Soybean versus Bt Cotton under a Working-Capital Limit
A farmer in Latur has 3.0 ha of rainfed land and can grow either soybean or Bt cotton in the coming kharif season. Budget data from the previous season are: soybean yield 18 q/ha at ₹4,600/q, paid-out cost ₹32,000/ha, family labour 40 person-days; cotton yield 12 q/ha at ₹7,200/q, paid-out cost ₹58,000/ha, family labour 70 person-days. The farmer has ₹1,20,000 working capital and can borrow at 12% per annum for 6 months. Cotton needs two extra insecticide sprays if the monsoon is delayed; soybean is more sensitive to a dry spell at pod filling. The farmer wants maximum total income and is also worried about debt. He asks whether to plant all 3 ha to cotton because its gross income per hectare is higher.
1. Compute gross income, gross margin, break-even yield and return per rupee for each crop per hectare. Recommend an allocation.
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Soybean: gross income = 18 × ₹4,600 = ₹82,800/ha. Gross margin = ₹82,800 − ₹32,000 = ₹50,800/ha. Break-even yield = ₹32,000 ÷ ₹4,600 = 6.96 q/ha. Return per rupee = 82,800 ÷ 32,000 = ₹2.59.
Cotton: gross income = 12 × ₹7,200 = ₹86,400/ha. Gross margin = ₹86,400 − ₹58,000 = ₹28,400/ha. Break-even yield = ₹58,000 ÷ ₹7,200 = 8.06 q/ha. Return per rupee = 86,400 ÷ 58,000 = ₹1.49.
Cotton's gross income is only ₹3,600/ha higher, but its gross margin is ₹22,400/ha lower. For 3 ha, soybean gives ₹1,52,400 total gross margin against ₹85,200 for cotton. Soybean is the stronger choice on margin and risk; a 2 ha soybean + 1 ha cotton allocation is reasonable if the farmer wants some cotton income and rotation.
2. Evaluate the 'all cotton' plan using working capital, borrowing and risk, not just gross income.
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All 3 ha of cotton needs 3 × ₹58,000 = ₹1,74,000, which exceeds the ₹1,20,000 available. The farmer would borrow ₹54,000 for 6 months at 12%, costing about ₹3,240 in interest. Cotton's gross margin after that interest is about ₹81,960 for 3 ha, still far below soybean's ₹1,52,400. The risk profile is also worse: cotton's break-even yield is 8.06 q, or 67% of the expected 12 q, while soybean's is 6.96 q, or only 39% of the expected 18 q. A delayed monsoon raises cotton spray costs, and cotton price and pink bollworm risk are high. The gross-income argument therefore does not justify all cotton; it ignores cost, capital and downside risk.
3. What non-price factors should the farmer weigh before finalising the crop plan?
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The farmer should consider family labour: cotton needs 70 person-days/ha against 40 for soybean, which may conflict with off-farm work or labour availability. Soil fertility and rotation matter, because continuous cotton can build pest and disease pressure, while a legume such as soybean improves soil nitrogen. He should also assess credit access beyond the ₹1,20,000, crop insurance, seed and pesticide availability, and the reliability of the cotton market. Risk preference is central: a farmer who cannot absorb a loss should favour the lower break-even crop. Finally, fodder and food needs may justify part of the area under soybean even if cotton shows a slightly higher gross income.