*Articles :

REPORTS ON PRICING OF AGRICULTURAL PRODUCE- Synopses- Compiled by K. Ramasubbareddy

1* Prof.Alagh Committee was appointed in 2003 to examine methodological   issues in fixing MSP.

2* Dr M.S. Swaminathan National Commission on Farmers report recommended converting the MSPs into MRPs or minimum remunerative prices, so that “the net take home income of farmers should be comparable to those of civil servants”. 

3* Standing Committee on Agriculture (Jul 2008) was thoroughly dissatisfied with the underpricing of Agricultural produce and categorically recommended to fix MSP at c2cost plus 50%. Synopses of all these reports are given below.

1*Expert Committee, Chairman Prof. Y.K. Alagh -2003

The Ministry of Agriculture had set up an Expert Committee under the Chairmanship of Prof. Y.K. Alagh on 7th May, 2003 to examine methodological issues in fixing MSP with the following Terms of Reference (TORs):
i* TERMS OF REFERENCE:
(a) To examine the existing mandate of the Commission for Agricultural Costs and Prices and suggest whether – by way of a measure of response to the rapidly changing external environment arising in the wake of liberalisation, privatisation and globalisation – there is a need to reposition the Commission in terms of its mandate and remit.
(b) To examine the existing cost concepts for the purpose of fixing minimum support prices and suggest various factors including cost of transportation, marketing, processing, storage etc. to determine MSP. Besides the Committee will also analyse the appropriateness of existing methods followed in imputing the value of (i) family labour; (ii) rental value of land; (iii) interest on capital; (iv) depreciation on fixed items such as tractors, bullocks etc. and recommend measures for improvement so as to make them more realistic.
(c) To examine the existing structure of tariff, taxes, credit, market etc. and to suggest various measures to make it most competitive and remunerative to the farmers in the wake of trade liberalisation and globalisation and also to encourage diversified agricultural growth.

ii* UNDUE DELAY IN ACTING ON THE RECOMMENDATIONS

The Expert Committee submitted its report to the Government on 31st May, 2005.
The Report of the Committee was sent to Ministry of Finance (Department of Revenue), Department of Commerce, Department of Consumer Affairs, Department of Food & Public Distribution, Ministry of Textiles, Ministry of Rural Development, Department of Company Affairs, Planning Commission and Commission for Agricultural Costs & Prices for furnishing their considered views.
After taking into account the views of different Ministries / Departments, a note was submitted for consideration of Committees of Secretaries (CoS). Based on the CoS decisions taken in its meeting held on 7.9.07, Hon’ble Agriculture Minister put up the proposals for approval of CCEA.The Cabinet Committee on Economic Affairs decided as follows on 15Jan 2009:

iii* Important Recommendation not Accepted: No reasons given for rejection

*The TOR, “To advise from time to time on the tariff structure and other measures relating to imports and exports of agricultural commodities and their processed products”, as suggested by the Committee will not be added.
* Statutory Status will not be given to CACP.
* Adoption of Long Range Marginal Cost principle for analysis and development pricing and economic policies for the purpose of fixation of MSP will not be accepted for agricultural crops.
* Upward revision of the tariff rate on edible oil and additional protection for cotton beyond the World Trade Organisation bound rate will not be accepted.

iv* For recommending MSP, the following items of cost will also be considered by CACP:

(i) The premium actually paid by farmers for crop insurance, as a cost item.
(ii) Marketing and transport charges incurred by farmers
(b) Existing FARMAP software will be replaced with new user friendly software for estimating cost of production.
(c) A technical committee will be constituted to look into the existing survey schedule for cost studies and it will be modified, if necessary.
(d) A system of ‘Recognition Certificates and token gifts for respondent sample farmers of Cost of Cultivation Scheme will be put in place for ensuring their continued cooperation.

2* National Commission on Agriculture-2006 Prof.S.Swaminathan, Chairman

OBJECTIVES: To improve the economic viability of farming by ensuring that farmers earn a “minimum net income”, and ensure that agricultural progress is
measured, by the advance made in improving that income. Focus more on
the economic well-being of the women and men feeding the nation than just

on production.TO ENSURE NATION’S FOOD SECURITY AND SELF SUFFICIENCY.

MAIN RECOMMENDATIONS
MSP less than Cost of Production

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 foodgrain 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.

MSP TO BE AT LEAST 50% MORE THAN C2

1) The Commission on Agricultural Costs and Prices (CACP) should be an
autonomous statutory organization with its primary mandate being the
recommendation of remunerative prices for the principal agricultural commodities of both dry-farming and irrigated areas. The MSP should be at least 50% moret han the weighted average cost of production. The “net take home income”of farmers should be comparable to those of civil servants. The CACP shouldbecome an important policy instrument for safeguarding the survival of farmers and farming. Suggestions for crop diversification should be preceded by assured market linkages. The Membership of the CACP should include a few practising farm women and men. The terms of reference and status of the CACP need review and appropriate revision.
The scope of the MSP programme should be expanded to cover all crops of
importance to food and income security for small farmers. Arrangements should be
made to ensure MSP at the right time and at the right place, particularly in the areas coming within the scope of the National Rainfed Area Authority.
Assured and Remunerative Marketing Opportunities The Minimum Support
Price (MSP) mechanism has to be developed, protected and implemented effectively across the country. MSP of crops needs to keep pace with the rising input costs.

A Market Price Stabilisation Fund should be established jointly by Central and
State Governments and financial institutions to protect farmers during periods of
violent fluctuations in prices; as, for example, in the case of perishable commodities like onion, potato, tomato. Commodity-based farmers’ organisations like Small Cotton Farmers’ Estates, Small Farmers’ Horticulture Estates, Small Farmers’ Poultry Estates and Small Farmers’ Medicinal Plants Estates should be promoted to combine decentralised production with centralised services such as post-harvest management, value addition and marketing, for leveraging institutional support and facilitating direct farmerconsumer linkage.
An efficient marketing system with farmer’s organisations as important players
could significantly add to farmer’s income from his produce. As a matter of fact farmer’s organisations are needed at various levels of the value chain. The small and marginal farmers suffer loss of income due to distress sale immediately after harvest and are also on receiving end against the Commission agents/traders etc.

3* Standing Committee on Agriculture-Jul 2008

*Note: Captions are not part of the report of the Report

PRICING POLICY OF AGRICULTURAL PRODUCE

*i) MSPs HAVE NOT TAKEN INTO A/C PROBLEMS FACED BY FARMERS
The MSPs suggested by CACP and announced by the Government have not taken into account the problems faced by the farmers in running their household-activities, family and social responsibilities such as Roti, Kapada and Makan and education of their children and family marriages, etc. and other social functions. Even the Agricultural Price Policy and the credit policy of the Government have not been able to stop the spate of suicides by the farmers which is spreading from one State to another and the Government has admitted that it has already spread to 31 districts in Andhra, Karnataka, Maharashtra and Kerala. There are also reports of suicides by the Punjab & U.P. farmers.

*ii) SAMPLE STUDIES- at times FALSE
It has come to the notice of the Committee that 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) STOP COUNTING EXTRANEOUS FACTORS WHILE FIXING MSPs
The Committee are unable to understand the relevancy of factors viz; (i)
Effect on industrial cost structure; (ii) effect on cost of living; and (iii) assessment of objective needs of the economy at a particular point of time. The total economic growth during 2007-08 was 9% whereas agriculture growth was just 2.7%. It has nowhere been mentioned that the targets fixed or achieved by the industrial growth are ever calculated in the light of agriculture growth or production. The profit margin on the industrial products, even in case of medicines is sometimes more than 300% and it has generally never been below 100%, whereas agriculture produce are never sold at these profit margins. The factor effect on cost of living is not directly related to agriculture, it is the general cost of living of people of the country and production categories, other than agriculture, do not consider this factor while calculating their sale price. Cost of living is very high in cities and in rural areas, where the farmers live, is very low compared to cities. Both can’t be compared. The Committee strongly recommend that 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.

*iv) 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. The risk factors mentioned above are not addressed by CACP/Government, the way they need to be handled for fixing MSP of a particular crop. In 1980s, then the Union Agriculture Minister had admitted in Parliament that the risk factor was not taken into account by Agriculture Price Commission now Commission for Agricultural Costs and Prices while calculating MSP. The Committee have observed that the physical crop is only 20-30% of
the crop that can be expected on the basis of applied levels of technology,
management and inputs and if one adds the market risks involved in the Indian situation, the risk factor is unlikely to be lower than 50%.
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 the 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. The Committee recommend that the MSP should be announced well before the sowing season of the crops covered under this scheme and should include Cost C2 + 50 per cent.

*v) RENT TO BE INCLUDED AT OPPORTUNITY COST
The Committee observe that while calculating the Cost of production, CACP takes into account the rent for leased land and not the cost incurred towards owned land. Many a farmers enter this avocation by purchasing land on payment of agreed price. It is, therefore, necessary that interest foregone on owned land should also be counted towards calculation of cost of production.

*vi) INCOME PARITY WITH GOVT. EMPLOYEES NOT TAKEN INTO ACCOUNT-NOT EVEN TREATED AS SKILLED LABOUR
The Committee note that CACP recommends only the Minimum Support Prices with an objective to provide the farmers a reasonable and remunerative price of a commodity. The cost of nourishment 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, rearing & educating his children and his monthly income, though they fully engage themselves in agriculture and allied activities for the whole day and even at night.

*vii) DIFFERENTIAL MSPs NEEDED
Though the Government has justified the use of average cost method for fixing of MSP by CACP, however, the Committee are of the opinion that though synthetic model is time consuming for collecting the cost data of the raising certain crops, however, when completed, it will be more useful from the farmers point of view for fixing up of MSP of his crops. 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. The averaging of the costs incurred in different States, is loss to the
Farmers of the States like Haryana, Punjab for wheat & rice and Karnataka for rice, as per hectare expenditure in raising the wheat/rice crops in these States is almost twice the cost in other States such as Chhatisgarh and Jharkhand. The Tube well irrigation cost in the rainfed areas where water table has gone down to 400 ft. or more as in Rajasthan, is several times more than Western UP and Northern Haryana and Punjab where water-table, is around 60-80 ft. below surface level. The farmers of those areas should be encouraged to grow water-resistant varieties of food grains such as Jawar, Bajra, Gram, Mustard, minor millets and remunerative MSP should be fixed to give extra income to the farmers of these rainfed/dryland areas.

*xiii) 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. These crops should be included under MSP Scheme to generate remunerative income to the farmers and can be grown as alternatives to wheat and rice which presently are over-subscribed crops eating into our fast depleting irrigation water resources. The Government should launch a Bridge the yield gap movement in order to close the gap between potential and actual yields in major food and fodder crops and to achieve this objective, the technologies, services and public policies will have to be reinforced. The post-harvest technology including processing, storage, value-addition and marketing should be strengthened.
The Committee also recommend that in addition to 24 food crops covered
under MSP fixed by CACP, the minor millets, the horticulture crops such as potatoes and onions; should also be covered under food crops and CACP should be asked to fix the MSP for these crops also, however, for other horticulture crops which are covered and also others that are not covered under Market Intervention Scheme, Government should explore the possibility of setting up of a separate Central Horticulture Price Commission for major horticulture crops on the lines of the Central Agriculture Price Commission. To encourage the farmers to go for horticulture crops, the Government needs to develop infrastructure facilities such as good roads, cold chain facilities including cold storages, warehouses and marketing facilities near the farmers’ fields in a big way.