Financial Viability of Advancing Payments for Contract Growers of Ground Nut Seeds

Delays in payment adversely affect the contract seed production program for other fieldcrops (OFC) conducted by the Department of Agriculture (DOA) Sri Lanka. This studyfocuses on assessing the financial viability of advancing payments for contract farmerswho produces groundnut (Arachis hypogaea L.) seeds. The average price payable tocontract growers for the Seed and Planting Material Development Centre(SPMDC), tobe break even between the current practices of paying after the processing is over andadvancing payment, was estimated using an Expected Value Model (EVM). Proportionsof grade I and grade II seed and the price payable for each seed lot were estimatedincorporating parameter estimates of “A” reports in a regression model. The averageprice payable was estimated as Rs. 119.16/kg using EVM. The percentage of ungerminatedseeds, and seeds with insect and mechanical damage were significantlyrelated (p<0.05) with grade I and grade II seed percentages. A 1% increase in the ungerminatedseeds increased the payable price by Rs 0.23/kg whereas, the same level ofincrease of insect and mechanical damages to the seed reduced the price by Rs 2.39/kg.The results revealed that either EVM or regression model could be used in decisionmaking on early payments for the contract growers. The estimated premium forinsurance per hectare estimated with the EVM ( Rs 11,726/ha), decreased to Rs 4,920/hain regression model.