The economic viability of commercial-scale hydroponics: Nigeria as a case study

The use of hydroponics to cultivate economic crops is an emerging agricultural practice in Nigeria. There is, however, a paucity of information on the economic viability and valuation of the production systems. This study investigated hydroponics' profitability and economic viability under small- and medium-scale production systems. The economic viability of ten hydroponic farms were evaluated using the financial metrics: net present value (NPV), internal rate of return (IRR), benefit-cost ratio (BCR), and sensitivity analysis. Sensitivity analysis based on positive and negative changes in the running cost and gross annual revenue was adopted to measure the robustness of the production method. The positive NPVs of the small-scale farmer (€42,895) and medium-scale farmer (€331,465) at a 15% discount rate show that both production scales are economically viable. The ten-year IRR of both production scales was about 83%. Similarly, the BCR showed that both the small-scale farmers (5.07) and the medium-scale farmers (4.91) are significantly profitable. In the sensitivity analysis, the small-scale farmers were more sensitive to recurrent 5% changes in the running cost at the 13% threshold. On the other hand, medium-scale farmers were less sensitive with a threshold value of 58.4%. Similarly, small-scale farmers are more sensitive to a 15% reduction in the gross annual revenue, with a negative net return of -€956. It is imperative to state that, though starting an investment in hydroponics requires a high initial investment, medium-scale farmers would be less sensitive to changes in the running cost of production in the face of uncertainties.