry tomato production is not expected to generate sufficient returns to justify the investment (<Table 14>).
V. CONCLUSION AND RECOMMENDATION
The establishment of smart greenhouses in the Philippines is one of the Department of Agriculture’s initiatives to modernize and transform the agriculture sector into a technology-based, advanced and competitive industry. While this technology may be promising for Filipino farmers, it is still at its infancy stage and there are numerous considerations still needed to look into.
This study is aimed at assessing the projected costs and benefits of adopting smart greenhouse technology and evaluating its profitability. The costs associated with setting up smart greenhouses can vary widely depending on several factors, including the size of the greenhouse, the level of automation and technology integration, geographic location, and the specific requirements of the crops being cultivated. The findings highlighted the significant initial investment needed to establish these facilities for cultivating high-value crops such as honeydew melons, netted melons, shiitake mushrooms, strawberries, and cherry tomatoes. The cost of land is a significant portion of the total investment for smart greenhouses, especially in WESVIARC. Investments in greenhouse equipment and the physical structure also make up substantial parts of the total costs. Technologies such as smart systems also represent crucial but costly investments. It is worth mentioning that both the materials used in building the physical structures of the greenhouses and the equipment procured are imported, which contributes to the considerable investment expenses. In addition, annual depreciation represents a significant portion of the total production costs, indicating substantial initial capital investments. Labor and input costs (like seeds, fertilizers, and growing media) also form a considerable part of the production costs across all examined crops. Investment and production cost also varies across countries, even in terms of distribution across the cost items. The Philippines’ bulk of investment for tomato production is on construction of the physical structure of the greenhouse while in Spain and Hungary is on tangible assets and labor. In terms of production costs, the Philippines spends the highest on inputs and labor compared to Hungary where the highest spending is on fertilizers and energy.
Moreover, the operation of these smart greenhouses has experienced delays and challenges, resulting in their full capacity utilization and benefits not yet being fully realized and maximized. The Project implementers are also exploring alternative ways to further maximize its potential benefits and impact on productivity and sustainability. Despite this uncertainty regarding its potential for high yields, the ability to cultivate multiple cropping cycles annually and/or continuous year-round harvest presents promising opportunities for its future optimization.
Not realizing the facilities maximum benefits had a notable impact on the outcomes of the financial analysis conducted in this study. The financial analyses shows a big difference in the viability of all examined crops. Melon production, as indicated by the negative FIRR and FNPV and a BCR of less than one, is not financially viable. In contrast, shiitake mushroom production demonstrates a robust financial profile with a high FIRR of 19%, a positive FNPV, and a BCR of 2.82. This indicates strong profitability, substantial returns over costs, and a payback period of nine years. Strawberry and cherry tomato productions exhibit weak financial metrics similar to melon production, with low FIRRs, significant net losses (negative FNPVs), and BCRs below one. These indicators suggest that the returns from these crops are insufficient to cover the costs and investment risks, with long payback periods further diminishing their attractiveness.
Based on the findings of this study, the following initiatives are recommended that could be applied:
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1) To improve profitability, use of locally sourced materials and machineries and equipment is recommended instead of imported. This will greatly improve the viability of the establishment of greenhouses by significantly reducing investment costs. It is also best to conduct continuous study to optimize the use of inputs (like fertilizers and pesticides) and labor to reduce production costs. The use of this cost-benefit analysis (with already established parameters in this paper) will further help in attaining profitability through maximizing production with the least cost;
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2) The baseline data developed can be used as basis for Project implementers in conducting follow-up project evaluations and return on investment analysis in smart greenhouse facilities;
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3) Use the result of this cost-benefit analysis to aid in the decision making of the farmers whether to invest in smart farms and in the future help them decide on what crop combinations will provide the best and sustained profit. This is because, part of the GOP/DA obligations in this smart greenhouse Project is to convince local farmers to adopt smart greenhouse technology for commercial production and link them to the Department’s funding facility. The high investment requirement may compel the Government to build the facility and allow interested farmers to pay the reasonable rent or a shared service facility where the Government build the facility and will be offered to farmers for its operation and maintenance; and,
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4) Lastly, use the result of this study in crafting relevant policies and guidelines in order to encourage and accelerate the local development and adoption of smart agriculture ICT-based technologies in the Philippines.