Indianfarmers

Publications :

Falling Farm Incomes: K. Ramasubba Reddy

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 plummet

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

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 + 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

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.

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

B. 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. IMPLEMENT RECOMMENDATIONS OF NCF and PCA TO MAKE AGRICULTURE SUSTAINABLE, THEREBY ENSURING FAIR PRICE FOR FARM PRODUCE. KRSR/250110