Making farming profitable

Research shows that small farmers continue to have an edge over large farms in terms of productivity. In 2014, the former achieved 10 per cent higher productivity than the latter.
From Amartya Sen in India to late Mahabub Hossain of Bangladesh, the empirics pointed to productivity advantages of small farms over the large ones due to a number of factors - mostly subsistence pressure and family labour. But recent findings are not found to be statistically significant although up to the year 2000, the productivity difference was larger and statistically significant.
This eyebrow-raising trend demands an explanation. The difference in productivity between two groups has come down due to technological advancement that requires 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 modern variety (MV) Boro and 50 per cent used hired labour. It can be seen that 70 per cent of the costs in MVs are attributed to inputs, such as fertiliser, pesticides, irrigation and machine rental. Small farmers have to buy these inputs from the market but at times are constrained by lack of access to credit and extension in which large farms have an advantage. Fortunately, the institutional set-ups have come to their help but more needs to be done.
Now, here are some observations on the alleged adverse terms of trade. The general perception is that farmers in Bangladesh, especially paddy growers, are deprived of due prices for their product in a regime of rising input costs. This allegedly creates disincentives in allocation of scarce resources to rice. But, surprisingly perhaps, the area under rice, especially of Boro, has been increasing over time despite the alleged disincentive. Wherein lies the riddle? A 2014 household survey of 62 villages may shed some light on this phenomenon.
The cost of producing a maund (40 kgs) of paddy in 2014, according to the survey, stood at Tk 502 against the prevailing price of rice at Tk.700/maund thus giving a rate of profit at 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 with a fall in rice prices but since 2004, the pendulum has begun to swing in favour of 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-third of the harvests to the 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 Aman 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 have 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 in potato.  Second, the yield of wheat, jute and potato has increased over time, and rice yield has not merely increased but has almost doubled from 7.5 maunds per bigha (33 decimals) in 1988 to 13 maunds in 2000 and about 16 maunds in 2014. Third, MVs have shown the door to transplanted varieties (TVs) through a substitution of the latter by the former. This is revealed by statistics that area under TVs went down from 46 per cent of total cultivated land in 1988 to 24 per cent in 2000 and further to only 14 per cent 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 6.0 to 9.0 maunds during the same period of time. Fourth, the Aman crop is relatively risky and yield is about 7.0 maunds per bigha which is one-third 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 62-village survey data also reveals interesting changes in input uses, especially labour and machine use in farming. The labour use per hectare was reduced from 164 days in 1988 to 132 days in 2000 and 99 days in 2014. The use of hired labour, however, remained at 50 per cent of the total labour while that of hired labour by small holders and tenants grew over time. Apparently the fall in labour demand was fuelled by the spread of mechanisation in land preparation and threshing. Machine cost less than labour in both the activities. As labour market got tight and wage rate was hiked over time, machine became a friend of the farmers; 90 per cent of 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 increased five times, indicating the pressure from demand side.  There had also been growing use of herbicides replacing labour in weeding.
Only about one-third 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 was adduced to the hike in cost of phosphate and potash (Tk.70-80 per kg). Later, the decline in prices of chemical fertilisers induced an increase in fertiliser use. It was thus no wonder that in 2014 only one-third 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 use of organic fertiliser and puts additional burden on farmers. The optimal policy should be to reduce subsidy and divert the resources to help farmers with modern seed or research and extension.
The writer, a former Professor of Economics at Jahangirnagar University, is Chair, Department of Economics and Social Science, BRAC University.
abdul.bayes@brac.net