Cost of Cultivation Varies Across States

CEIC India Data Talk: India is among the top global producers of rice and wheat, with production of 104.4 million tons of rice and 92.46 million tons of wheat as of the end of fiscal year 2013. Production of rice has increased in each fiscal year since 2010; wheat fell back a touch in 2013 after climbing since 2005. The country saw record high rice yields of 2.46 thousand kilograms per hectare as of 2013, which was largely attributable to improvements in production and the distribution infrastructure; further improvements in India's infrastructure and supply chains are expected to increase overall yields further. The top five wheat producing states account for over 80% of total national wheat production. These include Uttar Pradesh (30.00 million tons), Punjab (16.47 million tons), Haryana (11.63 million tons), Madhya Pradesh (7.63 million tons) and Rajasthan (7.22 million tons) during the 2011 fiscal year. Rice production, in contrast with wheat, is less concentrated across India. The top 5 producing states – Andhra Pradesh (14.42 million tons), Uttar Pradesh (11.99 million tons), Punjab (10.84 million tons), Orissa (6.83 million tons) and Chhattisgarh (6.16 million tons) – accounted for just 52.34% of total rice production as at the end of the 2011 fiscal year. However, these top agricultural production centres have wildly differing cost structures. In terms of wheat and rice production, for example, Punjab stands out as having among the highest fixed costs (which includes rents, taxation, depreciation and interest on fixed capital) as a proportion of total cultivation costs. As at the end of the 2011 fiscal year, fixed costs accounted for 53.36% and 57.85% of rice and wheat cultivation costs respectively. This has been attributed to the higher land rental cost in Punjab relative to other states. Total rental cost and land (both owned and leased) amounted to 47.10% and 48.50% of total rice and wheat production costs respectively compared to 24-32% and 28-39% among the other top rice and wheat producers. The higher cost of land in Punjab is, in turn, explained by the relatively fragmented nature of land holdings in the state. In general, the higher proportion of fixed costs to overall costs increases farmers' vulnerability to an agricultural downturn. Also notable among these states' cost of cultivation is the differing deployment of labour in agricultural activities. While cultivation costs are predominantly human labour intensive – with working animals contributing to a relatively insignificant cost component in most of these states (Orissa rice production stands out for having animal labour accounting for 13.99% of total operating costs), a notable exception is for Punjab's wheat production where 35.43% of its operating costs come from machinery (compared to just 24.92% of its costs coming from human labour) - machinery has displaced human labour as a proportion of the operating cost component since 1999. The Indian government has placed increased emphasis on the agriculture sector in a bid to improve food security. Its recent endeavours to expand the food subsidy programme to the poor means that agriculture statistics (both in terms of yields and cost structures) will be of interest to analysts as they evaluate the sector and identify the potential exposure of farmers to adverse events (resulting in an increase in overall costs). By Chan Yee Lui Google+ Author Profile - CEIC Analyst Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog
21st October 2013 Cost of Cultivation Varies Across States