A reality check indicates that MSP set for 2019-20's kharif crops is not 1.5 times the 'C2' cost of production

A reality check indicates that MSP set for 2019-20's kharif crops is not 1.5 times the 'C2' cost of production


A recent press release by the Cabinet Committee on Economic Affairs (CCEA) shows that the declared minimum support price (MSP) for most kharif crops to be marketed in 2019-20 is at least 50 percent above the cost of production.

The official information related to the newly declared MSP, which came two days ahead of the Union Budget presentation, gives the impression that the newly re-elected NDA government has kept its promise of offering remunerative prices to farmers (as demanded by various farmers' organisations in the recent past), which are at least 1.5 times the cost of production.

However, that may not be the case if the comprehensive cost of production (termed as 'C2') is taken into account instead of 'A2+FL' cost of production -- the one that has been used for calculations by the government. Please note that in a previous news alert dated 11th January 2019, Inclusive Media for Change had discussed that the Commission for Agricultural Costs and Prices (CACP) uses two broad concepts viz. ‘A2’ cost and ‘C2’ cost (also called comprehensive cost).

According to the NITI Aayog member Prof. Ramesh Chand, ‘A2’ cost of production includes all expenses paid by the farmers in cash or kind during crop production like seed, fertiliser, manure, chemicals, hired human, bullock and machine labour, irrigation expenses, maintenance cost, etc. It also includes 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'.

In the press release dated 3rd July, 2019, the government has used 'A2+FL' cost of production in order to show that the minimum support price of the 14 kharif crops is 1.5 times of the cost of production. This could be confirmed on the basis of calculations done by the Inclusive Media for Change team. It may be noted that the above-said press release did not mention anything about the particular type of cost of production, which has been used by the government.

Table-1 reveals that the relative difference between MSP and projected 'A2+FL' cost of production (which is estimated by the CACP) is 50 percent or higher for all the 14 kharif crops during 2019-20 kharif marketing season (KMS). In other words, for all the 14 kharif crops the declared MSP is at least 50 percent over the 'A2+FL' cost of production. For example, in case of bajra the declared MSP for 2019-20 is higher than the 'A2+FL' cost of production by 84.67 percent. Please check the yellow shaded cells/ figures of table-1.  

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 Inclusive Media for Change based on the formula of relative difference between MSP and Cost of Production

Source: Figures related to MSP are accessed from:

(i) Press release: A Government that cares for its Farmers, Press Information Bureau, Government of India, Cabinet Committee on Economic Affairs (CCEA), 3 July, 2019, please click here to access  
(ii) Minimum Support Prices Recommended by CACP and Fixed by Government (Crop Year), Ministry of Agriculture & Farmers' Welfare, please click here to access 
(iii) MSP for kharif crops 2018-19, Ministry of Agriculture & Farmers' Welfare, please click here to access 
(iv) 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 
(v) 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 2019-20 season, please click here to access
(ii) CACP Report on Price Policy for Kharif crops of 2018-19 season, please click here to access  
(iii) CACP Report on Price Policy for Kharif crops of 2017-18 season, please click here to access  
(iv) CACP Report on Price Policy for Kharif crops of 2016-17 season, please click here to access 
(v) CACP Report on Price Policy for Kharif crops of 2015-16 season, please click here to access  
(vi) CACP Report on Price Policy for Kharif crops of 2014-15 season, please click here to access  
(vii) CACP Report on Price Policy for Kharif crops of 2013-14 season, please click here to access
  
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Please note that the relative difference can be calculated using the following formula:

Relative difference between MSP and Cost of Production = [{(MSP fixed for a particular 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.

Table-2 shows that for none of the 14 kharif crops, the declared MSP (for 2019-20 KMS) is 1.5 times the 'C2' cost of production. Please check the negative figures in the yellow shaded cells 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
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Kindly note that the 2019 election manifesto of the Bharatiya Janata Party (BJP) clearly says that "in order to ensure remunerative prices for farmers, the minimum support price for 22 crops was increased to 1.5 times cost of production" by the previous National Democratic Alliance (NDA) government. However, the news alert by Inclusive Media for Change dated 11th January, 2019 had shown that our farmers did not get 1.5 times the ‘C2’ cost of production for kharif crops in the years between 2013-14 and 2018-19. Please refer to table-2.

Table-3 indicates that in case of the 14 kharif crops, on an average the 'C2' cost of production was higher than the 'A2+FL' cost of production by 32.41 percent between 2013-14 and 2019-20 KMS. For example, in case of paddy the relative difference between 'C2' and 'A2+FL' cost of production (projected) was 31.45 percent on an average between 2013-14 and 2019-20 KMS.

Table 3: Relative difference between 'C2' and 'A2+FL' Cost of Production (projected) of kharif crops (in percent)

Table 3 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
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In order to read the key recommendations of the National Commission on Farmers pertaining to MSP, please click here.


References

A Government that cares for its Farmers, Press Information Bureau, Government of India, Cabinet Committee on Economic Affairs (CCEA), 3 July, 2019, please click here to access 

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
 
CACP Report on Price Policy for Kharif crops of 2019-20 season, 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

“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
 
2019 Bharatiya Janata Party Election Manifesto, please click here to access

MSP was not 1.5 times the cost of production for most kharif crops during the last 6 agricultural years, News alert by Inclusive Media for Change dated 11 January, 2019, 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 

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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