Forty Quintals of Soybean: Mandi, Village Trader or Three Months in a Warehouse
A soybean farmer in Durg district has 40 quintals of fair-average quality, harvested and bagged, and three outlets for the same week.
Mandi. Tuesday's auction is expected to fetch Rs 4,600 per quintal. The mandi charges a fee of 2.5 per cent on sale value and a commission of 1 per cent. Transport costs Rs 1,200, bagging and weighing Rs 300, and payment arrives seven days after the auction. The farmer's working capital costs 12 per cent per year.
Village trader. Rs 4,420 per quintal at the farm gate, cash on the spot, no fee, but the trader insists on a 2 per cent weight cut for cleaning. Loading is done by the farmer's own labour and is already in his cost.
Warehouse. Store for three months at Rs 25 per quintal per month, expected price Rs 4,850 per quintal, 1 per cent weight loss in storage, Rs 1,200 transport to the warehouse and Rs 1,200 from there to the mandi, and the same 2.5 per cent mandi fee at sale. No commission is payable on a warehouse sale.
1. Compute the net realisation per quintal for the mandi and the village trader, and rank them.
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Mandi
- Gross value: 40 x 4,600 = Rs 1,84,000
- Fee 2.5 per cent = Rs 4,600; commission 1 per cent = Rs 1,840
- Transport Rs 1,200 + bagging Rs 300 = Rs 1,500
- Proceeds before delay: 1,84,000 - 4,600 - 1,840 - 1,500 = Rs 1,76,060
- Cost of waiting 7 days at 12 per cent: 1,76,060 x 0.12 x 7/365 = Rs 405
- Net: Rs 1,75,655, that is Rs 4,391 per quintal
Village trader
- Weight after 2 per cent cut: 40 x 0.98 = 39.2 quintals
- 39.2 x 4,420 = Rs 1,73,264, that is Rs 4,332 per quintal, paid immediately
Ranking: mandi first, ahead by Rs 2,391 in total, about Rs 60 per quintal, a margin of roughly 1.4 per cent. That margin is thin: every extra week of payment delay costs about Rs 405, and one extra unrecorded weight cut at the trader's yard would move the answer.
2. Find the warehouse sale price at which the storage option merely matches the mandi outcome. Is the expected Rs 4,850 enough?
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Let p be the warehouse price per quintal.
- Quantity after 1 per cent storage loss: 39.6 quintals
- Net sale value after 2.5 per cent fee: 39.6p x 0.975 = 38.61p
- Costs: storage 40 x 25 x 3 = Rs 3,000; interest on Rs 1,76,060 for 3 months at 12 per cent = Rs 5,282; transport Rs 1,200 + Rs 1,200 = Rs 2,400. Total Rs 10,682.
- Matching the mandi: 38.61p - 10,682 = 1,75,655, so 38.61p = 1,86,337, giving p = Rs 4,826 per quintal.
At the expected Rs 4,850: 38.61 x 4,850 = Rs 1,87,258; minus Rs 10,682 = Rs 1,76,576, only Rs 921 more than the mandi, about Rs 23 per quintal or 0.5 per cent.
Conclusion: three months of price and quality risk buy half a per cent. The warehouse is not justified unless the farmer has independent grounds to expect a price clearly above Rs 4,850; the break-even of Rs 4,826 sits so close to the forecast that the entire gain lies inside the forecasting error.
3. Which non-price factors would you weigh before advising the farmer, and what is your recommendation?
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- Payment certainty. The trader pays now; the mandi pays in seven days on paper and often later; the warehouse pays after three months. A farmer with a crop-loan instalment due gains more from cash than from Rs 60 a quintal.
- Who controls the weight cut. The trader's 2 per cent cleaning cut is unilateral and unrecorded, while the mandi's weighbridge is stamped and its moisture cut is rule-based. The mandi's Rs 4,391 is the more defensible figure if the farmer has to prove his income to a bank.
- Storage quality risk. The 1 per cent loss assumes dry, pest-free storage; one bad spell of moisture can double it, and that alone wipes out the Rs 921 gain.
- Counter-party risk. A trader's post-dated cheque is not equivalent to a mandi payment order.
Recommendation: sell in the mandi and press for payment within 48 hours. Use the village trader only for the quantity needed to meet an immediate cash need; the mandi is better by about Rs 60 a quintal, and liquidity is worth more than that to a farmer with dues.