Mustard, the Mill or a Buffalo: A Household's Economic Choice
A household in a Bhilwara village has 1.6 hectares of unirrigated land, four adult workers, two children in school and two goats. Three options are on the table for the coming year.
A. Mustard on all 1.6 ha. Expected yield 14 quintals per hectare, farm-gate price 5,400 rupees per quintal, paid-out cost 18,000 rupees per hectare. The family's own labour is not paid.
B. Lease the land to a neighbour at 22,000 rupees per hectare per year and take work in a Bhilwara textile unit at 9,500 rupees a month for 10 months. Rent in town is 2,500 rupees a month for 12 months, travel 8,000 rupees for the year, and no one is left at home to look after the goats, which yield about 6,000 rupees a year net.
C. Buy a graded buffalo for 55,000 rupees on a loan at 7 per cent simple interest over three years. She gives about 8 litres a day for 300 days at 38 rupees a litre; feed costs 1,400 rupees a month; veterinary care and insurance 3,000 rupees a year; family labour at home.
The family has no savings and is afraid of a bad monsoon.
1. Calculate the annual net return of each option and rank them. State the assumptions your figures depend on.
Read the worked answer
A. Mustard. 1.6 x 14 = 22.4 quintals; 22.4 x 5,400 = 1,20,960 rupees gross. Paid-out cost 1.6 x 18,000 = 28,800. Net 92,160. Assumes average rainfall, the quoted price, and that family labour is free.
B. Lease plus mill work. Lease 1.6 x 22,000 = 35,200; wages 10 x 9,500 = 95,000; total 1,30,200. Less rent 12 x 2,500 = 30,000 and travel 8,000 = 92,200. Then subtract the 6,000 rupees of goat income given up: 86,200. Assumes ten months of work are actually available and the landlord actually pays.
C. Buffalo. 8 x 300 = 2,400 litres; x 38 = 91,200 gross. Less feed 12 x 1,400 = 16,800, veterinary and insurance 3,000, interest 55,000 x 0.07 = 3,850. Net 67,550. Assumes 300 lactating days and 8 litres throughout.
Ranking: B (86,200) is just above A (92,160 before the goat loss; 86,200 after), and both are well above C (67,550). The A/B difference is inside the error of the assumptions, so the ranking is fragile - which is itself the finding.
2. The family notices that A and B are nearly equal. What hidden or imputed costs should change how they compare, and how does each option differ in risk?
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Imputed labour. Four adults on 1.6 ha is heavy underemployment - the crop needs perhaps 100-120 person-days. At 250 rupees a day, 25,000-30,000 rupees of A's apparent return is really the family's own wages, not a return on land. The same is true of C: the buffalo ties one person to the house twice a day for 300 days.
Non-cash returns. A leaves fodder, dung, and food security, and involves no rent. B turns land into cash but makes the household dependent on a landlord's informal, annually renegotiable payment and on the mill not retrenching; re-buying the goats later would cost capital.
Risk profile. A carries both rainfall and price risk, but no cash outgo - a bad year means a thin year, not a debt. C is the dangerous one: interest and principal are payable whether the animal yields 8 litres or 5, and a loan against a single animal is a loan against the household's whole margin. B is fixed in cash but exposes the family to an urban job shock and removes the goats, its liquid buffer.
So the choice should be made on risk, not on a 6,000-rupee difference.
3. Which option best protects the household against a bad year, and what would you actually recommend?
Read the worked answer
B protects income; A protects assets. They answer different questions.
- B's cash is contractual - fixed lease plus wages, unaffected by rainfall - provided the mill keeps running and the neighbour pays. Its weakness is the largest cash outgo (rent) and the loss of the goats.
- A spreads risk physically: a failed monsoon hits yield, but the family still eats and owes nothing; with one unirrigated crop, though, a single drought wipes out the whole 92,000.
- C is the worst hedge despite looking like steady daily income: it converts a weather risk into a fixed debt obligation, the very risk a smallholder cannot carry.
Recommendation: split the land. Lease 0.8 ha for guaranteed cash (17,600 rupees), farm 0.8 ha (roughly 46,000), keep the goats as a liquid buffer, and postpone the buffalo loan until a milk buyer is under contract and one round of repayment is already saved. This captures most of B's certainty and most of A's food security, and avoids putting a debt on top of a monsoon.