Agriculture

Hike in wheat MSP unlikely to help distressed farmers

The recent hike in Minimum Support Price on wheat will still not meet the Centre’s promise to ensure MSP 50 per cent higher than the cost of production

By Jitendra
Last Updated: Friday 05 October 2018
Farmers
Credit: Vikas Choudhary/CSE Credit: Vikas Choudhary/CSE

The recent hike in the Minimum Support Price (MSP) of wheat, from Rs 1,735 per quintal to Rs 1,840 per quintal, will still not meet the Centre’s promise of ensuring MSP 50 per cent higher than the cost of production.

On October 3, the government increased the MSP of wheat by Rs 105 per quintal, or 6 per cent more than last year’s, to improve the income of farmers. Despite this increase, the current MSP is just 46 per cent above the cost of production (COP) when the centre had promised to ensure that MSP would be 50 per cent more than the cost of cultivation.

This hike is unlikely to help the distressed farmers as their income is still way behind the cost of production.

In the 2018-19 budget, the Centre had claimed that increase in MSP of wheat will double farmers’ income but the formula they used for this ambitious goal is based on a diluted version of MS Swaminthan commission’s recommendation (see box on how to calculate MSP).

Contradicting their stance, in 2015, the Modi-led government filed an affidavit in the Supreme Court saying it was impossible to provide MSP 50 per cent higher than the cost of production due to market distortion. Later in 2016, the Union Agriculture Minister, Radha Mohan Singh, assured of his government’s commitment to fulfill the electoral promise.

Even if the MSP is 50 per cent above cost of production, farmers will still not earn a profit because they won’t recover their cost of production. This is because profitability can be interpreted on three classifications. The Commission for Agricultural Costs and Prices (CACP), the government body which recommends MSP, categorises three types of cost of production: A2, A2+FL and C2.

A2 represents actual cost of farming, including seeds, fertilisers and hired labours. While A2+FL represent family workers in addition to A2, C2 includes the cost of land rentals or interest on invested capital apart from A2+FL. This means that C2 has all the components followed by A2+FL and A2.

It is obvious C2 gives better price to farmers than any other category. The Swaminathan Commission recommended C2+50 per cent but the government is providing A2+50 per cent. Besides, just 6-8 per cent farmers get MSP price for crops like wheat and paddy, according to a report by the National Sample Survey Office.

 Rabi Crops

MSP
2017-18

MSP
2018-19

A2+FL

% profit Margin on A2+FL

C2

% profit Margin on C2 on MSP of 2018-19

Wheat

1,735

1,840

866

113

1,256

46

Barley

1,,410

1,440

860

67

1,190

21

Gram

4,250

4,620

2,637

75

3,526

31

Lentil

4,150

4,475

2,532

77

3,727

20

Rapeseed & Mustard

3,900

4,200

2,212

90

3,086

36

Safflower

4,000

4,945

3,294

50

3,979

24

Source: Ministry of Agriculture and Farmers Welfare, Report On Price Policy for Rabi Crops for Marketing Season 2018-19

This is likely to be Modi-government’s last MSP announcement. During its tenure, the rise in wheat has been just 28 per cent. In 2014-15, the MSP of wheat was just Rs 1,450 per quintal.  

How to calculate MSP 
The determination of MSP of agricultural crops is based on other factors besides CoP. Apart from CoP, the CACP considers other important factors such as demand and supply situation, trends in domestic and international prices, inter-crop price parity, terms of trade between agricultural and non-agricultural sectors and likely impact on consumers and overall economy and rational utilisation of scarce natural resources like land and water.
Under the Comprehensive Scheme for Studying the Cost of Cultivation of Principal Crops in India, the field data pertaining to the cost of cultivation/cost of production is collected, compiled and analysed by 16 agriculture universities or institutions based in 19 states. 
Directorate of Tobacco Development also engages in the collection and analysis of data. In each zone they collect data on a daily basis from 10 farms. 
The field data under the scheme is collected on the Cost Accounting Method under which daily entries of debit/credit for the expenditure/income are made in order to assess the total cost incurred/benefit accrued by/to each farmer covered under the scheme.
A detailed questionnaire is filled up/updated on monthly/annual basis by field officers after making enquiries on a daily basis from 10 farm holdings which consist of two each from five different size classes namely up to 1 hectare, 1-2 hectares, 2-4 hectares, 4-6 hectares and above 6 hectares.
The estimates of cost of production provided to the CACP forms an important basis for recommending the MSPs of various agricultural commodities to the Government of India.

 

Subscribe to Weekly Newsletter :
Related Stories

India Environment Portal Resources :

Comments are moderated and will be published only after the site moderator’s approval. Please use a genuine email ID and provide your name. Selected comments may also be used in the ‘Letters’ section of the Down To Earth print edition.