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Economics of Agricultural Occupations

Economics of Agricultural Occupations

According to the Census 2010, the agriculture landholding pattern in India shows that 95 per cent of the landholdings are marginal (less than one ha), small (1-2 ha) and semi-medium (2-4 ha) holdings. Number wise 67% of the holdings are marginal possessing about 22.5% of the cultivated area, 18% are small holdings occupying 22.1% of cultivated area and 10% are semi-medium famers holding 23.6% of the cultivated area. Almost all these farmers cultivate themselves their own land and incur tremendous amount of economic loss. They work like bullocks in their own land and go down in life under the burden of irredeemable debts. Many of them commit suicide. Their problem is economical.

The saddest part in their life is that almost all of them do not keep an account of how much they have invested on the land and how much they got in return every year. They do not know the expenditure heads that should be taken into consideration in the cost-benefit analysis of their own occupation. Like herds of cattle they congregate into farmers’ agitations (thousands of them since independence) and go back to their land without any permanent solution to their problem of running a constantly losing occupation. This write-up is to analyze the economics of yearly farming activities on which their lives depend.

Like in any production business there are two types of costs involved in farming: Fixed cost and Recurring cost. The annual net profit or loss is estimated against the recurring cost to which at least 10% of the total fixed cost should be added. The variables of fixed costs and variables of recurring costs will differ from farm to farm, crop to crop or the type of farming like crop, dairy, plantation crops, perennial crops etc. Following table is a general format for keeping the farm expenditure and income account.

A. Fixed Cost: (FC)

1

Cost of the land: area under each crop or different farm production operations

Rs………

2

Cost of farm building and storage and other permanent structures on the land

Rs………

3

Cost of fencing or building the walls or some permanent boundary protection

Rs………

4

Cost of permanently structuring the land like leveling, plotting and bunding etc.

Rs………

5

Cost of machineries, implements, equipments etc.

Rs………

6

Cost of irrigation system – wells, pipes, pump sets, etc.

Rs………

7

Any other permanent investments on the farm: cattle sheds, storage etc.

Rs………

8

Cost of farm animals for ploughing and milch animals in animal farms

Rs………

9

Any other

Rs………


Total Fixed cost

Rs………

The life span of machineries and equipment under the permanent cost is generally taken as ten year and hence 10% of the cost of each item is taken as depreciation cost. The life span of building is taken as 20 years and hence 5% of the cost of each building is taken as depreciation cost. Technically speaking after every ten years all the machineries and equipment should be sold at junk value and should be replaced with new ones. Depreciation is estimated as purchase value minus junk value/years of life span. The formula is given below. Often the junk value is negligible, 10% and 5% of the cost of the equipment etc. and buildings respectively are depreciated for convenience sake.

B. Recurring Cost (RC)

1

Cost of seed

Rs………

2

Cost of fertilizers and manures

Rs………

3

Cost of insecticides, fungicides herbicides

Rs………

4

Cost of farm power, diesel, electricity

Rs………

5

Transportation charges of different articles

Rs………

6

Cost of feed, medicines, veterinary help etc. for dairy farm

Rs………

7

Cost of farm labour (paid and unpaid)

Rs………


-Land preparation

Rs………


-Seed treatment

Rs………


-Sowing

Rs………


-Irrigation

Rs………


-Application of fertilizers and manures

Rs………


-Application of insecticides and fungicides

Rs………


-Application of insecticides and fungicides

Rs………


-Other intercultural operations thinning, weeding, etc.

Rs………


-Harvesting

Rs………


-Processing

Rs………


-Storing and marketing

Rs………


-Any other labour involvement

Rs………

8

Owner & family members’ labour and management inputs

Rs………

9

Interest on fixed cost (@I0%)

Rs………

10

Rent or revenue paid for land

Rs………

11

Interest on the annual investment/expenditure incurred on the farm

Rs………

12

Depreciation** (given in the last row of the table)

Rs………


a. Farm structures at 5% of construction cost

Rs………


b. Farm implements at 10% of the original cost

Rs………

13

Repair and maintenance

Rs………

14

Crop insurance

Rs………

15

Any other

Rs………


Total Recurring cost

Rs………

Income

1

Income from the yield of grain at market price

Rs………

2

Income from the yield of byproducts like straw, dung, stalks etc,

Rs………

3

Income from any other additional products

Rs………


Total income

Rs………


Net profit- = Total income-Total recurring cost

Rs………

Purchase value - Junk value***

**Depreciation = -----------------------------------------------

Life span

***Junk value is calculated only on those articles which can be resold after their life span. Life span of building and machinery is 20 years and 10 years respectively.



Basic method of estimation of income-expenditure in any agri-business is as given above and if we estimate the profitability of farm production under this format no farm will be making a profit. Everyone has to understand this deplorable situation of farming. Let me explain.

1) The small and marginal farmers who constitute 85% of the land holdings never think of keeping an account of their farm income and expenditure while a few of the semi-medium may.

2) The farmers never account for the yearly depreciation (No.12 of RC) of machines, instruments, buildings etc. which often is substantial. The depreciation effect is very significant in the case of farm animals which generally do not give more than ten years of service.

3) They do not consider the interest of the money invested (No. 11 of RC) during the year as the Recurring Cost of farm saying, “It is one’s own money”. If the same money were to be invested in a bank or in shares he would have got interest at the current rate for no effort of his own. By investing on the farm he loses that income and hence it should be accounted in the cost accounting. This is done in nonfarm occupation/businesses; then why not in the case of farm? Farming is a business and every farmer has to make a living out of his farm partly or fully. No one can continue to do a business in loss.

4) Any crop can fail due to many reasons and insurance is important for the farming also (No.14 of RC). But Indian farmers generally do not go for crop insurance; hence in case of crop failure due to climate or pest he loses completely the income. At that time insurance can be a great help.

5) The farmers never think of land tax or rent as an item of current expenditures (No. 10 of RC). He should include the land tax paid to the government or rent to the owner to the recurring cost of farm operation.

6) Any nonfarm business man will include the annual interest of the Fixed Cost (No. 9 of RC). The fixed cost will run into lakhs and crores and if it were to be invested in a bank he would have got thousands or lakhs rupees as interest. If he has invested the same amount on the land then he should expect the amount of interest accrued also as expenditure/investment and he should get it back from the land.

7) A farmer never considers his and his family labour as something worth and he never includes it as an item of expenditure in the recurring cost (No.8 of RC). It is needed because he and his family have to survive till the income from the crop comes which may be after five to six months or even after one year. In a shop the owner gets a daily income through some sale. Similarly in almost all the non-farm businesses owner gets his daily requirement of expenditures. In industries, which require a gestation period, plans are put in place to level up the needed income during the gestation period.

8) There is no overtime payment to a farmer for all the extra hours he spends on weekly and annual holidays. In any nonfarm sector special overtime payment is given to laboureres.

9) The pricing of the agricultural products is fixed by the middle men or the government and it is priced far below the cost of production to the advantage of consumers. The prices of all the nonfarm products are fixed by their own respective producers or owners.

10) Most of the small and marginal farmers have no facilities like cold storage to store their products and hence they are forced to sell their products at throwaway prices. At times they have to abandon their products on wayside or on to the waste heap of the local market.

11) A farmer is always at the mercy of the weather and climatic conditions. The climatic risk factor is very high in the case of farming.

12) At the farmer’s level there is no processing and packing faculties; hence no value addition is possible.

13) Most of the farmers, especially the small and marginal farmers, are illiterate and are unable to do the basic arithmetic even. They do not even know that they are living in a losing profession.

14) Almost all the farmers belong to the lower castes in the Hindu Society and they are treated like dirt or outcastes in the society.

15) There is no or very low self esteem in a farmer who works day and night in the farm. He is unable to articulate his needs and demands. He goes around like a mute animal.

16) A farmer is too generous in his own occupation. To anyone who comes to his farm or house he will donate a bit of his products either fruits, grain, vegetables, a chicken or a litre of milk etc. freely; that too, to many people. In the farm economics such donations will increase the loss to the farmer. But in a corporate farm the same thing will be sold even to the relatives.

17) A farmer has work 24 hours a day for seven days. He does not get any holidays with payment as in the case of private or public employees. There is no fixed time for farm operations.

18) Anyone who works more than eight hours a day is entitled to get overtime payment. The farmer works day and night and no remuneration is given or received.

19) Farm works require maximum human energy compared to all other occupations and the tragedy is that there is no way of replenishing the same energy for the next day’s work.

(The writer is Retired Professor, Agriculture & Farm Economics from XIM Bhubaneswar. Email: ktchandysj@gmail.com)

(Published on 01th January 2018, Volume XXX, Issue 01)