Wednesday, March 24, 2010

The economics of being a rice farmer – we have to increase the scale

A Polonnaruwa a farmer gets Rs22/kg for nadu paddy( when it is bagged at the field where the wholesaler buys spot cash) the variety that farmers grow. Only a month ago (before the new harvest came in) the same paddy was selling at Rs40/kg
As a small scale miller, I can sell the rice at Rs33/kg to break even. The farmer loses money at Rs22/kg despite the fertilizer subsidy not covering his costs. The person who farms less than 2 acres, which accounts for half the paddy output, spends about Rs26/kg as cost of production if he uses labor on an av. crop of 1500kg. A farmer with 100 acres can reduce his costs using paid labor to Rs 12/kg WITHOUT using subsidized fertilizer. The Govt. guaranteed price of Rs28/kg is only when it is taken to the buying location in a condition suitable to them with low moisture content. This very same miller, (an actual example as I am using my local miller’s economics) sells the sudu kekulu rice not at Rs33/kg which would cover his cost, but at Rs48/kg which is commensurate with the market rate prevailing. He therefore has a clear profit of Rs15/kg.

In my case as I am not a miller, but a farmer who grows his paddy and then goes to the mill to mill his paddy and then transport it to my customers, I have the added costs, even though I get a slightly higher retail price, but his profit margin is much higher. I pay him a milling cost of Rs3/kg for paddy which works out at Rs4.50/kg of rice, an added cost to me, but zero cost to the miller as the by-product of milling, being rice bran and husk is sold at a greater revenue than what I pay for milling. All this being said the largest miller, namely a govt. agriculture minister a natural enemy of the farmer, stands to make a profit of at least Rs3M a day if his mill runs to capacity, a cool billion a year.(not counting the revenue of the electricity he generates from the husk to sell to the national grid over and above what he needs to run his mill. Rice bran now sells for Rs30/kg, a free by-product.
The carrot, that the govt. gives these poor farmers, is the subsidy. So foolishly because the govt. heavily subsidizes the fertilizer, the inefficient high cost farmer continues to gamble a high risk game of poker hoping the price he can get for his paddy is nearer Rs40/kg believing it is better not to forego such a great subsidy, little realizing that he will be better off to sell his subsidized fertilizer in the open market (that of course is illegal but is common practice) Actually this farmer is more likely to get a better income if he drops paddy and grows vegetables. One problem is that the irrigation system is designed only to supply water by way of the channel system to support paddy production. (certain days of the week, an unlimited amount and then once the harvest is near no water again till the beginning of the next season, a gap of over 60 days in some cases) Unless the farmer has his own source of water, he is then unable to engage in this cultivation.

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