Part-3: Agriculture Marketing Reforms - MSP formula of Swaminathan Committee hurting Indian Farmers and Economy

MSP Forumula of Swaminathan Commission hurting Farmers, investments and exports

"Income formula must have to Productivity per unit area and Quality, not just Cost of Production"

By:

Vijay SARDANA

Advocate, Delhi High Court

& Techno-Legal Expert

Current pricing policy will lead to the following problems: 

1. Cost of Production of any organic crops and crop from zero budget agriculture is less than the cost of production of intensive agriculture, according to Swaminathan Committee formula, organic produce should get the lower price if  MSP is just 1.5 time of cost of production.  

2. If all will get the same price, where is the incentive to learn and invest in better quality and better technology?

3. If MSP is higher than international price, then under free trade agreement like SAARC treaty and ASEAN FTA, imports will be cheaper than what is produced and sold as per MSP in India. Who will buy crop of Indian farmers?

4. Majority farmers never get MSP for their crops, what purpose we are serving by incasing MSP every year. Who is benefiting from MSP revision?

The country need farmers:

At the outset let me clarify, farmers are the backbone of any economy and they need proper support to ensure national food security and respectable lifestyle for their families. Unfortunately, since independence, our policymakers make a lot of promises to farmers but very little was done to improve their livelihood for various reasons. Farmers, due to their large numbers, were always treated as vote bank, agriculture all decisions were based on political considerations, and they rarely led to the economic welfare of the farmers. Everyone exploited the farmers for their political and commercial gains and farmers were crushed at the bottom of the pyramid to keep urban voters happy.

Recent Announcements are also not promoting good agriculture practices:

According to Press Information Bureau, on June 1^st, 2020, the Cabinet Committee on Economic Affairs (CCEA) chaired by the Hon'ble Prime Minister Shri Narendra Modi has approved the increase in the Minimum Support Prices (MSPs) for all mandated Kharif crops for marketing season 2020-21.

Government has increased the MSP of Kharif crops for marketing season 2020-21, to ensure remunerative prices to the growers for their produce. The highest increase in MSP is proposed for nigerseed (Rs 755 per quintal) followed by sesamum (Rs 370 per quintal), urad (Rs 300 per quintal) and cotton (long staple) (Rs 275 per quintal). The differential remuneration is aimed at encouraging crop diversification.

MSP for all Kharif crops for marketing season 2020-21 will be as follows::

Sl. No	Crops	Projected Cost* KMS 2020-21 (n Rs./ quintal)	MSP for Kharif 2020-21 (n Rs./ quintal)	Increase in MSP (Absolute) (in Rs.)	Return over Cost (in %)
1	Paddy (Common)	1,245	1,868	53	50
2	Paddy (Grade A)^	-	1,888	53	-
3	Jowar (Hybrid)	1,746	2,620	70	50
4	Jowar (Maldandi)^	-	2,640	70	-
5	Bajra	1,175	2,150	150	83
6	Ragi	2,194	3,295	145	50
7	Maize	1,213	1,850	90	53
8	Tur (Arhar)	3,796	6,000	200	58
9	Moong	4,797	7,196	146	50
10	Urad	3,660	6,000	300	64
11	Groundnut	3,515	5,275	185	50
12	Sunflower Seed	3,921	5,885	235	50
13	Soybean (yellow)	2,587	3,880	170	50
14	Sesamum	4,570	6,855	370	50
15	Nigerseed	4,462	6,695	755	50
16	Cotton (Medium Staple)	3,676	5,515	260	50
17	Cotton (Long Staple)^	-	5,825	275	-

 ^Cost data are not separately compiled for Paddy (Grade A), Jowar (Maldandi) and Cotton (Long staple)

 The logic behind the increase in MSP is dangerous:

The increase in MSP for Kharif Crops for marketing season 2020-21 is in line with the Union Budget 2018-19 announcement of fixing the MSPs at a level of at least 1.5 times of the All-India weighted average Cost of Production (CoP), aiming at reasonably fair remuneration for the fanners. The expected returns to farmers over their cost of production are estimated to be highest in the case of Bajra (83%) followed by urad (64%), tur (58%) and maize (53%). For the rest of the crops, return to farmers over their cost of production is estimated to be at least 50%.

Let us do a critical analysis of the announcements made:

1.  This may be the only case in the world where inefficiency is rewarded. Higher the cost of production, higher is the margin and hence higher is the MSP. Whoever suggested this formula, in fact, discouraged the concept of efficiency and productivity.

2.  My question is, if with the application of new technologies, the cost of production goes down by 20%, MSP will go down. Is there any incentive among farmers to adopt efficient technologies?

3. Live Case Study: Let us understand the whole case of this announcement with just one example and the same logic one can build for other crops. For better understanding let me build all my arguments with one specific example called “Maize”.

So, what is the implication:

a. Cost of production of maize is Rs.12.13 per kg.

b. The revised MSP is Rs.18.50 per kg., last year MSP was Rs. 17.75 per kg.

c. The current Mandi price in the month of May 2020 of maize is around Rs. 11 to 12 per kg,

d. Before the coronavirus, the lockdown was Rs. 22 to 24 per kg.

e. Poultry farmers are the biggest buyer of the maize for feed use.

f. The international price of maize was around Rs. 13 per kg.

g. When prices started shooting beyond Rs. 18 per kg, they stared demanding import of maize to reduce the cost of production. It means, one side maize farmers was benefitting on the other side poultry farmers were suffering.

h. Now, the poultry sector is ruined during the lockdown, the maize prices crashed to Rs. 10 to 11 per kg and there are no buyers. Who will pay MSP for maize now?

i. Exports: Once India was exporting about 5 million tons a few years ago, today with incased MSP and higher cost of production, we are outpriced in maize and there is no demand from the world market. Hence no exports from India.

j. Now maize prices are low, alternate crops which go into feed production will also face price crash and farmers will face the crisis. Example millets, etc.

So, who benefitted from this MSP Formula?

> Only Middleman, They charge a commission on percentage basis. When MSP goes up, the commission goes up for middle man those who supply to FCI or any government department.

Time to Change:

The fundamental problem with this approach is more the cost production, higher is the MSP. This is a disaster not only for farmers but also for industrial use and export trade.

It is high time we should move away from MSP and work on a better option, which improves productivity and farmers income based on the market economy. The dependency on subsidy or direct cash transfer should be carefully calibrated to ensure food security and discourage surplus production.

In the next article I will discuss what should be alternate approach the MSP.