Paddy or Groundnut on a Flood-Prone Holding
A farmer in Bargarh district holds 1.2 hectares, of which 0.8 hectare is low-lying and submerges in a heavy monsoon year while 0.4 hectare is upland. For kharif she must choose between two plans. Plan A: paddy on all 1.2 hectares. Plan B: paddy on the low 0.8 hectare and groundnut on the upland 0.4 hectare. Paddy costs ₹28,000 per hectare and yields 45 quintals; the local miller offers ₹1,900 per quintal, and in a flood year the low land may yield nothing at all while the costs are already spent. Groundnut costs ₹35,000 per hectare and yields 18 quintals, sold at ₹5,600 per quintal, but it must be harvested before the second week of October and has no procurement support. She needs ₹40,000 for inputs and will repay eight months after borrowing. Her self-help group charges 2 per cent per month; a Kisan Credit Card charges 7 per cent per annum. Her neighbour advises: 'Groundnut is risky. Paddy is safe because the government buys it.'
1. Calculate the net return per hectare for each crop and the net return of Plan A and Plan B in a normal year. Show every step.
Read the worked answer
Paddy, per hectare Revenue = 45 quintals × ₹1,900 = ₹85,500 Cost = ₹28,000 Net = 85,500 − 28,000 = ₹57,500 per hectare
Groundnut, per hectare Revenue = 18 quintals × ₹5,600 = ₹1,00,800 Cost = ₹35,000 Net = 1,00,800 − 35,000 = ₹65,800 per hectare
Plan A (1.2 ha all paddy) 1.2 × 57,500 = ₹69,000
Plan B (0.8 ha paddy + 0.4 ha groundnut) Paddy: 0.8 × 57,500 = ₹46,000 Groundnut: 0.4 × 65,800 = ₹26,320 Total = 46,000 + 26,320 = ₹72,320
Conclusion for a normal year: Plan B is ahead, but only by ₹3,320 - about 4.8 per cent. That margin is smaller than the uncertainty in the groundnut price, which is exactly why the arithmetic alone cannot settle the question. Note also that the groundnut area is only 0.4 ha, so its higher per-hectare return cannot rescue the whole holding.
2. Now test the decision against risk. Calculate Plan A and Plan B in a flood year in which the low land yields nothing but its costs are unchanged, and then find the groundnut price at which Plan B loses its advantage in a normal year.
Read the worked answer
Flood year. Low-land paddy: revenue 0, cost ₹28,000, so a loss of ₹28,000 per hectare.
Plan A = (0.8 × −28,000) + (0.4 × 57,500) = −22,400 + 23,000 = ₹600 Plan B = (0.8 × −28,000) + (0.4 × 65,800) = −22,400 + 26,320 = ₹3,920
So Plan B survives a total flood on the low land better than Plan A, because the upland crop is not affected - but the difference is only ₹3,320, and in a flood year both plans leave the household close to zero after eight months of work. Diversification reduces the loss; it does not remove it.
Break-even groundnut price (normal year). Plan B must equal Plan A's ₹69,000. 46,000 + 0.4 × (18P − 35,000) = 69,000 0.4 × (18P − 35,000) = 23,000 18P − 35,000 = 57,500 18P = 92,500 P = ₹5,139 per quintal (approximately).
Below about ₹5,139, Plan A is better in a normal year. Since groundnut has no procurement support, a price fall of roughly 8 per cent from ₹5,600 wipes out the advantage. The neighbour's warning is therefore partly right - but the flood-year calculation shows paddy is not 'safe' either, since the low land can return nothing.
3. Compare the two sources of credit for the ₹40,000 input loan over eight months, and explain what would make the cheaper option the wrong choice.
Read the worked answer
Self-help group at 2 per cent per month (simple): Interest = 40,000 × 0.02 × 8 = ₹6,400
Kisan Credit Card at 7 per cent per annum: Interest = 40,000 × 0.07 × (8/12) = 40,000 × 0.0467 = ₹1,867 (approximately)
Difference: about ₹4,533 - more than the entire normal-year advantage of Plan B over Plan A, and roughly 6.9 per cent of the groundnut net return on 0.4 hectare.
The KCC is clearly cheaper, so the answer would seem obvious. It is the wrong choice if the card is not sanctioned in time. KCC sanction needs land records, a crop plan and bank processing; if it arrives after sowing, the farmer borrows from the self-help group anyway and pays both. The self-help group's real advantages are speed, no collateral, and a repayment record that can support a larger loan later.
The correct judgement is a sequence, not a comparison: apply for the KCC first, confirm the sanction date in writing, and treat the self-help group as the bridge only for the amount actually needed before sanction. Borrowing the full ₹40,000 from the group when the card arrives in a month would waste most of the ₹4,533 saved.