However, these top agricultural production centres have wildly differing cost structures. In terms of wheat and rice production, for example, Punjab stands out as having among the highest fixed costs (which includes rents, taxation, depreciation and interest on fixed capital) as a proportion of total cultivation costs. As at the end of the 2011 fiscal year, fixed costs accounted for 53.36% and 57.85% of rice and wheat cultivation costs respectively. This has been attributed to the higher land rental cost in Punjab relative to other states. Total rental cost and land (both owned and leased) amounted to 47.10% and 48.50% of total rice and wheat production costs respectively compared to 24-32% and 28-39% among the other top rice and wheat producers. The higher cost of land in Punjab is, in turn, explained by the relatively fragmented nature of land holdings in the state. In general, the higher proportion of fixed costs to overall costs increases farmers’ vulnerability to an agricultural downturn.

Also notable among these states’ cost of cultivation is the differing deployment of labour in agricultural activities. While cultivation costs are predominantly human labour intensive – with working animals contributing to a relatively insignificant cost component in most of these states (Orissa rice production stands out for having animal labour accounting for 13.99% of total operating costs), a notable exception is for Punjab’s wheat production where 35.43% of its operating costs come from machinery (compared to just 24.92% of its costs coming from human labour) – machinery has displaced human labour as a proportion of the operating cost component since 1999.

The Indian government has placed increased emphasis on the agriculture sector in a bid to improve food security. Its recent endeavours to expand the food subsidy programme to the poor means that agriculture statistics (both in terms of yields and cost structures) will be of interest to analysts as they evaluate the sector and identify the potential exposure of farmers to adverse events (resulting in an increase in overall costs).