Planning and

Evaluation of
Agricultural Project

(324 AEC)
 Chapter (6)
Economical
evaluation for
projects
Economical evaluation for projects
 It's not enough for profit statement to
judge the project so we must measure the
national economic income of project
through economic evaluation that include
direct & indirect costs & all returns,
calculate national economic profitability
during making economic evaluation &
study project implementation effect on
national economy
 (1) Implementation effect on
national economy:
 You can know project effect on
national income from two
indicators:
 Value added of Project:

 Social rate of return

 a) Value added of Project:
Defined as total returns of inputs that
entering in production process
 It calculated as;
 Present value of value added = present
value of sealing returns – (present value of
production inputs + present value of
investment + present value of out
exchanging value)
 Present value of value added are
usually calculated to take it as an
indicator to accept or reject the project
so project accepted only if it was
positive value, this recent value
calculation done when at certain
discounting price which called social
discounting price that represent
substitute opportunity of social
investment.
 Also projects that give highest
additional value for each capital
investment unit are accepted according
to this equation;
 Efficiency of value added %= Present
value of value added divided on
present value of total investment.
 Whenever this % increased the project
becomes more preferable
B) Social rate of return for Project:
 Social rate of return =(Present value of
value added – present value of wages /
present value of investment
 From society point of view to accept the
project additional value must be more than
wages.
 (2) Project effect on employment
 We must study effect the project on
employment in order to be able to
differentiate between different projects to
choose the best especially if the society was
suffering from unemployment through
evaluating total investment that necessary
to create new employment opportunities,
calculation of project effect on employment
are done by measuring employment
coefficient.
 This coefficient measures new worker
number that assimilated as a result of
project implementation in respect to project
capital.
 Employment coefficient=number of
workers / Investment size.
 - This shows number of workers that have
been employed as a result of investing one
unit.
 Project with high employment coefficient is
preferred
(3) Project effect on wages level:
 Project effect on expected wages can be
known through productivity coefficient
of labor
 Productivity coefficient of labor =value
added of project / number of labor or
employment cost in cash
 This shows expected wages level, when
worker productivity increased that
reflects on project wages level.
 Also projects can be arranged in case of
skilled worker rareness through accepting
projects with highest additional value for
each unit of skilled employment costs
according to this equation
 (4) Project effect on payment
balance:
 Project effect on payment balance= present
value of foreign inflow – present value of
foreign outflow
 Notice that when comparing many
projects recent value must be
calculated to these effects by using
suitable discount price to commercial
or economical profitability discounting
price.
 (5) Project effect on income
distribution:
 Income distributed of Project on its inputs which
mean that the returns are distributed on involved
inputs as management, capital, labor, country in
means of taxes.
 Value Added of project calculated along its
economical life span then calculate each item of
income distribution items adding to value added,
these items are
 a) Wages. b) Capital profit
%
 c) Management return %3. d)
Governmental taxes.
 Example:
 The data in the following table
represent the present value (1000
$) for two agricultural projects (A)
& (B) at discount factor 12%.
 Compare between project A & B and
choose the best according to:
 - The value added.
 - Social rate of return
 Item Project A Project B
Revenue of sales 5000 5500

Value of inputs 500 700

annually
Wages annually 1500 3000

Transfer 600 400

annually
Investments 1000 1000

Life of project 5 5
by years
 Solution
 Project A:
 Present value of value added = present value of
sealing returns – (present value of production
inputs + present value of investment + present
value of out exchanging value)
 The value added = 5000 – (500 + 600 + 1000)
= 2900
 The Social rate of return
 = (2900 – 1500) ÷ 1000 × 100 = 140%
 Project B:
 The value added = 5500 – (700 + 400 +
1000) = 3400
 The Social rate of return = (3400 -3000)
÷ 1000 × 100 = 40%
 We prefer the Project A than project B
according to Social rate of return
 But we prefer the Project B than project
A according to the value added
Distribution efficiency
of investment
On the national
economical sectors
 Efficiency measures of Distribution investment on
the national economical sectors:
 To measure the efficiency of distributing the
investment on the national economical sectors we
depend on some of measures that determine the
priorities in planning in economical development.
 Thus, we must know the important and degree of
the distribution efficiency of investment over
different projects or economical sectors and
putting some priorities to it. Therefore, this
knowledge will help in distributing the investment
logically and more efficiently.
 These measures are:
 (1) Investment rate (IR):
 The Investment rate shows the
distribution efficiency of investment
and the importance of economical
decision making, It can be calculated
by dividing the investment on the gross
domestic product or the value added as
follows: IR=INVi / GDPi
 IR shows the size of investment needed for
the production of one unit of sect oral
product & the decreasing of this measure
value more than one unit; it shows that
there are efficiency of investment
distribution.
 There are optimums of investment
distribution when IR is equal in all
economical sectors or in different projects
 (2) Productivity investment
coefficient (PIC):
 It shows the value of one unit of investment
productivity in a certain sector
 PIC=GDPi / INVi If this value increases
more than one unit it shows there are
investment efficiency & this determine the
ideal investment distribution when the
productivity coefficient is equal in all
economical sectors or all different projects.
 (3) Nationality coefficient (NC):
 It is used in measuring the distribution efficiency
of investment between different national
economical sectors.
 NC=(INVi ÷ INV) / (GDPi ÷ GDP) It also
shows the contribution of each sector in
performing the productivity of the GDP, the
decrease of this value of this coefficient than one
unit means that the local product exceeds the
investment size & there is efficiency in investment.
 When this value increases than
one unit this indicates that this
sector has more investment
than it is local productivity,
thus, it reflects inefficiency in
investment.
 (4) Investment multiplier (IM):
 The Investment multiplier is well
known as the final increase of the
income due to the initial increase in
investment.
 It also shows the dibranchiate in the
productivity value resulting from the
dibranchiate of investment of one unit
in a certain sector.
Thank You