Model Answer
0 min readIntroduction
Onion cultivation is a significant agricultural activity in India, contributing substantially to both the economy and food security. However, it is also characterized by high price volatility, making it a risky venture for farmers and agricultural companies alike. The economic feasibility of onion farming depends on a complex interplay of factors, including input costs, yield, market prices, and post-harvest losses. Determining the minimum profit per acre required for Agrofarms Ltd. to sustainably engage in onion cultivation necessitates a thorough understanding of these elements and a realistic assessment of the risks involved. This analysis will consider the various costs associated with onion farming and establish a benchmark for profitability.
Understanding the Cost Structure of Onion Cultivation
To determine the minimum profit per acre, we must first dissect the costs involved in onion cultivation. These can be broadly categorized into fixed costs and variable costs.
Fixed Costs
- Land Cost: This includes rent or depreciation of land value. Assuming an average land rent of ₹20,000 per acre per annum (as of 2023-24, based on agricultural land rental surveys).
- Depreciation of Equipment: Tractors, sprayers, and other machinery depreciate over time. Estimated at ₹5,000 per acre per annum.
- Administrative Costs: Salaries of farm managers, record-keeping, and other administrative expenses. Estimated at ₹3,000 per acre per annum.
Variable Costs
- Seed/Sapling Cost: High-quality onion seeds cost approximately ₹8,000 - ₹12,000 per acre.
- Fertilizer Cost: Onions require substantial fertilizer input. Nitrogen, Phosphorus, and Potassium (NPK) fertilizers cost around ₹10,000 - ₹15,000 per acre.
- Pesticide/Herbicide Cost: Protecting the crop from pests and weeds requires pesticides and herbicides, costing approximately ₹5,000 - ₹8,000 per acre.
- Irrigation Cost: Water is crucial for onion cultivation. Irrigation costs (electricity/diesel) can range from ₹7,000 - ₹10,000 per acre.
- Labor Cost: Includes costs for sowing, weeding, harvesting, and transportation. Estimated at ₹15,000 - ₹20,000 per acre.
- Transportation & Marketing Cost: Costs associated with transporting onions to the market and marketing them. Estimated at ₹3,000 - ₹5,000 per acre.
- Post-Harvest Losses: Onions are prone to spoilage. Assuming a 10% post-harvest loss, this needs to be factored into the cost.
Calculating Profit Per Acre
Let's assume an average yield of 10 tonnes of onions per acre. The selling price of onions fluctuates significantly. To determine the minimum feasible price, we need to cover all costs and provide a reasonable profit margin.
Total Cost per Acre (Estimated):
| Cost Category | Estimated Cost (₹) |
|---|---|
| Fixed Costs | 38,000 |
| Variable Costs (Average) | 58,000 |
| Post-Harvest Loss (10% of potential revenue) | Variable, dependent on selling price |
| Total Cost (excluding post-harvest loss) | 96,000 |
Profit Calculation:
Let 'P' be the selling price per tonne of onions. Total revenue per acre = 10 tonnes * P.
Profit = (10 * P) - 96,000 - 0.1 * (10 * P) = 9P - 96,000
Determining Economic Feasibility
For Agrofarms Ltd. to find onion farming economically feasible, the profit must cover the company’s cost of capital and provide a reasonable return on investment (ROI). Let's assume Agrofarms Ltd. requires a minimum ROI of 15% on its investment (₹96,000). This translates to a minimum profit of ₹14,400 (15% of ₹96,000).
Therefore, 9P - 96,000 ≥ 14,400
9P ≥ 110,400
P ≥ ₹12,267 per tonne
Thus, the minimum selling price per tonne of onions required for Agrofarms Ltd. to achieve economic feasibility is approximately ₹12,267. This translates to a minimum profit per acre of ₹14,400.
However, this is a simplified calculation. Factors like market fluctuations, weather risks, and unforeseen expenses should also be considered. A risk assessment and contingency planning are crucial for sustainable onion farming.
Conclusion
In conclusion, the minimum profit per acre of onions that would make it economically feasible for Agrofarms Ltd. to grow onions is contingent on achieving a selling price of at least ₹12,267 per tonne, resulting in a profit of ₹14,400 per acre, assuming a 15% ROI target. This calculation highlights the sensitivity of onion farming to market prices and the importance of efficient cost management. Agrofarms Ltd. should also explore strategies like forward contracts, crop insurance, and value addition to mitigate risks and enhance profitability in this volatile market.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.