Economic potential of tractor hire business in Riau Province, Indonesia: A case study of small tractors for small rice farms

Abstract

This study attempts to evaluate the potential of hand tractor hire business to increase the owners’ income.  The type of small tractors studied is used to promote the small rice farms’ mechanization.  A survey of 56 tractor owners in four regencies of Riau Province was conducted to carry out this evaluation.  Approximately 68% of the total annual costs are variable costs and the largest single item is labor cost.  Most tractors offering custom hire service are profitable with an average of 23.13 ha per annum.  The received profit would be higher if drivers are provided by the owners.  The breakeven point that justifies economical ownership of the small tractors is at 17.35 ha under Riau conditions.  The owners require 6.5 years to retrieve the capital cost on the tractors and to obtain about 10% of return on the investment.  The annual use of tractors should be increased to reduce costs or to augment profit.  The use of tractors for customer hire service should be encouraged for augmenting farmers’ income and enhancing tractor ownership in the province.

Keywords: tractor hire business, small tractor, annual use, tractor costs, breakeven point

Citation: Paman, U., S. Uchida, and S. Inaba.  Economic potential of tractor hire business in Riau Province, Indonesia: A case study of small tractors for small rice farms.  Agric Eng Int: CIGR Journal, 2010, 12(1): 135-142.