Sunday, 28 June 2015

Farming : Profitability of farming Wheat and Paddy over 7 years

In the previous articles on the farming scene in India, we saw the basics of farming, and a look at the economics of Paddy in a few states in India. In this article, I shall go deeper, and add another crop : Wheat, as usual with data. The assumptions remain the same as they were in the previous article on the subject, which can be found here : INDIAN FARMERS : A LOOK AT ROUGH ESTIMATES OF PROFITS

In the previous article, we looked at the returns from paddy; let me present another view from the same data set : 

The chart above is average earning from Paddy crop calculated on C2 Cost Concept. The C2 Cost concept includes cost of seeds, fertilizers, manure, human labour including family and hired labour, animal labour, machine labour both hired and owned, insecticides, irrigation charges, interest on working capital, rental value of owned land, rent paid for leaded-in land, land revenue cess and taxes, depreciation and interest on fixed capital. 

This is called the c2 concept; there is another concept - the c3 concept which includes value of managerial input of the farmer. These costs have not been accounted for. It can be straightaway seen that if you add 10% to the costs, profitability of the Farm as a business enterprise takes a nose dive. And also note the states for which the data is being collated, and the returns from the less developed states. 

Furthermore, now I ask all of you to compare with a  running business enterprise, and try and identify expenses that we incur while running the business which are allowed as deductibles. This last bit may not be acceptable anywhere, but you cannot deny that a business enterprise is allowed deductibles on several and sundry items as costs incurred in running the business apart from the expenses listed above; it is easy to note that these costs are not accounted for here; it is also a given that other costs would perforce be incurred. Lastly note that the trendline pf the average on all states in both cases over 7-8 years from 1996-97 is either flat, or decreasing; in one chart I have presented the trendline - that for Paddy. 

Now please remember these are numbers collated for the entire farming universe, which includes Small, Medium and Large farmers. So it is also a given that these returns, such as they are, will not be enjoyed by every farmer, and will be skewed in one side or the other. Small farmers and Medium farmers will have a different calculation, the numbers for which are not readily available. Having said that, there are other indicators from which we can draw a parallel - like the per hour costs on various items, or the various reports on several aspects of SM Farmers in India which give several pointers and more. But more on that later. 

Now take a look at the absolute numbers of profit that are coming out. It is ranging from a loss of 1400 Rs per crop, to a profit of 9700 approximately per crop. What can a family do in that meagre amount? Take a look at other constituent data, like wages charged. The wages for AP for Paddy ranged from 2491 - 3097 per crop. Another 7000-9000 was rental value or rent paid per crop. These numbers are per hectare, and are similar across all states I have taken in the calculation. 

What can a family do in 12000 - 20000 per 4 or 5 months, even if we consider gross receipts, and not account for other expenses? Does making profit simply mean cash flow profit, and can we then jump to the conclusion that all is well with farming given they register a net cash flow? What about standard of living? Look at the wages being charged to account, and think of what you charge to accounts in business? Or just take a look at it from a simple living perspective and family needs perspective! Are these people not entitled to improvement and growth? We in business pay our employees handsome salaries, give perks, all comforts, expenses; we register a net profit after deduction of a whole list of expenses which are chargeable to running a business. Can we say the same for the farming community of India basis the data presented? 

And remember this is data from all farm sizes. The question then arises what is the dimension of the farming landscape in India? These people stay on the farm or near it; Agriculture forms a principal part of their business; they are people with no other skill sets. Even in the best case scenario, the state of the small and marginal farmer is evident from these hard numbers, which are based on national averages, including returns from large holdings, which will perforce be different. Lastly, this data is from 2003-2004; we shall subsequently tabulate data from 2014, and examine- or try to get a rough estimate, of the progress in the past 10 years - this will give us a rough and ready estimate of the development of farming scenario in the past decade

This is the reality of farming in India... and the moment we start delving into the number even deeper, further and more serious issues begin to emerge. Given that I have taken data from 1996-2004, let us examine land holdings in India from the same period, and establish a bird's-eye view of the Indian Agricultural scenario, before we move into the policy and political realm for a further analysis.

For this, we can refer the report "A Special Programme For Small And Marginal Farmers  - National Commission For Enterprises In The Unorganised Sector"; the pie chart  I have created for easy readability. These give you a precise idea of who is representative of the farming scene in India : the small and marginal farmer, or the large farmer?

In the next article, we shall look at these farmers in more detail : what constitutes this segment, what do they grow, what do they earn, what are the challenges they face, what is their economic output and contribution to the nation, what is their awareness level on various aspects, what are their earnings and what are their requirements.

Wednesday, 24 June 2015

Swachh Bharat Abhiyan, and We The People : A Question of Values

Clean India : Swachhtaa Abhiyaan; at long last, we have a Prime Minister Shri Narendra Modi, a leader, interested in setting an example, becoming an exemplar to the people by focusing on all the right values : cleanliness, closeness to our culture {Yoga as an example}; he has faults – but let us praise where praise is manifestly due in all fairness. But, that does not mean that this attitude, while setting an exemplar, an example before us, will automatically solve our cleanliness issues, even without the systemic flaws I pointed out in my previous article on this issue: Swachh Bharat Abhiyan, Or Clean India - Does It Meet The Problem?

As I wrote earler, do you really require the Prime Minister of your country to tell you keep your nation clean? Do you really require to be told to throw things in dustbins? Do you really require to be told to keep your city clean, not throw waste outside your home? Do you really need to be told to throw the waste inside the dustbin, not in its general direction? You dont clutter your home - then, in that case, if you throw garbage on the road, what does this behaviour say about you as a person

We are a nation of 1.28 Billion; setting the example wont do much good. Akela Chanaa etc etc... We have to get to the core reason behind such behaviour. Why do people behave the way they do? Why do people take care to keep their home clean, their office clean, the posh hotels etc clean, but display such crass behaviour elsewhere? ? What internal value systems are you displaying? What does it say about your true priorities?

At the office, it is peer pressure + HR / Disciplinary Action + Boss fear; at home it is family fear + selfishness + long exposure / stay; at the posh market it is peer pressure + image etc. What are the core values a person is displaying? It is certainly not cleanliness, or love for cleanliness, or even ethics. The values being displayed are Power, Hunger, Image, Presentation, Projection, Self etc...

A truly clean person displays the same - precise same - behaviour across all aspects of life, not a differential behaviour. Values {at least the core values} dont change as per the situation : if it does, it isnt a value or a core value of that person. Values are typically rock-steady, and remain virtually almost unassailable unless challenged by deep philosphical thought, or disaster etc – or a long sustained period of change : positive or negative. We dont try and make them decent human being; we dont teach values. It starts at home. What you see around you is a reflection of your own deeds, and attitudes.

No point pointing fingers. People are unclean because parents like you and me have not taught them this basic human behaviour. That can only mean that our minds are tainted and unclean. A clean mind, a truly clean mind, sees ethics, values and cleanliness in every endeavour. If there is duality, as in spoken ethics {or even provable ethics} combined with a habit of uncleanliness... Change your attitude towards India, be selfless, view it as your home, and internalise cleanliness.

Sorry to be harsh, but the fault is of the parents. Parents should scold or punish their children for such behaviour; that we dont is a manifest fact. We try and make them street-smart, we try and make them come first...

What is happening in these instances? A person is being influenced by external stimuli which is transient in nature; the moment this stimulus is removed. the behaviour goes back to the normal. Behaviour is controlled by your value system; and external stimuli that are transient and short-term have zero impact on the value system.

Thus, any recommended solution will perforce have to cater to the problem. The nature of the positive influencers like the exemplars others looked at above are such that these are transient temporary influences which lack a long-term impact in the absence of strong emotive rewards for the desired behaviour; that is why the impact wanes over time. And that is also why, despite the fact that Values can change in a sustained exposure, exemplars generally fail to make an impact all by themselves

By contrast, fear of punishment, image consciousness, etc negative influences retain their power for a much longer time after the removal of the stimulus. That is why the only way is to initiate a strong disincentive towards tardy behaviour {littering and filth in this case}, driving the subject towards the desired behaviour : cleanliness.

And that is why I recommend strong punishments for tardy behavior, as in Singapore. This can be combined with school {nursery level, KG-1&2 level children and parent interactions with trainers. And fail the children - even at these starting levels - if both parents dont turn up for these training sessions regularly. Disincentives all along the line for adults, and incentives and freebies and other reinforcers for the children. If you are not clean, there is no place in society for you is the message that should go across to the people.

Adults dont need to be reminded or reinforced of the need for cleanliness; that is a very basic and expected societal norm. Besides, with their value systems being fully formed, the chances of positive re-inforcers, exemplars etc changing the core behaviour is precious little. In order that action is initiated from such recalcitrant people, we need to take a leaf from the errant behaviour : negative influencers : peer pressure, fear etc which we saw above. These will be the drivers than will drive the adults to the sessions, namely the certainly that their child will be failed, for their fault.

Thereafter, you can use any number of positive influencers that you like, your exemplars etc. In my opinion, nothing else will work. We have seen exemplars showing people - I myself have for years being setting examples, with little to show for it. In my colony, for the past year, some adults have been voluntarily cleaning the garden, with zero impact. It is still as dirty as it used to be before the great swachhtaa tamaashaa!

That is why setting an example will not work; and that is why it hasnt worked till now. Remember the Aamir Khan Ad? Or recall all those people who do the cleaning up, and who carry things to the dustbin etc? It hasnt worked because it wont; not now, not ever.

These are influencers, and influence behaviour only for the duration of the experience. Thus, no amount of setting examples is the solution. Values change only when a person is put through a deep, positive or negative influence that has the capacity to jar a person from stem to stern. Or they can be formed during the early years; that is it. The only solution is parent and children education, and a slow change for the better. Fact of the matter is that the moral compass of our society is seriously skewed, and that is a fact.

Rest assured; if a person acts clean in office, malls – but is careless in public places, that person is almost a charlatan, a con and a put-on. He or she is wearing a fake garb of ethics. The truly ethical person is ethical in each and every walk of life, is uncompromising on this basic human value.

Sunday, 21 June 2015

Book Review : Harvard Business Review On Making Smarter Decisions

Harvard Business Review literature and studies stand at the pinnacle of management thought in the world – at least if you consider the popular realm. While there are many other institutions that are competing with Harvard in terms of Research, at least in India Harvard stands all alone in the popular imagination. This is clearly in evidence if you take a look at Indian Book Stores, which routinely sport its HBR series of books on management thought. This is the 2nd HBR I am reviewing; and in this I will attempt a different style, anaylsing each article in short points, as well as underscoring the crying need for quality research in India…

Image result for harvard business review making smarter decisionsThe saddest aspect of this review is that try as I might, I cannot find even one single book – easily accessible  - on Indian Management Thought from Indian Universities, attuned to Indian Realities and Examples, while book stalls are chock full of books from Foreign Universities loaded with theories and examples from an alien market, an alien ground reality and requiring significant local inputs and alterations : some of which are plain inapplicable to Indian Realities. So much so that one of the largest economies in the world, a nation that prides itself on its higher education has not been able to pen many books that are in common acceptance on Management Practice and Thought. That speaks more about the attitudes of the professionals in Management than it does about our Management Colleges. But more of that later on my blog; a book review is not the place for such analysis!

The book in question has a series of articles on the art and science of decision making, attempting to understand the concepts and practices behind decisions, and helping the practicing manager make the optimal decisions :

a.     This article focuses on Decision Making within Organisations, understanding the process and emphasizing a much-needed cautionary tone and balance in Decision Making, powerfully underscoring the point that Decisions are situational, and one should not be too adamant on one a defined path. The primary focus is localization versus centralization, and clarity of roles and responsibilities
b.   However, in my considered view, the above article is applicable only to situations that require or enable objective decisions or are based on objective criteria with easy and extensive data availability and less uncertainty; this is not applicable to Marketing, where decision making can be far more complex than the simplistic model enumerated above

a.     This is an article that emphasizes Management based on Evidence with just the right amount of instinct thrown in, and a process-based approach towards Management : the need of the hour.
b.   It is replete with practical and real-world examples from a variety of situations which make the article one of the best to come from the realm of theory : Universities. Recommended Reading for ALL practicing Managers

a.     Most middle managers, lower management and perhaps even some senior managers are leery of the term “Strategic Planning” – that is a reality, a truism which I can readily relate to. This article looks at the concept of Strategic Planning – and its practical applicability in all aspects of Business. Another top-notch article, and a highly recommended read.
b.   It makes several powerful points : Strategic Planning is a continuous Process; The need for regular reviewing of Business Factors and External Environmental factors more than just meetings and numbers / selling oneself; Emphasising on the need for proper reviews that actually review the scenario rather than point blame; and more
c.     However, the entire focus is on corporate level decisions, whereas it is the local level tactical  decisions that make or break a brand in the market, repeated across the organisation – for example, how you respond to a new and better competitor {compete? ask for inputs from the top? give feedback of internal problems or keep silent? ignore? take short-cuts? Cut price through trade discounts rather than give feedback of superior competition?} Secondly, the straight link between profits and strategic decisions is debatable, as a strategic decision  means much more

a.     This article, in effect, carries on where the previous one left off : and looks at the concept of decision making with relevant data, and trying to beat “Bounded Awareness” – a situation where cognitive blinders prevent a person from seeing the obvious, as it were. A pretty common occurrence as we all well know!
b.   A superb and very practical article, this looks at how Managers ignore the obvious threats that are emerging in the political, regulatory, or market environment; and why this happens. In many ways this is a deep article requiring quiet contemplation, as it touches upon many divisive and harmful habit of the practicing manager – like ethical transgression, focusing on self over the organization, not sharing information, and their combined harmful impact.
c.     The only this is that while the article is needed and useful, and very powerful – the reality is that Top Management ignore real decisions and regular transgressions, which pile up over time to create a Frankenstein!

a.     This is an article that attempts to introduce the relatively new field of Analytics, but, in my opinion, falls slightly short of its chosen task. As it stands, it can be understood by current practitioners-  but to most, it will be Greek and Latin, so to speak. It makes some good points; excellent points even – but overall, it needed a far more practical approach and far more detail
b.   Apart from being vague, it also lacks a functional focus, taking a top-level approach. The need is the reverse : the people who collate data, create information, and make tactical decisions are the ones who need convincing as much as, if not more than the top people. And such an approach may convince the top people, but the middle manager is left with far more questions than answers. It also does not explain analytics, and makes no attempt to differentiate Analytics from prevalent practices
c.     It rightly makes the point that it is the Top Level who has the clout to carry out deep changes; but if you do not convince the middle guy in language he can understand – he or she goes to the top without having an understanding of the concepts of the future. In effect, you are re-inforcing the learning that to survive, do things the way they are done. You need to catch them young!

a.     The piece-de-resistance : an article that focuses on the Brain processes behind decision making – as well as going deep into the instinct, or gut decisions, as well as the connect between Emotions, Experience and Decisions. A must read for everyone in the corporate world!

a.     An article that looks at breaking indecisiveness through the use of intellectual honesty; using social paradigms within an organization : meetings, reviews, etc – engendering honest dialogue; rigorous feedback and follow-through.
b.   It raises several questions in your mind : decisive organizations require candor, openness, informality, closure : but how do these come about in an organization? What are the processes that are conducive to these? How will this change? How to overcome number-focus, internal competition etc?
c.     The problem identification is accurate; so is the framework suggested : but the solution is impractical; lasting and sustainable change is not achieved if you compel  a person – the change has to be from within.

a.     A thought provoking and largely theoretical article on how a manager is mislead due to some psychological traps in his or her mind the focus of this excellent article.That it is theoretical does not mean it does not have incisive learnings : it does.
b.   The traps – which instinctively make sense – provoke deep thought, and leave a lasting learning in your mind; we are talking about giving weightage to the first information, status-quo, sunk-costs wherein past mistakes are repeated as you try to justify past choices rather than learning from them, seeking information that confirms your opinions as opposed to being open, misstating a problem to reflect past decisions steps or opinions or indeed just lacking neutrality, overestimating accuracy of forecasts, being over-cautious, and giving undue weight to recent events.


In conclusion, it can be said that this book or set of articles is a valuable value addition to the practicing manager, requiring deep contemplation and thought, leaving a lasting impression – its lack of Indian Examples notwithstanding. The book also underscores the need for Management Research  to go much deeper into the problem, and not have a top-level focus – without that, the chances of reaching a wider audience than it currently has is close to zero in my opinion. Pity; had it had an India-focus, the learning would have been deeper, more pertinent, as well as having the added impact of making the entire book far more interesting, easy to read and absorb- and it would be certain to appeal to a much larger target market, a much larger potential audience… 

Friday, 19 June 2015



Most pink papers and white papers in mainstream media are usually habitual of carrying informed, and reasonably accurate articles and analyses on Agriculture Taxation, Cost of Power etc; a few also carry articles on the scenario of farming distress, usually focusing on suicides – an extreme step with a multitude of causes – or some other topical aspect, like seasonal losses etc. Few articles that extol taxation and power etc attempt to make a numerical analyses of farming and its profits. 

 The discourse in Urban India and Urban Indians focuses on taxation and other issues on one side, and suicides and farming distress on the other. Little attempt is made to place in front of the public the reality of the farming scene in India; in the previous article we looked at a simplified look at the entirety of the issues facing Indian Agriculture. Before we move deeper into the series, let us now place things in perspective, and go where few people have ventured: profitability of Farming in India, basis data and research that is publicly available. 

In presenting this analysis, I have used and based my calculations on authentic research from the internet, usually from recognized bodies, and have stayed away from any assumptions. The one assumption I have taken will be clearly mentioned as such, and has been further cross-verified with MSPs of the relevant period. While MSPs do not represent the entire market – as we shall see later in future articles – taken together with the research we can get an excellent bird’s eye view of the reality. 

The analysis is presented for costs and return from Paddy, for the years 1996-2003 released in 2007; the numbers have been sourced from Cost of Cultivation of Principal Crops in India, a report generated by the Ministry of Agriculture. Further on in the series, we shall look at numbers from contemporary India, reports of 2012-2014, and that is what shall give us a firmer idea. Further, the most detailed reports I have found are from 2003-2007 period; if updated numbers are available, readers are requested to update me with the same. 

Note : 

The base report used is this one : for reasons that have been included later on in the article. I will also refer many other researches, on other cost concepts, as well as NSSO 59th Round and 70th Round Research Reports in this series, but that is in subsequent articles

I have presented data for one crop : Paddy, and from 12 states for which  the data has been presented. I have not presented data for Chhattisgarh, Uttarakhand and Jharkhand for which data was present for only one or two years. 

This data presented here is my analysis; it is not present in this form in the research. On the same page in the referenced material, the value of produce & by product is present, as well as the cost of cultivation. I have brought them together and tried to derive some rough estimate of profit. This is of course a rough estimate, given that the research I have referenced clearly states that some input costs are from family estimates. From this base data, I have presented my charts, as well as presented the base data. 

Having said that, the rigorous calculation and imputation methods give a certain level of authenticity to the data : like taking post-harvest produce prices, or prices of inputs in local village, minimum wages, prevailing rent in the village etc

The one assumption taken here is the “Value” of product; this assumption is predicated upon the clarification on page no 7 of the research report “Cost of Cultivation of Principal Crops in India – 2007” from the Directorate of Economics and Statistics, Department of Agriculture and Cooperation, Ministry of Agriculture. The report states, and I quote : Main product & by- Imputed on the basis of post-harvest product prices prevailing in the selected villages.

I have tried to validate by taking data on yield per hectare and using MSP as a check for the veracity of my presentation. Despite this, this article remains indicative in nature; readers are requested not to derive too much from this. The objective  of this calculation is clearly mentioned in the next point.

This is just an indicative exercise, undertaken with  two objectives : first is the presentation of the reality of Farming when taken as a business enterprise, and secondly, the tackling of several Urban myths on Farming, and leading upto my third article, which shall go deeper into this

I have used C2 {revised} costs : that is, I have taken into consideration all items and components of cost, not just those that are paid out. The logic for taking this as a base is explained in the conclusion

All calculations are on a per hectare basis

Below is the chart of Value of Produce minus Cost {A rough estimate of net profit - Given the assumptions, let us also validate the same from others sources to see the accuracy of our presentation} : 

Andhra Pradesh
Madhya Pradesh
Tamil Nadu
Uttar Pradesh
West Bengal

To verify, let us take the yield per hectare data from the same research, and access Minimum Support Prices of Paddy from other sources {This one from RBI and This one }. Multiplying the two will give us a rough estimate of the value of the produce per hectare based on yield and solid documented and verifiable data; not field estimates. We can then subtract the resultant value of the farm produce from the value of the rough estimate above, to get an idea whether the key component : value of the produce, is anywhere near accurate. The resultant data table is tabulated below :

Andhra Pradesh
Madhya Pradesh
Tamil Nadu
Uttar Pradesh
West Bengal

In most cases, we can see that the resultant value based on government declared data of prices is lower {at times much lower} than the produce value used in our calculation. That can only mean that the value assumption – that of the value of the farm produce – is reasonably usable as an initial level estimate that can help as a guide towards understanding the concept farming as a business enterprise. Having said that, let us not read too much into this : this requires deeper study; these numbers are only, as I have mentioned above, indicative of a reality which I shall look at in detail later on in this research I am undertaking

Why should we take into account only those costs which the farmers are paying of pocket for Agriculture, while allowing all costs – including those lovely 5-star lunches, Promoter / Investor Salaries etc as deductions for Business? The same concept needs to be used for farmers as well! For the farmer, the farm is his office, his business; any expenses he incurs while farming- his occupation – should be deductible. If we allow Owner and Promoter Salaries as deductibles, business lunches gifts etc as deductibles for arriving at the profitability of a business, the same concept applies to farming. The reason is that these expenses are incurred while conducting the business. 

The above data clearly indicates that farmers as a whole, as a community, may not be making money, or at least a decent ROI – and this is even in the most advanced of states, like the case of Punjab. At least not when viewed as a business enterprise. And yet, this does not find mention in common articles in pink media {economic news} when analyzing taxation or power charges, or among some common Urban Indians. A deeper study, to be taken later, will reveal a lot more, and on both sides of the debate. This presentation is at best a rough estimate, and indicates the issues.  But this study does indicate the need of introspection for us as a people. Remember – these are the people who manufacture the food we eat; yes : Manufacture. Their Farm Factories produce the end product that allows us to live!