The present study find out the was impact of backward integration on chilli farmers in terms of input use pattern and profitability in Andhra Pradesh. Multistage random sampling was selected adopted for the sample selection. A total of 128 sample were taken. Two major Agribusiness firms, i.e., ITC and Synthite that are following backward integration in chilli farming in Prakasam district were purposively selected for the study. The decomposition analysis showed that the per hectare returns of integrated farming was 13.28 per cent higher than that of non-integrated farming. The integrated technology component was contributing 3.7 per cent to the total increase in output. The total contribution of changes in the levels of input use to the outcome differences between the two groups was 9.58 per cent.
Decomposition analysis was used to analyse the impact of backward integration on input use pattern and profitability of chilli farmers, the farmers who are following backward integration are getting higher income than farmers who are not following backward integration.
Backward integration is a strategy where a firm gains control over ownership or increased control over its suppliers. It basically comprises of four components, pre-agreed price, quality, quantity and time. It was an approach that can bring income for farmers and profitability for companies (Sharma
Wide variation in yield levels in chilli resulting in fluctuation in prices and farmers are facing problems like high transportation cost, viral diseases, quality deterioration by contamination of pesticides, industrial chemicals and aflatoxins (Rao and Rao, 2014). It is vitally important to support the chilli farmers to produce high quality sustainable food safe spices to compete in the international market. So, the agribusiness firms are focussing on clean spice to gain the profits from international market by providing service backward integration with farmers. In this service farmers are also getting profits through gaining more output. The study is taken with was focused on following objective “to study the impact of backward integration on input use pattern and profitability of chilli farmers.”.
Multistage random sampling design was adopted for selection of sample at different levels viz., for selection of district, mandals and villages in the present study. Two major Agribusiness firms, i.e., ITC and Synthite that are following backward integration in chilli farming in Prakasam district were purposively selected for the study. In Andhra Pradesh, Prakasam district was selected as the integrated chilli farmers of both ITC and Synthite are present in this district. Four mandals from of Prakasam district, viz., Naguluppala Padu, Tallur, Bestavaripeta and Recharla mandals were selected based on based on the maximum number of chilli farmers present. Naguluppala Padu and Tallur districts are selected based on maximum number of chilli farmers that are integrated with Synthite company. While in case of ITC, Bestavaripeta and Recharla mandals are having maximum number of integrated chilli farmers were selected. From each mandal two villages are selected. A total 8 villages are selected. From each village, 8 integrated farmers and 8 non-integrated farmers were selected. Total 128 farmers were selected for the study. The sample size was done by considering the population of farmers. The desired sample size was determined by using Cochran’s (1963) formula below,
Where
If the population is finite then the sample size error will be reduced slightly. This is because a given sample size provides proportionately more information for a finite population than for an infinite population. In that case, Cochran (1963) recommends ‘p’ to take the value of 0.5 in which case ‘n’ will be maximum and the sample will yield at least the desired precision. Sample size of integrated chilli farmers in each village becomes 8.3 ~ 8 that is 8 villages selected for the study for equal allocation of sample in the villages.
The structure of the average costs and returns of the integrated farmers and non-integrated chilli farmers were calculated. The costs and returns are calculated for rupees per hectare.
Variable Cost = Value of human labour + Value of owned and hired machined power + Value of seeds purchased + Value of manures + Value of fertilizers + Value of plant protection chemicals + Irrigation + Interest on working capital
Fixed cost =Depreciation, Repairs and Maintenance+ Land Revenue, cess and taxes + Imputed rental value of owned land+ Interest on owned fixed capital etc.,
Total cost = Variable costs + Fixed costs
Gross returns = Yield * Price
Gross margin = Gross returns - Total variable costs
Chilli farming under backward integration system followed integrated management system for agricultural practices for better farming. In order to identify the effects of inputs impact on production of integrated and non-integrated chilli farmers, decomposition analysis was undertaken. It reveals the total productivity, profitability and input use pattern difference between integrated and nonintegrated chillies cultivation system.
The output decomposition model developed by Bisaliah (1977) was used for investigating the contribution of various constituent sources to the input use pattern, productivity and profitability difference between the integrated and nonintegrated farmers. For any two different production functions, the total change in the productivity can be brought out by shifts in the production parameters that defined the production functions itself and by the changes in the input-use levels. Therefore, the production function was considered as the convenient econometric model for decomposing the productivity difference.
Where, Y = Gross returns (₹/ha),
X1 = Seed (₹/ha),
X2 = Human labour (₹/ha),
X3 = Machine power (₹/ha),
X4 = Manures (₹/ha),
X5 = Fertilizers (’/ha)
X6 = Plant protection chemicals (’/ha),
X7 = Irrigation (’/ha),
The output decomposition model used in this study was,
Where,
The decomposition
The structure of the average costs and returns of the integrated farmers and non-integrated chilli farmers was presented in
Variables |
Integrated farming (n=64) |
Non-integrated farming (n=64) |
---|---|---|
Seed |
20,258.13 |
16,459.82 |
Human labour |
82,390.00 |
1,08,368.50 |
Machine power |
23,009.53 |
20,827.42 |
Manures |
13,755.44 |
9,289.53 |
Fertilizers |
40,846.11 |
37,002.70 |
Plant protection chemicals |
44,121.80 |
33,520.00 |
Irrigation |
18,968.75 |
10,115.63 |
Miscellaneous expenses |
5,637.20 |
3,531.60 |
Interest on working capital |
5606.51 |
5364.66 |
Total variable costs (TVC) |
3,04,593.47 |
2,91,479.86 |
Depreciation |
360.41 |
290.38 |
Land revenue |
500 |
500 |
Rental value of own land |
43281.60 |
38471.95 |
Interest on fixed capital |
3224.85 |
1987.07 |
Total fixed cost (TFC) |
47,366.86 |
44,249.40 |
Total cost (TVC+TFC) |
3,51,960.33 |
3,35,729.26 |
Yield (Qtl/ha) |
51 |
45 |
Gross returns (GR) |
4,64,865 |
4,05,540 |
Gross margin (GR-TVC) |
1,78,631.53 |
1,14,060.14 |
The seed cost per hectare of integrated farmers was ₹ 20,258.13 while for non-integrated farmers it was, ₹ 16,459.82. Integrated farmers are purchasing chilli fruit then they dry it to obtain seed so, quantity purchased was high. Whereas non-integrated farmers are purchasing direct seeds. Human labour cost per hectare for integrated farmers was ₹ 82,390.00 while for non-integrated farmers it was ₹ 1,08,368. The difference is due to the use of more human labour for spraying pesticides and application of fertilizers by non-integrated farmers than integrated farmers. The cost of machine power, manures and irrigation for integrated farmers were ₹ 23,009.53, ₹ 13,755.44 and ₹ 18,968.75 respectively, and same for non-integrated farmers were ₹ 20,827.42, ₹ 9,289.53 and ₹ 10,115.63 respectively. The cost of fertilizers and plant protection chemicals for integrated farmers were ₹ 40,846.11 and ₹ 44,121.80. The cost of fertilizers and plant protection chemicals for non-integrated farmers was ₹ 37,002.70 and ₹ 33,520.
The cost difference between integrated farmers and non-integrated farmers for fertilizers and plant protection chemicals is due to the purchase of costly pesticides by integrated farmers than nonintegrated chilli farmers. Fixed cost per hectare as estimated for integrated farmers was ₹ 47,367 and for non-integrated farmers was ₹ 44,249. The input cost components of integrated and non-integrated farmers were depicted in
Input costs of integrated and non-integrated farmers
Decomposition analysis was used to estimate the contribution of various resources to the outcome difference between integrated and non-integrated farmers. The outcome difference resulted by adoption of backward integration technology between the integrated and non-integrated productions was decomposed into its constituent sources and results are presented in
Sl. No. |
Particulars |
Percentage |
---|---|---|
(a) |
Neutral component |
-940.03 |
(b) |
Non-neutral component |
943.73 |
Total estimated difference in output due to technology |
3.70 |
|
(a) |
Seeds |
1.37 |
(b) |
Human labour |
12.06 |
(c) |
Machine power |
0.17 |
(d) |
Manures |
-0.09 |
(e) |
Fertilizers |
-2.51 |
(f) |
Plant protection chemicals |
-0.96 |
(g) |
Irrigation |
0.46 |
Total estimated difference in output due to input difference |
9.58 |
The total contribution of changes in the levels of input use to the outcome differences between the two groups was 9.58 per cent. This implies that the outcome of the integrated farming could increase by 9.58 per cent if the input use leads to increase in the same level as that of the non-integrated farming. Backward integration with agribusiness firms providing certain inputs and technical guidence to the farmers, which makes the farmers to produce more productively than non- integrated farmers. .The major contributor amongst all the inputs to the difference in returns was the cost incurred by the farmers for using of human labour (12.06%) followed by seed (1.37%). Machine power and irrigation are found to be positively contributing but at a lower level i.e., 0.17 per cent and 0.46 per cent respectively. This implies that the integrated farmers gained a higher outcome by spending more on seed, human labour, machine power and irrigation than the non-integrated farmers. Manures, fertilizers and plant protection chemicals were found to reduce the gross returns. This means that the costs of manures, fertilizers and plant protection chemicals adopted by the non-integrated farmers increased output by 0.09 per cent, 2.51 per cent and 0.96 per cent respectively. Divya (2014) reported that per acre returns of chilli contract farmers were 55.14 per cent higher than non-contract farmers, the major contribution for higher income was human labour (8.20%), irrigation (1.59%) and manures (0.14%). Fertilizers (-2.20%) and plant protection chemicals (-1.80%) influencing negatively to the income of contract farmers. It could be suggested that usage of manures, fertilizers and plant protection chemicals on higher side leading to inefficiencies.
The decomposition analysis showed that the per hectare returns of integrated farming was 13.28 per cent higher than that of non-integrated farming. The integrated technology component was contributing 3.7 per cent to the total increase in output. The total contribution of changes in the levels of input use to the outcome differences between the two groups was 9.58 per cent. The major contributor amongst all the inputs to the difference in returns was the cost incurred by the farmers on human labour (12.05 per cent) followed by seed (1.36 per cent). Machine power and Irrigation found to be positively contributing but at a lower level i.e., 0.16 per cent and 0.45 per cent respectively. This implies that the integrated farmers gained a higher outcome by spending more on seed, human labour, machine power and irrigation than the non-integrated farmers. Manures, fertilizers and plant protection chemicals were found to reduce the gross returns. This means that the costs of manures, fertilizers and plant protection chemicals adopted by the non-integrated farmers increased output by 3.55 per cent.
The study revealed that farmers who are following backward integration are getting more outcome through technology and proper input usage. So, backward integration technology increases output and quality of the produce, so it should be expanded by an assured alternative agency (Government or co-operative) to increase quantity and value of export of chilli. Creating awareness on optimum use of inputs by Agricultural Department, can help the farmers in reducing the excess usage of fertilizers and plant protection chemicals.