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Support prices and the Swaminathan formula mirage

Swaminathan formula of minimum 50 per cent profits remains a mirage for the farming community.

Written by Harish Damodaran | New Delhi | Updated: June 16, 2016 2:40 am
National Commission on Farmers, NCF, indian farmers, minimum support prices, MSP for crops, indian farmer MSP, kharif season, Swaminathan formula, Swaminathan report, Commission for Agricultural Costs and Prices, india news The NCF report, submitted to the previous United Progressive Alliance regime in October 2006, had defended the minimum 50 per cent profits formula for fixing MSPs.

It was recommended first in 2006 by the National Commission on Farmers (NCF) headed by the eminent agricultural scientist M S Swaminathan and incorporated in the Bharatiya Janata Party’s (BJP) 2014 Lok Sabha election manifesto. While the former’s report called for fixing the minimum support prices (MSP) for crops at levels “at least 50 per cent more than the weighted average cost of production”, the latter promised “to enhance the profitability in agriculture, by ensuring a minimum of 50 per cent profits over the cost of production”.

But if one were to compare the latest MSPs for various crops to be grown in the 2016-17 kharif season and compare these with their estimated production costs, the so-called Swaminathan formula of minimum 50 per cent profits remains a mirage for the farming community.

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The Commission for Agricultural Costs and Prices (CACP) has projected the average all-India “A2+FL” cost for paddy in its 2016-17 kharif report at Rs 1,045 per quintal. This ranges from a low of Rs 658 in Punjab, where yields are the highest, to a high of Rs 1,596/quintal for Maharashtra. The production costs are more (Rs 1,378/quintal for all-India, Rs 1,065 for Punjab and Rs 1,906 for Maharashtra) in terms of “C2”.

mspThe “A2+FL” costs cover all paid-out expenses in both cash and in kind incurred by the farmer (on seeds, fertilisers, chemicals, hired labour, fuel, irrigation, etc.) plus an imputed value of unpaid family labour. The “C2” costs are more comprehensive, accounting for the rentals foregone on owned land and interest on fixed capital assets on top of “A2+FL”.

For the current kharif season, the BJP-led government at the Centre has announced an MSP of Rs 1,470 per quintal for common paddy and Rs 1,510/quintal for “Grade A” (fine/superfine) varieties. In both cases, the MSPs are only 40-45 per cent higher than “A2+FL”, while 7-10 per cent over “C2” costs. While neither the NCF report nor the BJP manifesto clearly defines production cost — whether “A2+FL” or “C2” — the present paddy MSPs, at any rate, do not give the minimum 50 per cent return to farmers.

But it’s not paddy alone. From the accompanying table, it can be seen that in virtually every kharif crop, barring arhar and soyabean, the MSPs (inclusive of bonuses) for 2016-17 do not guarantee 50 per cent-plus returns over even “A2+FL”, leave alone “C2” costs.

It is somewhat better, though, for rabi crops. In the recent 2015-16 season, the MSP for wheat, at Rs 1,525 per quintal, was 94 per cent more than the CACP’s estimated all-India average “A2+FL” cost of Rs 785. The same was true for rapeseed/mustard (MSP of Rs 3,350/quintal versus “A2+FL” cost of Rs 1,702) and chana (Rs 3,500 versus Rs 2,124/quintal).

However, even for these crops, the MSPs did not provide the desired minimum 50 per cent profits vis-à-vis their estimated “C2” costs of Rs 1,163, Rs 2,605 and Rs 3,102 per quintal for wheat, rapeseed/mustard and chana respectively. Rabi crops are grown during the winter largely under assured irrigated conditions. This is unlike kharif crops, which are mostly monsoon-dependent and entail higher production risks. The fact that the kharif MSPs do not adequately factor in these risks, by not providing reasonable margins over even “A2+FL” costs, only reinforces the existing policy bias against rainfed agriculture.

The NCF report, submitted to the previous United Progressive Alliance regime in October 2006, had defended the minimum 50 per cent profits formula for fixing MSPs, by stating that the “net take home income of farmers should be comparable to those of civil servants”.

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