Punjab's Agriculture Dilemma

C: Wow! Seems interesting. I have a few questions, to begin with. Since when have we been growing wheat and paddy and what are the types of crops we are currently into?  

I: So, we have been growing wheat and paddy from the time when there used to be a deficit. Now our country is a major exporter of these and hence we do not need as much growth of these as we used to earlier. Then, regarding the types, there is some amount of cotton and some kind of fruits, but these are not cultivated in large amounts as of now.  

C: Is there any kind of bottleneck for any particular crop?  

I: Assume that there isn’t any kind of bottleneck and we can do whatever we need to grow a crop.   

C: Finally, by when do we wish to get to a decision regarding another crop, and is there any monetary constraint to be kept in mind?  

I: There is no time frame in mind and no budgetary constraint as well. Keeping in mind all this, let’s now discuss the major parameters on which you would decide which crops to go ahead with.  

C: Fair enough. So, in order to look into the parameters, I would like to break the growth of a crop to the time it is sold into the form of a value chain. We start with the procurement of seeds, then we move ahead with ploughing, sowing, caretaking, harvesting, processing, and finally selling. Is this a comprehensive enough value chain or am I missing out on anything?  

I: No, I guess that is a comprehensive value chain. Let’s take a look at them individually now.

C: Okay. So, we should start with the procurement stage. We should start off with procuring the seeds that are easily available, suit the kind of soil present (not a constraint since we discussed that we could do anything), are not very expensive, and also have a market where people actually demand them. Then talking about ploughing, sowing, and caretaking, we would have to look into the landholding size, and type of agriculture the farmers undertake, i.e., labor-intensive or capital-intensive. Further, we would have to look into the availability of water for irrigation and the kind of supplements like fertilizers, etc that might be required for growing the crop.  

I: Good. How will you proceed further?  

C: Under harvesting, we would again look into the facilities available and budget with us. Then coming to processing, I would like to take into consideration the costs associated with processing, the time required, and the availability of facilities to process the crops. Talking about selling, we would have to forecast the demand and find out how much exactly would we be able to earn when we change the crop. Transportation and storage also need to be looked into over here. Additionally, when finding out our new income with the new crops, we need to ensure that there is a significant enough delta that will actually motivate the farmers to shift to a new crop. We can also look into the MSP rates that are prevailing so that we can understand where the government is ready to pay high.  

I: Very good analysis. Now according to your analysis, let’s say we have chosen fruits and cotton as the two alternatives out there. Cotton grows fast but earnings are less. Fruits take time to grow but give high returns. Now how will you decide which one to grow?  

C: We can look at 3 scenarios over here. If farmers grow only fruits, they will have ample amount of free time when their fruits are growing on the field. During this time, we can look into providing alternative working opportunities to them. However, we must understand that changing this might not be something that would be easily accepted considering farmers’ pride is something that is very precious to them. Then the next is where we only keep on growing cotton throughout the year. Between the two, we can find out the present value of the expected earnings that we might get in the next few years and calculate the one that gives us better cash flows, essentially using the NPV method. There is a third method also that involves dividing the land into two portions, one for cotton and the other for fruits, which might not be possible scientifically but still would give a good output, essentially the best of both worlds. 

I: Makes sense. We can close the case now.