CHAPTER IV COST AND RETURNS ANALYSIS

Save this PDF as:
Size: px
Start display at page:

Download "CHAPTER IV COST AND RETURNS ANALYSIS"

Transcription

1 Thus the estimated compound growth rate for area, production and yield were 1.29, 1.20 and per cent per annum. The growth rate for area is higher than the production and yield. The yield of turmeric in Erode district had a less growth rate. The estimated the co-efficient of variations were 32.93, and per cent for area, production and yield of turmeric in Erode district for the period from to So the turmeric cultivation practices adapted by the farmers in Erode district and the reasons for preferring the Erode local variety of turmeric for cultivation are presented. CHAPTER IV COST AND RETURNS ANALYSIS 4.1 INTRODUCTION Cost studies are an important part of any business firm. Market price of a commodity is determined by its production cost. Agriculture is also treated as a business in modern period. In agriculture production cost plays an important role in

2 decision making of the farmers to settle down with any crop or cropping system 72. Turmeric is one of the important cash crops in Erode district of Tamil Nadu. It requires huge investment and maintenance cost. Increasing cost of cultivation and low returns in turmeric may not encourage farmers to adopt improved technology in farm 73. Hence, it is an important to estimate the cost and returns structure of turmeric crop on the farm in the Erode district. In agriculture the cost of cultivation refers to the expenses incurred on various inputs to obtain the final output. The cost is classified in to i) variable cost and ii) fixed cost. The variable cost is one in which changes with the level of production in the same direction. The fixed cost remains constant in short run and does not vary with the level of output REVIEW OF STUDIES RELATED TO COST AND RETURNS 72 G.Sing, Data Book on Mechanization and Agro-Processing in India, Central Institute of Agriculture Engineering India, 1997, p K.Govindarajan, Traditional Methods of Turmeric Cultivation in India, Spice Board, Cochin, 1999, p J.P.Mittal, A Mathematical Expression for Cost and Analysis of Farm Equipments, Indian Journal of Agricultural Economies, Vol.29 (1), 1974, p.51.

3 In this section, an attempt is made to review the different studies on the cost and returns in turmeric cultivation, by adapting the cost concepts used in Farm Management studies. L.B.Daske 75 et.al. have made a study on economics of turmeric production during the year at Bhadravati taluk of Chandrapur district of Maharastra State. Survey data were collected, by using interview method from 60 sample farmers, which was selected by adopting multistage stratified random sampling method. Cost estimation was made on the basis of cost concepts used in farm management studies. The estimated total cost of turmeric production per hectare was Rs.54,249 of which, the cost of seed constituted a major share as per cent, the rental value of land and the cost of labour have constituted per cent and per cent in total cost. The net returns received from per hectare turmeric production was Rs.10, The estimated cost benefit ratio was 1:1.20. Hence, the turmeric cultivation was profitable in Bhandravati taluk. The cost of production was higher than the cost estimated (Rs.30153) by G.Blokes 76 in Karnataka State. High price for seed was the main 75 L.B.Daske, S.S..Kalamkar and N.V.Shenda, Economies of Production and Marketing of Turmeric in Chandrapur District of Maharashtra, Indian Journal of Agricultural Marketing, Vol.16 (2), May-August 2002, pp G.B.Lokesh, Economies of Production Marketing and Processing of Turmeric in Karnataka, Indian Journal of Arecanut, Spices & Medicinal Plant, Vol.5 (2), 2002, pp

4 reason for high cost of production. They failed to estimate cost for small and large farmers separately. P.R.Patil 77 et.al. have estimated cost and returns of turmeric cultivation in Sangli District of Western Maharashtra during the crop year Survey data were used to estimate cost, which were collected farmers, selected from 6 villages by adopting method. The cost concepts and methods used studies were followed in this study. from 60 sample random sampling in farm management Personal interview method was used to collect survey data from the sample farmers. The estimated total cost per hectare was Rs.2,59, The cost of seeds constituted per cent of the total cost. Rental value of land and management charges constituted per cent and 9.10 per cent next to seed in total cost. The net return was estimated as Rs.1, 22, The cost benefit ratio was 1:1.48. They may be concluded that turmeric cultivation was profitable in Sangli district. The cost was higher than the cost estimated (Rs.54, 249) by L.B.Daske 78 in Chandrapur district of Maharashtra. They also failed to differentiate cost of production between small and large farmers. 77 P.R.Patil, N.S.Lohar and V.S.Bonder, Economies of Production of Turmeric in Sangli District of Western Maharashtra", Indian Journal of Aromatic Spices & Medicinal Plants, Vol. (1), January 2002, p L.B.Daske, Op.cit., p.71.

5 G.Maheskumar 79 has estimated cost and return structure of turmeric cultivation in Erode district of Tamil Nadu State. Survey data were collected from 350 sample farmers by using interview schedule. Samples were selected by adopting multistage stratified random sampling technique. The survey data pertained to the crop year The sample farmers were stratified into small and large farmers. Cost concepts and methods of measurement followed by farm management studies were employed. The estimated total costs of turmeric cultivation per acre were Rs.41, and Rs.40, respectively. The cost of production for large farmers was less than the cost of small farmers. It was due to less variable cost of large farmers. The share of seed, labour, manure and rental value of land were constituted a major shares in the total cost of production. The estimated net returns were Rs.10, and Rs.15, for small and large farmers. The large farmers sold their produce through regulated markets thereby, they got better price for their produce. In the case of small farmers, they sold their produce to commission agent, they charged low price. Hence, the large farmers enjoyed high net return than small farmers. The cost benefit ratios were 1:1.27 and 1:1.42 for small and large farmers. He has concluded that turmeric cultivation is profitable in Erode district. 79 G.Maheskumar, Economics of Production of Turmeric in Erode District, Unpublished M.Pill Thesis, Bharathiar University, Coimbatore, 2002, p.135.

6 G.B.Lokesh 80 had studied the cost and returns structure of turmeric in his study Economics of production of turmeric. He had selected chamaraja nagar district of Karnataka State as his study area. Survey data were collected from 90 sample farmers selected from taluks by using interview method. In order to select the sample farmers multistage random sampling technique was adopted. The survey data pertained to the crop year The results obtained from the study were: i) Total cost of turmeric production per acre was Rs.30,153 of which, labour cost constitutes 29.1 per cent of the total cost. ii) Rental value of land constituted 16.6 per cent of the total cost. iii) Planting material s share in total cost was 11.9 per cent. iv) The net returns per acre from turmeric was estimated as Rs.40, 647 and the cost benefit ratio was 1:1.34. He had concluded that turmeric cultivation in chamarajanagar was profitable. He failed to differentiate the cost of production for small and large farmers. 80 G.B.Lokesh, Economics of Production, Marketing and Processing of Turmeric in Karnataka Indian Journal of Arecanut, Spices & Medicinal Plants, Vol.5 (2) 2002, pp

7 A study on, Economic analysis of chilly farming in Guntur district of Andhrapradesh, was undertaken by Y.Eswara Prasad 81 et.al they have chosen Guntur district, as the study area. They have collected survey interview schedule, from 90 sample farmers, which data by using were selected by adopting multistage random sampling technique. and returns pertained to the crop year The data related to cost The cost concepts and income measures used in farm management studies were employed. They have estimated total cost of chilly production per hectare for small and large farmers were Rs.13, 287 and Rs.13, 762. The rental value of land, human labour and plant protection chemicals were constituted major shares in total cost of both groups. The large farmers have paid more for labour and plant protection chemicals than the small farmers. The estimated net returns for small and large farmers were Rs.3993 and Rs.5863 respectively. The large farmers had enjoyed more income than the small farmers. Inspite of less cost of production, the small farmer s net income was less than the large farmer s income, due to small farmers sold their produce at low price to the local traders. They have concluded that chilly farming was a profitable venture in Guntur district. 81 Y.Eswara Prasad, P.Raguramand and G.Sathaya Narayana, Economic Analysis of Chilly Farming in Guntur District Andra Pradesh, Spice India, Vol.17, No.4, and April 2004, pp.9-11.

8 A.Sundar and S.Kombairaju 82 have made a study on economic of production of Gloriosa Superba in Tamilnadu State. They have selected Dindigul, as the study area. Interview schedule was used to collect survey data from 100 sample farmers were selected by using random sampling techniques. The survey data related to the crop year The selected samples were post-stratified in to two groups i) up to 2 hectares ii) more than 2 hectares. Cost concepts and measurement of cost used in farm management studies were employed. The total cost for group I and group II were estimated as Rs and Rs respectively. The cost of tubes and manures & fertilizers were constituted major shares (70.08 per cent and per cent) in total cost of production of both groups. The estimated net incomes, for group I and group II were Rs.1, 57,383 and Rs.1, 33,030. The group I farmers had enjoyed more benefit than group II. It was due to the group I farmers had achieved more yield than group II farmers. They concluded that the cultivation of Gloriosa Superba was profitable in the Dindigul district. Measurement of Cost Components In the present study, survey data related to cost and returns of turmeric cultivation in Erode district are collected from 350 sample farmers by using 82 A.Sundar and S.KombaiRaju, Economics of Production of Gloriosa Superba in Tamil Nadu, Indian Journal of Arecanut Spices & Medicinal Plant, Vol.6 (2) 2004, pp

9 interview schedules. The collected survey data pertained to the crop year The cost concepts and measurement of cost of variables used in farm management studies are applied in this study. Human Labour Human labour was measured in mandays, unit of 8 hours of work for each manday. All the permanent family member and hired labour were considered alike and valued at existing wage rate 83. Two female labours each with 8 hours of work were assumed to be equivalent to one unit of male labour, as the wage rate of female labour was found to be half of male labour. The wage rates were Rs.150 & Rs.75 for man and female respectively in the study area. Labour employed for preparing land, mulching, forming ridges, furrows, planting of rhizomes, earthling up, hoeing & weeding and harvesting. Rhizomes The actual expense incurred on rhizomes was taken in to account during the crop year The imputed value for owned rhizomes was estimated at the prevailing market value. It includes cost of transportation. 83 P.Sangn, Surplus Man Power in Agriculture and Development, Asia Publishing House, Bombay, 1989, p.29.

10 Farm yard manure The owned farmyard manure was valued at market price prevailing at the time of survey in the Erode district and purchased farmyard manure was valued at the actual cost plus the transport cost. Chemical Fertilizer and Pesticides The actual amount paid by the farmers towards the cost of fertilizer and pesticides was considered for the present study. Irrigation The Government of TamilNadu provides free power supply to agriculture. However, the minimum expense incurred on the consumption of electricity in motor pump set was computed at its purchase price. Boiling of Rhizomes The actual amount paid by the farmers towards the boiling of rhizomes was considered for the present study.

11 Drying The boiled fingers are dried under the sun for 10 to 15 days until they become dry and hard. The actual amount paid by the farmers for drying rhizomes was taken into account. Polishing The yellow colour of turmeric is an important to fix higher price for turmeric in market. So polishing of turmeric is essential one. The actual amount paid by the farmers for polishing turmeric was considered for the present study. Interest on Working Capital Interest rate was charged at the rate of 8.5 per cent as working capital, which is an on going rate charged by the co-operative bank for short-term crop loans during the survey period. Packing & Transportation The actual expenditure incurred by the growers for packing transportation was considered for the present study.

12 Land Rent The existing rental value of the owned land in the study area was considered. For leased land, the actual rent paid was taken into account. Depreciation Depreciation was calculated for structures like farming shed and pump shed fifteen years were taken as their life and depreciation was calculated accordingly. Inter- Crop Income The actual amount received by the farmers, after sale of the inter-crops like onion and cotton, was taken as the income from inter-crop. Cost and Return Structure The cost and returns structure helped the farmers in making adjustments in the organization to secure optimum levels of production and income. In this study, tabular method of analysis was adopted to work out the cost of turmeric cultivation and unit cost of production namely cost in rupees per acre. Three aspects of cost structure were studied, namely i) cost per acre with all the details of its components, in order to understand the relative shares in total cost

13 ii) unit cost of production in order to understand the operational efficiency of the farmers and iii) cost-price relationship to evaluate the profitability of the crop. In the present study, the cost has been categorized into cost. A (variable cost), cost.c (fixed cost) and cost. D, were calculated on the basis of the cost concepts used in farm management studies in India 84. The cost A consists of cost of rhizomes labour, fertilizer, manures, pesticides, irrigation, boiling of rhizomes, drying, polishing and packing & transportation. The cost C includes cost. A plus imputed rental value of land interest on fixed capital, depreciation on capital assets and repair & maintenance. The cost D includes cost C minus income from intercrop in turmeric field. The per acre cost and returns structure of turmeric for small and large farmers has been presented in Table 4.1. TABLE 4.1 COST AND RETURNS IN VALUE TERMS PER ACRE OF TURMERIC CULTIVATION BETWEEN SMALL AND LARGE FARMERS IN ERODE DISTRICT DURING THE YEAR Sl. Cost Item Small Farmers Large Farmers 84 Heady and J.L.Dillion, Agricultural Production Function, Kalyani Publishers, New Delhi, pp

14 No. Amount (in Rs.) Per cent Amount (in Rs.) Per cent 1. Labour Rhizomes Manure Fertilizer Pesticides Irrigation Boiling of rhizomes Drying Polishing Interest on working Capital Packing & Transport Cost A (1 to 10) Rental value Other fixed cost (Interest of fixed capital, depreciation & other cost) Cost C (12 to 14) Inter-crop income Cost D (15-16) Gross return Net return Yield per acre (in quintal) Selling price (per quintal) Source: Survey Data. From Table 4.1 one could understand that the monetary gross return earned by the small farmer (Rs ) was less than the large farmer (Rs.60275). The total cost incurred by the small farmer was Rs.39, was greater than the cost of the large farmer, which was worked out to be Rs.36, The net returns

15 earned by the small farmer were Rs.20, as against Rs for the large farmer. The resulted difference in favour of large farmer was Rs The variable cost formed about per cent for the small farmer and per cent for the large farmer of their total cost. Among the different uses of inputs, human labour constituted the major cost component accounted for nearly 23 per cent of the total cost in the small and the large farmer. The same result was reported, in G.B.Lokesh and M.G.Chandrakanth s 85 study. Rhizomes was the next important cost component, which accounted per cent for the small farmer and per cent for the large farmer. Turmeric crop requires organic manure, which should be applied one month before planting. The average cost of manure worked out to be Rs constituting 11 per cent of total cost for small farmer and Rs constituting 5.88 per cent of total cost for the large farmer. The expenditure on plant protection such as fertilizer and pesticides was Rs for small farmer and Rs for large farmer. Its contribution to total cost was found to be 8.44 per cent and 85 G.B.Lokesh and M.G.Chandrakanth, Economics of Production, and Marketing of Turmeric in Karnataka, Indian Journal of Arecanut, Spices Medicinal Plant, Vol.5 (2), 2001 p.55.

16 9.19 per cent of small and large farmers respectively. The irrigation expense amounted to Rs in case of small farmer and Rs in case of large farmer. The boiling cost amounted to Rs and Rs respectively for small and large farmers. Its contribution to total cost was 4.40 per cent and 3.51 per cent respectively. The boiled fingers are dried under the sun for 10 to 15 days, until they become dry and hard. Drying cost was computed to be Rs and Rs for small and large farmers. The cost of polishing the turmeric fingers amounted to Rs and Rs per acre for small and large farmers, which accounted for 1.44 per cent and 1.49 per cent of the respective total cost. The interest on working capital, computed was Rs (3.37 per cent) for small farmers and Rs (3.52 per cent) for large farmer. Among the various components of fixed cost, rental value of land was the major item followed by other fixed cost. The rental value of land per acre worked out to be Rs (14.82 per cent) for small farmer and Rs (13.08 per cent) for large farmer.

17 The other fixed cost included interest on fixed capital depreciation on capital assets and maintenance cost, which were worked out as 11 per cent and14.10 per cent for small and large farmers respectively. Unit Cost of Turmeric Cultivation The unit cost of cultivation was estimated for cost D. The productivity and unit cost of turmeric cultivation per acre for small and large farmers are presented in Table 4.2. TABLE 4.2 UNIT COST OF TURMERIC CULTIVATION PER ACRE FOR SMALL AND LARGE FARMERS IN ERODE DISTRICT DURING THE YEAR Item Small Farmers Large Farmers Cost D (in Rs.) Yield in Quintals Cost per Quintal (in Rs.)

18 Cost per Kg (in Rs.) Source: Survey Data. Table 4.2 revealed that the unit cost of turmeric cultivation in the study area during the year The total cost of production (cost D ) per acre worked out as Rs.36, and Rs.33, for small and large farmers. The cost of production for per kilogram was Rs for small farmers and Rs for large farmers. Therefore, it may be concluded that the large farmers had a more advantage position in cost of turmeric production than small farmers. Returns Gross income, farm business income and net income are the three different concepts used to explain the returns from turmeric. The returns from turmeric cultivation are presented in Table 4.3. TABLE 4.3 PER ACRE COST AND RETURNS STRUCTURE OF TURMERIC CULTIVATION IN ERODE DISTRICT DURING THE YEAR S.No. Particulars Small Large (in Rupees)

19 Farmers Farmers 1. Yield in Quintals Price (Rs./Qtl) Value of turmeric (in Rs.) Inter-crop Income (in Rs.) Gross Income (in Rs.) (3+4) Cost A (in Rs.) Farm Business Income (5-6) Cost C Net Income (5-8) Source: Survey Data. It could be observed from Table 4.3 that the large farmers had enjoyed more net income than the small farmers in turmeric cultivation in the Erode district during the year It is because of large farmers had applied scientific methods in the turmeric cultivation than the small farmers. Profitability Analysis The gross returns and net profit of turmeric cultivation per acre were estimated for small and large farmers and the results are presented in Table 4.4. TABLE 4.4

20 PROFITABILITY OF TURMERIC CULTIVATION IN ERODEDISTRICT DURING THE YEAR (in Rupees) S.No. Particulars Small Farmers Large Farmers 1. Total Variable Cost (cost.a) Total Fixed Cost Cost of Production (cost. D) Gross Return Net Return Input Output Ratio 1:1.56 1: Cost Benefit Ratio Source: Survey Data Table 4.4 reveals that the input-output ratio in terms of operational cost was Rs.1.56 per acre for small farmer and 1.80 per acre for large farmer. Further, the cost benefit ratio for small and large farmers indicate that each rupee spent on turmeric could have resulted in a benefit of Rs.0.56 and Rs.0.80 respectively. Large farmers sell their turmeric, when market price is high. Small farmers sell their produce at low price to meet out their needs. That is the reason, for the difference in the Cost-Benefit ratio between small and large farmers. The analysis

21 shows that the production of turmeric was highly remunerative and profitable. The same result was reported in L.B.Dodkes and P.R.Patil s studies 86. So in order to estimate cost and returns, the cost concepts and methods of measurement followed in farm management studies were employed. The estimated total cost of production per acre for small and large farmers were Rs.36, and Rs.33, respectively. The total cost for small farmers was higher than the large farmers. It was due to the fact that the share of variable cost of the small farmers was higher than the large farmer s cost. The estimated unit costs of turmeric production for per kilogram of small and large farmers were Rs and Rs The estimated net returns from turmeric cultivation were Rs.20, and Rs.26, for small and large farmers. The cost benefit ratio were 1:1.56 and 1:1.80. The cost benefit ratio was more than unity. Hence, it may be concluded 86 L.B.Dodke, "Economics of Production, and Marketing of Turmeric", Indian Journal of Agricultural Marketing, Vol.16 (2), May-August 2002, pp P.R.Patil, Economics of Turmeric production in Sangili District of Western Maharashtra, Indian Journal of Arecanut, Spices Medicinal Plant, Vol. (1) 2, 2003, pp.9-11.