Analysis of Government Supported Farm Machinery Custom Hiring Services in Bhutan

Authors: Kinga Norbu & Chetem Wangchen

ABSTRACT

Custom hiring services have been institutionalized with the creation of the Farm Machinery Corporation Limited. It is being implemented nation-wide to accelerate mechanized farming. The charges levied on the farmers are highly subsidized. This study was undertaken to assess the hiring costs, commercial viability of the operation and rationalize the rates and subsidy components. The cost of operation of farm machinery under government programme is divided into two sub costs (I) Fixed Cost and (II) Variable Cost, and government endorsed parameters were used for the custom rates calculation for different machine through regression analysis. An analysis of breakeven point on present endorsed hiring rate was done to ascertain the economic trend of this activity. Government subsidy on each machine operation is also shown. The analyses provide a positive outlook for the machine owners and corporations to take up the hiring scheme based on nationally endorsed parameters. The custom hiring analysis also gives a good guide on the custom hiring rates to be charged based on the operating days.There is more profit especially on tractors and mini combine harvesters compared to other machines. This is a favourable business opportunity. However, there is also an opportunity to reduce the custom rates to bring down the overall cost of farming using machine and reduce burden on government subsidy. It will also encourage private sector participation in the programme.

Keywords: Farm machinery, Custom hiring rate, Break-even point, Subsidy

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