The Tribune, Chandigarh, India - Agriculture Tribune

Farmer has to think like a businessman
Dharminder Singh Ubha

Account for each step

* Treat agriculture as a business.

* Do cost-benefit analysis of each crop

* Evaluate land and self-labour costs

* Convert barter-like payments into money terms

* Keep account of home consumption

* See if hiring or buying implements works out cheaper

* Keep personal and farming accounts separate

role in the Indian economy. More than half of our population is directly or indirectly dependent on agriculture and it contributes a major share to the national income. However, agriculture is today passing through a crucial phase. The arrival of World Trade Organisation (WTO) regime is going to further aggravate the plight of farmers. Political leaders, instead of preparing them to face the situation boldly, are creating unnecessary panic among the ignorant farming community about the consequences of the WTO policy.

It is clear that in order to face the global economy we cannot progress in isolation. It is altogether a different issue whether our farmer is in a position to face the competition or not and whether our government is sincere in giving him a proper lead. Farmers are totally indifferent to agricultural costs. They neither have any cost-benefit analysis nor do they believe in keeping accounts. Whatever they get, they simply call it their fate. Owing to small land holdings they cannot derive the benefits of the economy of scale. The cooperative movement has also been unable to get the desired success in its mission. Ego and pretensions of the farming community have also worsened their problems. Gains of the Green Revolution and easy accessibility to loans raised the expectations of farmers. All these factors put together have created a vicious circle of problems for the farming community. In this scenario, it is important to analyse what agricultural costing and accounting can do for a farmer.

Business principles

Agriculture is still not undertaken on commercial lines and prudent business principles. The reason is farmers neither keep accounts relating to agriculture nor do they apply any accounting techniques to control costs. Now agriculture is turning to be an industry and profession. A number of farms practise mixed farming. That is why it becomes important to apply accounting techniques and principles just as in industry and business. Account keeping will not only be helpful in determining exact costs, but also be instrumental in controlling the costs. The best crop cycle may be adopted by doing a cost-benefit analysis for each crop. A reserve may be created for the replacement of fixed assets like tractor, tubewell, thresher, etc.

However, it is important to note that a standardised accounting system to record agricultural transactions is yet to be developed in our country whereas in advanced countries even fully developed computer software are available for the purpose.

Hidden costs

Most agricultural transactions are exchange transactions. A worker may be given a part of the produce as reward for his services. Such dealings have to be converted into money value and then transferred to respective accounts. The cost concept of accounting can also not be applied in totality because assets like livestock are valued at market price. Self-produced goods are also valued likewise. Some times goods from agriculture may be transferred to allied activities. Correct valuation of such transfers is also required. Fixed instalment or "written down value" method of depreciation may be applied on fixed assets.

Agriculture is full of uncertainties and provision for the uncertain future is necessary. The produce used for personal use has also to be accounted for. The above may be the basis for agricultural accounting.

The technique of "marginal costing" can be of use in selecting the best crop mix by dividing the costs into fixed and variable costs. Budgeting may also be helpful for earning good profits in agriculture.

After a survey of several small and big farmers of an area it was found that most of them were ignorant about agriculture costs and accounts. If a farmer were asked about his income from agriculture, his answer would be that he had a crop of Rs 50,000; he treats the whole receipt from the sale of the produce as his income.

Another phenomenon is that at the time of sale of his produce a farmer clears his old debt and raises a new debt and feels satisfied that he has no outstanding dues of previous years. Generally a farmer never thinks about the expenses incurred on the crop, and if he does think it is only about the amount spent on seeds, pesticides, manures and electricity; he never thinks about the costs of land and self labour. The concept of depreciation remains totally outside his purview. He does not take into account the accounting assumptions and techniques relating to fixed assets.

Status symbols

Farmers are also indulging in a rat race in the matter of buying modern implements because of easy availability of loans. Even small farmers consider a tractor a matter of status and honour though it may be a white elephant for them. They don’t bother about the exorbitant interest. Another fatal trend seen is that farmers get a tractor through a bank loan and sell it immediately to spend on frivolous luxuries of life. If a farmer maintains proper accounts, he can compare the interest expenditure and the hire charges if he hires on a tractor instead of buying it.

At farmers may prefer cultivation of a particular crop because of the status symbol attached to it, though the costs involved may not be fully recovered. A cost-benefit analysis of crops is a must before deciding on what to sow.

Disguised unemployment is another factor that remains untouched because of non-maintenance of accounts. Mostly the whole family of a farmer works in the fields directly or indirectly, but he never evaluates this labour. If a thorough analysis of the matter is made, he will find some of the members as economic burden. It is a fact that efforts and outcome of farmers are generally disproportionate.

Account keeping

No distinction is generally made between the personal and agricultural transactions of a farmer. He normally keeps a common bank account from where he makes personal as well as business payments. The produce consumed at home is also not accounted for. Whatever is paid to the workers in the form of produce is not valued in money terms and accounted for. A farmer considers it below his status to account for things used for domestic purpose. But this approach is against the concept of business, which states that the entity of the business and the businessman is different and all transactions are recorded accordingly. Such an approach is needed in agriculture too if it is to be carried on commercial lines.

The question is how can accounting techniques be implemented? Should all methodologies be implemented immediately? No, in the beginning only such a system of accounting can be implemented as is easy to understand and simple to adopt. A beginning in this direction can be made by preparing a simple cashbook account of each crop, livestock, expenses, net profit and loss and, finally, the balance sheet. Most agricultural transactions are cash based and the receipts and payments can be entered in the cashbook. Depreciation can be charged on farm machinery and building. Expenses incurred to make the land cultivable can be considered part of the costs of land. Expenses on insurance of crops and livestock may be there. The produce used at home and given to workers may be treated like business accounts. So the principles of a double entry system may be applied with a slight difference.

It can be said without doubt that once our farmers take to account keeping and become cost conscious, they will become truly commercial and agriculture will become a lucrative business. The government should play an important role in this direction by providing relevant training.

MSP tussle
Self-help is best
M.S. Bajwa

The MSP politics played by political parties and its result, i.e., no change in the MSP (only Rs 20/q as bonus), have depressed and discouraged the farmers. The same farming community that brought the nation out of the begging-bowl status to the surplus stage has to beg for remunerative returns.

On one hand, more than 30 crore people in the country are suffering from hunger and malnutrition, while on the other procurement, storage and transport of foodgrains are being put to such sad treatment. Small and marginal farmers have remained the worst sufferers. With the improving food situation, central agencies have started treating the slogan "Jai kisan" as "Kaun kisan."

The most discouraging aspect is the inability of our country to develop a system so that every year farmers and CMs (particularly of the food-surplus states) do not have to agitate for getting the MSP announced. Why do we have to always create a crisis and then manage it? All production systems and their management must be isolated from politics.

The emerging trend of decreasing demand of foodgrains from the "surplus" states due to the increase in production in "deficit" states, piling up of central food-stocks (at present more than 60 million tones), the Central government’s inability to go increase MSP and discouraging policies of the procurement agencies indicate that continued dependence on government procurement systems alone will not solve the problems of our farmers on a long-term basis. In the coming years, implications of the WTO may also have their own effects.

Farmers should, therefore, change their mindset and try to exploit innovative alternative management systems of production (fresh and processed) and marketing (including market promotion, intelligence, etc).

At a time when land holdings are decreasing with each generation, one suggestion is regarding formation of self-help groups/ farmers’ associations at different levels in the villages, zones, and regions (not for political rallies) that may facilitate/ organise such farming activities as arranging input supplies, procurement, agro-processing, storage, quality control, market promotion and marketing, etc. State development agencies, NGOs, et al, may give active support to them. This will also help in generating on-farm and non-farm employment in rural areas.

Farmers should also get trained to produce demand-driven quality-products, capable of facing global competition (under the WTO regime); otherwise the results (increasing discouragement) will be visible after the removal of quantitative restrictions in December 2004. Farmers associations in Vietnam have already shown the way, of course, with government support, and have brought their country to the level of the second largest rice exporter in the world. We may also try by motivating educated innovative (young) farmers to take the initiative. Some habitual critics will, however, have to be told that success comes in can(s), failure in can’t(s).

Price should reflect all input costs
Krishan Paul Bhaskar

Announcement of MSP is an annual ritual and we as a nation go through it every year. Farmer’s agitation and road blocks are the ceremonies. At the end of all this, the government announces its package. This year was no exception. The government, after a lot of political haggling, finally announced the prices.

All this is happening in a country that has predominantly an agriculture economy. At the same time it is a country aspiring to assume superpower status. India has to have a strong economy—agro-based as well as industrial—if it has to realise the dream of being a world power. If that be so, the country can ill afford to ignore the economic well being and the rightful dues to its farmers.

The problem of MSP becomes acute especially at the time of paddy arrival. Generally paddy arrives in the market and the MSP is not in sight. This happens year after year. In the bargain, the farmer suffers. Due to the general price level going up every year and unpredictable weather, the agriculture sector keeps registering a heavy rise in the cost of inputs. This is where the problem starts. The farmer clamours for adequate remuneration, if not more.

Delayed announcement of prices creates serious problems for farmers, private agriculture development agencies like commission agents and even for the procurement agencies in the long run. Commission agents provide very important input to agriculture. The whole agriculture infrastructure is being financially supported by them. Government financial agencies have miserably failed in this direction.

Crop rotation is not a new thing for farmers and they do not require a nudge from the WTO for it. However, the government has done little to market alternative crops, both in domestic as well as international markets. This is applicable to the total crop rotation pattern undertaken by farmers, be it poultry or fruits, cereals or oilseeds. Farmers have the requisite skill, only the government has failed to promote a marketing platform for them. The farmers by themselves can contribute very little in this direction, since most of them are marginal farmers. This has to be a collective and government-sponsored act.

In order to alleviate this recurring problem, the government must do the following:

1. Create a price mechanism for the agriculture sector and the mechanism must cater for rising input costs and bad-weather relief.

2. Link the price fixing mechanism to the agriculture price index as well as the general price index. The agriculture price index must cater for mainly the input items of the sector.

3. It should be a national price fixing mechanism in character. The government should avoid dealing with the problem in a piecemeal fashion for each state.

4. Declare agriculture an "industry" with attendant benefits, including financial benefits.

5. The infrastructure of the commission agents must come within the definition and purview of agriculture industry. The government should route financing of the farm sector through the commission agents. This is a safer route and will cut down the NPAs of the government and commercial banks to a great degree. Government-sponsored financial institutions have failed miserably in this direction. Commission agents should be free to avail of this facility at nominal rates of interest and banks should only finance a part of their financial requirements.

6. The government must make an effort to promote domestic and international marketing platforms for the rotated crops. Focal points must be brought under the purview of procuring agencies. These agencies must activate procurement at these focal points, for farm produce other than paddy and wheat.

7. The procurement agencies must enlarge the scope of items to be procured. This will help promote crop rotation.

In order to promote a healthy agro-based economy and successful rotation of crop pattern, promote a healthy marketing infrastructure as well as an efficient procurement and financial structure. Last but not the last, "happy farmer promotes a healthy economy."