Cost and returns in agriculture

Costs and returns are important considerations in day-to- day in all fields including agriculture. This is because farmers all over the world are assumed to be rational - maximising profits and minimising costs. The general perception is that farmers in Bangladesh, especially those engaged in rice farming, are deprived of due prices for their product in a regime of rising input costs thus creating disincentives in the allocation of scarce resources to rice.
But the good news is that despite the alleged disincentive, the area under rice especially of Boro variety has been increasing over time; staple food production is presumed to be at a satisfactory level. Wherein lies the fix? The readers would possibly glean interesting insights of the above-mentioned paradox from the recent most household survey of 62 villages (2014). The survey on the same households in rural areas spans over four rounds (1988, 2000, 2008, and 2014). It is nice to note that the credible data base has been coined as 'MH Data base' (Mahabub Hossain data base) by a recent World Bank document.  
It can be observed that the cost of producing a maund of paddy in 2014 was Tk.502 against the price of Tk.700/maund thus giving a rate of profit of 39 per cent. The margin might challenge the critics who hold that farming has become unprofitable due to rising costs of inputs and non-remunerative price of output. This could have been the case during 1988-2004 period with a monotonic fall in rice prices.
 But since 2004, the pendulum fortune began to swing for farmers. The family income from farming on one hectare of land in 2014 was Tk.45,820 in paddy compared to Tk. 31,668 in wheat, Tk 37,406 in jute and Tk 1,92,582 in potato. However, the tenant farmers don't seem to make any surplus in rice cultivation as they have to surrender almost one-thirds of the harvests to their land owners. Interestingly, return per day of labour used in their rented-in land is estimated to be Tk.494 in Boro season and 391 in Amon season against the prevailing wage rate of Tk.278. Thus they are better-off in renting land than selling labour in other's land.
During the last two decades and a half, important changes occurred in the realm of rice production and profitability. First, the cost of producing rice is a few folds higher than potato but the rate of profit is more than double for potato.  Second, yield of wheat, jute and potato has increased over time but yield of rice has almost doubled from 7.5 maunds per bigha (33 decimals) in 1988 to 13 maunds in 2000 and about 16 maunds in 2014. Second, modern variety (MV) has shown the door to traditional variety (TV) through a substitution of the latter by the former. This is revealed by the statistics that area under TVs has gone down from 46 per cent of total cultivated land in 1988 to 24 per cent in 2000 and further to only 14 percent in 2014. Third, the yield of MVs has increased partly due to adoption of higher yielding varieties and partly (possibly more importantly also) due to better crop management.
Over time, agriculture in Bangladesh has become more merit-based rather than manual-based. It is thus no wonder that the yield of Boro rice increased from about 15 maunds per bigha in 1988 to 20 maunds of late. Of course, the yield of TVs also increased from 6 to 9 maunds during the same period of time. Fourth, the Amon crop is relatively risky and yield is about 7 maunds per bigha which is one-thirds lower than Boro. To reduce the yield gap, scientists are looking for newly developed submergence tolerance variety, which requires resources for research and extension.
The MH data base also reveals interesting changes in input uses especially labour and machine use in farming. The labour use per hectare has reduced from 164 days in 1988 to 132 days in 2000 and 99 days in 2014. The use of hired labour, however, remained 50 per cent of the total labour; the use of hired labour by small holders and tenants has grown over time. Apparently the fall in labour demand was fuelled by the spread of mechanisation in land preparation and threshing. Machines cost less than labour in both the activities.
As labour market got tight and wage rate hiked over time, machine became a friend of the farmers- 90 per cent of the farmers in Bangladesh now use machine compared to 60 per cent in 2000, and almost none in 1988. During this period, the cost of machine rental has increased five times - indicating the pressure from demand side.  There is another reason also and it is that the growing use of herbicides has replaced labour in weeding.
Only about one-thirds of farmers used manure in Boro production in 2000 which shot up to 54 per cent in 2008 but again dipped to 32 per cent in 2014. The peak in 2008 is adduced to the hike in the cost of phosphate and potash (Tk.70-80 per kg). Later, the decline in the prices of chemical fertilisers induced an increase in fertiliser use. It thus no wonder that in 2014 only one-thirds of the farmers were found using manure as the cost on account of manure was only 12 per cent of the costs of chemical fertiliser. This drives us to an important policy note.
Subsidy on chemical fertiliser harms on two sides: it diverts away from using organic fertiliser and puts additional burden on farmers. The optimal policy is the reduction in subsidy and diverting the resources to help farmers with modern seed or research and extension.
Almost all farmers use irrigation in the cultivation of Boro rice, wheat and potato. For other crops, the use of irrigation is minimal. During the Boro season, cost of irrigation has doubled between 2000 and 2014. Similar is the picture with other crops.
The most important finding is that small farmers continue to have edge over large farms in terms of productivity - 10 per cent higher productivity than larger ones in 2014. From Amartya Sen in India to Mahabub Hossain in Bangladesh, the empirics pointed to the productivity advantages of small farms over the large ones due to a volley of factors - mostly subsistence pressure and family labour. But the recent most finding on the edge of the small over the large is not found statistically significant although up to 2000, the productivity difference was larger and statistically significant.
The eyebrow-raising trend demands an explanation. The difference in productivity between two groups has come down due to technological advancement requiring less labour and more capital. There is no statistically significant difference between them in the use of chemical fertiliser and irrigation. For example, between 2000 and 2014, almost all farmers across farm size groups used urea, TSP, MP, and irrigation in MV Boro , and 50 per cent used hired labour. It can be seen that 70 per cent of the costs in MVs are accounted for by the inputs such as fertilisers, pesticides, irrigation and machine rental. Small farmers have to buy these inputs from the market but at times are constrained due to the lack of access to credit and extension in which large farms have advantage. Fortunately, the institutional setups have come to help them but more needs to be done.
The writer is Professor
of Economics at
 Jahangirnagar University.
[email protected]