Agricultural Model

Questions

• What are the factors that make agriculture a feasible option.

Thoughts

Considering agriculture as a closed economy(for initial arguments) we come to a conclusion that,

Agriculture is responsible for feeding and clothing every Indian, If this sector fails in its responsibility for even one citizen, then that citizen will die of hunger

The citizens of India can be classified as

• EWS (Economically weaker section)
• LIG (Low income Group)
• LMC ( Lower middle class)
• MIG (Middle class)
• UMC (Upper middle class)
• HIG (High Income Group)

The next step would be to get the amount spent by each section on food, clothing, housing, transport, entertainment, healthcare etc.

After chalking out minimal per capita nutritional requirement, we will have to classify the food sources into poor mans food and rich mans food, measure the amount of food required to meet the nutritional requirements.

Upper bound analysis

In the absence of any type of welfare scheme, A farmer growing poor mans food cannot charge more than what the EWS sector assigns for its food needs i.e.

payment capacity * yield/needs per person
= food_budget* ((Kg/acre)/(Kg/person)) 
= food_budget * person/acre

is the upper limit on farmers income.

This limit assumes that the distance between farmer and buyer is negligible, In a real world case the goods have to be transported to the buyer and we will have additional costs related to transportation, warehousing, distribution etc. These costs will reduce the farmer income from its theoretical max.

(food_budget * person/acre) - supply chain cost --EQ1

Lower bound analysis

While the upper bound is defined by what the customer can afford to pay, the lower bound will be defined by the least price the farmer can quote while making sufficient profit to maintain his lifestyle.

Let use assume that The lifestyle of the farmer also maps to the same economic categories as above, we have small, medium and larger farmers classified according to their landholding, These 3 categories aspire for LIG, MIG and HIG status. We will assume that a 20% profit margin is sufficient for them to achieve this aspirational target failing which they will shift to other source of income. So the equation becomes

    cost+20% < sale price <food_budget *people/acre -suply chain cost

Sustainability analysis

After putting in the required numbers our next question is, Is the Farmer breaking even?

(Input cost + labor cost)  +20% profit < Yield * Price/ton * Probability of a good yield  --EQ 2

If the above equations are not satisfied then that particular crop becomes unsustainable.

Solution

To ensure sustainability we will have to tweak one or more of the above parameters i.e.

Increase

• Food budget (consumer subsidy, direct cash transfer)
• Person/Acre ( e.g. Better seeds -> better yield)
• Price/ton (Direct cash transfer to farmer e.g. crop bonus)
• Probability of good yield ( resistant seeds, irrigation, technology transfer etc.)

Decrease

• Supply chain cost (less middle men, local distribution etc.)
• Input cost (Input subsidy,low cost(organic?) farming techniques)
• Labor cost (??)

Open Economy

If we now open up our economic model to include the entire globe we will have different values for each of the above parameter for each country. So some countries will do better while others will not. A second factor which comes into play is the scale of operation. In all this we assume that the farmer does better than the EWS category (assume that he falls in the middle class category) A farmer with a small land holding will have to aspire for higher profit margin to maintain his status while a farmer with a large land holding can maintain the same status with a lower profit margin.

Dataset

To model the above system we will require the following datasets

For {Each state, For rural, semi-urban and urban sectors, For each income group}

• The number of people in each income group.
• The household expenditure for each income group
• The crop consumed by each group along with quantity

For each state

• Number of small, medium and large farmers
• Yield for each crop(This can vary on village/district level)(min,max,typical)
• Area under cultivation for each crop.
• Labor cost
• Cost of inputs to agriculture
• Supply chain cost.

To make the model fit an open economy we will require similar data for other major agricultural economies.

NSSO has the household consumption data at http://164.100.34.62/index.php/catalog/CEXP Going through nss_rep_555.pdf at that site, we see 45-50% of the income is spend on food. Gross expenditure data per person is fractiles (Rs.) of the distribution of persons by MPCE*

| State | P5 | P10 | P20 | P30 | P40 | P50 | P60 | P70 | P80 | P90 | P95 |

|Karnataka| 769 |850 |978 |1113 |1202 |1320 |1462| 1591| 1839| 2459 |3072|