Sunita's Wheat: Sell to the Trader, the Mandi, or Store It?
Sunita Devi farms 1.6 hectares in East Champaran, split into five plots. She has harvested 40 quintals of wheat. A village trader offers ₹1,800 per quintal and will pay cash the same evening. The regulated mandi is 14 km away; on today's auction, wheat of her quality is fetching ₹2,000 per quintal, but transport and loading will cost ₹1,500 and she will be paid by cheque after about ten days. A cooperative cold storage 18 km away offers a warehouse receipt against her stock, allowing her to borrow 70% of the value at 9% per annum, but the receipt takes about a week and she must pay ₹40 per quintal per month for storage. She needs ₹55,000 within two weeks for her daughter's wedding. The wheat can be safely stored for four months, but prices after harvest usually rise by only 8–10% and may fall if the next crop is good. Her neighbour advises her to hold the wheat and borrow from the local moneylender at 4% per month.
1. Compare the net cash Sunita can raise within two weeks by selling to the trader versus selling in the mandi, showing your calculation. Which is better on cash alone?
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Trader option. 40 quintals × ₹1,800 = ₹72,000, cash on the same evening. No transport cost, no delay.
Mandi option. 40 × ₹2,000 = ₹80,000 gross. Subtract transport and loading ₹1,500 → ₹78,500. Payment is by cheque after about ten days, which still falls within her two-week need. So on cash alone, the mandi gives ₹6,500 more than the trader (78,500 − 72,000).
Check the timing. She needs ₹55,000 within two weeks; the mandi pays in ten days, so the timing works, provided the cheque clears. If it does not clear in time, the trader's immediate cash has a real convenience value, but that value is at most ₹6,500 plus the risk of a delayed cheque.
Conclusion. On cash alone, selling in the mandi is better by ₹6,500. A good answer should also note that the mandi price is an auction price, not a guarantee; her actual price may differ by quality and arrival.
2. Her neighbour says: 'Store the wheat, borrow from the moneylender, and repay after four months.' Evaluate this advice using the storage, interest and expected price figures. Under what condition would storing be sensible?
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Cost of the neighbour's plan (four months).
- Borrowing ₹55,000 at 4% per month: interest = 55,000 × 0.04 × 4 = ₹8,800; repayment = ₹63,800.
- Storage: 40 quintals × ₹40 × 4 months = ₹6,400.
- Total cost = ₹15,200.
Expected price. A 9% rise takes wheat from ₹2,000 to ₹2,180. Gross value = 40 × 2,180 = ₹87,200. Net after storage and interest = 87,200 − 6,400 − 8,800 = ₹72,000. That is ₹6,500 less than the mandi's ₹78,500 today.
Break-even. Need 40P − 15,200 = 78,500 → 40P = 93,700 → P = ₹2,342.50, i.e. a 17.1% rise. The expected 8–10% is far short.
Condition for storing. Store only if the expected price rise exceeds about 17%, or if she can borrow much more cheaply. The warehouse receipt at 9% would cut interest to about ₹1,650 and lower the break-even to roughly 8%. Also consider quality loss and price risk. So the neighbour's advice is not sound on these numbers.
3. Explain why a small farmer like Sunita may not benefit from the minimum support price even when an MSP is announced, and suggest one institutional arrangement that could improve her bargaining position.
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MSP is a price announced by the government, but it becomes a real floor only where public agencies actually procure. In Bihar, wheat and paddy procurement is limited to a few centres, with quality specifications, registration requirements and payment delays. A farmer with 40 quintals cannot easily transport it, wait in a queue, or meet moisture standards. Local traders know this and offer below MSP.
Bargaining position. Sunita sells a small lot, has urgent cash needs and no storage, so she is a price-taker. The trader faces little competition.
Institutional fix. A farmer producer organisation (FPO) or cooperative that aggregates many small lots, arranges grading and transport, and sells directly to procurement agencies or food processors would raise her bargaining power. A warehouse receipt system linked to a bank would let her borrow against stock instead of selling at harvest.
One arrangement, explained. An FPO-owned collection centre with weighing, grading and a pledge-loan facility would reduce transport costs per quintal, provide a recorded price and give her the option to wait. That changes the terms of trade, not just the price announcement.