Lease or Not: Paddy-Wheat versus Sugarcane in Shahjahanpur
Sunita Devi owns 3.0 ha in Shahjahanpur and has been offered 2.0 ha on a one-year lease at ₹40,000 per hectare, payable in advance before sowing. She has ₹1.20 lakh of own working capital and can borrow the rest at 11 per cent per annum. Two plans are on the table. Plan A is paddy, 55 quintals per hectare at ₹1,950 per quintal with a variable cost of ₹34,000 per hectare over four months, followed on the same land by wheat, 40 quintals per hectare at ₹2,275 per quintal with a variable cost of ₹28,000 per hectare over five months; paddy is harvested in time for wheat sowing. Plan B is sugarcane, 700 quintals per hectare at the state advised price of ₹340 per quintal, variable cost ₹98,000 per hectare including harvesting and haulage, occupying the land for 14 months; the mill pays 60 per cent at the gate and the balance after 90 days without interest. Her tractor instalment of ₹1.10 lakh a year, land revenue and tube-well maintenance are payable whether or not she leases. Canal water is assured for only 3.5 ha of the 5.0 ha she would then cultivate.
1. Compute the gross margin per hectare and the return over lease rent for both plans, compare them per hectare, per month of land occupancy and per rupee of variable cost, and give a first recommendation.
Read the worked answer
Plan A, per hectare: paddy gross 55 × ₹1,950 = ₹1,07,250, less ₹34,000 variable cost = ₹73,250 gross margin. Wheat gross 40 × ₹2,275 = ₹91,000, less ₹28,000 = ₹63,000. Total gross margin ₹1,36,250 over nine months, less lease rent ₹40,000 = ₹96,250 per hectare.
Plan B, per hectare: 700 × ₹340 = ₹2,38,000, less ₹98,000 = ₹1,40,000, less ₹40,000 lease = ₹1,00,000 over 14 months.
| Criterion | Plan A | Plan B |
|---|---|---|
| Return over lease per ha | ₹96,250 | ₹1,00,000 |
| Per month of occupancy | ₹10,694 | ₹7,143 |
| Per rupee of variable cost | 2.20 | 1.43 |
| Working capital per ha | ₹1,02,000 | ₹1,38,000 |
Sugarcane is marginally ahead per hectare but far behind per month and per rupee of working capital. For 2.0 ha, Plan A needs ₹2.04 lakh, of which she borrows about ₹84,000 for nine months, costing roughly ₹6,930; net ₹1,85,570. Plan B needs ₹2.76 lakh, borrowing ₹1.56 lakh for 14 months at about ₹20,000, plus the mill's 90-day delay on 40 per cent of ₹4.76 lakh; net falls to about ₹1.75 lakh. Plan A also frees the land for three months. Recommendation: take the lease and grow paddy-wheat, subject to water.
2. Classify the tractor instalment, the lease rent, the crop-loan interest and canal charges as fixed or variable for this decision, and explain why the classification matters. Compute the break-even paddy yield at the lease rent.
Read the worked answer
For a one-year decision the tractor instalment (₹1.10 lakh), land revenue and tube-well maintenance are fixed: they are incurred whether the 2.0 ha is leased or not, so they do not enter the comparison of plans and must not be charged against the lease. Crop-loan interest is variable with the amount and duration borrowed. Canal charges are usually levied per hectare irrigated and are treated as fixed once the area is decided.
Lease rent is a special case worth marking in an answer: it is avoidable if she does not lease, so it is an incremental cost of the lease decision, but once the agreement is signed it is fixed for the season and does not change with yield or with one more unit of fertilizer. It therefore belongs in the break-even calculation, not in the decision on how much urea to apply.
The break-even paddy yield must cover variable cost plus lease rent: (₹34,000 + ₹40,000) ÷ ₹1,950 = 37.9 quintals per hectare. Her expected 55 quintals give a comfortable cushion of 17 quintals, but the wheat margin is what actually pays the rent if paddy fails. If only variable costs are considered, the break-even is 34,000 ÷ 1,950 = 17.4 quintals, which is the correct figure for deciding whether to harvest or abandon a standing crop. Mixing the two concepts is the commonest error in farm-planning questions.
3. Given that canal water is assured for only 3.5 ha out of the 5.0 ha she would cultivate, how would you allocate land and water across the two plans, and what non-numeric factors would you weigh?
Read the worked answer
Sugarcane needs four to five heavy irrigations and occupies the land for 14 months, so putting it on the water-scarce hectare would be the worst allocation. The water should go to the crop with the highest return per hectare-centimetre and the shortest occupancy, which here is the paddy-wheat rotation.
A defensible allocation is to take the lease, put the 2.0 ha leased land under paddy-wheat with assured water, keep about 1.5 ha of her own land under the same rotation, and put the remaining 1.5 ha of own land, which has only protective or rain-fed water, under a low-water crop such as chickpea or green gram rather than leaving it bare or forcing sugarcane onto it. That fits 3.5 ha of assured water exactly.
Non-numeric factors to weigh: the mill's 90-day delayed payment on 40 per cent of cane value ties up cash exactly when wheat inputs are bought; cane harvesting needs hired labour and a haulage permit in a short window; the lease is only for one year, so a 14-month cane crop runs past the lease and the ratoon right is lost; paddy-wheat keeps the family labour busy in two shorter peaks; and the fodder from paddy straw has value for her cattle. Finally, a one-year lease at ₹40,000 per hectare is a big upfront cash commitment, and an oral lease offers no security if the crop fails.