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Explain the role of credit in modern agriculture.
Explain the role of credit in modern agriculture.
Credit plays a crucial role in modern agriculture by providing farmers with the necessary funds to adopt improved production techniques and cover variable costs.
What is the significance of the law of comparative advantage in agricultural trade?
What is the significance of the law of comparative advantage in agricultural trade?
The law of comparative advantage suggests that countries should specialize in the production of goods where they have efficiency, allowing for mutually beneficial trade.
List three components that can be included in the calculation of a farmer's credit requirement.
List three components that can be included in the calculation of a farmer's credit requirement.
Components include the value of hired human labor, the value of seeds, and irrigation charges.
Why might a farmer struggle to adopt modern technology without sufficient credit?
Why might a farmer struggle to adopt modern technology without sufficient credit?
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How do variable costs influence the total credit requirement for a farmer?
How do variable costs influence the total credit requirement for a farmer?
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What is the formula to calculate Total Capital Need for a farmer?
What is the formula to calculate Total Capital Need for a farmer?
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How does the credit requirement of a small farmer differ from that of a large farmer based on the provided PiJ values?
How does the credit requirement of a small farmer differ from that of a large farmer based on the provided PiJ values?
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If the area cultivated by a small farmer is 1.25 acres and Cost A is Rs. 24,387, what is their credit requirement?
If the area cultivated by a small farmer is 1.25 acres and Cost A is Rs. 24,387, what is their credit requirement?
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Why is depreciation subtracted from Cost A when estimating a farmer's credit requirement?
Why is depreciation subtracted from Cost A when estimating a farmer's credit requirement?
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What would be the Total Capital Need if Cost A is Rs. 24,387 and depreciation is Rs. 450?
What would be the Total Capital Need if Cost A is Rs. 24,387 and depreciation is Rs. 450?
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Study Notes
Agricultural Finance and Co-operation (Econ-205) - Practical 9: Estimation of Credit Requirement
- Modern agriculture heavily relies on credit for financial needs, increasing with capital-intensive production techniques.
- Farmer's own capital is often insufficient, requiring significant borrowed funds.
- Without credit, farmers struggle to adopt improved farming methods.
Hypothetical Data for Operating Expenses
- Shows data for a farmer's operating expenses based on existing and improved technology.
- Table shows different crops, areas, expenses based on existing tech, and improved tech.
- Total need based on existing tech: ₹37,000
- Total need based on improved tech: ₹72,000
- Available capital: ₹25,000
- Capital need: ₹12,000 for existing tech and ₹47,000 for improved tech.
Introduction
- Modern agricultural businesses depend on credit.
- Improved farming techniques require significant capital investment.
- Farmer's own capital is frequently insufficient and they depend on borrowed funds.
- Inability to access credit limits a farmer's ability to adopt better production techniques.
Cost 'A' (Variable Costs): Calculation of Credit Needs
- Cost 'A' includes all variable costs incurred during the production process.
- This includes the values of hired human and bullock labor.
- The value of usage of owned machinery.
- Hired machinery charges.
- The cost of seed.
- Cost of manure
- Value of fertilizer.
- Value of insecticides and pesticides required.
- Irrigation expenses.
- Depreciation on farm buildings and implements.
- Any interest on working capital.
- Other paid out expenses (if any).
Total Capital Need
- Depreciation costs are not included in cash, so the value of depreciation of farm building and implements is subtracted from the cost 'A'.
- Total capital need calculation: Total capital needed = Cost A - Depreciation
Example of Small Farmer's Credit Needs
- Shows a table of a small farmer's cost of cultivation
- Values are calculated for different materials/expenses involved during production
- Human labor (₹6,000)
- Bullock labour days (₹3,200)
- Tractor charges (₹300)
- Seeds (₹3,500)
- Manure (₹4,000)
- Fertilizer cost (₹1,949)
- Irrigation (₹1,800)
- Insecticide/Pesticide cost (₹750)
- Misc cost (₹1,500), and depreciation (₹450).
- The sum of all these, ₹24,387 is the Cost A for operating expenses, while the depreciation is calculated at ₹450.
- Resulting total capital need for this small farmer is ₹23,937
Proportionate Cost Approach
- Method to determine the short-term credit needs of different farmers.
- A formula for determining a farmer's credit requirement (CF) is provided.
- Proportion of Individual Farmer (PiJ) is used to calculate credit requirement, differ based on farmer size as small, medium, or large.
- Small farmer PiJ: 0.55
- Medium farmer PiJ: 0.45
- Large farmer PiJ: 0.35
- For a small farmer in the example, the calculation is provided as: CF=0.55 * 1.25 * Cost A which is 24387.
- The resulting credit requirement for a small farmer is ₹16,766.06
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