Government defines Minimum Support Price, MSP, as a tool
which gives guarantee to the farmers, prior to the sowing season, that a fair
amount of price is fixed to their upcoming crop to encourage higher investment
and production of agricultural commodities. The MSP is in the nature of an
assured market at a minimum guaranteed price offered by the Government.
MSP is declared by central government for 23 crops on the advice
of the Commission for Agricultural Costs and Prices (CACP). CACP calculates
three different costs of production for each crop in the list.
1.
A2 (actual paid out cost) = spend on seeds,
fertilisers, pesticides, and hired labour and machinery
2.
A2+FL = A2 + the economic value of the efforts
of family members working on the farm
3.
C2 (comprehensive cost) = A2+FL+ imputed rent
and interest on owned land, other assets and capital
Swaminathan report recommends that MSP should be at least
50% higher than total cost, C2. During the election campaign for the 2014 Lok
Sabha elections, Narendra Modi had campaigned that his government would
implement the recommendations made by the Swaminathan commission on farmers. Even
though the PM and his party continues to claim that they have implemented 50%
profits for the farmers, the truth was revealed in response to an RTI by PP
Kapoor in April of 2016. Agriculture Ministry in response to his RTI said – “The
recommendation of the Swaminathan commission regarding the minimum support
price (MSP) was rejected by the government because the MSP is decided by the
Commission for Agricultural Costs and Prices after taking into consideration
all the varieties. Therefore, deciding a minimum 50% hike over the cost could
lead to distortions in the market.”
Currently, the MSP is calculated using A2 + FL. Even though
UPA government also announced MSP at 50% profit over A2+FL, the PR of current
regime is unmatched and hence the world is told that Modi is the PM to provide
farmers with 50% profits over their costs.
As per a study by thewire.in in February 2020, considering
MSPs for Kharif crops announced in 2019-20 – “if all crops falling in the
purview of MSP are included, the margin of total profit is only 14% over cost
C2.”
Still, if MSP is indeed the minimum price a farmer gets for
his/her produce we are sure that farmer gets atleast 14% profits. That would still
be something to take home. However, this 14% number will be true if we assume-
1.
The calculations of costs involved which form
the basis of the MSP (A2+FL and C2) are accurate and reflect ground reality;
and
2.
Every farmer is able to sell his/her produce at least
at MSP.
Let us look at question 2 first.
Shanta Kumar report (2015) indicates that at present only 6%
of farmers in India have access to MSP and that too for about 35% of their
produce. So, in a way only 2% produce gets MSP.
“If one adds
all agricultural households having sold paddy and wheat to any procurement
agency, during July2012-June2013, the number of households comes to just 5.21.
This figure of 5.21 million households as a percentage of total number of
agricultural households (90.2 million) comes to just 5.8 percent. But if one
adjusts this with common households that sell both paddy and wheat, and/or by
the percent of quantity sold by each household at MSP, the figure of direct
beneficiaries comes even lower. For staples other than wheat and paddy, the
situation is far worse.”
A report published by factly.in in Feb 2019 shows the
relation between declared MSP and average selling price of the crop for month
of Oct 2018.
Note – that barring one exception, the national average
selling price is significantly lower than MSP. In many cases the selling price
is lower than C2. So even if our answer to question 1 is yes, that we can 100%
rely on production cost numbers A2+FL and C2, the farmers don’t have access to
selling prices which are in excess of MSP and only 6% farmers have access to
MSP for about 30-35% produce. This means that profits for farmers are much less
than 14% (against C2), many a times they make losses.
Let us look at question 1. How reliable are C2 & A2+FL
numbers?
As per a report by thewire.in (February 2020), where they
accessed communications from various state governments to the central
government in regard to MSP for Kharif crops for 2019-20, atleast nine states,
including BJP ruled states, have disagreed with CACP advised costs. Some of the
observations of state governments are -
Haryana (BJP Khattar Government) – After examining the CACP
report, the state agriculture department said in its letter, sent on May 18,
2019, “It is pertinent to mention that the price of diesel, pesticide,
fertiliser, machines and other inputs has increased this year as compared to
the previous year. Lower availability of labour is also a major contributor in
increasing the cost of cultivation.”
For Bajra they said - “Department of Agriculture and Farmers
Welfare has estimated the input cost for the crop as Rs 2,170, but the CACP has
recommended Rs 2,000 per quintal as the MSP.”
“The state government is making strong efforts for diversification
of Paddy to Maize crop, therefore, we need strong support for increasing the
MSP of this crop for adoption by the farmers…. CACP has recommended Rs 1,760
per quintal which is very less and does not even cover the cost of cultivation.
The MSP of Maize should be fixed at Rs 2,350 per quintal.”
Uttar Pradesh (BJP Yogi Government) – The state assessed the
Cultivation Cost (C2) of paddy to be Rs 1,679 per quintal and recommended the
MSP to be Rs 2,520 per quintal. However, the Centre fixed the MSP at Rs 1,815
per quintal.
Karnatka - “The MSP fixed for the 2019-20 season is
inadequate compared to the state’s cultivation cost. Because of this, the
profit margin of the farmers is either little or negative.”
So, we can’t even trust the production cost numbers which
are being used to calculate MSP numbers.
Which essentially means the farmers lose out on all sides of
the equation. Neither are the costs as per Swaminathan recommendations (C2),
nor are the calculated costs as per ground reality, and nor are the selling
prices at or higher than MSP.
If you run a business, you know how a profit and loss
analysis is done. Any big corporation before bidding for any work spend days
planning to come with best possible profits to win the work. They consider all
sorts of costs - Compensation to workers (starting from the top management, to
the assistants and clerks to print and office boys who serve coffee), Rent of
offices and factories they use, Depreciation of their assets, Cost of raw
materials, Design and engineering costs, costs of testing and validations,
costs for travel of team members, costs of entertainment (team and clients), logistics
costs (Transportation, handling of equipment), Cost of internet, Phones, Car
fuel, Taxi bills, legal fees, Insurance, electricity bill, customs, octroi and
all possible other costs – before they come to a price on which they will sell
their products ad services so that they can make reasonable profits.
How do governments and public institutes prepare their
financial statements? – with as much detail as corporates.
So, why is it that when a farmer’s profitability has to be
calculated, suddenly all the costs to be considered seem like a burden?
The truth is - agriculture in general is a loss-making
proposition.
Swaminathan reports in an urgent wake up call (this was
2005-2006) state “The acute agricultural distress now witnessed in the country,
occasionally taking the form of suicides by farmers, is the symptom of a deep
seated malady arising from inadequate public investment and insufficient public
action in recent years. The precise causes of the agrarian crisis are many and
varied, but there are five basic factors which are central to the present
crises. These are: unfinished agenda in land reform, quantity and quality of
water, technology fatigue, access, adequacy and timeliness of institutional
credit, and opportunities for assured and remunerative marketing.”
The farmers are fighting for the last - assured and
remunerative marketing.
#KisanEktaMorcha
#StandWithFarmers
#SpeakUpForFarmers
(first published on 08 Dec 20 @ MSP – Minimum Support Price or Maximum Sales Price? What profit does farmer makes? (punjabtodaytv.com)