Economics of alternative ways of owning the Happy Seeder (HS) for managing stubble and direct drilling

wheat in rice-wheat system

Rajinder SinghNSW Department of Primary Industry Wagga Wagga

Harjeet Dhaliwal Punjab Agricultural University Ludhiana India

John Blackwell Charles Stuart University Wagga Wagga

Background

In the rice-wheat (R-W) farming system of

Punjab, India, over 90% of the 17 Mt rice stubble

is burnt each year releasing over 22Mt of CO2,

0.92Mt of CO and 0.03Mt of SO2 per year, due

mainly to the lack of suitable machinery to direct

drill wheat into rice residues.

‘Happy Seeder’ (HS), a tractor powered machine,

that enables stubble mulching, seed and fertiliser

drilling operations in a single pass, has been

developed within the ACIAR (LWR 2006-124)

project (Sidhu et al. 2008).

Key issues in adoption of the HS

General lack of information available on the total costs of owning tractors and machinery by R-W farmers.

On typically sized (4-5 ha) rice-wheat holdings there is a high cost for farmer owned equipment due to the limited use of machinery

Many farmers who own tractor and other machinery and work as part-time machinery contractors servicing marginal and small size farms to increase utilisation of their equipment.

There are questions as to the true cost of contracting and whether contract rates are sufficient to recover the total machinery cost.

Objectives of the present study

To assess the total annual cost of the HS to a farmer, part-time contractor and to a commercial contractor both with and without subsidy on a new HS.

To compare the total annual cost with the current custom hiring rate for the HS to estimate what percentage the actual costs of using the HS are higher or lower than the market custom rates and

To estimate the total cost involved in different ways of accessing the HS for the rice industry in Punjab, India

Assumptions and data used

1. Farmer using own HS: Total costs of using own HS and tractor

were calculated for a typical 4.4ha rice-wheat farm with 4.1ha of

net area under RW, both with and without a 25%, or 100%

government subsidy on a new machine.

Tractor is used for 200 hours per year for different field

operations, and the Happy Seeder is used for 15 hours per year

for direct drilling of wheat on 4.1 ha of standing rice stubble in

the winter season.

Assumptions and data (cont.)

2. Part-time contractor: A part-time contractor, after direct drilling wheat

on his own farm, direct drills wheat on 8 ha (30 hours) of other farms,

charging a contract hiring rate of $56 per ha for the HS and tractor.

Due to stiff completion among part time contractors and a limited time

available (after meeting his own farm commitments) for contract work

within narrow sowing window of 4 weeks he is able to direct drill wheat

on an additional area of 8 ha.

It is assumed, part time contractor also gets 25% subsidy on a

new HS. He uses his tractor for 500hrs, 200 hrs on his own farm

and 300 hours for contract work during both summer and winter.

Assumptions and data used

3. Commercial contractor: A commercial machinery contractor also gets

25% subsidy on the HS and direct drills 60 ha of wheat (a total of 225

hours, working 8 hours a day, within a narrow sowing window of 4

week).

A commercial contractor uses his tractor for 1000 hrs per annum for

different field operations during both summer and winter season.

The analysis has considered both annual fixed and variable costs of

ownership, taking into account the costs associated with the HS, tractor,

shelter, labour, motor vehicle and phone used for business.

Assumptions and data (cont.)

The cost of a new 35hp tractor is $US 8900, Happy Seeder $US2660; Machinery

shed $US780, scooter $US890, mobile phone $US225 and annual wages of a full

time worker are $US1100 (including value of in-kind costs).

A 10% per annum rate of interest on capital invested, and a 10 years of economic

life of both tractor and the HS.

The HS, using 35hp tractor, takes 3.75 hours to direct drill one ha of wheat and can

direct drill 2 ha of wheat per day.

Costs are expressed in US dollars and 1 US$ is equal to 45 Indian rupee (INR)

Total area under R-W system in Punjab, India, is 2.7 M ha

Total number of tractors operating in the RW belt in Punjab, are 275,000 i.e.1 tractor

for over 9ha of net cultivated area.

Results: Annual costs of alternative ways of owning the HS

Own HS on a typical Rice wheat farm

Machinery contractors

Part time Full time

Level of subsidy (%) (US$/ha)

0 25 100 0 25 0 25

Cost of Happy Seeder

Total ownership cost 95 70 4 33 25 7 5

Total variable cost 20 20 20 11 11 2 2

Total cost 114 89 23 44 36 9 7

Cost of Tractor

Total ownership cost 25 25 25 10 10 5 5

Total variable cost 28 28 28 27 27 25 25

Total cost 53 53 53 37 37 31 31

Other ownership costs 6 6 6 3 3 2 2

Annual costs (US$/ha) of alternative approaches of owning the HS (cont.)

Own HS on a typical Rice wheat farm

Machinery contractors

Part time Full time

Level of subsidy (%) US$/ha

0 25 100 0 25 0 25

Cost of HS, Tractor and other costs

Total ownership costs 126 101 35 47 38 14 13

Total variable costs 48 48 48 38 38 28 28

Total cost 174 149 83 85 76 42 40

Current contract rate 56 56 56 56 56 56 56

Results - Total annual cost of the HS

To a farmer: With a 25% subsidy on capital cost on a new HS, the per ha total annual cost of using own HS and a tractor is still significantly higher than the current custom hiring rate of $56/ha for a HS. Even with a 100% subsidy on the HS, using own HS is more expensive compared to per ha cost of hiring the HS.

Break even area: A minimum of 54 ha area is required to justify using own machine

To a part-time contractor: Even with a 25% percent subsidy, the current contract hiring rate is 30% less than the per ha true cost of the HS and a tractor to a part-time contractor mainly due to a still competition among part contractors. The current custom hiring rate helps him to recover more than operating costs but significantly less that the total annual costs.

To a commercial contractor: Commercial contractor without any subsidy may even earn a small profit from contracting the HS.

Results – Total annual cost (cont.)

It was estimated that by charging an increased contract rate of

$78/ha (30% more than the current contract hiring rate of the HS), the

cost of hiring a HS would be significantly less (50% less) than the per

ha total annual cost of using own tractor and HS.

The increased rate of $US78 per ha would help a part-time

contractor to recover per ha total cost of the HS and tractor used for

contract hiring

It would enable a commercial contractor to earn around a 30% net

return.

Results - Number of Machines required in Punjab

The study has estimated that different adoption models would result in significantly different numbers of HS required to avoid the burning of all rice residues in Punjab, India

Adoption of the HS through commercial contractors would require 45,000 HS units (with a total cost of 120 million US$)

225,000 HS units are required, if through part-time contractors and

Whereas, 275,000 HS units (costing 700 million US$), if farmers were to own their HS machine to direct drill wheat on their own farms with a limited use of the HS for contract work

Sensitivity analysis – Break-even area

Planted area (ha / farm)A0

A0

A0

(Annu

al C

ost /

ha)

A1

A11

Custom hiring

Machinery ownership (no subsidy)

Custom hiring

Total custom hiring & timeliness costs

Custom hiring

Machinery ownership (no subsidy)

Timeliness costs

Machinery ownership (no subsidy)

Machinery ownership (with subsidy)

(Annu

al C

ost /

ha)

(Annu

al C

ost /

ha)

Results - sensitivity analysis Increased daily hours (12 up from 8) of operation or increasing

number of tines (from 8 to 11), without any change in the size of the machine, would help commercial contractors increase the area of HS use per year for direct drilling wheat from 60ha to 80ha.

It would help reduce per unit total cost of the HS to a commercial contractor to $38 per ha. This would enable to the commercial contractor earn over 32% profit margin per ha at the current market contract hiring rate of $56 per ha.

It would also help reduce the total number of machines to 30,000 units with a total cost of 80 million US$ and a government subsidy of only 20 million US$, required to allow direct drilling and management stubbles without burning for the entire RW area in Punjab.

sensitivity analysis – (cont.)

Further, the study has analysed the impact of a 5% yield penalty for a

farmer direct drill wheat, owning the HS through a commercial contractor,

outside the narrow window of optimum sowing time.

It was found that with the reduction in 5% wheat yield (valued at

US$67per ha), the total cost to a farmer of hiring the HS through a full time

contractor when compared to use of own HS, would increase to $123 per

ha, including the cost of contract hiring of the HS ($56/per ha) and the

value of yield loss ($67).

This would still be 30% less than the cost of using own HS (without

subsidy), and almost 20% less (with 25% subsidy).

Conclusions/ discussion

Hiring HS through a commercial contractor would be the most cost

effective way of owning the HS

To encourage farmers to access the HS through commercial

contractors, the policy makers will have to ensure that the

commercial contractors get enough work and reasonable income to

successfully run their business without compromising the timeliness

and efficiency of sowing of wheat, especially on small and marginal

farmers.

Conclusions/ discussion There are examples of commercial contractors performing different

operations without compromising the timeliness or quality of work or

causing yield loss e.g. combine harvesting (100% custom hiring ) of

both rice and wheat, zero till wheat, laser levelling (100%).

Significant financial benefits, financially viable to farmers, if hired

Huge positive externalities from prevention of burning rice stubble

Even spending some public money on training of commercial

contractors on the use of the HS would be more cost effective and

helpful in achieving the twin goals of promoting this technology and

prevention of burning stubbles in rice wheat systems in Punjab,

India. This will also help the RW industry and the state government

save millions of dollars.

Acknowledgements

This study is part of a project ‘Fine-tuning the Happy Seeder

technology for adoption in northwest India’, supported by Australian

Centre for International Agricultural Research, (ACIAR) Canberra.

We are grateful to Geoff Beecher and Dr Tom Nordblom (NSW DPI) for

their critical comments on the draft text.

We are also thankful to all members of the Happy Seeder family for

their consistent support