Choosing Between Banana, Okra and a Cereal-Pulse System with Limited Cash
A farm management student surveys a 1 ha irrigated farm in Erode district. The farmer has ₹1.2 lakh of own cash, two family workers, and can borrow at 12% simple interest. Three enterprise budgets have been prepared. Banana occupies the land for 11 months: gross return ₹4,50,000, paid-out cost ₹2,60,000, and 150 person-days of family labour. Okra is grown as three successive crops over 9 months: gross return ₹4,00,000, paid-out cost ₹2,00,000, and 190 person-days of family labour. Maize followed by blackgram occupies 7 months: gross return ₹1,60,000, paid-out cost ₹75,000, and 80 person-days of family labour. Family labour has an opportunity cost of ₹350/day. The farmer is risk-averse and has no crop insurance.
1. Compute the net return for each option after imputing family labour and interest on borrowed cash. Show your interest assumption.
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Assume borrowing is only for the cash shortfall and that the loan is outstanding on average for half the crop duration for banana, one-third of the year for okra (revenue arrives every three months), and none for maize-blackgram because own cash covers the paid-out cost.
Banana:
- Gross return = ₹4,50,000
- Paid-out cost = ₹2,60,000; shortfall = ₹1,40,000
- Interest = 1,40,000 × 0.12 × 0.5 = ₹8,400
- Family labour = 150 × ₹350 = ₹52,500
- Net = 4,50,000 - 2,60,000 - 52,500 - 8,400 = ₹1,29,100
- Return per family labour day = ₹861
Okra:
- Gross return = ₹4,00,000
- Paid-out cost = ₹2,00,000; shortfall = ₹80,000
- Interest = 80,000 × 0.12 × 0.33 = ₹3,200
- Family labour = 190 × ₹350 = ₹66,500
- Net = 4,00,000 - 2,00,000 - 66,500 - 3,200 = ₹1,30,300
- Return per family labour day = ₹686
Maize-blackgram:
- Gross return = ₹1,60,000
- Paid-out cost = ₹75,000; no borrowing
- Family labour = 80 × ₹350 = ₹28,000
- Net = 1,60,000 - 75,000 - 28,000 = ₹57,000
- Return per family labour day = ₹713
Banana and okra are close in total net return, but okra uses 40 more family labour days and banana locks up the land for 11 months.
2. Which option would you recommend to a risk-averse farmer with a ₹1.2 lakh cash limit? Justify using cash flow, labour and risk, not just net return.
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On net return alone, okra is marginally ahead (₹1,30,300 against ₹1,29,100), but the difference is small enough to be within budget error. The decision should turn on cash flow and risk.
Banana gives no income for 11 months and needs ₹1.4 lakh of borrowing on top of the farmer's cash. A single price fall or a windstorm before harvest can wipe out the margin. It has the best return per family labour day (₹861) and uses less labour, which suits a household with off-farm work.
Okra needs ₹80,000 of borrowing but starts yielding at about 55-60 days and continues over three crops. That staggered cash flow is a real advantage for a risk-averse farmer. The risks are shoot and fruit borer, yellow vein mosaic, and sharp price crashes when the local market gluts. Three separate crops also spread weather risk.
Maize-blackgram is the safest and needs no borrowing, but it leaves only ₹57,000 and uses the land for just 7 months.
A sensible recommendation is diversification, not a single enterprise: 0.4 ha okra for cash flow, 0.3 ha banana for the higher return per labour day, and 0.3 ha maize-blackgram for food and risk cover. If the farmer insists on one crop, choose okra with a staggered planting plan and a market contact before sowing.
3. Test the recommendation against a 20% fall in output price. What changes, and what does this reveal about the budgets?
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A 20% price fall reduces gross returns by 20%:
- Banana: gross falls to ₹3,60,000. Net = 3,60,000 - 2,60,000 - 52,500 - 8,400 = ₹39,100.
- Okra: gross falls to ₹3,20,000. Net = 3,20,000 - 2,00,000 - 66,500 - 3,200 = ₹50,300.
- Maize-blackgram: gross falls to ₹1,28,000. Net = 1,28,000 - 75,000 - 28,000 = ₹25,000.
All three remain positive, but the ranking changes: okra becomes the highest, and banana's advantage disappears because its paid-out cost is high and fixed. A 30% fall would push banana close to break-even or below it, while okra and maize-blackgram would still cover cash costs.
This reveals that the budgets are point estimates. They ignore yield variation, price spread between farm gate and market, post-harvest loss, land rent, and machinery depreciation. A risk-averse farmer should not choose on a single net-return figure; the decision should use a range, and the okra area should be limited to what can be harvested and sold in a week. The comparison also shows why crop insurance and a price contract matter more for banana than for the other two options.