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NEWS ALERTS | MSP was not 1.5 times the cost of production for most kharif crops during the last 6 agricultural years
MSP was not 1.5 times the cost of production for most kharif crops during the last 6 agricultural years

MSP was not 1.5 times the cost of production for most kharif crops during the last 6 agricultural years

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published Published on Jan 11, 2019   modified Modified on May 31, 2021

 

In its 2014 election manifesto, the Bharatiya Janata Party (BJP), among other things, promised to "take steps to enhance the profitability in agriculture, by ensuring a minimum of 50% profits over the cost of production".

In his 2018-19 Union budget speech too, the Finance Minister Shri Arun Jaitley informed the Parliament that the 2014 election manifesto of the BJP had stated that the farmers should get at least 1.5 times the cost of their production. So, the ruling NDA government at the Centre, which has been sensitive to that resolution, declared a minimum support price (MSP) for the majority of rabi crops during rabi marketing season (RMS) 2018-19 at least at 1.5 times the cost of production, said Jaitley. He added that the NDA government decided to extend that formula for fixing MSP for the rest of crops (viz. kharif crops). So, his government decided to fix MSP for all the unannounced kharif crops at least at 1.5 times of their production cost. This move was seen by the finance minister as an important step towards doubling the income of Indian farmers.

Against the backdrop of states like Telangana, Odisha and West Bengal announcing direct income support schemes and financial assistance schemes/ direct cash transfer schemes for farm households recently, it is essential to check whether the government’s MSP policy ensured remunerative prices over and above the cost of production.

A comparison of MSP declared annually (in the last 6 crop years) with the projected cost of production shows that in case of most kharif crops (and also in most crop years) the difference was less than 50 percent. In other words, it was rare in the last 6 years that the declared MSP for a particular kharif crop was greater than the cost of production (viz. ‘A2+FL’) by 50 percent or more. However, in case of rabi crops (except safflower), the same did not hold true (viz. for ‘A2+FL’).   

Table-1 reveals that the relative difference between MSP and projected 'A2+FL' cost of production (which is estimated by the Commission for Agricultural Costs and Prices - CACP) was 50 percent or higher for all the 14 kharif crops during 2018-19 kharif marketing season (KMS). However, between 2013-14 and 2017-18 KMS the relative difference between MSP and 'A2+FL' cost of production was less than 50 percent, except for a few crops in some seasons. For example, during 2014-15 KMS, the relative difference (as stated above) was higher than 50 percent in case of 'bajra' and 'long staple cotton'. Please check the yellow shaded cells/ figures of table-1.  

The relative difference can be calculated using the following formula:

Relative difference between MSP and Cost of Production = [{(MSP fixed for a particular rabi/ kharif crop in Rs. per quintal during a season) minus (Projected Cost of Production in Rs. per quintal -- either 'A2+FL' or 'C2')} divided by (Projected Cost of Production in Rs. per quintal -- either 'A2+FL' or 'C2')}] multiplied by one hundred.

According to NITI Aayog member Prof. Ramesh Chand, the CACP uses two broad concepts viz. ‘A2’ cost and ‘C2’ cost (also called comprehensive cost). ‘A2’ cost of production includes all expenses paid by farmers in cash or kind in production of crops like seed, fertiliser, manure, chemicals, hired human, bullock and machine labour, irrigation expenses, maintenance cost, etc. It also includes the imputed cost of own seed, manure, bullock and machine labour, rent paid for leased-in land, depreciation of assets and interest on working capital. However, 'C2' cost of production is equal to the sum of 'A2' cost of production, imputed cost of farmers’ own family labour (FL), interest on fixed capital and rental value of own rent. Thus, the value of 'C2' is greater than the value of 'A2+FL', on which we will discuss more in the next section.

The report of the Committee on Doubling Farmers’ Income, which was prepared under the chairpersonship of Shri Ashok Dalwai, also defines ‘A2+FL' and 'C2' concepts similarly.

Table 1: Relative difference between fixed MSP (including bonus) and 'A2+FL' Cost of Production (projected) of kharif crops (in percent)

Table 1 Relative difference between fixed MSP including bonus and A2+FL Cost of Production projected of kharif crops in percent

Note: Calculated by the Inclusive Media for Change team based on the formula of relative difference between MSP and Cost of Production

Source: Figures related to MSP are accessed from:
(i) Minimum Support Prices Recommended by CACP and Fixed by Government (Crop Year), Ministry of Agriculture & Farmers' Welfare, please click here to access
(ii) MSP for kharif crops 2018-19, Ministry of Agriculture & Farmers' Welfare, please click here to access 
(iii) MSP (in Rs. per quintal) according to crop years (2013-14 to 2017-18) as on 7th June, 2017, NABARD, please click here to access 
(iv) MSP Rabi Crops to be marketed in 2019-20, Ministry of Agriculture & Farmers' Welfare, please click here to access
 
Figures related to ‘A2+FL’ Cost of Production of kharif crops are accessed from:
(i) CACP Report on Price Policy for Kharif crops of 2018-19 season, please click here to access 
(ii) CACP Report on Price Policy for Kharif crops of 2017-18 season, please click here to access 
(iii) CACP Report on Price Policy for Kharif crops of 2016-17 season, please click here to access 
(iv) CACP Report on Price Policy for Kharif crops of 2015-16 season, please click here to access 
(v) CACP Report on Price Policy for Kharif crops of 2014-15 season, please click here to access 
(vi) CACP Report on Price Policy for Kharif crops of 2013-14 season, please click here to access 
---

The data analysis by the Inclusive Media for Change team shows that our farmers did not receive 1.5 times the cost of production if ‘C2’ instead of ‘A2+FL’ is taken into consideration, unlike what was said by the finance minister in his 2018-19 budget speech. It could be seen from table-2 that the relative difference between MSP and 'C2' cost of production was negative for crops like 'jowar (hybrid)', 'jowar (maldandi)' and 'ragi' between 2013-14 and 2017-18 KMS. It is only during 2018-19 KMS that the relative difference between MSP and 'C2' cost of production was positive (but below 50 percent) for all the 14 kharif crops. Please check the yellow shaded cells/ figures of table-2.  

Table 2: Relative difference between fixed MSP (including bonus) and 'C2' Cost of Production (projected) of kharif crops (in percent)

Table 2 Relative difference between fixed MSP including bonus and C2 Cost of Production projected of kharif crops in percent

Note: Same as in table-1

Source: Same as in table-1
---

It could be observed from table-3 that for the 5 rabi crops (safflower excluded) farmers were getting 1.5 times the cost of production till 2018-19 RMS if ‘A2+FL’ is considered. Table-3 indicates that the relative difference between MSP and 'A2+FL' cost of production was more than 100 percent for rabi crops like wheat (except 2015-16 and 2016-17 RMS) and rapeseed & mustard (only in 2014-15 and 2015-16 RMS) between 2014-15 and 2019-20 RMS. Please check the yellow and green shaded cells/ figures of table-3.  

Table 3: Relative difference between fixed MSP (including bonus) and 'A2+FL' Cost of Production (projected) of rabi crops (in percent)

Table 3 Relative difference between fixed MSP including bonus and A2+FL Cost of Production projected of rabi crops in percent

Note: Same as in table-1
 

Source: Figures related to MSP are accessed from:

(i) Minimum Support Prices Recommended by CACP and Fixed by Government (Crop Year), Ministry of Agriculture & Farmers' Welfare, please click here to access
(ii) MSP for kharif crops 2018-19, Ministry of Agriculture & Farmers' Welfare, please click here to access 
(iii) MSP (in Rs. per quintal) according to crop years (2013-14 to 2017-18) as on 7th June, 2017, NABARD, please click here to access 
(iv) MSP Rabi Crops to be marketed in 2019-20, Ministry of Agriculture & Farmers' Welfare, please click here to access

 
Figures related to ‘A2+FL’ Cost of Production of rabi crops are accessed from:
(i) CACP Report on Price Policy for Rabi crops for marketing season 2019-20, please click here to access 
(ii) CACP Report on Price Policy for Rabi crops for marketing season 2018-19, please click here to access 
(iii) CACP Report on Price Policy for Rabi crops for marketing season 2017-18, please click here to access 
(iv) CACP Report on Price Policy for Rabi crops for marketing season 2016-17, please click here to access 
(v) CACP Report on Price Policy for Rabi crops for marketing season 2015-16, please click here to access 
(vi) CACP Report on Price Policy for Rabi crops for marketing season 2014-15, please click here to access   

---
 
Table-4 shows that the farmers were not getting 1.5 times the cost of production between 2014-15 and 2019-20 RMS if ‘C2’ is considered. The relative difference between MSP and 'C2' cost of production was negative for safflower between 2014-15 and 2017-18 RMS. Please check the yellow shaded cells/ figures of table-4.

Table 4: Relative difference between fixed MSP (including bonus) and 'C2' Cost of Production (projected) of rabi crops (in percent)

Table 4 Relative difference between fixed MSP including bonus and C2 Cost of Production projected of rabi crops in percent

Note: Same as in table-1

Source: Same as in table-3
---

Difference between ‘C2’ cost and ‘A2+FL’ cost in reality

Table-5 shows that in the case of the 14 kharif crops, on average the 'C2' cost of production was higher than the 'A2+FL' cost of production by 31.5 percent between 2013-14 and 2018-19 KMS. For example, in case of sesamum the relative difference between 'C2' and 'A2+FL' cost of production (projected) was 35.6 percent on an average between 2013-14 and 2018-19 KMS.

Table 5: Relative difference between 'C2' and 'A2+FL' Cost of Production (projected) of kharif crops (in percent)

Table 5 Relative difference between C2 and A2+FL Cost of Production projected of kharif crops in percent

Note: Similar to the formula used in table-1

Source: Same as in table-1
---

Table-6 reveals that in the case of the 6 rabi crops, on average the 'C2' cost of production was higher than the 'A2+FL' cost of production by 47.9 percent between 2014-15 and 2019-20 RMS. For example, in the case of wheat the relative difference between 'C2' and 'A2+FL' cost of production (projected) was 54.1 percent on an average between 2014-15 and 2019-20 RMS.

Table 6: Relative difference between 'C2' and 'A2+FL' Cost of Production (projected) of rabi crops (in percent)

Table 6 Relative difference between C2 and A2+FL Cost of Production projected of rabi crops in percent

Note: Similar to the formula used in table-1

Source: Same as in table-3
---

Key recommendations of the National Commission on Farmers

The National Commission on Farmers, which was chaired by Prof. MS Swaminathan, submitted five draft reports through the period December, 2004 - October, 2006. After the first four reports, the final report prepared by the MS Swaminathan Commission concentrated on the causes behind agrarian distress and the increase in farmer suicides. The final report of the National Commission on Farmers recommended addressing these issues through a holistic national policy for farmers.

The revised draft National Policy for Farmers, dated 4 October 2006 said that the twin goals of ensuring justice to farmers in terms of a remunerative price for their produce, and to consumers in terms of a fair and affordable price for staples (65 percent of consumers are also farmers) could be achieved through the following integrated strategy:

i) MSP and the procurement operations are two separate initiatives and should be operated as such. The government needs to ensure that both farmers (who also constitute the majority of consumers) and urban consumers get a fair deal. Due care should be taken of the cost escalation after the announcement of MSP in its operationalisation. The government should procure staple grains needed for the public distribution system (PDS) at a price which private traders are willing to pay to farmers. Thus, the procurement prices could be higher than the MSP and would reflect market conditions. The MSP needs to be protected in all the regions across the country.

ii) The food security basket should be widened to include the crops of dryland farming areas such as 'bajra', 'jowar', 'ragi', minor millets and pulses. The PDS should include these nutritious cereals and pulses, which are purchased at a reasonable MSP. This will be a win-win situation for both dryland farmers and the consumers. Neither a second green revolution will take place nor much progress in dryland farming could be achieved unless farmers get assured and remunerative prices for their produce.

iii) Both universal PDS and enforcing MSP throughout the country for the selected crops are essential for imparting dynamism to agriculture.

As per the revised draft National Policy for Farmers, the CACP should be an autonomous statutory organization with its primary mandate being the recommendation of remunerative prices for the principal agricultural commodities of both dryland farming and irrigated areas. The MSP should be at least 50 percent more than the weighted average cost of production. The “net take home income” of farmers should be comparable to those of the civil servants. The CACP should become an important policy instrument for safeguarding the survival of farmers and farming. Suggestions for crop diversification should be preceded by assured market linkages. The membership of the CACP should include a few practising farm women and men. The terms of reference and status of the CACP need review and appropriate revision.

Among other things, the revised draft by the National Commission on Farmers said that the scope of the MSP programme should be expanded to cover all crops of importance to food and income security for small farmers. Arrangements should be made to ensure MSP at the right time and at the right place, particularly in areas coming within the scope of the National Rainfed Area Authority. Also, advice to farmers on crop diversification should be linked to the assurance of MSP. Small farm families should not be exposed to administrative and academic experiments and gambles in the market.

What farmers seek is greater protection from market fluctuations, said the revised draft National Policy for Farmers. The important steps, which are needed, are:

* The MSP mechanism has to be developed, protected and implemented effectively across the country. MSP of crops needs to keep pace with the rising input costs.  

* The Market Intervention Scheme (MIS) should respond speedily to exigencies especially in the case of sensitive crops in the rainfed areas.  

* The establishment of Community Foodgrain Banks would help in the marketing of underutilized crops and thereby generate an economic stake in the conservation of agro-biodiversity.   

* Indian farmers can produce a wide range of health foods and herbal medicines and market them under strict quality control and certification procedures.   

* The PDS should be universal and should undertake the task of enlarging the food security basket by storing and selling nutritious millets and other underutilized crops.  

As mentioned in the second report (draft) of the National Commission on Farmers, the High-Level Committee on Long Term Grain Policy (2002) under the chairpersonship of Prof. Abhijit Sen, among other things, made the following recommendations:

* The CACP should be made an empowered statutory body.
* In recommending MSPs, which should apply on Fair Average Quality [FAQ] grain, the CACP should go strictly on the basis of ‘C2’ cost of production (i.e., all costs including imputed costs of family labour, owned capital and rental on land) in more efficient regions.
* The CACP should also indicate its estimates of ‘A2+FL’ costs (i.e., costs actually paid plus imputed value of family value labour) for relatively high cost regions.
* The CACP should recommend only a single MSP for paddy.
* The MSP, set at a floor price on the recommendations of the CACP, should have a statutory status. In particular, the responsibilities of the Central Government and obligations of the State Governments should be defined clearly.
* All agencies, Central, State, Cooperative or Private, which are a part of public grain management, should be legally bound by the MSP policy.
* If the present situation continues, where some states impose excessive levies on MSP purchase, the Central Government may announce its MSP policy by declaring a procurement price inclusive of an uniform 4 percent allowance for such levies over the MSP.  

The High-Level Committee on Long Term Grain Policy 2002 (under the chairpersonship of Prof. Abhijit Sen) favoured the MSP around the national floor level prices with all India open ended operations. However, in order to protect farmers from market risks, the above-stated High-Level Committee suggested price and income insurance coupled with a negotiable warehouse receipt system.

The second report (draft) of the National Commission on Farmers mentioned that it is not easy to decide the cost of production because for the same crop it may vary between regions and among farmers of the same region. The CACP recommends the MSP on the basis of the weighted average cost of production in states considering the variability of the cost of production across states, taking into account the factors of production, paid as well as imputed values of unpaid factors in fixed and variable cost of production. The risk factor and the marketing and post-harvest expenses are, however, not taken into account. So, the second report suggested that the CACP can have a look into those aspects.

The fourth report (draft) of National Policy of Farmers stated that there is a need for a much stronger protection of MSP in different regions of the country for all commodities. Farmers get less than remunerative prices as a result of exploitation by traders/ middlemen, less than satisfactory performance of the Agriculture Produce Marketing Committees (APMCs), large supply chain, absence of grading, post-harvest losses and lack of value addition. Apart from uncertainty of prices, farmers undertake distress sales. Micro-level studies show that 50 percent of the small farmers’ produce is sold in distress. The fourth report (draft) said that the MSPs for the commonly produced commodities should be appropriately fixed (based on ‘C3’ cost) and timely announcement of MSPs, procurement and payment should be ensured. It is worth noting that 'C3' cost equals to cost 'C2' + 10 percent of cost ‘C2’ to account for managerial remuneration to the farmer.

Among the remedies, the third report (draft) of National Policy of Farmers suggested that the MSP should not only be continued, but should be linked with the Wholesale Price Index.

The volume-II of the fifth report (draft) of the National Commission on Farmers said that the cost of production of agricultural commodities varies across districts. Therefore, different procurement prices have to be declared for different districts. That report observed that the cost of inputs has risen faster than the price of various crops. The report said that marketing agricultural produce at remunerative prices is a problem. It is seldom the case that farmers get remunerative prices because of the chain of intermediaries. Price accruing to the farmer should include the profit component, suggested the fifth report.

References

Minimum Support Prices Recommended by CACP and Fixed by Government (Crop Year), Ministry of Agriculture & Farmers' Welfare, please click here to access

MSP for kharif crops 2018-19, Ministry of Agriculture & Farmers' Welfare, please click here to access 

MSP (in Rs. per quintal) according to crop years (2013-14 to 2017-18) as on 7th June, 2017, NABARD, please click here to access 

MSP Rabi Crops to be marketed in 2019-20, Ministry of Agriculture & Farmers' Welfare, please click here to access

CACP Report on Price Policy for Kharif crops of 2018-19 season, please click here to access 

CACP Report on Price Policy for Kharif crops of 2017-18 season, please click here to access 

CACP Report on Price Policy for Kharif crops of 2016-17 season, please click here to access 

CACP Report on Price Policy for Kharif crops of 2015-16 season, please click here to access 

CACP Report on Price Policy for Kharif crops of 2014-15 season, please click here to access 

CACP Report on Price Policy for Kharif crops of 2013-14 season, please click here to access 

CACP Report on Price Policy for Rabi crops for marketing season 2019-20, please click here to access 

CACP Report on Price Policy for Rabi crops for marketing season 2018-19, please click here to access 

CACP Report on Price Policy for Rabi crops for marketing season 2017-18, please click here to access 

CACP Report on Price Policy for Rabi crops for marketing season 2016-17, please click here to access 

CACP Report on Price Policy for Rabi crops for marketing season 2015-16, please click here to access 

CACP Report on Price Policy for Rabi crops for marketing season 2014-15, please click here to access   

2018-19 Union Budget speech by Shri Arun Jaitley, please click here to access  

“Status of Farmers’ Income: Strategies for Accelerated Growth”, Inter-linkages between Input Costs, Diversification, Capital Formation and Income, Report of the Committee on Doubling Farmers’ Income Volume II, please click here to access 

Reports by the National Commission on Farmers, PRS Legislative Research, please click here to access

The Swaminathan Commission reports, please click here to access 

First Report Swaminathan Commission: Serving Farmers and Saving Farming, please click here to access

Second Report Swaminathan Commission: Serving Farmers and Saving Farming: From Crisis to Confidence, please click here to access

Third Report Swaminathan Commission: Serving Farmers and Saving Farming; 2006- Year of Agricultural Renewal, please click here to access 

Fourth Report Swaminathan Commission: Serving Farmers and Saving Farming- A Draft National Policy for Farmers, please click here to access 
 
Fifth Report Swaminathan Commission (Volume I): Serving Farmers and Saving Farming; Towards Faster and More Inclusive Growth of Farmers’ Welfare, please click here to access

Fifth Report Swaminathan Commission (Volume II): Serving Farmers and Saving Farming: Towards Faster and More Inclusive Growth of Farmers’ Welfare, please click here to access

Serving Farmers and Saving Farming; Jai Kisan: Revised Draft National Policy for Farmers, please click here to access 

2014 Bharatiya Janata Party Election Manifesto, please click here to access

An answer to rural distress -Ashok Gulati & Shweta Saini, The Indian Express, 7 January, 2019, please click here to access 

West Bengal: New schemes to provide Rs 2 lakh compensation for farmers' deaths, says Mamata Banerjee, Scroll.in, 31 December, 2018, please click here to access 

Going Beyond Loan Waivers, Odisha Announces Farm Scheme Worth Rs 10,000 Crore, TheWire.in, 22 December, 2018, please click here to access 

Modi has betrayed farmers on MSP for rabi crops: AIKS, The Hindu Business Line, 4 October, 2018, please click here to access 

Farmers' Body Announces Nationwide Stir Against Modi Govt's MSP 'Betrayal' -Neha Mehrotra, TheWire.in, 15 July, 2018, please click here to access 

Minimum Support Price for rice gave return of 50% over cost 13 times since 1996-97 -Roshan Kishore, Hindustan Times, 6 July, 2018, please click here to access 

Fact Check: Has the BJP Really Fulfilled Its MSP Promise as It Claims? -Kabir Agarwal, TheWire.in, 6 July, 2018, please click here to access 

Modi Government's 'Historic' MSP Hike Is Nothing More Than a Band-Aid for Farmers -Ishan Anand, TheWire.in, 5 July, 2018, please click here to access 

New MSP: Govt fails to meet Swaminathan standards, yet again -Banjot Kaur, Down to Earth, 4 July, 2018, please click here to access 

Budget 2018: Focus on MSP ideal for tackling farm distress -Ramesh Chand, The Economic Times, 31 January, 2018, please click here to access 

The Cost+50% Swaminathan formula mirage -Harish Damodaran, 22 June, 2017, The Indian Express, please click here to access
 
 
Image Courtesy: Himanshu Joshi


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