Choosing Between Two Crop Plans
A farmer in Bihar's drought-prone south has 2 hectares and ₹40,000 of working capital. Plan A: grow paddy on both hectares. Expected yield 4 tonnes per hectare at ₹1,800 per quintal, but water demand is high and a failed monsoon could cut yield by half. Plan B: grow maize on 1.2 hectares and pulses on 0.8 hectares. Maize yields 5 tonnes per hectare at ₹2,000 per quintal; pulses yield 0.8 tonnes per hectare at ₹7,000 per quintal. Plan B costs ₹18,000 per hectare against ₹22,000 per hectare for paddy. The farmer also has a standing offer of ₹9,000 per hectare to lease out land, and a crop-insurance scheme that pays 60% of input cost if yield falls below half of normal. Note: 1 tonne = 10 quintals.
1. Compute expected gross and net returns for both plans under normal conditions and state which is better.
Read the worked answer
Plan A (paddy, 2 ha):
- Yield = 4 t/ha × 2 ha = 8 t = 80 quintals. Revenue = 80 × ₹1,800 = ₹1,44,000.
- Cost = ₹22,000 × 2 = ₹44,000. Net = ₹1,00,000.
- But capital is ₹40,000 - Plan A needs ₹44,000, so it is not fully fundable without borrowing.
Plan B (maize + pulses):
- Maize: 5 t/ha × 1.2 ha = 6 t = 60 q. Revenue = 60 × ₹2,000 = ₹1,20,000.
- Pulses: 0.8 t/ha × 0.8 ha = 0.64 t = 6.4 q. Revenue = 6.4 × ₹7,000 = ₹44,800.
- Total revenue = ₹1,64,800. Cost = ₹18,000 × 2 = ₹36,000. Net = ₹1,28,800.
Plan B gives higher net return (₹1,28,800 vs ₹1,00,000) and fits within ₹40,000 capital. On normal-year economics, Plan B is better.
2. Now assess the downside risk. Which plan is safer if the monsoon fails, and how does insurance change the answer?
Read the worked answer
Plan A under failure: yield halves to 2 t/ha = 40 q. Revenue = 40 × ₹1,800 = ₹72,000. Cost ₹44,000. Net = ₹28,000. Insurance pays 60% of input cost = 0.6 × ₹44,000 = ₹26,400, lifting net to about ₹54,400.
Plan B under failure: assume the same proportional halving. Maize 30 q × ₹2,000 = ₹60,000; pulses 3.2 q × ₹7,000 = ₹22,400; revenue ₹82,400. Cost ₹36,000. Net = ₹46,400. Insurance = 0.6 × ₹36,000 = ₹21,600, giving about ₹68,000.
So Plan B remains better in both normal and failed years, and its lower input cost means a smaller loss. Pulses also fix nitrogen, improving later soil fertility - a benefit not captured in the arithmetic. Plan A's higher water demand makes failure more likely in a drought-prone area, widening the gap further.
3. The lease offer is ₹9,000 per hectare. Should the farmer consider it? Reason with numbers.
Read the worked answer
Leasing both hectares yields 2 × ₹9,000 = ₹18,000 with no input cost and no risk - but it forgoes the returns from farming.
Comparison of certainty-equivalent outcomes:
- Lease: ₹18,000 guaranteed, plus the farmer's labour is freed for other work.
- Plan B normal: ₹1,28,800; failed year: about ₹68,000 with insurance.
Even the failed-year Plan B is roughly 3.8 times the lease income, so outright leasing is clearly inferior if the farmer can farm and absorb risk. The lease becomes rational only if the farmer has an off-farm income exceeding the difference or cannot fund inputs.
A middle path is partial leasing, but with only 2 hectares the fixed costs of cultivation make it inefficient. The numbers point to farming Plan B, using the lease figure only as a floor against which to judge any crop plan.