Friday, 19 June 2015

INDIAN FARMERS : A LOOK AT ROUGH ESTIMATES OF PROFITS



INDIAN FARMERS : A LOOK AT PROFITS

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 : http://eands.dacnet.nic.in/costofcultivation.pdf 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} : 

State
1996-97
1997-98
1998-99
1999-2000
2000-01
2001-02
2002-03
2003-04
Andhra Pradesh
1079
(457)
2975
1304
518
(7)
3186
4188
Assam
434
1390
2597
1844
(216)
(658)
(806)
(1080)
Bihar
918
1091
1848
712
(1950)
(876)
(1387)
(1263)
Haryana
1438
1842
2494
2069
6708
4641
989
2364
Kerala
0
(1515)
(61)
1923
1212
1452
1453
(1752)
Madhya Pradesh
779
(550)
(953)
(126)
(3843)
(2205)
(3477)
(906)
Karnataka
0
0
0
8787
2636
1950
4925
1798
Orissa
1014
1023
0
(370)
(18)
(375)
(3824)
(1516)
Punjab
2936
4912
2787
7184
7950
10239
4327
9881
Tamil Nadu
0
0
4642
1143
2073
317
3172
1069
Uttar Pradesh
3259
917
1250
1910
356
(203)
(1985)
1554
West Bengal
2160
1162
2891
(236)
(3385)
(3304)
(5539)
(3220)



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 :


State
1996-97
1997-98
1998-99
1999-2000
2000-01
2001-02
2002-03
2003-04
Andhra Pradesh
4226.8
(2563.6)
(4577.0)
(3862.5)
(1807.0)
(2449.9)
(4078.0)
(3212.0)
Assam
1066.2
(1758.9)
(2926.6)
(1778.0)
607.7
808.5
(14629.6)
1064.5
Bihar
2169.6
(1535.9)
(1842.4)
(1439.2)
1076.8
1588.8
4513.8
1368.0
Haryana
3552.8
(4406.9)
(6275.6)
(5436.5)
(8936.6)
(7546.7)
(13790.7)
(9105.5)
Kerala
0.0
(7690.1)
(9711.1)
(9637.2)
(8630.4)
(7680.0)
5264.2
(8208.3)
Madhya Pradesh
2672.0
(1754.9)
(1842.6)
(2350.0)
(1290.0)
(1452.6)
(26893.3)
(591.3)
Karnataka
0.0
0.0
0.0
(10422.8)
(4456.2)
(8207.6)
(10859.1)
(7984.0)
Orissa
2195.5
(921.5)
0.0
(2400.3)
(1765.0)
473.2
(2928.6)
793.6
Punjab
1534.5
(2023.6)
(1474.7)
(1539.9)
(930.3)
(2292.1)
12335.6
(3042.1)
Tamil Nadu
0.0
0.0
(7844.5)
(6950.7)
(5165.2)
(5056.8)
24205.1
(6484.6)
Uttar Pradesh
1632.1
(146.7)
(485.1)
(58.2)
1682.8
1844.0
16382.3
907.5
West Bengal
4953.3
(4853.9)
(7974.7)
(3710.3)
(766.1)
228.6
18862.7
(872.9)


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



THE CONCLUSION
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!

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