Rice or Cassava with a Monthly Loan Repayment
A household in Prey Veng province farms 2.0 hectares and has five members. One adult son works in a garment factory and sends home $100 per month. The family owes $1,000 to a microfinance institution at 18% per year, repaid at about $98 per month for 12 months. Wet-season rice on 2 ha yields 3.0 t/ha at $250 per tonne; cash costs are $380/ha. The family keeps 1.2 tonnes of paddy for food. A trader offers a cassava contract: 18 t/ha at $55 per tonne, cash costs of $420/ha plus $200 for hired labour, harvested at 10–12 months. The trader will advance $600 of inputs at 2% per month for eight months.
1. Calculate the cash surplus from the all-rice plan and from the all-cassava plan, including the cost of buying rice for home consumption, and compare them.
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All rice. Harvest: 2 ha × 3.0 t = 6.0 t. Keep 1.2 t; sell 4.8 t × $250 = $1,200. Cash costs: 2 × $380 = $760. Cash surplus = $440. (The retained rice is worth $300 but is not cash.)
All cassava. Revenue: 2 ha × 18 t × $55 = $1,980. Cash costs: $840 + $200 labour = $1,040. Input credit: $600 × 2% × 8 months = $96. Net = $1,980 − $1,040 − $96 = $844. The family now has no rice, so it must buy 1.2 t at $250 = $300. Net cash after food = $544.
The cassava advantage is only $104, not the $404 that the gross margins suggest. The food purchase and the credit cost absorb most of the difference. That is the key comparison, not revenue per hectare.
2. Identify two risks the cassava plan adds and explain how each could be reduced.
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Price risk. Cassava prices follow Thai and Vietnamese demand and can fall. At $40/t, revenue is $1,440; after $1,040 costs and $96 credit, the net is $304, and after buying rice the household is at about $4. A 27% price fall wipes out the entire advantage. Reduction: a contract with a floor price, staggered planting, or only 1 ha in cassava.
Liquidity risk. Cassava pays once at 10–12 months, but the loan is repaid at $98 per month. The family would have no harvest income for most of the year. Reduction: keep 1 ha of rice for earlier cash and home consumption, renegotiate the repayment schedule, or grow a short-cycle intercrop.
A third risk is soil depletion, which can be reduced by rotation and organic matter. But the first two decide whether the household can survive the season.
3. Recommend a plan and justify it using the household’s constraints.
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Recommend 1 ha rice + 1 ha cassava, with a floor-price contract for the cassava and no more than $300 of input credit.
Calculation: rice on 1 ha gives 3.0 t; keep 1.2 t and sell 1.8 t × $250 = $450; cost $380; cash $70, and the family’s rice is covered. Cassava on 1 ha gives 18 t × $55 = $990; costs $420 + $100 labour = $520; credit $300 × 2% × 8 = $48; net $422. Total cash $492.
This beats the all-rice plan ($440) and is close to the all-cassava plan ($544) while avoiding its exposure to a single buyer, a single harvest and a single price. The deciding constraint is the monthly loan repayment, not the margin per hectare.