Agricultural

Production
&
Productivity
VAIBHAV
Introduction
In any production activity, the most fundamental aspect is to examine the various inputs
required and relationship of different levels of each input with the output.

Factor-Product relationships or input –output relationships depends upon:

1. The technical relationships i.e. the level of output at various level of inputs.

2. The prices of the inputs and product prices.

The technical relationship are determined not only by the level of inputs used but also by a
number of other factor which include the time and methods of there application
Resources or Inputs or Factors of Production

Resources are those which get consumed or transformed into products in the process of production. Services of
resources are also used up in the production process. All agricultural resources can be classified into two types.
They are i) fixed resources and ii) variable resources.
a) Fixed resources: Level of some resources like buildings, machinery, etc.is fixed over a production-planning
period irrespective of the level of enterprises taken up. These are called fixed farm resources, E.g. Land,
building, machineries, etc. The quantum of fixed resources does not change with the level of production.
Some of the resources, which are fixed during a short period, may become variable during a long term.
b) Variable resources: Some resources like seed, fertilizer, labour, etc vary with the level of output. These are
variable resources. Resources can also be classified into stock and flow resources as detailed below:
a) Stock resources: They are resources which are used up entirely in the production process. Fertilizer, seed,
feed, etc., are such resources that can be stored up for using at later period.
b) Flow resources: Contrary to stock resources, there are factors of production which give only flow of
services in the production process. Hence, they are called the flow resources. If the services of this
category of resources are not utilized, they go waste, as they cannot be stored up for later use. For
example, if the services of a farm building or machinery are not used in a particular day, they go waste, as
they cannot be stored up for future use.
Need:
A deeper analysis of the distinction of flow and stock resources is somewhat
confusing. Most of the resources mentioned under flow resources also embody
stock services.

Whether a service should be called as flow or stock is normally decided on the

basis of length of time under consideration . Resources which are used in a
session are generally called stock resources while resources which serve over
a longer period of time are termed as flow resources.
Thus the resources used in the production process can be categorized:
1. Stock in One year (Seed, Feed, Fertilizer)
2. Stock over longer period but flow in each year ( farm machinery and building)
3. Flow for ever ( land, sunshine, rainfall)
Production Relationship
The three basic types of relationships in production economy

 Factor - Factor Relationship

 Product-Product Relationship

 Factor-Product Relationship
Production function
Production function refers to input-output relationship in the
production process. Production function is a technical and
mathematical relationship describing the manner and extent to
which a particular product depends upon the quantities of inputs
or services of inputs used in the production process. It describes the
rate at which resources are transformed into products. There are
numerous input-output relationships in agriculture because the rates at
which inputs are transformed into outputs will vary among soil types,
animals, technologies, rainfall, etc. Any given input-output
relationship specifies the quantities and qualities of resources needed
to produce a particular product
 Types of Production Function:
There are different types of production functions, viz., 1) continuous function and 2)
discontinuous function.

1) Continuous function: The doses or levels of input and output can be split up into small units.
E.g. Fertilizers or seed can be applied to a hectare of land in quantities ranging from a
fraction of a kilogram up to hundreds of kilogram

2) Discontinuous or Discrete function: Such a function is obtained for input or factors or work
units which are used or done in whole numbers such as one ploughing or a number of
ploughings.

The difference between discrete data and continuous data is, thus, in the divisibility of the
inputs or outputs. An example of a discrete input is a cow. A dairy herd may be composed of
two, three, or most cows. However, one and a half, three and a quarter, etc, will not be found
in a dairy herd. Fertilizer on the other hand is an example of a continuous input. Fertilizer can be
divided into any size unit and for each size unit, there is a resulting yield.
The production function can also be classified into 1) very short
run production, 2) Short run production function and 3) Long -
run production function.
1) Very short run production function: The time period is so short
that all resources are fixed.
2) Short run production function: Production function, which
relates factors and products where some resources are fixed,
can be termed as short run production function. The time
period is of such length that at least one resource is varied
while other resources are fixed.
3) Long - run production function: Production function, which
permits variation in all factors (none is fixed), can be called
long-run production function. The time is of such length that all
resources can be varied.
 Relation between input and output
 1. Constant Return

 2. Increasing Return

 3. Decreasing or Diminishing Return

 Goals of Agricultural Production Economics

• Assist farm managers: choice of input, output and enterprise

 • Assist policy makers: Determining the consequences of
alternative public policies on output, profits and resource use on
farms
 • Evaluate the uses of theory of firm for improving farm
management and understanding the behavior of the farm as a
profit maximizing entity
 • Evaluate the effects of technical and institutional changes on
agricultural production and resource use
Rational or Irrational Zones
Optimum factor Combination/ Least cost combination
Resource Use Efficiency
 In agriculture, the term ‘resource use efficiency’ may be broadly defined to include three
allied concepts viz. technical efficiency, allocative efficiency and environmental efficiency.
Analytically, technical efficiency means maximising output for given input (at the level of
production possibility frontier). Allocative efficiency implies that the usage of input is
minimised. Environmental efficiency, which has nowadays acquired critical relevance,
implies that the production process should be sustainable. It is possible that a production
process is not sustainable over time. For instance, using more water than that is replenished
can reduce the ground water level which can have an adverse impact on the cultivation of
crops in the subsequent years. Or, inappropriate use of fertilisers can lead to salinity
affecting the soil quality. With climate change, adverse implication could also be because of
activities outside the production process.

 At any given time, for given prices, the allocative efficiency (AE) is the ratio of ‘marginal
value of product per unit input’ to ‘marginal cost per unit input’ (i.e. AE = MVP/MC).
Factor Combination and Resource Substitution
 It is possible for a farmer to produce Y quantity of paddy
using X1 units of land and X2 units of labour. Suppose,
other things remaining same, it is also possible for the
farmer to produce the same quantity of paddy using a
different combination of land, X11 , and X22 labour, .
 Assuming that the farmer rents in land and hires labour
and would like to minimise costs, the choice of technique
will be based on relative prices of the inputs, Px1 and Px2
respectively. If the ratio of the proportionate change in
relative quantity of inputs to the proportionate change in
their relative prices (that is, elasticity of substitution) is
high, then a small change in relative prices can lead to a
shift in ‘technique’. In other words, there will be resource
substitution.
Cost and Supply
Curves
Cost Concepts
In recent years, cultivators are becoming more and more
conscious about the costs and returns from agriculture in
general and enterprises on one farm in particular.
Cultivator relates the price, which he receives for the
produce in the market with his cost of production.
Government takes into account the cost of production in
deciding the price policy and for declaring the minimum
support prices for selected important crops. The
commission which recommends the minimum support
prices to government is aptly named as the ‘Agricultural’
Costs and Prices Commission.
Fixed and variable costs:
 Fixed costs: - These are fixed. In agriculture, land in some sense is
a fixed capital. The other important items of fixed costs are
implements and tools, machinery, farm buildings, work animals
etc.

 Variable costs: - These costs vary with the production. One can
increase or decrease their use. In agriculture, cost of seed,
manure’s and fertilizers, irrigation, labour are the variable costs.

The sum of fixed costs and variable costs forms the ‘total cost’,
when the total expenditure is deducted from the total returns
(income), one gets the ‘net profit’.
 The definitions of various costs were standardised in the ‘Seminar on Agricultural
Prices policies’ organised by the F.A.O / ECAFE in New Delhi in March – April
1958, with the co-operation of Govt. of India. These definitions have found
general acceptance.

 They are summarised below-

 Cost –A: Actual paid out costs for owner cultivator. This cost approximates the actual
expenditure incurred in cash and kind and includes the following items.

 Hired human labour,

 Owned and hired bullock labour,
 Seeds,
 Manures and fertilisers
 Implement charges,
 Land revenew and other taxes,
 Irrigation charges,
 Other miscellaneous charges.

It does not include items like (a) rent paid, (b) estimated rental value of owned land, (c) interest on fixed capital and (d)
family human labour.
Cost –A-1: Corresponding cost for the tenant
cultivator, i.e. including rent actually paid by him.

Cost –A-2: Cost A plus imputed value of own labour.

Cost – B: Cost A plus rental value of owned land

and imputed interest on demand capital.

Cost – C: total of all cost items, actual as well as

imputed.
Elements of Costs:
A. Direct Costs:
 Human labour – (a) Family labour (b) Exchange labour
 Bullock labour – (a) Owned bullock labour and exchange
bullock labour (b) Hired bullock labour.
 Machinery Equipment and implement charges: Hired
charges
 Costing material used - (a) Seed, (b) Manures & fertilisers,
(c) Pesticides etc (d) Miscellaneous.
 Land revenue
 Irrigation
 Marketing Cost
B. Indirect Costs or overhead charges:

Land improvements
Farm buildings, fencing, wells.
Indirect labour.
Depreciation on machinery and equipment.
Interest.

Rent.
For a given production technique Y = f (X1,
X2 ) one can produce different quantities of
paddy such that for any quantity the total cost
will be TC= Px1. X1+ Px2. X2 Increasing the
quantity of output produced will, therefore,
give us different total costs at varying
quantities sought to be produced. By joining
these points, we will get a total cost curve.
Total cost per unit of output gives us average
cost, AC= TC/Y , and the incremental cost for
one unit increase in output gives us the
marginal cost, MC = ΔTC . The total cost has
two components – fixed and variable.
One particular production technique will have
a particular average cost curve,AC1 , a second
one will have another curve,AC2 , and so on,
with the “nth” technique having the AC curve,
ACn. If we draw a curve touching all these
curves such that it envelopes all these curves
from below we get a long run average cost
curve. AC1 AC2 ACn
The long run average cost curve is also the
industry level long run supply curve which is a
function of price. Let us elaborate. Let the
price of output be P . Then total revenue is TR
= PY and the Total Profit is Total Revenue
minus Total Costs.
The concept
of supply
 The word 'supply' is commonly used to mean 2 different things. One
definition of supply is the total of new production and stocks. 'Stocks' is the
amount of product available at the beginning of a new production period.
In other words, supply is the total quantity available. The term 'total supply'
will be used to indicate the total quantity available.

 The other common use of supply describes how producers react in the
marketplace. Market supply or aggregate supply represents the amount of
a product all producers are willing to sell over a range of prices at any given
time period. At an individual level, a producer may be willing to sell a
particular quantity as long as the market price is equal to or greater than the
cost of producing that quantity. Market or aggregate supply is the total of
the quantities all individual farmers want to bring to market at various price
levels.
Supply Response of Individual Crops and Aggregate Supply

Supply response of individual crops started with the work of Nerlove (1956,
1958). The basic model is non-parametric, but as Nerlove (1979) later put it
the estimations are largely based on three equations:
LAND REFORMS AND
LAND POLICY
Principles of Land Use
 1. The Principle of Maximization
 2. The Equimarginal Principles
 3. The Principle of Diminishing Marginal Rate of Substitution
 4. The Principle of Diminishing Marginal Productivity
 5. The Principle of Specialization and Comparative Advantage
 6. The Principle of First Choice and Others.
 7. The Principle of Mapping and Search for are Alternative Better Utilization of
the Land
 8. Optimization of the Quality of the Land use in Relation to the Environment
 9. Fixation of Cropping System around Human Habitation for Least Effort and
Less Cost Travel
 10. Conservation of the Land for the Future Judicious Use
Land Distribution Structure and Trend
 Land reforms alter the power structure, both economic and political,
since land has always been a source of wealth, income, status and
a reflection of the interlocking class and caste structure of Indian
society. It empowers the actual tillers of the soil, and enables them to
seek development benefits from the state. Thus, they are also a
means of increasing agricultural production through land
development, as the interest of peasants in investing in the land
they own grows significantly.
 Apart from this, land reforms would also enable a more equitable
distribution of land, which in turn will generate incomes on a
more equitable basis.
Before independence
India had never been governed by a single ruler. In the late Hindu Period
(Ashoka and Gupta periods) and throughout the Moghal period, a large part of
North India was under the central rule and, therefore, had uniform land tenure
systems. The rest of India comprising several states, however, was separately
governed. The tenurial system in the Moghal period was essentially a ryotwari
system, under which land was held directly by a tenant. Todar Mal, the
Finance Minister of the Moghal Emperor Akbar (1556-1609) improved the
system of land revenue collection by fixing it at one-third of the average yield of
grains and valued at the average of 10 years’ price. After the death of Aurangazeb
(1707), and with the declining power of Moghal rulers, a class of intermediaries
emerged, which entrenched itself between the ruler and the cultivators. They
collected the revenue from farmers, gave nine-tenths to the ruler and kept one-
tenth for themselves.
The Settlements
When the British came to India, they first tried to collect revenue through
professional tax collectors and later by auction to the highest bidder. This system
failed before long. Between 1770 and 1793, the device of permanent settlement of
revenue, with zamindars having proprietary rights on land, was introduced.

Permanent Settlement System for assessing land revenue was first introduced by the
British in Banaras in 1773. Later, the Bengal Permanent Settlement Regulation of 1793
was passed by Lord Cornwallis. It was applicable to Bengal, Bihar, Orissa and Uttar
Pradesh. The traditional revenue collectors, who wielded considerable political,
social and economic authority at the local level, were recognised as proprietors of
the land and also agents for the collection of revenue on behalf of the government.
The original owners of the land (who had the usufruct rights) were reduced to the status
of tenants who could be expropriated at the proprietors’ will.
The zamindari system (as a result of permanent settlement) was resisted at a
number of places. As a result, the other variants that came up at different places
were as follows:
 a) the Malguzari settlement, where village headmen were recognised as
malguzars;
 b) the Jagirdari system in which the zamindar did not have proprietary rights
on the soil, but enjoyed the right to collect land revenue;
 c) the Ryotwari system, whereby the Government settled the rents directly with
the ryots (cultivators) without the intervention of an intermediary. This
settlement was applicable to western and southern India; and lastly
 d) Mahalwari system, by which the land belonged to a small group of families
who were usually the most powerful in their region and were responsible for
paying rent to the state. This settlement covered the north and north-western
provinces of India.
Cont.
A distinctive feature of the above settlements, that
affected agricultural production badly, can be
understood better with the help of an example.
Between the zamindar of a certain estate and
cultivating tenants, there were four groups of
intermediaries. They were all middlemen and rent
collectors, in no way interested in agricultural
progress. Each of them extracted a certain sum
from the one below him in hierarchy. This system led
to social unrest among cultivators.
Post Independence

A committee, under the Chairmanship of J. C. Kumarappan was

appointed to look into the problem of land. The Kumarappa
Committee's report recommended comprehensive agrarian reform
measures.
 The Land Reforms of the independent India had four components:

 The Abolition of the Intermediaries

 Tenancy Reforms
 Fixing Ceilings on Landholdings
 Consolidation of Landholdings.
Approaches to Land Reforms
P.C. Joshi has pointed out that attempts to directly alter the pattern of the distribution of land
holdings assumed the form of four types of approach in land reforms:
 i) Land reform ‘from above’ through statutory enactments made and implemented by the
state legislatures on the lines broadly indicated by the Central Government.
 ii) Land reform due to the pressures of militant peasant action from below (Telengana
and Naxalbari movements, for instance) and to some extent, land grab movement by various
left peasant organisations.
 iii) Land reform ‘from below’ by persuading landlords and through peaceful pressure by
peasants (e.g. bhoodan and gramdan movements under the leadership of Vinoba Bhave).
 iv) Land reform through legislative enactments ‘from above’ in combination with peasant
mobilisation ‘from below’ (e.g. controlled land seizure in West Bengal under the United
Front Government during 1967-69 and protection of poor peasants in Kerala under CPI
Ministry).
Structure
Five facts, gleaned from the 2011-12 agricultural census and 2011 socio-
economic caste census and this correspondent's data, summarise the failure of
India’s land reforms:

1. No more than 4.9% of farmers control 32% of India’s farmland.

2. A “large” farmer in India has 45 times more land than the “marginal” farmer.
3. 101.4 million--or 56.4%--of rural households own no agricultural land.
4. Only 12.9% of land marked--the size of Gujarat--for takeover from landlords
was taken over by December 2015.
5. Five million acres—half the size of Haryana—was given to 5.78 million poor
farmers by December 2015.
Cont.
 India’s efforts at land reforms have a long history. After Independence,
starting in the 1960s, 21 states enacted land reforms laws to address
the historic inequality in land ownership in India. The new
amendments have reversed these protections, even though the
objectives of land reforms have not been met. Earlier, in 2013, the
draft National Land Reforms Policy had reiterated that states should
reduce land ceilings and distribute surplus land among the landless
poor. But land being a state subject, state governments are not subject
to central government recommendations.
 The amendments are a “U-turn” on the land reform agenda and show
that the laws are no longer for the benefit of landless and marginal
farmers.
Amendments Grouped By Themes
Systems of farming

 1. Cooperative farming

 2. Peasant farming

 3. State farming

 4. Capitalistic farming or estate farming

 5. Collective farming

 6. Contract farming
Cooperative farming
 A cooperative farming society is one in which members pool their land
voluntarily and manage it jointly under a democratic constitution. The
seminar on cooperative farming convened by the Indian Society of
Agricultural Economics at Poona, in May, 1958, came to this conclusion.
 "It is an essential element of cooperative farming that its constituent
members agree and surrender their individual rights and capacity to take
major decisions in respect of farming enterprises to a common body
constituted by them and accept its decision.“
 a. Cooperative better farming
 b. Co-operative joint farming
 c. Cooperative tenant farming
 d. Cooperative collective farming
 Ownership and operation in different cooperative
farming societies

Sl.No Type of farming Type of Kind of

ownership operations
1 Cooperative better farming Individual Individual

2 Cooperative joint farming Individual Collective or joint

3 Cooperative tenant farming Collective Individual

4 Cooperative collective farming Collective Collective

Peasant farming
This system of farming refers to the type of organization in which an
individual cultivator is the owner, manager and organizer of the farm.
He makes decisions and plans for his farm depending upon his
resources which are generally meager in comparison to other systems
of farming. The biggest advantages of this system is that the farmer
himself is the owner and therefore to take all sorts of decisions. A
general weakness of this system is that the resources. With the
individual are less in comparison to those of the other systems. Another
difficulty is because of the law of inheritance, an individual holding
goes on reducing as all the members in the family have equal rights in
that land.
State farming
State farming, as the name indicate, is managed by the government. Here the
operation and management is done by the government officials. Suratgarh
farm in Rajasthan and state farm at Bahraich in Uttar Pradesh are some of
the examples of this system. But such farms are not many and they are
generally attached either to some institution (SFCI) or they themselves are
institutions for a particular work. Supervision is done by the farm manager or
farm incharge who in turn is a government official. All the labourers are
hired on daily or monthly basis and they have no right in deciding farm policy.
Such farms are not very paying because of lack of incentive. Farm policy is
usually planned at the top whereas farming is such a profession which requires
immediate and at the spot decision. There is no dearth of resources at such
farms but sometimes it so happens that they are not available in time and
utilized fully.
 Capitalistic farming or estate farming
The management and ownership of such farms is under rich persons or
capitalists. The size of such farms is sufficiently large and the management is
also quite efficient. These farms are owned by individuals or groups of
individuals or shareholders. Resources are plenty, latest technical know how is
used and hence they are efficient. Sugar factories farms, rubber, coffee and tea
plantations are common examples of such a system. Management is paid and the
general policies are decided by managing body or board of directors. These
farms are not very common in India but in USA, Australia, Canada or newly
developed agricultural countries they are very common. The advantages of such
farming are good supervision, strong organizational setup, sufficient resources
etc. Its weaknesses are that it creates socio-economic unbalances and the actual
cultivator is not the owner of the farm.
Collective farming
The name collective farming implies the collective management of
land wherein large number of families or villagers residing in the
same village pool their resources, e.g. land livestock machinery,
etc. A general body having highest power is formed which
manages the farm. These resources then do not belong to any
family or farmer but to the society or the collective. If any farmer
wants to dissociate from it, he can do so, but he cannot go with his
share (resource). Money is lieu of his share will be given to him. This
system had started in Russia. The worst thing with this system is that
the individual has no voice. Farming is done generally on large
scale therefore is mostly mechanized. This system is not prevalent in
India but common in communistic countries of the world.
Contract farming
One more farming system is emerging in India, that is
contract farming. In this system land is taken on long time
lease base from individual owners. Land is remained under
ownership of individuals but they have no role to play in
farm policy. They are paid rental value of land. It is a good
system in developed countries where holdings are large.
But in India 75% farmers are small and marginal and if they
leased out their land, they will be forced to migrate to
cities in search of jobs. In long term , there are chances of
landlessness also.