Wednesday, April 1, 2009

The 80/20 principle as it applies to agriculture

In my previous entry where I stressed the need for greater efficiency and productivity in Agriculture, one of the comments I received was on the 80/20 principle. I agree that even in this context the principle applies and the question is from which point to which would it move to affect the efficiencies I envisage.

To put it in perspective lets say that there are 200 farmers producing output of 100units costing 100 and for a revenue of 100. This is a case of average subsistence breakeven farming, overwhelmingly the case today. I expect in 10 years, those 200 farmers to drop to 100 as very few young people are going into agriculture, but I would like to see them produce a cumulative output of 200units costing 100 for revenue of 150.

Doing the math we are looking at a 400% increase in the average production per farmer. This will make farm incomes more viable. As you can see income per farmer is 3 times higher if we assume a price reduction on average of 25%. I also fairly make the assumption that to achieve a fourfold productivity increase his costs will also double giving him a profit margin from break even earlier to 33% of Revenue.

These are all achievable targets and following discussions will go into all the areas that require measures to reach this goal. The skewing of the rule referred to above will now change from 30% producing 80% of a pot called 100, where 10% will produce 80% of a pot called 200. This is as numbers dwindle and productivity of the large units surge by much higher proportions when economies of scale and mechanization take place to reduce unit costs many fold.

I use the analogy often where one farmer in California farms a 3000acre paddy field, which is fully mechanized and in Sri Lanka over 3000 farmers work the same acreage for a lower yield. No wonder the Californian rice is produced at a lower cost than ours, and that farmer can still earn 1000 times what our farmer earns.

Now that we have a labor shortage in the rural areas, we should not feel that we must still hang on to old ideas to give employment as most income in the rural areas is from the service sector, be it security forces, education, state sector or the retail sector. 80% of those who have land in the rural areas don’t even produce enough rice to feed their immediate family, so apart from encouraging organic home gardens, to increase the nation’s output, there is no rational reason anymore to ask them to break their backs to increase output more than what is reasonable given the resources they have access to.

Needless to say when we double our National output we will have surplus to export to niche markets in both the Maldives and the Middle East. They now amount to small quantities of exceptional quality goods that have a higher value added factor. We cannot supply all the requirements of the export agricultural sector which certainly has a lot more room for growth, and if the examples of some of our niche market agricultural exporters are anything to go by, there is much we can do without brushing into each others markets, as even they face severe product shortages for export.


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