Question

How do the medium and large farmers obtain capital for farming? How is it different from the small farmers?

Answer 1

Large and Medium Farmers – Capital

• Money in hand and raw materials are known as working capital.
• Large and medium farmers are arranging their own capital as they have their own savings from farming.
• Large and medium scale farmers retain a part of their farm produce for family’s consumption, and the surplus farm produce is sold in the market and they reap the profits.
• Large and medium scale farmers save these profits in the banks.
• Sometimes these large and medium scale farmers lend their savings money at high interest rates to small farmers and earn more money.
• Sometimes as per requirements large and medium scale farmers invest their savings in purchasing tractors and increase their fixed capital.
• Hence, the capital for next season is purchased from the savings done through selling farm products of the previous season.
• Some of the large and medium scale farmers use their savings to set up shops, purchase trucks or cattle.

Small Farmers – Capital

• The small farmers obtain capital by borrowing money.
• Small farmers are forced to borrow money at high interest rates from village moneylenders, traders, or from large farmers.
• Many times these small farmers are unable to repay their loans and end up in the debt trap due to high interest rates.