Friday, May 14, 2010
The case for scale in Paddy Cultivation in Sri Lanka
I have been asked by a friend overseas to give him an idea of the costs of rice production in Sri Lanka, to determine if he wants to invest in an agricultural venture to grow paddy. This is like asking the proverbial “how long is a piece of string?” type question.
I tried to explain, much depends on the land extents envisaged to be cultivated, as well as the land availability that is suitable for cultivation. Usually this means that existing paddy lands have a greater suitability, as basic infrastructure is in place, but the more productive the soil, the purchase price reflects this.
In order to be practical about this it is almost impossible to come across a 50 acre minimum land size that is suitable and available for paddy cultivation, as I believe this extent is required as a minimum if one is considering giving up whatever it is including common sense to go into paddy farming.
In order to satisfy his request, I will base my assumption on a 50 acre size and make the following assumptions. The main one being that the land is available and purchased, as it would only be a wild guess as to how much such an extent of land would cost. It would be a minimum of Rs20M.(in the US rice extents are cheaper) The other assumption is the availability, of water from a canal fed by an irrigation source. Relying on rain fed paddy is too risky not something to be tried and the use of pumped water for such an extent would also change the dynamics of the project.
If average land yields 100 bushels per acre for each season, the harvest for a year will be 10K bushels or 200,000KG of paddy at an average selling price of Rs30/kg would give a gross income of Rs6M a year. If the direct costs cannot be less than Rs3M then this project is not worth it as otherwise the Rs20M can yield a better return in most other safer investments with a lower risk.
It is easier to work backwards from this direct cost, which for a season for an acre runs at Rs30,000 as a maximum. So how does this stack up with outsourcing the work. It will go as follows. A) tilling the land 3000 B) preparing the fields 3000 C)Sowing 1000 D) Fertilizer 5000 E) Pesticides 5000 F) Husbanding the land during the growing process 3000 G) Combined Harvester to cut and thresh 8000 H) Drying and cleaning as well as bagging for sale 2000. Realistically it is difficult to do it for any less, with the only flexible one being the use of the combined harvester, which due to the extent of the land can be bargained down to even Rs 5000 per acre. The important point to note is that the yield is the most unpredictable, and the most likely contributory factor for either profit or loss.