12/06/11

no mantras or miracles will work here

had started on this draft in march 2010:

here, at the Indian Farmers' website, you'll find this article (word document): 'Status Paper on Rice'. on page 13 and 14, you'll find a detailed breakdown of all the costs involved in producing rice. and the concluding part says:
YIELD, COST OF CULTIVATION PER QUINTAL AND INCOME

(a) Cost of cultivation per acre Rs. 25000/-
(b) Average yield of paddy per acre is 25 quintals (35 bags)
(c) Cost of cultivation per Quintal (Rs. 25000¬ /25) = Rs. 1000/-
(d) MSP fixed for paddy per quintal is Rs. 745 (for the year 2007-08)
(e) Total gross income (Rs.745 X 25 quintals) =Rs.18,625/-
(f) Estimated loss per acre to the farmer (Rs.25,000 – Rs.18,625/-) = Rs 6,375/-(g) MSP to be fixed as per Prof. M.S. Swaminathan Commission
recommendation should be Rs.1,500 per quintal (Cost of cultivation + add minimum 50% of cost of cultivation i.e. Rs.1000+500=Rs.1,500)
those are average costs for producing rice across andhra pradesh in the year 2008-09. also note that the m.s.swaminathan commission's recommendation for increasing the minimum support price upto rs.1500 (or, Cost of cultivation + add minimum 50% of cost of cultivation), made in 2007, has not been adopted until now.

illusory potential

1) the m.s.p. for rice in the current year is rs. 950 for common variety and rs.980 for higher grade plus an 'incentive bonus' of rs.50 (which is temporary and could be withdrawn next year). so how much could a farmer producing 25 quintals an acre, earn per acre now? nothing. the costs (rs.25,000 per acre) would equal the returns (rs.1,000 x 25 quintals). which means the majority (60% of all farmers) of farmers in the state of andhra pradesh, or the marginal farmers (average landholding size: around an acre), would earn nothing.

2) less than 20% of farmers in andhra pradesh own 3.5 acres or more each. and those are 1995-96 estimates when average landholding size was 1.36 hectares, or 3.35 acres. in 2005-06, it was 1.20 hectares or 2.96 acres. the average income of the average paddy farmer* now would be around zero, if the m.s.p., remains at around rs.1,000 (at an average productivity rate of 25 quintals an acre), because the costs (rs. 25,000 per acre x 2.96 or 3 acres) would equal the returns (rs. 1,000 per quintal x 25 quintals per acre x 3 acres).

3) what if the m.s.p were increased to rs. 1,500? the average paddy farmer with a landholding of 2.96 acres would make around (rs. 1,500 per quintal x 25 quintals per acre x 3 acres) rs. 1,12,500 which would yield him a net income of (rs. 1,12, 500 minus costs of rs.75,000) of rs. 37, 500. the per capita income of his family members (assuming a family size of 5) would be around rs. 7,500, or less than one-third the per capita income of rs. 23,729 (in 2004-05, at current prices) of the state.

4) who would benefit if support prices are increased to the level suggested by swaminathan? less than 6% of the state's paddy farmers, or those who own more than 10 acres each. each farmer who owns more than 10 acres, would earn an income of around rs. 1,25,000 (rs.37,500 per acre x 10 acres minus costs of rs.25,000 per acre x 10 acres). the per capita income in his family would be around rs.25,000 or slightly more than the state average.

5) how about the majority, or the marginal farmers? the marginal paddy farmer would make around rs.37,500 (rs.1,500 per quintal x 25 quintals) and earn an income rs. 12,500 (rs. 37,500 minus costs of rs. 25,000 an acre). that means per capita income of each member of his family will be rs. 2,500, or slightly more than one-tenth the per capita income in the state.

6) what if every paddy farmer in the state managed to double the yield: from 25 quintals an acre to 50 quintals an acre? let's assume he doesn't have to incur any new capital costs and input costs to increase the yield by such magnitude, and he's able to manage the feat by sheer good luck. how much will the marginal farmer be able to make in the new scenario? his income from each acre will be (rs.1,500 x 50 quintals = rs.75,000 minus costs of rs 25,000= 50,000). which means per capita incomes in his family would be less than half the state average. how much will the average paddy farmer (landholding: 2.96 or 3 acres) make? rs.1,50,000 (rs. 1,500 per quintal x 50 quintals per acre x 3 acres minus costs of rs. 25,000 per acre x 3 acres). which means per capita income of his family would rise above the state average by around 25%.

but that would depend on three miracles happening simultaneously:


ii) average yield per acre going up by more than 100% in one year. average annual growth rate in yield in the past four decades has been much lower than 2%

iii) there would be no need for fresh capital investment and also no increase in input costs.

even if all those three miracles do happen, simultaneously, over 60% of the farmers in the state (the marginal farmers) would still earn incomes of around rs.50,000 which would still mean per capita incomes in their families would still be less than half the state average. and the small farmers, another 20%, would be earning significantly more. the medium farmers, another 15%, would be doing even better. which means 60% of the paddy farmers in andhra pradesh wouldn't benefit much even from the miraculous scenario which offers i) a 50% increase in minimum support prices immediately and ii) doubling of yields iii) and a zero percent increase in input costs.

is there really a point in further speculating on what would the farmers earn if the minimum support prices were doubled to rs.2,000?
----------------------------------------------------

as i mentioned earlier, i wrote that draft over an year ago. now, minimum support prices have gone up slightly: rs.1,030 for grade 'a' variety and rs.1,000 for other varieties. which means the conclusions i'd drawn on all the  6 scenarios presented still hold true. and only scenarios (1) and (2) reflect the current reality as you know. (3), (4), (5) and (6) represent hypothetical scenarios. pipe-dreams which rest on miracles.

there are a couple of things one needs to know to understand how these farmers survive if the returns are so low or non-existent: the total estimate of costs listed in the status paper also includes a 'land lease' component: rs.7,000 for an acre. this is what the owner-cultivator would save, but the tenant farmer would be deprived even of that. also, a certain percentage of the farmers also go in for a second crop. but that wouldn't make a great difference in their incomes, i think, because most of the costs would have to be incurred again.

the high priests of 'food security' aren't thinking about all that i guess. as i said in my previous post, there seems to be a strong belief among them that these are manageable problems. that a few wise interventions like increasing support prices, subsidies and agricultural extension etc would improve productivity, which is a primary concern for them, and also somehow give the farmer greater returns.. from sainath to jayathi ghosh, everyone's been reeling out those mantras. but the stupid shudras have a saying: mantraalaku chintakaayalu raalavu. which means, roughly: the tamarind tree wouldn't shed its fruits for mantras.

from swaminathan to sainath, they've been spouting these mantras for many years now. i don't doubt their sympathy for the farmers. but i'm convinced, seven years after the congress was re-elected promising succour for the farmers (one of its main election planks) and seven more years of unabated chanting of mantras, that they probably think of the farmer as some kind of a lifeless cog in a vast system of machinery that's not working as per their grand designs. the cog's problems matter only so far as they affect the working of the machinery.

lastly, according to some latest observations in the media, the costs of cultivating each acre have gone upto rs.30,000. even if all those estimates are wrong by even a significant percentage, say 20 or 30 or even 50, i don't see how it will change that overall inexorable reality. 

13 comments:

gaddeswarup said...

Kuffir,
I am travelling now and this is a hasty response. My impressions are similar from talks to farmers in guntur and Krishna districts. Can you also discuss the possibilities of insurance, loans (including micro loans; there were requests for such) and related topics. Thanks.
Swarup

Kiran said...

I don't know why the government is so quick to come up with export curbs on farmers to protect food security ?
I don't see it doing to other private players - it never says that IT service companies should first service Indian IT needs before servicing world needs. It allows millions of tonnes of iron ore to be exported for a pittance. But it absolutely has no hesitation to impose export curbs on rice etc and allow imports of pulses in service of urban middle classes.

Anonymous said...

Cost of rice cultivation in tamilnadu is 10,000 per acre. Why is so high in Andhra Pradesh.
http://agritech.tnau.ac.in/agriculture/agri_costofcultivation_rice.html

Heck, the costs of production in Andhra pradesh are as high as the US!!! (at $US550/acre ~ Rs24,500/acre)

http://www.lsuagcenter.com/MCMS/RelatedFiles/%7BF7E930BF-346A-45DA-A989-37FE3D0B0F11%7D/Chapter+9+-+Economics.pdf

Added to the very high cost of production, the yield per acre is much behind countries like China, Japan, Korea and Egypt.

Anyone who looks at the facts calmly will assume that rice production in Andhra is very cost inefficient and yields need to be improved much more. A best case scenario is cost of tamilnadu 10,000/acre and 20% increase of yield leading to

cost of production of Rs10,000/acre
revenue of Rs Rs 22,500/acre (30 quit@ Rs745).
Quite a big gain of Rs 12,500/acre

What needs to be done is calmly understand why there is such a big gap between a theoretical profit of 12,500/acre and actual loss of 6,300/acre.

However, the political and social structure is so rotten at the core that everyone thinks the problem can be solved by more handouts. How will this solve the problem? The cycle will be fixed for a mere two / three years and inflated costs will come back into the equation making the production infeasible. This has been the circle of ineptitude for many years, farmers and policy makers included.

Oh yeah forgot, anything wrong with India can be blamed back on Brahminical legacy (whatever that means in this context). So without doing any analysis here we can say some brahmin dude did this.

Sridhar said...

@anonymous: the costs you mentioned in TN don't seem to include land lease, imputed cost of family labor, cost of credit etc. The cost of manures/fertilizers also appear to be understated.

Probably, the owner farmers are slightly better off in the prevailing conditions.

Wonder what prevents the village farmers forming a cooperative and mill and market their own grain. Milling paddy into rice and selling it into open market will yield an additional Rs. 12000/acre plus costs associated with such cooperative membership. This can be one area where social entrepreneurs can step in and subsidise fixed investment. In conditions of rising input costs and insensitive/braindead governments, farmers to be successful need to work out innovative mechanisms in getting closer to wholesale and retail markets domestic and overseas.

Anonymous said...

From the other side of the equation, the retail price of 1 kg of the lowest grade Australian long grain rice here is $2 =~ Rs. 70, i.e., Rs. 7000 per quintal.

sree said...

Kiran..

The govt wouldn't put such restrictions on IT industries as it is the bastion of the priests.
Even if govt did come up with such restrictions the IT companies would not be able to capitalise on india IT needs.

IT as you know is a knowledge based industry and knowledge in this country has been usurped by the bhraminised classes.
they do not impart education in the language the stupid shudras/dalitbahujans speak.
obviously to create a market out of the masses one needs to involve the masses.
which the priests and their braminised friends donot understand or may be they do understand but donot care.

kuffir said...

swarup garu,

what i was trying to point out through the post: that agricultural distress is a structural problem and it affects 80% of farmers-- 60% of whom are marginal farmers, and the rest 20% are small farmers-- most severely. however great an increase in subsidy or credit support, it wouldn't make farming profitable for them, even if the m.s.p too is increased.

insurance-- which covers only input costs by the way-- is of secondary importance, because what we're discussing are not occasional losses of crops but losses from regular cultivation.

microcredit etc would be meaningful for people pursuing livelihoods other than or besides agriculture.

kuffir said...

kiran,

my points exactly.. these restrictions are caste restraints disguised as measures to promote 'food security' etc.. as i've said umpteen times earlier, bogus food security policies like these are extremely harmful for food surplus states like andhra pradesh.. this has been proven by a.p. history of the last 50 year history (since the green revolution days)-- the benefits of agricultural surpluses have not gone to the cultivators/workers..the cheap surpluses have benefitted urban brahminized classes across india, and left andhra pradesh with no resources for development of large scale manufacturing, industry and urbanization.

kuffir said...

sridhar:

excellent analysis of costs. one recent news report has indicated that average farmer suffers a loss of rs.700 per quintal.

the points you've raised about co-operatives and gaining greater control over markets. the inherent reluctance of credit institutions to support farming, especially marginal and small farmers, on a larger scale is based on long-term logic.. the returns have been steadily going down since the late 70s.

two: farmers coming together as a class of sorts to gain greater control over market.. this can't happen because those with most resources to do so-- the large farmers, benefit from the current situation. their interests differ from the small/marginal farmers.

three: the small/marginal farmers can't come together as a class to pool together enough capital to 1)process paddy into rice and b) build infrastructure and finance necessary to store grain and sell at the most profitable time because they obviously lack the capital..and also because of their inability to achieve economies of scale and hence profitability..

kuffir said...

sree: eloquently put.

manan said...

Hi,while this post brings out serious issues I cant understand your vilification of the "brahmanized classes".What the bloody hell have they done?Did they create the food security bill? And how does it enforce caste restraints?Yes agriculture is in a serious mess because of flawed incentivization and needs an analytical approach and has to be solved as such.
A comment claims that brahmins prevented everyone from learning for ages.Then how is it that most Indians,including shudras and some dalits were functionally literate till about 1830?European traders used to get frustrated when they found out that they couldnt swindle anyone here as most could at least read and count.In fact europe was far worse before the industrial revolution and for a 100 years after that. The so called "priests" of the IT industry are actually grunt workers who are not going to see any real power in their lives.It is a classic mistake to assume that knowledge and its dissemination can solve the problems of the day,and is peddled by ivory tower types with little knowledge of reality. And it is strange that these oppressed people not only put up with these unarmed,without great wealth,miniscule group of brahmins for centuries and even fought against the religions of "equality" continuously. Do you think that all the ancestors of dalits,obcs were fools? And if they felt oppressed, even today after the humongous resources poured into defaming hinduism why havent the majority converted?And dont tell me that under brahminical influence obc's and dalits have lost their common sense.The fact is that most castes tacitly accept that without brahmins and their ideology to oil society chaos would prevail with everyone a each others throats.
No issues with your points on agriculture but the anti brahminism without any just cause was not expected from a clear reasoner like you.
If EU/america make claims about equality,liberty etc. do pause to remember the tens of millions they decimated over the centuries(of their own race and other races) to get to this state.In india such massacres never occurred,with the loser going to a lower status rather than getting wiped out.Christian europe had a terrible feudalism,plagues and wars effectively preventing the lower classes from increasing in population,whereas india had the jati system(job+wife provided) and decent medical stuff till about 1750(when eu got ahead of us).The masscres and famines in india happened after the muslim and british only;previously they were managed and mtigated (as deduced from the pollen in stalagmites in maharashtra).

anvidh k said...

Thanks for posting this info. I just want to let you know that I just check out your site and I find it very interesting and informative. I can't wait to read lots of your posts. Regards,
hanuman chalisa.

divineuser said...

its become very easy for all of us to blame someone for all things that are beyond our generic comprehension. the fate of farmers in india is at the spate of middlemen and traders and the same has been happening since the second green revolution in india. the main reason for low yields of all crops has been poor practices on one side, that which can be controlled and the even more main reason is climate conditions. as long as our farming community do not adopt to new mix of cropping and just keep doing the same low yield low fetching cultivation, the poor financials will keep looming year after year. just imagine, 40% of farm produce is wasted at field level while harvesting and what if this can be controlled or reduced?? similarly, there are many new techniques and new breeds of input seeds that are not cultivated because no one wants to take a chance. there are more than 65 varieties of paddy seeds that are with the research departments that can give higher yields but there are no takers. likewise there are many more accessible methods and inputs that are outcasted by the very same farmers who are suffering lack of proper exposure on progressive techniques. i may say though. the plight of the farming community is going to end soon..wait up!!

 
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