The myth of remunerative farm prices

“Bonanza for Farmers” and “Price Shoots Up” were some of the shrill headlines in the leading financial dailies that reported the announcement of minimum support prices (MSP) for kharif crops, 2012-13, made by the Cabinet Committee On Economic Affairs (CCEA) on June 15.

Almost every newspaper vied with the other to portray it as the biggest ever hike and fuel fears that it will stoke food inflation, as though they were all paid to report this news in a particular manner. They claim that the MSP announced will worsen food subsidy burden and the Government’s procurement costs will soar.

Most newspapers wilfully concealed the fact that input prices underwent massive hikes over the last few years, the last year being no exception to the trend.

It would not require extraordinary insight to comprehend that the prices announced were neither “fair” nor “remunerative”. All that reporters were required to do is to look at the massive price hikes in all non-urea fertilisers for the current kharif planting season on the same day they reported the kharif MSP increase.

Further still, if they had bothered to research a bit into the increase in prices of inputs over the last one year even without really meeting a single farmer, they would realise how cultivation costs had reached sky-high. They could at least have bothered to look into the deflated costs of production that the Government’s own advisory body, the Commission on Agricultural Costs and Prices (CACP) came up with in 2011-12 in its Kharif Price Policy document.

UNDERESTIMATION BY CACP

According to the CACP’s own admission, it has arrived at the likely levels of cost of production in different States for 2011-12, on the basis of the cost of production data available for the year 2008-09. This data itself had been much contested by the peasants and peasant organisations at that time. The CACP conveniently seems to have forgotten to upwardly revise these figures, while computing the MSP for 2012-13 kharif.

According to the document, the weighted average Cost of Production (C2) for paddy in 2011-12 was Rs 887.82 a quintal. This figure is deceptive as it is an average of the costs of production in various States. It ranges from a low of Rs 688.39 a quintal in Uttarakhand to a high of Rs 1,482.13 a quintal for Maharashtra. The cost projection by States was much higher and ranged from a low of Rs 950 a quintal in West Bengal to Rs 1,780 a quintal in Maharashtra.

Even if one were to uncritically take Rs 887.82 a quintal as the C2, and apply the M.S. Swaminathan Commission Recommendation of C2+50 per cent to compute the MSP, then it must have stood at Rs 1,331.73 a quintal in 2011-12. Now, after one full year the Government has announced an MSP of Rs 1,250 a quintal and Rs 1,280 a quintal for paddy for 2012-13 kharif.

According to the CACP’s own admission, MSP fixed on the basis of weighted average cost of production did not meet even the cost of production in many States in 2011-12.

Despite assurances that the overall cost of production will include the crop insurance premium paid by the farmers, marketing and transport cost incurred by them and apparent approval for the same by the Government, it has just remained on paper. The CACP, however, in 2011-12 had conducted an exercise to calculate the cost of production, inclusive of marketing, transportation and insurance premium. These figures are even higher than the 2012-13 MSP for almost all crops (see table).

Based on the 2011-12 cost of production data, the C2+50 per cent is far higher than the kharif 2012-13 MSP for all crops except urad, for which it is marginally higher. While the CACP has made some effort in 2011-12 to portray its exercise as being inclusive of marketing, insurance premium and transportation costs and factored in these costs in the modified cost of production, it seems to have remained oblivious to the skyrocketing prices of all agricultural inputs while computing the MSP for kharif 2012-13.

FERTILISER COSTS

The truth that neither the CACP nor the experts have spoken about, however, is that ever since 2008-09, the prices of inputs have increased drastically. The increase in fertiliser prices over the last two years, ever since the nutrient-based subsidy (NBS) came into being, has been phenomenal.

On the same day that the Government announced the MSP of kharif crops, fertiliser companies drastically raised farmgate prices of all non-urea fertilisers, citing depreciation of the rupee and reduction in subsidies on various nutrients by the Government under the NBS scheme.

The MRP of di-ammonium phosphate (DAP), the most widely used fertiliser after urea, has gone up from Rs 9,350 a tonne in 2010 April to Rs 24,000. The price of muriate of potash has risen from Rs 4,455 a tonne to Rs 17,000 a tonne during the same period. These are net figures and do not include State taxes.

The experience across the country has been that the farmers are forced to pay more due to black marketing and artificial scarcity created by unscrupulous traders. Farmers have been paying as high as Rs 26,000 a tonne for DAP even in April. (Given below is a table comparing non-urea fertiliser prices at present with prices during the last rabi.)

The Department of Fertilisers has also further proposed a hike of another 10 per cent in urea prices. Moves are afoot to cut the subsidies to chemical fertilisers even further on the pretext of subsidising bio-fertilisers. Unfortunately, the CCEA and the CACP have not factored in the exorbitant input costs while computing the MSP.

One can fudge the truth by resorting to clever jugglery of figures. The apologists of neo-liberal policies and their voices in the media are just doing that.