cost concepts and cpst of cultivation

calculation of various costs and calculation of total cost of cultivation

1. ACHARYA N. G. RANGA AGRICULTURAL UNIVERSITY

Agricultural College, Naira
B.Sc. (Hons.) Agriculture
Course No: AECO 341 (1+1)
Farm Management, Production and Resource Economics
Assignment-2 on
Cost concepts(A1,A2,B1,B2,C1,C2,C3), income measures like farm business
income,owned farm business income,family labour income,net income and farm
investment income from the data collected from Buravilli village of gara mandal
of srikakulam district

Submitted to : submitted by :
Dr.V.Rajendra Prasad sir, CH.Eshwar sai Prasad
Associate professor, Id.no : NA-2017-014
Department of agricultural economics A-batch
NAIRA 3
rd
year

2. COST CONCEPTS

The item of cost of cultivation cover both the paid – out costs
(out of pocket Expenses) and the imputed costs .The items Covered under these costs
are:

a. Paid – out Costs
 Hired labour (human, animal and machinery)
 Maintenance expenses on owned animals and machinery.
 Expenses on material inputs such as seed (home grown and purchased),
fertilizer, manure, (owned and purchased), pesticides and irrigation
 Depreciation on implements and Farm buildings such as cattle sheds ,
machine sheds, storage sheds.
 Land revenue
 Rent paid for leased-in land
 Miscellaneous expenses.

b. Imputed Costs
 Value of family labour.
 Managerial input of Family.
 Rent of owned land
 Interest on owned Fixed Capital for which the Farmer does not incur any
cash expenses data are to be analyzed on the basis of following concepts
of costs

3. Basic data from the farmer

1.Name of the farmer : V.Appa rao
Ph.no : 9618772208
2.village : Buravilli (gara mandal, srikakulam district)
3.Main occupation : farming
4.Subsidiary occupation : weaving
5.family labour : male 1 (rs /-400/each/day)
Female 1 (rs/-200/each/day)
6.land holding : 2 and ½ acres
a)owned : 1 and ½ acres
b) leased in : 1 acre
c)leased out : nil
7. total extent of operational holding
a)rainfed : nil
b)irrigated : 1.70 acre
c) irrigated dry : 80 cents
8.live stock details : nil
9.farm buildings : nil

10.irrigation equipment : no equipments
11.quantity of seed purchased : 2 bags (rs /-1800)

4. 12.fertilizers
a) urea : 2 bags (rs /-800)
b) DAP : 1 bag (rs/-600)
c) SSP : 1 bag (rs/-900)
13.plant protection chemicals
a)for pests : 2000/-
b) diseases : 2500/-
14. yield
a)kharif (paddy) : 53 bags
b)rabi (paddy) : 59 bags
* 15 bags are retained for family consumption

Cost A1 includes following :
 value of hired human labour
 Value of hired bullock labour
 Value of owned bullock labour
 Value of owned machinery labour
 Hired machinery charges
 Value of seed(both farm produced and purchased)
 Value of insecticides and pesticides
 Value of manure ( owned and purchased)
 Value of fertilizer
 Depreciation on implements and farm buildings
 Irrigation Charges

5.  Land revenue, cesses and other taxes.
 Interest on working capital
Cost A1
 Value of human labour = (3*15*400) +(5*20*200)
= 18000+20000
= 38000/-
Remarks : 3 men works for the 15 days at the wage rate of 400 per day
5 women works for the 20 days at the wage rate of 200 per day

 Value of machine power = 2200+3000+7200
= 12400/-
Remarks : -- for ploughing tractor costs about 1100 /- per season for one season
--for puddling tractor costs about 1500/- per season for one season
-- for harvesting multi crop thresher costs 3600/- per 6 hours in one season
It requires 6 hours to harvest in 1 ha crop
 Value of seeds = 550 * 2
=1100
Remarks : each seed bag consists of 30 kg seed. Each bag costs about 550/-


 Value of manures and fertilizers = 1600+1200+1800
=4600/-
Remarks : 2 bags of urea + 1 bag of DAP+1 bag of SSP are used in 1 season

 Value of plant protection =4000+5000 (protection from pests and diseases respectively
=9000/-

 Value of weedicides = 0 (as no weedicides are used by the farmer )

 Value of irrigation = 199/- ( source : TNAU agricultural portel …, from the cost of
cultivation of 1 ha paddy)

6. Interest on working capital = (Labour costs + material costs) * ST loan interest rate(%) *

(half crop period/12)

= (Labour costs + material costs) * (7/100) * (Half of crop
period/12)
=(38000+14700) * (6.15/100) * (4/12)
=Rs.9763.15/-

 Other miscellaneous expenses = 2000/-

s.no Component Cost (Rs)
1 Value of human labour 38000
2 Value of bullock power 00.00
3 Value of machine power 12400
4 Value of seeds 1100
5 Value of manures and fertilizers 4600
6 Value of plant protection 9000
7 Value of weedicides 00.00
8 Value of irrigation 199
9 Depreciation on farm building 00.00
10 Interest on working capital 9763.15
11 Other miscellaneous expenses 2000
COST A1 = TOTAL= Rs. 77062.15/-

7. Breaking of different components of cost A1



Fixed costs
item formulae value
Land revenue 00.00
Depreciation (Original Cost – Junk Value)/Expected = Useful life
of the Asset
00.00
Rental value of owned land Rental value of land in that locality per
year/Number of crops cultivated per year
12000
Interest on owned land (Present value of all assets excluding land)*
(10/100)]Number of crops cultivated per year
00.00
TOTAL FIXED COSTS Rs.12000/-

Value of human labour
Value of bullock power
Value of machine power
Value of seeds
Value of manures and
fertilizers
Value of plant protection
Value of weedicides
Value of irrigation
Depreciation on farm building
Interest on working capital
Other miscellaneous expenses

8. Cost A2 = Cost A1 + Rent paid for leased in land
= 77062.15+ 8000
=Rs. 85062.15/-

Cost B1: = Cost A1 + Interest on the value of owned capital assets (excluding land).
Interest rate of long - term government floated loans or securities: 10 per cent.
= 77062.15+615
= Rs. 77677.15 /-

Cost B2 : Cost B1 + Rental value of owned land (less land revenue) and Rent paid for
leased in land.
= 77677.15 +12000+8000
= Rs.97677.15/-
Cost C1 = Cost B1 + Imputed value of family labour
= 77677.15 +(1*30*400)+(1*30*200)
= 77677.15 +8000+4000
= Rs.89677.15 /-

Remarks : There are certain items for which no money is actually spent but they do
contribute towards the growth of a crop. Proper evaluation of such items in terms of
money equivalent is important for correct assessment of cost production. Thus family
labour is an important input in the enterprise, but no money is paid by the farmer to
his family members for the work done on the farm. So here by I consider as my farmer family
consisits of him and his wife and they worked for 30 days respectively. So calculation was done
based on normal wage rate.

9. Cost C2 : = Cost B2 + Imputed value of family labours
= 97677.15+ 12000
= Rs.109677.15/-
Cost C3 : = Cost C2 + 10 % of Cost C2
= 109677.15 + 10967.715
= Rs.110713.865/-


Income measures related to different cost concepts
1. Farm Business Income
2. Owned Farm Business Income
3. Family Labour Income
4. Net Income
5. . Farm Investment Income
1.Farm business income : gross returns – cost A1
* gross returns = 53 bags (kharif) + 59 bags (rabi)
= (53*80)+(59*90)
= 8960 kg
= 89.60 q
MSP for 1 quintol rice during 20190is Rs.1815/-
= 89.60*1815
= Rs.162624/.

10. Farm business income : gross returns – cost A1

= 162624 – 77062.15

= Rs.85562.85 /-


2.owned farm business income : Gross Return - Cost A2
= 162624 - 85062.15
= Rs.77561.85 /-

3.family labour income : = Gross Return - Cost B2
= 162624 - 97677.15
= Rs.64476.85/-

4.Net income = Gross Returns - Cost C2
= 162624 -109677.15
= Rs. 52947.85/-

5.Farm investment income : = Net Income + Imputed rental value of owned land + Interest on
fixed capital (Charged at the rate of 10 per cent on the present

value of fixed assets.

= 44021.71 + 12000 + 8460
= Rs.64481/-

11. Summery :
Costs
S.no cost Value(Rs/-)
1 A1 77062.15
2 A2 85062.15
3 B1 77677.15
4 B2 97677.15
5 C1 89677.15
6 C2 109677.15
7 C3 110713.865


Value(Rs/-)
A1
A2
B1
B2
C1
C2
C3
0
20000
40000
60000
80000
100000
120000
A1 A2 B1 B2 C1 C2 C3
Value(Rs/-)
Value(Rs/-)

12. Income measures
s.no Income measure Value(Rs/-)
1. Farm business income 85562.85
2. owned farm business income 77561.85
3. family labour income 64476.85
4. Net income 52947.85
5. Farm investment income 64481.00


Value(Rs/-)
Farm business income
owned farm business
income
family labour income
Net income
Farm investment income
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
Axis Title
Value(Rs/-)
Value(Rs/-)

13. *b/c ratio = 162624/97677.15
= 1.66
*Rate of returns = (Gross returns – Cost C2) / Cost C2
= (162624-109677.15)/ 109677.15
= 0.51
Conclusions :
1) As the benefit cost ratio is about 1.66 the farmers condition is satisfactory.
2) From the above data and calculations it was concluded that farmer spending mostly on
hired labour.
3) Though he leased in land it was creating profits for him based on the costs incurred on
it.
4) Rental value for leased in land is less when compared to other areas districts of Andhra
Pradesh
5) Cultivation of rice crop in the rabi season gives the more profits.
6) Cost incurred on pesticides is more as the farmer mainly suffering from the the pests
such as BPH
7) From the profits received from the agri enterprise farmer is willing to buy pair of cattle.
8) As the farmer”s family consists of two members they are satisfactory towards these
profits.
9) Farmer should adopt integrated farming practices in order to reduce his costs.
10) Using multi crop thresher along with the other farmers at the same helps the farmer to
reduce some amount of costs.
Note :
The above data and calculations are purely based on the farmers’s info
but not based on the general recommendations and farming practices . calculations were
done both kharif and rabi as the farmer cultivated only rice in both seasons. Information
was gathered from direct interaction with farmer as well as through phone call.
References :
 A word document provided by the Dr.V.Rajendra prasadsir on cost concepts
 CACP (2000). ‘Reports of the Commission for Agril. Costs and Prices for the Crops