Towards a Rational Pricing Policy in Agriculture

The increasing costs of cultivation and stagnant and negative prices for agricultural commodities are pushing farmers into serious debt trap taking their lives. Commission for Agricultural Costs and Prices (CACP) of Govt. of India rec- ommends support prices for 25 commodities every year in order to safeguard farmers and avoid distress sales. The Cabinet Committee on Economic Affairs (CCEA) fixes the prices and Government is supposed to intervene and buy all the commodities offered by the farmers for sale at the mini- mum support price.

In addition to the cost of production and changes in input prices the CACP takes into account ten other factors like the impacts on prices, subsidies, industrial cost structure, general price level, costs of living and also accounts for input- out price parity, trends in market prices, demand & supply, international price situation and international prices. Even while calculating the costs of cultivations (C2) real costs are not taken into account. The costs of two years are back are considered with a small correction factor. When regional vari- ations are not taken into account, the average cost estimation will even out

and farmers in some states with high costs of cultivation are getting lower prices. For example projected cost of production of a quintal of paddy for 2012-13 for Andhra Pradesh is Rs. 1207.11, Chhattisgarh is Rs. 1111.07, Jharkand is Rs. 1433.98, Maharashtra is Rs. 1766.92 while Uttarakand is Rs. 813.96, Punjab is Rs. 908.48. These vari- ations are because of the differences in input prices and use, labor prices and yields. Whereas the MSP fixed for the year 2012-13 is Rs. 1250 (Common) and Rs. 1280 (Grade A). Same is the case with Cotton and other crops.

While total cost estimations are already lower, the yield estimations made are higher as a result per quintal costs of productions are estimated very low and as a result the prices fixed apparently seems to be remunerative. Considerable divergence exists between yields obtained from Crop Cutting Experiments (CCEs) and those from Comprehensive Scheme (CS Scheme) to study Cost of Cultivations both by Department of Economics and Statistics (DES) of Ministry of Agriculture. In the last ten years between 2001-01 to 2009- 10 on average the yields estimated by CCEs were lower than CS Scheme across crops viz., Paddy (19.7%), Maize (10.80%), Tur (17.12%), Soybean (16.41%), Groundnut (- 0.82%) and Cotton (301.97%). But CACP has takes the yields from the CS scheme significantly underestimating per quintal cost of production. CACP collects the data from CS Scheme through 5800 centres through the state agriculture universities where as the CCES are done across 9,73,184 centres with the help of State Governments. It is quite unfair to use one set of data to estimate yields and production and another set of data for fixing Minimum Support Prices (MSPs) both collected by the same department.

With all these most of the time the prices fixed by the CACP are lower than the costs of production for many crops. In the initial years the costs of productions and living costs of

the rural families were pretty lower as result the pricing model worked at that point of time. Gradually as the government started withdrawing from providing basic inputs like seeds to farmers and basic services like health and education as a result the costs of production and living are increasing which are not factored into calculating the costs.

National Farmers Commission under the Chairmanship of Dr. MS Swaminathan and the Working Group on Agricultural Production have all recommended that the MSP should be fixed at C2 + 50% (C2). The Government has not accepted the recommendation stating that it would increase the consumer prices and there by inflation.

The rising living costs in the villages have made it diffi- cult for farmers to make ends meet. Report National Committee on Employment in Unorganized Sector, Arjun Sen Gupta Committee, 2007 stated that the incomes of 94% of the farmers who own less than 10 acres of land are lower than their living expenditure. This is increasing the crisis among the farmers. The 2.70 lakh farmers’ suicides reported by the National Crime Records Bureau are only tip of the ice- berg. There is a deeper socio-economic crisis looming over the farming sector.

Therefore it is high time government moves towards a rational price policy and ensures a remunerative price guarantee for farmers. Such systems exist in various countries like Price Compensation Systems in Europe or Price Guarantee system in US. One model which India can adopt is as follows.

  • Agriculture being a State subject establish a State level Agricultural Costs and Prices Commission which takes into account real costs of cultivation and recommends the price to the centre
  • The real cost estimations should take into account all the costs including the family labour
  • The national CACP has to take into account and fix the price taking into account the recommendations by the Swaminathan Commission. The prices could be from 10- 50% over the C2 depending on the crop
  • The State Commission should take into account the de- clared price by the Centre and any variation compared to the recommended price should be compensated
  • For each cultivator, determine (PC x Cultivated Area x Av- erage Yield), which should be given as cash payment to the cultivator, where PC is the Unit Price Compensation per qtl. for that district/taluk.
  • It is important that this system should benefit the real cul- tivators including tenant farmers and sharecroppers rather than non-cultivating land-owners. There should be system in place to identify and record tenants and share- crop- pers. For example, the AP government is introducing a Bill to provide Loan Eligibility Card to tenants and share- croppers so that they can access loans, crop insurance, crop compensation and so on. For the same pur- poses, it is imperative for governments to introduce such mecha- nisms in other states also. The same mechanism can be used to record the cultivator data for the Price Compen- sation system.
  • The payments of crop compensation should be made di- rectly to the farmers, through a local delivery mecha- nism such as post office, bank account deposit, panchay- at or self-help groups. Timely payment should be made for each season.