Wheat Budget, KCC Interest and a Trader's Offer
Sunil cultivates 3.2 ha of wheat in a rainfed-plus-canal command area. He has a Kisan Credit Card loan of ₹1,50,000 at 9% per annum simple interest, taken at the start of the season. The crop is expected to yield 4.5 tonnes per hectare. He plans to sell at ₹2,275 per quintal. The cost of cultivation, including seed, fertilizer, irrigation and labour, is ₹32,500 per hectare. Harvesting and on-farm transport add ₹4,000 per hectare. The loan is repaid after 8 months. Sunil wants to know his net profit, the break-even selling price, and how much price he would need if a pest attack reduced yield by 20%. He also has an offer from a trader to buy the entire produce at ₹2,150 per quintal with immediate payment, while the regulated market may pay ₹2,275 per quintal after 20 days. Sunil's loan is due in 10 days and he has no other cash.
1. Calculate Sunil's gross revenue, total cost including interest, and net profit at the expected yield and price.
Read the worked answer
Yield = 3.2 ha × 4.5 t/ha = 14.4 t = 144 quintals. Gross revenue at ₹2,275/quintal = 144 × 2,275 = ₹3,27,600. Cultivation cost = 3.2 × 32,500 = ₹1,04,000. Harvest/transport = 3.2 × 4,000 = ₹12,800. Operating cost = ₹1,16,800. Interest = 1,50,000 × 9% × 8/12 = ₹9,000. Total cost = ₹1,25,800. Net profit = 3,27,600 − 1,25,800 = ₹2,01,800.
2. Calculate the break-even selling price at the expected yield, and the price required to maintain the same net profit if yield falls by 20%.
Read the worked answer
Break-even price = total cost ÷ output = 1,25,800 ÷ 144 = ₹873.61/quintal (approx.). This is the price at which revenue just covers all costs including interest. If yield falls 20%, output = 144 × 0.8 = 115.2 quintals. To keep the same net profit of ₹2,01,800, required revenue = 2,01,800 + 1,25,800 = ₹3,27,600. Required price = 3,27,600 ÷ 115.2 = ₹2,843.75/quintal. The break-even price at the lower yield would be 1,25,800 ÷ 115.2 = ₹1,092.01/quintal.
3. Using the numbers, advise Sunil whether to accept the trader's immediate offer or wait for the regulated market. State the decision rule.
Read the worked answer
Trader offer: 144 × 2,150 = ₹3,09,600; net = 3,09,600 − 1,25,800 = ₹1,83,800. Market offer after 20 days: net = ₹2,01,800. Difference = ₹18,000 in favour of waiting. But the loan is due in 10 days and he has no cash. If he waits, he must arrange a bridge of at least the loan repayment amount or accept penal/late-payment consequences and possible loss of prompt-repayment subvention. The decision rule is: choose the market only if the cost and risk of bridging 10 days is less than ₹18,000 and the 20-day payment is reliable; otherwise take the trader's immediate payment. A written commitment from the regulated market buyer would reduce the risk.