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Friday, March 05, 2021

The right MSP: What govt pays and what farmers say they deserve

While the Prime Minister has reiterated that his government has already implemented M S Swaminathan report’s recommendations on MSP, a look at why protesting farmers and farm experts contest the claim.

Written by Anju Agnihotri Chaba | Jalandhar |
February 17, 2021 8:10:50 am
A labourer spreads mustard for drying at a mandi in Kurukshetra, Tuesday. (PTI Photo)

While the Prime Minister has reiterated that his government has already implemented M S Swaminathan report’s recommendations on Minimum Support Price, The Indian Express explains why protesting farmers and farm experts contest that claim and say that government is going by its own formula that has not improved their income.

Government says it is giving MSP which is 1.5 times the cost of production (COP). Why do farmers say they have not benefitted from it?

The actual amount that lands in farmers’ pockets depends on the method used to calculate COP. There are at least six formulas to make that calculation which include A1, A2, B1, B2, C1 and C2.

What are these six methods to arrive at cost of production/cultivation?

According to the Principal Economist (Agriculture Marketting) Punjab Agriculture University (PAU), Ludhian, Prof Sukhpal Singh A1 includes all actual expenses in cash and kind incurred in production by owner which includes value of hired human resource, value of owned machine labour, hired machinery charges, value of seeds both farm produced and purchased, value of pesticides, value of manure owned and purchased, value of fertilisers, irrigation charges, depreciation on implements and farm. Holdings, land revenue, interest on working capital, miscellaneous expenses like artisans etc.

“A2 includes A1 plus rent paid for leased-in-land, B1 is a cost which includes A1 and interest on value of owned capital assets S (excluding land), B2 includes B1 plus rental value of owned land and rent paid for leased-in-land. C1 includes cost B1 and the imputed value of family labour, while C2 is B2 and imputed value of FL (Family Labour),” he explained.

He further said that Dr M S Swaminathan report had recommended that the MSP should be computed by incorporating almost all actual farm costs as C2 — the base/reference of the MSP estimation — along with an additional 50% margin.

What is the government paying farmers and what formula does it use?

Different formulas were recommended by three committees formed for calculating MSP — L K Jha Committee in 1960s that laid foundation of MSP, Dr M S Swaminathan Committee, which submitted its report on MSP in 2006 and recommended C2+50%, Ramesh Chand Committee (RCC) that in its report in 2015 included some more factors and recommended MSP on C2+10% formula.

“The Union government in its 2018-19 Budget announced an MSP that would pay farmers 1.5 times the cost of production (COP). The government used its own formula A2+ FL and a 50% margin on it but farmers were already getting more than 50% when the government promised to give it,” said Prof Sukhpal.

He added: “Thus, such an increase in the revenue of farmers did not make much sense. Furthermore, a comparison of the cost computation methodologies (existing and Swaminathan report) shows that there exists a difference between existing MSP calculated with reference cost A2+FL and that calculated with reference cost C2 for the main crops. In other words, the promised margin of 50% over A2+FL — the current basis for MSP — barely brings about an increment in farmer’s income in actual.”

A research paper by Prof Sukhpal and Shruti Bhogal for the Centre for International Projects Trust, New Delhi, concludes: “Therefore, Swaminathan’s proposed MSP formula — C2 plus 50% — is relatively a better approach towards providing farmers with the deservedly higher value for their produce.”

Both experts added: “RCC suggested some additional cost aspects that need to be incorporated in C2 like the head of the farm households should be considered as a skilled worker rather than a manual worker as is prevalent (which means his labour should be higher than the unskilled common labour). Secondly, interest on working capital should be accounted for the whole season in contrast to the prevalent practice of estimating it for half the season. Thirdly, actual land rent to be accounted for without any ceiling rate; and finally engendering post-harvest costs like cleaning, grading, drying, packaging, marketing and transportation costs.”

What should be the MSP for wheat and paddy as per Swaminathan and RC committee reports?

As per a field survey undertaken by PAU under Prof Sukhpal to estimate the cost of cultivation across Punjab, it was found that if the costs recommended by RCC are taken into consideration and added to the cost C2 (as calculated by CACP), the proposed C2 will increase by 30.38% and 24.61% for wheat and paddy, respectively. Therefore, considering COP as per RCC would be a prominent step towards realising the improved welfare of farmers, said survey, adding that as per the Swaminathan report (C2+50%), the MSP, for wheat and paddy for the year 2020-21 should be Rs 2,138 and Rs 2,501, respectively against Rs 1,925 and Rs 1,888 per quintal paid to farmers. If the RCC formula (C2 +10%) is adopted, then the MSP should be fixed at Rs 2,044 (wheat) and Rs 2,285 (paddy), respectively.

“However, for its true effectiveness towards farmer welfare, MSP should be fixed by estimating C2 as per RCC, with an addition of 50% margin. Accordingly, the MSP for wheat would be Rs 2,787 and paddy Rs 3,116 per quintal, which is 45% and 67%, higher than the existing MSP, respectively,” said both farm experts.

How much less money was paid to the farmers for both crops in Punjab?

Punjab procured around 200 lakh tonnes paddy at the rate of Rs 1,888 per quintal and over 127 lakh tonnes wheat at the rate of Rs 1,925 per quintal in last Kharif and Rabi seasons, respectively. According to this, farmers got Rs 213/quintal less for wheat and Rs 413/quintal less for paddy as per Swaminathan recommendations and Rs 119 and Rs around Rs 400 per quintal less for wheat and paddy as per RC Committee.

“And as per RCC’s C2+50% formula, they got over Rs 800 per quintal less for wheat and Rs over 1,200 per quintal less for paddy,” said Prof Sukhpal Singh.

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