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Why Agri GDP Declining Perennially- Part-C
Farmers’ incomes plummeting making Farming a Losing Proposition- K. Ramasubba Reddy

. ‘‘Everything else can wait but agriculture”. Jawaharlal Nehru

ABBSTRACT:

“Government policies over a period have rendered agriculture, as the least profitable vocation in the country.” Stndng. Comt. on Agri.

IMPERATIVE ACTIONS NEEDED: Making farming a sustainable and remunerative proposition by doubling public investment in agriculture & by implementing the recommendations of NCF and SCA and by Planning Commission and the Government taking responsibility for performance & be accountable for results.

1.i.Findings of National Commission on Farmers (NCF)

Non- Profitability of Agriculture:

During the nineties the profitability in agriculture declined by 14% mainly due to stagnancy in yield growth and increase in prices of inputs outpacing the increase in prices of output. The margin deteriorated particularly for cotton and oil seeds.

Even if we look at the latest cost of cultivation for major food grain crops for 2005-06 [CACP data] and compare it with MSP prevailing in 2004-05, it would appear that the C2 costs were not covered even by MSP in many States e.g.; Paddy: A.P, Assam, Haryana, Karnataka, Kerala, M.P, Tamil Nadu & West Bengal, Jowar: A.P, Assam, Haryana, Karnataka, Kerala, M.P, Tamil Nadu & West Bengal. It would be extremely unlikely that in long run farmers would continue to cultivate those crops where the C2 costs are not recovered. Some details are given below:

Name of the Crop	States where the C2 cost projection by CACP for 2005-06 were not covered by MSP of 2004-05
Paddy	A.P, Assam, Haryana, Karnataka, Kerala, M.P, Tamil Nadu & West Bengal
Jowar	A.P, Karnataka, M.P, Maharashtra & Tamil Nadu
Bajra	Gujarat, Haryana, U.P, Maharashtra
Maize	A.P, H.P, Karnataka, M.P, Rajasthan & U.P
Ragi	Karnataka, Tamil Nadu
Tur [Arhar]	A.P, Gujarat, Karnataka & Orissa
Moong	A.P, Maharashatra, Orissa & Rajasthan
Urd	M.P, Maharashtra, Orissa, Rajasthan & Tamil Nadu
Gram	Haryana, Rajasthan
Barley	Rajasthan

ii. MSPs do not cover Cost of Production –High risks in farming not reckoned

The cost of production is invariably higher than the minimum support price, due to ever-increasing prices of diesel and other inputs. An examination of the projections of cost of cultivation for 12 food grain crops given by the Commission for Agricultural Costs and Prices (CACP) for the crop season 2005-06 with the MSP prevailing in 2004-05 clearly shows that C2 cost (cost of production per quintal) is not covered by the MSP in most States for the 12 crops. For example, in eight out of the 12 States (AP.Assam, Haryana, Karnataka, Kerala, MP, TN, WB), C2 is lower than the MSP and in the case of wheat it is lower than MSP in all the seven producing States except Madhya Pradesh. There is no minimum support price (MSP) or procurement arrangement for the crops grown in dry farming areas.

iii. From 1993 to 1999 the average increase in MSP of paddy was only Rs.25 and the increase in the next two years was a petty amount of Rs20. During 2003-04 there was no increase at all. However, input costs and cost of daily necessities, medical and education expenses increased manifold during the very same years. The result is succinctly put forth by the Planning Commission by candidly confessing that: “GDP per agricultural worker is currently around Rs.2,000 per month, which is only about 75% higher in real terms than in 1950 compared to a four-fold increase in overall real per capita GDP.”

v. MSP should be regarded as the bottom line for procurement both by Government and private traders. Purchase by Government should be MSP plus cost escalation since the announcement of MSP.

vi. As of now, the cost-risk-return structure of farming is getting adverse leading to a sense of despair in the rural areas. Consequently, the youth in villages are reluctant to take to farming as a career.

2. Farmers’ incomes plummeting

Cultivating cereals is unprofitable for farmers across most states, according to government data. The startling revelation shows how the dynamics of agriculture has changed, even as political parties fight over a ‘remunerative’ minimum support price for crops like rice.

The worst return comes from rice cultivation, the largest sown crop across India and under the support-price regime for decades. Data on the net return for—or income earned by—rice farmers presented to Parliament shows they have suffered losses in all the major paddy producing states, except Andhra Pradesh.

The data for three crop years up to 2006-07 shows that paddy farmers in only eight of the 18 producing states, including Andhra Pradesh, have made consistent profits. These states are Haryana, Karnataka, Punjab, Chhattisgarh, Uttarakhand, Gujarat as well as Himachal Pradesh.

The impact of these gains were more than offset by the losses made in important paddy growing regions like Assam, Madhya Pradesh, Maharashtra, Orissa, Tamil Nadu, West Bengal and Jharkhand. Farmers made consistent losses in all the three years. Paddy farmers in another three states made losses in two of the three years, while in one state, the loss was confined to a single year.

The net return for farmers was calculated by deducting the cost of cultivation from the value of the gross product (the cereal and any by-products).

Though the scenario is a bit more optimistic in the case of wheat, the figures are bad for coarse cereals like jowar and bajra. All these crops fall under the minimum support-price system.

Paddy farmers who earned the highest net income a hectare in 2006-07 were those in Punjab (Rs 11,754), Gujarat (Rs 9,153), Haryana (Rs 8,978) and Karnataka (Rs 8,360).

The steepest losses a hectare of paddy cropped were in Maharashtra (Rs 6,247), Assam (Rs 3,484), Tamil Nadu (Rs 2,091) and Jharkhand (Rs 1,842).

In wheat, farmers fared better. In eight of the 12 states, viz, Bihar, Gujarat, Haryana, Himachal Pradesh, Madhya Pradesh, Punjab, Rajasthan and Uttar Pradesh, farmers have made consistent profits in all the three years up to 2006-07. The only farmers that made continuous losses were those in Jharkhand and West Bengal. The scenario was better in Chhattisgarh, where wheat farmers made losses for two years, and Uttarakhand, where losses were confined to just one year.

Wheat farmers who registered the highest net income a hectare were those from Rajasthan (Rs 15,780), Haryana (12,909), Punjab (11,265) and Gujarat (Rs 9,605). In contrast, wheat farmers who had negative income a hectare were those from Jharkhand (Rs 2,592) and West Bengal (Rs 2,444).

In the case of jowar, of the six states studied, farmers in Rajasthan made consistent profits in all three years. The worst-case scenario was for jowar farmers in Andhra Pradesh, Karnataka and Tamil Nadu, who made consistent losses in all the three years. Jowar farmers in Madhya Pradesh were able to limit their losses to two years and their peers in Maharashtra did better by restricting losses to just one year.

For bajra, too, the picture is similar. Farmers in Gujarat and Rajasthan made profits in all three years, but in states like Haryana, Karnataka, Maharashtra and Uttar Pradesh, they made consistent losses.
P. Raghavan FE: Dec 26, 2009

Please see Annexure-A for findings from sample study in A P on “Low Income from crops”

3. Parliamentary Committee on Agriculture (PCA) raps govt. on low MSPs not even covering costs

i) MSPs HAVE NOT TAKEN INTO ACCOUNT COST OF LIVING
The MSPs suggested by CACP and announced by the Government have not taken into account cost of living of the farmers in running their household-activities
ii) SAMPLE STUDIES- at times FALSE
Even the samples study for assessing cost incurred for raising a crop, supposed to be done at fields, is carried out, at times falsely even by sitting in office

iii) RISKS FACTORS NOT TAKEN INTO ACCOUNT
FIX MSP AT COST PLUS 50% TO COVER RISK FACTORS
The CACP also does not take into account the risk factors and their consequences. Natural risk factors which include weather aberrations, rains, floods, famine conditions, pest, temperature fluctuations, hail-storm etc. are not given due weightage in calculating the cost factors.

There are other risk factors which are man created viz., Government intervention and market forces including national and international both, which try to control the prices of agricultural produce to their advantage. In 1980s, the then Union Agriculture Minister had admitted in Parliament that the risk factor was not taken into account by Agriculture Price Commission while calculating MSP.

The Committee recommends that the MSP should be announced well before the sowing season of the crops covered under this scheme and should include Cost C2 plus 50 per cent. The profit margin on the industrial products, as in case of medicines has generally never been below 100%, whereas agriculture produce are never sold at these profit margins.

iv) RENT TO BE INCLUDED AT OPPORTUNITY COST
The Committee observes that while calculating the Cost of production, CACP takes into account the rent for leased land and not the cost incurred towards owned land. It is necessary that interest foregone on owned land should also be counted towards calculation of cost of production.

v) INCOME PARITY WITH GOVT. EMPLOYEES NOT TAKEN INTO ACCOUNT
The cost of living of farmers, their income parity with the Government employees are not taken into account with the result that the farmers are not even treated as skilled labour and the living standard of small and marginal farmers is even below that of a Group”D” Government employee, in terms of his standard of living.

vi) DIFFERENTIAL MSPs NEEDED
The Committee are of the considered view that if it is not desired to take into account the State wise expenditure of per hectare crop, then the cost of production of food grains incurred on Government and Agricultural University farms should be counted as per hectare cost of the farmers in that region.

vii) INCLUDE MILLETS, HORTICULTURE CROPS ALSO
The Public Distribution System, should include, wherever appropriate, ragi, minor millets and other wide range of nutritious cereals such as Jawar, Bajra, Maize, etc. and tubers such as potatoes, onions, etc.

NONE OF THE THESE RECOMMENDATIONS ARE IMPLEMENTED
A detailed note on the same is given in the ANNEXURE-B.

4. CONCLUSION

Considering increase in input costs and raise in index of cost of living, the increases in MSPs do not even cover the increased costs and prices of consumption articles. When we analyse historical data, two things stand out clearly.

i. that MSPs have been fixed less than cost of production and high risks involved are not taken into account and,

ii. Increase in rural consumer price index has not been factored while arriving at the MSPs of farm produce, with the result farm produce was under priced year after year and farmers were the losers all these years. For example, cost inflation index trebled since 1991-92 and farmers are never compensated for this three fold price increase and therefore they got less consumer goods for the same farm produce they sold. Thus the Govt. has reduced the incomes of farmers by forcing them sell their produce at a loss and not compensating for high risks in farming activity.

Less than a fifth of the value of GDP as represented by agriculture and allied activities is shared by over half the population eking out a living in the farm sector. The actual performance of the farm sector in the last two Five-Year Plan periods has fallen far short of the target. Yet, the Planning Commission is hopeful of a four per cent farm growth in the

The talk of a 4 per cent growth target is utterly unconvincing in the current context because nothing seems to have changed either in policymaking or in implementation.

There are numerous programmes and schemes the Centre and various State governments come up with year after year. But implementation and outcomes have been far from satisfactory. For farm success, the Plan must include a system of continuous monitoring and evaluation, as well as accountability — that is conspicuous by its absence

Asserting that doubling the farm growth rate was essential for food security, the Prime Minister, Dr Manmohan Singh, recently drew up a mission statement recommending an increase in agriculture sector investment, expansion of area under irrigation, farm market reforms as well as remunerative prices and better quality inputs for farmers. These imperatives have been with us for long years; but now, robust demand conditions make supply-side issues appear more daunting. Ultimately, the Government must own responsibility for the present state of affairs, and it must repair the damage by demonstrating effective performance. B L 300610

ANNEXURE-A: Low Income from crops: Sample Study in A.P

ABSTRACT: “Income from crop production is extremely low for a large majority of cultivating households. In fact, 29-36 per cent of households in the three villages incurred losses in crop production. Meticulous calculations reveal that paddy cultivation yields very low incomes, much lower than what government agencies estimate for farmers in Andhra Pradesh.”

A study was conducted by the Foundation for Agrarian Studies in 2006 in three villages of Andhra Pradesh: Anathavaram in Kollur mandal, Guntur District ; Bukkacherla in Raptadu mandal, Anantapur district and Kothapalle in Thimmapur L.M.D. mandal, Karimnagar district . The villages fall in three distinct agro-ecological zones: Anathavaram in South Coastal Andhra – a paddy dominated area irrigated by the waters of the Krishna river; Bukkacherla in Rayalaseema, which is drought-prone; and Kothapalle North Telengana where irrigation is from borewells and the cropping pattern is a combination of food grain and other crops.

Study Findings

Of the many important features of agrarian relations that the study draws attention to, five are particularly noteworthy.
1.Household and per capita rural incomes are shockingly low. The median annual per capita income ranges from Rs.5,895 in Kothapalle to Rs. 6,308 in Bukkacherla and Rs. 8,537 in Ananthavaram. This works out to a paltry daily per capita median income of around Rs.16 in Kothapalle, Rs.17 in Bukkacherla and Rs.23 in Ananthavaram.

At the same time, inequalities in the distribution of household incomes are extremely high. In most countries, Gini coefficients of income distribution vary between 0.3 and 0.6. As against this, the Gini coefficients for the distribution of household incomes are estimated to be 0.641 for all villages.

The top 10 per cent of households account for 52 per cent of the total income of households in Ananthavaram, and 43 per cent of the total income of households in the other two villages. On the other hand, the lowest 40 per cent of household account for only 7-9 per cent of household incomes in the three villages.

2.Income from crop production is extremely low for a large majority of cultivating households. In fact, 29-36 per cent of households in the three villages incurred losses in crop production. Meticulous calculations reveal that paddy cultivation yields very low incomes, much lower than what government agencies estimate for farmers in Andhra Pradesh.

Net incomes from paddy cultivation, which vary, on average, from Rs. 2,441 per hectare in Ananthavaram to Rs. 6,332 in Bukkacherla and Rs. 8,555 in Kothapalle, are significantly lower than the average for Andhra Pradesh reported by the Commission on Agricultural Costs and Prices (CACP), Rs. 15,788 per hectare.

3.Costs of cultivation vary systematically across socio-economic groups. The poor and lower-middle peasants, who are mostly tenant-cultivators, incur much higher costs than landlords and big capitalist farmers. The exorbitant rents paid by those who have to lease in land greatly impoverishes poor landless peasants. Rents paid out in Ananthavaram account for 31 per cent of total costs of production and 17 per cent in Bukkacherla.

As a result, a poor peasant leasing in land for paddy cultivation in Ananthavaram incurs a loss of Rs.6,733 per hectare on paddy cultivation. Offsetting these losses somewhat is income that tenants earn from animal resources that accrues from access to land (and therefore straw). Lower- and upper-middle land owning peasants earn a net income of around Rs.10,000 per hectare from paddy cultivation, while rich peasants and landlords earn Rs. 11,000-12,000 per hectare.

4.The study confirms the concern expressed by the Government of Andhra Pradesh that, post-1991-92, the State's agrarian economy has entered “an advanced state of crisis.” The degree of landlessness and inequality in the distribution of land ownership are striking. The study finds that 65 per cent of households in Anathavaram, 47 per cent in Kothapalle, and 15 per cent in Bukkacherla do not own any land. The highly unequal distribution of land ownership is captured by the Gini coefficients — 0.86 for Ananthavaram, 0.76 for Kothapalle, and 0.55 for Bukkacherla.

Landlessness and inequality appear to have worsened over the years. In Ananthavaram, for instance, 50 per cent of the households did not own any land in 1974; the proportion rose to 60 per cent in 2005-06. The proportion of households that cultivated land on lease went up from 18 per cent in 1974 to 37 per cent in 2006; and the proportion of land cultivated under tenancy contracts increased from 22 per cent to 67 per cent. Rural indebtedness among peasants is also much higher than what is normally believed to be the situation. The failure of land reforms of any kind is apparent.

Equally obvious is the decline in public investments and in the share of formal sources of credit as well as the overall neglect of the agricultural sector by the State. It is not surprising that the aggregate value of crop output, which grew by 2.7 per cent annually between 1980-81 and 1991-92 fell to 0.4 per cent per annum between 1991-92 and 2004-05.

Offering strong evidence of the agricultural stagnation and distress is the large number of farmers' suicides — 4,403 between 1998-2006, according to the Andhra Pradesh Rythu Sangam.

5.It appears that Adivasi and Muslim households are by far the most deprived socio-economic groups in the three villages. In most instances, it is the Adivasis who are really at the bottom of the socio-economic pyramid. Adivasis are the most deprived of income, housing&sanitation and education.

Socio-economic Surveys of Three Villages in Andhra Pradesh: A Study of Agrarian Relations

Comments: This pitiable position of peasants is well known. What remedies are suggested to improve the lot of poor peasants? What role NGOs and Farmers' Organisation can take to improve the position? from: Ram. K Posted on: May 19, 2010 at 18:55 IST- The Hindu/krsr/200510

ANNEXURE-B: Recs. of Standing Committee on Agriculture on Pricing of Agri Produce.

1.Fixation of Minimum Support Price (MSP)

*Recs of SCA-* Forty-first Report (Fourteenth Lok Sabha) of the Committee on Agriculture (2007-2008)	*Govt. reply*	<*SCA Response to Govt reply-16-18/12/09*
Having noted several infirmities and shortcomings in the present system of fixing of MSP by CACP as also the other problems besetting the agriculture sector in the Country viz. coverage of only 24 crops under the MSP, considerations of factors like (i) effect on industrial cost structure; (ii) effect on cost o living; and (iii) assessment of objective needs of the economy at a particular point of time, etc; not taking into account the risk factors and their consequences; Government interventions and market forces both at national and international levels; the lack of access to majority of farmers to information on best agricultural practices from Government machinery, better pesticides and fertilizers, farm machinery and implements, high yielding seeds; the down turn in food grain production and availability climate change, etc, the Committee had felt that the only way out in the face of these shortcomings/problems was by making agriculture a profitable vocation. while fixing MSP, the CACP should stop counting the factors, such as (i) effect on industrial cost structure; (ii) „effect on cost of living‟ and (iii) assessment of objective needs of the economy relating to industrial development etc.; and reassess the factor relating to „effect on general price level/inflation‟ by including wholesale price index and not the market rate. They had also recommended that the risk factors enumerated by them should invariably be considered while calculating the level of Minimum Support Price of an agriculture commodity. Besides, 50% risk co-efficient and so also the self-insurance premium of the farmers and premiums of MNAIS and WBCIS should form part of costing factors considered by CACP for fixing MSP. Finding that CACP‟s role is restricted to the announcement of MSP, the Committee suggested that CACP should take into account all the minor and major cost factors including risk factors natural as well as man-made and must take into account a profit margin of at least 50% of the cost price, that a farmer should get to run his household, perform his social & family responsibilities and rear his animals, etc.	As any policy regarding agriculture cannot be looked in isolation of the overall economy, agricultural price policy also has to keep the objective needs of the economy in consideration. Government has considered the Recommendations of the Expert Committee to Examine Methodological Issues in Fixing MSP and has decided that for recommending Minimum Support Price (MSP), the following items of cost shall also be considered by CACP; (i) The premium actually paid by farmers for crop insurance; (ii) Marketing and transport charges incurred by farmers; (iii) Imputing value of family labour on actual market rate for casual labour in cost estimates and (iv) The likely effect of the price policy on the rest of the economy, particularly on the cost of living, level of wages, cost structure of agro-based products and the competitiveness of agriculture and agro-based commodities. As regards consideration of risk factors in cultivation, at present the production risk is taken care by the National Agricultural Insurance System (NAIS) in force and the price risk is covered under the MSP. MSP is a price guarantee that is provided to the farmers to ensure that the price does not fall below that floor limit and the chances of distress sale by the farmers are eliminated. Regarding the production risk in farming, it seems appropriate that the farmers are provided with farmer-friendly insurance cover and the cost on account of insurance premium is included in the overall cost of production”.	*The Committee are, least convinced by the rationale for continuing with present pricing policy of agricultural produce. The contention of the Government that while keeping in view the interest of the consumers, especially the large majority of poor consumers both in rural and urban areas and trying to keep the prices of food and other commodities at reasonable rates, the pricing policy seeks to provide a fair return to the farmers is not at all tenable being devoid of factual basis. They are of the strong opinion that Government policies over a period have rendered agriculture, as the least profitable vocation in* *the country.* The Government, therefore, needs to seriously introspect on the question of continuing with such a skewed policy. The Committee also feel that a farmer friendly pricing policy would not only automatically take care of rural poor, who form a majority of the farming community but also act as a counter magnet for the current exodus to urban areas The Committee, therefore, desire a serious rethink by the Government on the various remedial steps suggested in these two recommendations . The Committee also expect, at the earliest, specific responses from the Government on their recommendation about CACP stopping counting factors, such as *(i) effect on industrial cost structure;* *(ii) effect on cost of living; and* *(iii) assessment of objective needs of the economy relating to industrial development, etc, while fixing the MSP.*

*Recs of SCA*	*Govt. reply*	*SCA Response to Govt reply*
2.Farmer as Skilled Labour Taking note of the huge disparities in the wages of the farming community vis-à-vis other classes of employees, the Committee had recommended that farming being a skill based profession, the farmer and his family members should be treated as skilled labour and the CACP should compute the relevant values accordingly. They had also recommended that the statutory wage rate or actual market rate of farm labour should also be revised accordingly.	In their Action Taken Note the Government have stated that as per the existing methodology farmer and his family members are not treated as skilled labour. However, the manpower employed in agriculture is treated as agricultural labour. The relevant market wages for ploughing, sowing, weeding, transplanting and harvesting, etc. are considered to determine the cost of labour engaged in agriculture	The Committee deprecate the view taken by the Government which equates the labour put in by the farmer and his family in agriculture and allied activities at par with casual labour. The farmer and his family should rather be considered as a techno-managerial group with exhaustive knowledge of the nature of land under cultivation, the crops to be cultivated, the best agricultural practises, etc. The National Commission for Farmers has also emphasised on this fact by proposing training to farmers at the farms of outstanding farmers. The Commission in fact wished the Government to see farmers as partners in their effort to improve the way agriculture is practised in the country. The Committee, therefore, once again recommend that Government should take immediate steps to declare farm labour in the category of skilled labour for the purpose of computing MSP.