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Crop prices and farmers' unrest -CP Chandrasekhar and Jayati Ghosh
-The Hindu Business line

Distressed farmers are demanding loan waivers, but that should not deflect focus from what needs to be done and undone to address the root cause of the agrarian crisis

The farmers’ unrest across the country, and particularly across several BJP-ruled States, appears to have caught the central government by surprise. But it should really not have done so. Ever since candidate Narendra Modi in 2014 promised the farmers acchhe din in the specific form of doubling of farm incomes in five years and public procurement at prices ensuring 50 per cent return over costs as recommended by the Farmer’s Commission headed by MS Swaminathan, farmers have been waiting for these promises to be fulfilled. Three years down the line, they feel cheated. And of course, they might feel betrayed by the whammy of demonetisation and its prolonged effects on rural markets, which have depressed all crop prices and not allowed them to reap the benefits of a bountiful monsoon.

Several issues are at stake here, which need to be considered if we are to understand the farmers’ demands for immediate relief from debt burdens and for properly remunerative prices. The BJP’s pre-election promises struck such a chord among farmers because for some time now the issue of the viability of cultivation has been a pressing one. The first UPA regime in the decade of the 2000s went some way towards mitigating the agrarian crisis that was affecting the countryside, but since around 2012, many of the problems, which had essentially been patched over rather than comprehensively addressed, reappeared with even greater intensity.

Indeed, this is what creates the difficulties in debt servicing that farmers are facing across the country, which in turn has given rise to promises of loan waivers in several BJP-rules States. This is a knee-jerk reaction to a deeper problem of farm viability that is still not being addressed, and it is likely to create even more problems especially when it becomes clear that the actual waivers will be much more limited than promised.

Falling short

The background is that promise of procurement prices at 50 per cent higher than total cost has not been fulfilled by the current government over the past three years. First, the declared MSPs have not been at the promised levels; and then the poor implementation of even these prices in government purchases has meant that they have not operated as floor prices for agricultural markets.

Chart 1 provides the CACP estimates of costs and recommended MSP for the rabi season 2017-18 (the current season), for the crops in which there is public procurement. The cost A2+FL refers to the actual paid out cost plus imputed value of family labour, while C2 is the comprehensive cost including imputed rent and interest on owned land and capital. Note that both these costs do not include interest payments on working capital, which must be paid out of the margins.

Note further that the costs are calculated as weighted averages across States, and there are many States for which the costs exceed these averages. So the MSP may not even cover costs in some States, much less provide a margin over them. For example, in the case of wheat, the CACP’s estimated average cost of Rs.1,203 covers a range from a low of Rs.1,100 per quintal in Punjab to a high of Rs.2,200 per quintal in West Bengal, with Maharashtra showing a cost of Rs.1,900, well above the MSP. In the case of gram, the average cost of Rs.3,185 incorporates a low of Rs.2,550 in Rajasthan and a high of Rs.3,800 in Karnataka. Cultivation costs of mustard seeds go from Rs.2,200 per quintal in Madhya Pradesh to Rs.4,500 per quintal in West Bengal, with the national weighted average at Rs.2,773. And so on.

The CACP Report for the rabi season of 2017-18 admits that “the pricing policy is not rooted in the ‘cost plus’ exercise, though cost is one of its important determinants”, since it also takes into consideration other factors such as inter-crop parity, which must necessarily be a subjective exercise.

Even so, it is apparent from Chart 1 that the recommended prices for the crops do not come anywhere near the promise of 50 per cent above the total costs if C2 is considered. In the case of at least one crop, safflower seed, the recommended MSP is actually below C2, and provides a margin of only 18 per cent over the cost A2+FL.

But then there is the further issue of whether these recommended MSPs actually function as floors to the market prices that farmers face. This highlights the ineffectiveness of procurement policy in different States. The fact that farmers’ unrest has been especially marked in BJP-ruled States does not reflect ‘political conspiracy’ as has been alleged, so much as that these State governments seem to have been quite poor in ensuring that market prices stay at or above the MSP, which is an essential function of the procurement process.

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