Agricultural Economics

Warning: This post has a lot of numbers.

I love my counterpart. Sometimes, we get into the most random discussions on a strange topic of my fixation. No matter what, he will sit patiently and explain every little detail to my heart’s content. I’m not sure how we went from discussing tomorrow’s English lesson to his farming ventures, but I’m glad it went there. Unbeknownst to me, my CP Pak Warai is not only a senior English teacher, but also a bright business man. Here’s what I learned about his farming business:

An explanation complete with illustrations.

Pak Warai has 1.5 hectares of land that he uses for farming. Half a hectare was part of his wife’s dowry, and the rest already belonged to him. In this land he plants a variety of crops on the appropriate seasons such as rice, corn, fruits and vegetables. To illustrate his business, he used the example of 1 hectare of watermelons, whose season goes from approximately August 1 to November 1. For this 90-day endeavor, he must do the following:

Capital Investment

To plant 1 hectare of watermelons, Pak Warai must buy 20 packets of watermelon seeds for one hectare at a cost of 150,000Rp ($15) per packet for a total of 3,000,000Rp ($300). The seed packets will then be planted in plastic containers with soil. After 15 – 20 days, the watermelon seedlings will be transferred to the field.

Approximately 500kg of fertilizer per hectare will be needed. Pak Warai buys two different kinds, which he mixes together. The first kind is less expensive and sold at 180,000Rp ($18) per quintal (or 100kg bag) and the other, more expensive kind costs 230,000Rp ($23) per quintal. Three quintals of each kind are needed. Type A costs 540,000Rp ($54) and Type B 690,000Rp ($69) for for a total of 1,230,000Rp ($123).

Insecticide for the 3-month season and the entire hectare totals 2,000,000Rp ($200).

Herbicide for the 3-month season and the entire hectare totals 500,000Rp ($50).

Irrigation with a diesel pump that must be done every 10 days (or 9 times in a 90 day period) costs 50,000Rp ($5) per time at a total of 450,000Rp ($45).

During the watermelon season, 25 workers tend, maintain and harvest the crops for approximately 35 days out of the 90. They work from 7am to 11am for 15,000Rp ($1.50), with occasional overtime from 11am to 2pm for an additional 12,500Rp ($1.25). Meals are included. For the purposes of this example, each worker is paid an average of about 25,000Rp ($2.50) per day for a total of 21,875,000Rp ($2,187.50).

The total investment for a 1 hectare of watermelon over a 3-month season = 29,055,000Rp ($2,905.50)

(Side note: Every year, Pak Warai is taxed 125,000Rp ($12.50) per hectare of land by the Indonesian government.)

Profit

After approximately 75 days, the watermelons are ready to harvest. In the best-case scenario, a hectare of watermelons will yield 30 – 35 tons (1 ton equals 1000 kg – 1 ton of watermelons is approximately 50 large watermelons). In the worst-case scenario—due to uncontrollable factors such as bad weather or crop failure—only 20 tons will be harvested.

These watermelons are then sold to a merchant. When there is no crop surplus and the wholesale price is good, Pak Warai will sell watermelons at 2,500Rp per kilogram. (In the worst-case scenario, the wholesale price will be 1,000Rp or 10 cents per kilogram.) Thus, the revenue of 1 ton of watermelons amounts to 2,500,000Rp ($250) or a grand total of 87,500,000Rp ($8,750) for 35 tons. This minus the initial capital investment of 29,055,000Rp ($2,905.50) produces a profit of 58,445,000Rp ($5,844.50) for Pak Warai.

(Side note: Regardless of the wholesale price, the watermelon’s market price will be approximately 4,000Rp ($0.40) per kilo.)

Agriculture is a risky business. In the worst-case scenario, 20 tons sold at 1,000,000Rp/ton will cause a loss of 9,055,000Rp or $905.50, which is more than what the average Indonesian worker makes per year in a minimum wage job.

Best Case Scenario

In other words, Pak Warai makes about 19,000,000Rp ($1,900) per month during the 3-months of a successful watermelon season. This is a 375 percent increase from his 4,000,000Rp ($400) monthly salary as a well-paid civil-servant (PNS) teacher. After reaching this conclusion, I asked Pak Warai why he didn’t just stop teaching and focus on farming full time. Currently, he spends 2 days a week tending his farming business after school. He replied that being a teacher is a more respected and prestigious profession. It’s not about making money and more money, he added, it’s about teaching children to be better.