Kharif 2017 price policy formulation: Presentation to CACP
22nd February 2017
Commission for Agricultural Costs and Prices
Room No. 161
Formulation of Price Policy for Kharif Crops for 2017-18 Season – Presentation on Behalf of Jai Kisan Andolan of Swaraj Abhiyan and Associated Farmers’ Organizations
Jai Kisan Andolan of Swaraj Abhiyan and associated farmers’ organizations namely Alliance for Sustainable & Holistic Agriculture (ASHA), Karnataka Rajya Raitha Sangha (KRRS), Kisan Sangharsh Samiti, Madhya Pradesh (KSS) and Rythu Swarajya Vedika, Telangana (RSV) gratefully acknowledge the invitation extended by the Commission for Agricultural Costs and Prices (CACP) to make a presentation with regard to formulation of price policy for Kharif Crops for the 2017-18 Season.
Given below is our presentation, made on behalf of the farmers of the nation, who toil day and night and in rain and sun, to ensure food security for all citizens of India.
1. Guiding Principles for the CACP:
The Commission tends to view its role in a narrow, technical manner. We submit that the Commission must spell out the values and principles that guide its deliberations. These principles are already provided in the Constitution and in several key policy documents such as the National Policy for Farmers
1.1. The overarching framework of values is provided by the Preamble to the Constitution of India and the Directive Principles of of State Policy. The Preamble seeks to secure for all the citizens “JUSTICE, social, economic and political” and should thus guide the deliberations of the CACP.
1.1.1. Article 38(2) of the Directive Principles mandates that “The State shall, in particular, strive to minimise the inequalities in income, and endeavour to eliminate inequalities in status, facilities and opportunities, not only amongst individuals but also amongst groups of people residing in different areas or engaged in different vocations.” This enjoins upon the CACP to eliminate inequalities between farming and non-farming communities.
1.1.2. Article 43 makes it more specific: “The State shall endeavour to secure, by suitable legislation or economic organisation or in any other way, to all workers, agricultural, industrial or otherwise, work, a living wage, conditions of work ensuring a decent standard of life and full enjoyment of leisure and social and cultural opportunities”. This article requires the CACP to offer “living wages” to the farmers that can ensure “decent standard of life”.
1.2. Recognizing the failure of planned economic development to meet the needs of the farmers, The National Policy for Farmers, 2007 called for a policy re-orientation so as to: “focus more on the economic well-being of the farmers, rather than just on production. Socio-economic well-being must be a prime consideration of agricultural policy, besides production and growth. The aim of the Policy is, therefore, to stimulate attitudes and actions which should result in assessing agricultural progress in terms of improvement in the income of farm families” (para 1.5)
1.2.1. Specifically, the NPF defined its main objective as: “To improve economic viability of farming by substantially increasing the net income of farmers and to ensure that agricultural progress is measured by advances made in this income.” (para 3.1 (i)). It goes on to specifically identify another key objective “To provide appropriate price and trade policy mechanisms to enhance farmers’ income.” (para 3.1 (v))
1.2.2. The NPF identified a series of policy measures to improve the farmers’ income including making MSP mechanism effective across the country and a Market Invervention Scheme (Para 5.10.2).
1.2.3. It also lays down the principle for price policy: “The government, while taking decisions on MSP, would ensure that the farmers’ interests in receiving remunerative prices for their produce are adequately safeguarded.” (Para 5.10.5)
1.2.4. The Policy “The terms of reference and status of the Commission for Agricultural Costs and Prices (CACP) would be reviewed to make the MSP regime more effective.” (Para 5.10.6). It is clear thus that the basic point of the latest ToR of the Commission is to provide remunerative prices to the farmers so as to enhance farmers’ income.
2. Interpreting the Vision and the Terms of Reference for CACP
The Commission has tended to take a narrow view of its own ToR. Read carefully and in the light of its own Charter and the principles mentioned above the Commission has a unique and critical responsibility to suggest price and non-price measure that would enhance farmers’ income substantially and continuously.
2.1. The Citizens’ Charter of CACP states “The main objective of the Commission is to recommend remunerative prices of mandated crops to the farmers by recommending Minimum Support Price (MSP)”. Thus “remunerative price” is built into the charter of the CACP.
2.2. The present and revised Terms of Reference (w.e.f 30.07.2009) for the CACP defines that its role is “To advise on the price policy of paddy/rice, wheat, jowar, bajra, maize, ragi, barely, gram, tur, moong, urad, sugarcane, groundnut, soyabean, seed, rapeseed, mustard, cotton, jute tobacco, seasmum, nigerseed, lentil (massur), safflower, copra and such other commodities as the Government may decide from time to time, with a view to evolving a balanced and integrated price structure in the perspective of the overall needs of the economy and with due regard to the interests of the producer and the consumer.”
2.3. The Resolution above also spells out some of the considerations that the Commission may take into account. It is important to note that:
2.3.1. The Resolution leaves the Commission free to “determine its own procedure”. While the Government is not bound by the Commission’s advise, the Commission is not required to consult, let alone follow, the Government’s position on price policy;
2.3.2. The ToR do not mention budgetary or fiscal constrains of the Government of India as one of the considerations to be taken into account;
2.3.3. While the ToR mentions balancing the interests of the farmers with those of the consumers, it does not shift the burden of providing cheap food to 130 crore people from that of the state to the shoulders of farmers;
2.3.4. The ToR empowers the Commission to “suggest such non-price measures related to credit policy, crop and income insurance and other sectors as would facilitate the achievements of the objectives”; and
2.3.5. The ToR also empowers the Commission to “suggest measures to reduce costs of marketing and recommend fair price margins for different stages of marketing”
2.4. When the Present ToR and the Vision of CACP are read harmoniously, it is undeniable that the CACP is visualized as an independent agency to protect the interest of the primary producer of agricultural commodities, the Indian farmers.
3. CACP as a pivotal player at this moment of agrarian crisis
3.1. There is unanimity on the deep economic distress of Indian farmers. According to the 70th Round of NSSO (Situation Assessment Survey of Agricultural Households), the average monthly farm income of an agricultural household is only Rs. 3,844 including cultivation and animal husbandry. About 52% of the agricultural households in the country were estimated to be indebted, which is one of the chief factors for the epidemic of farmer suicides. The families have to extensively depend on non-farm sources even to meet their survival expenses. In recent years, the rate of growth of Indian agriculture has declined further. Two successive droughts in 2014 and 2015 made matters worse, leading to impoverishment of millions of agricultural households. CACP, which is mandated with ensuring that farmers get remunerative prices, cannot be a silent spectator to this mayhem.
3.2. Central Governments across the spectrum of political and ideological horizon have in successive union budgets, especially in the last decade, expressed anguish about the all-pervasive poverty of the Indian farming community and suggested scores of remedies to uplift the economic status of farming households, recognizing and respecting that it is they who are the primary food producers of the country. If the farmer-income oriented formal announcements made by the present Government through its pre-election manifesto, budget speeches and economic policy announcements are anything to go by, then, the current government is also committed to enhancing the income of the farmers. The present Government has announced in 2 successive union budgets that the income of the farmers will be doubled in 6 years. We must assume that this doubling is in real terms and not just nominal terms. Clearly this is not possible unless the CACP helps the Government to achieve this ambitious target.
3.3. Unfortunately, in recent years, the price recommended by the CACP, and largely accepted by the government, has moved away from this objective. The rate of growth of MSP has actually declined since 2014. The Chart given below indicates poor average annual growth in MSP, which are even less than the inflation rate and contrary to the intent of the present Government and therefore contrary to the mandate of CACP. This needs to be corrected immediately and the rate of growth must be brought on par with at least the level achieved during 2004-05 to 2008-09.
2014-15 to 2016-17
2009-10 to 2013-14
2004-05 to 2008-09
1999-00 to 2003-04
3.4. Such a situation sends several unfortunate signals to the farming community. First, the present government is not serious about its stated intent of improving farmers income. Second, the CACP responds more to political signals from the government and less to the distress signals from the farming community. Three, for all its sophisticated cost calculation, the CACP will come up with routine increment of Rs. 50 or so every year. Four, that it does not make a difference as an overwhelming proportion of farmers are forced to sell their crops well below the MSP.
3.5. Thus it is now or never for CACP to recommend bold measures for enhancing the MSP as without enhancement of MSP, the income of farmers cannot be increased, much less doubled. It is also now or never for CACP to realize its Vision on Mission Mode and honour the charter that the citizens of India have bestowed on it. MSP and procurement of some major commodities form the basis for delivery of better incomes and profitability to farmers, to cover at least their cost of cultivation. There are no other schemes with such expansive coverage to support farmers at the output end. However, long pending issues in this support mechanism need to be resolved by CACP to enable the Government to achieve the target of doubling income of farmers. Perhaps all the issues raised below cannot be resolved at the CACP level alone but as CACP has expansive advisory capacity in both price and non-price levels, CACP is best placed to incorporate these into the CACP Report and its communication to the government.
4. Time to think afresh: the RUPYA approach
It is time for CACP to offer Fresh Thinking and Complete Overhaul of the Policy Framework Relating to Price Policy. The agrarian sector needs big ideas and big relief in price policy. We propose a mechanism for minimum assured income to all farming families or RUPYA as the way forward.
4.1. The objective of this new approach is to:
4.1.1. Address all fundamental and structural issues relating to agriculture and all segments of rural primary production.
4.1.2. Address holistic and composite rural regeneration as it touches all sectors of rural economy and is central to the lives and livelihoods of a vast majority of people of this nation.
4.1.3. Recognize that agriculture and all segments of rural primary production are the backbone of food and economic sovereignty of the nation.
4.1.4. Ensure that the quality of food consumed by citizens meets the highest standards of safety and health
4.2. Remunerative and Universal Price and Yield Assurance or RUPYA: Farmers find that when there is good yield and production, the prices are too low and they get very little net income in hand. When there is crop loss and low yield, the farmers lose their investment anyway, even if the price is high. Whether it is low price or crop loss, it is happening due to no fault of the farmers but they are suffering heavily for it. Therefore, we suggest a remunerative and universal price and yield assurance mechanism (RUPYA), to achieve assured income to all farm households. The mechanism should have the following features: the prices should be remunerative, benefit of remunerative price should be available to all farmers and it must cover farmers against all forms of crop loss and price deficiency. This would take the form of a number of interconnected schemes:
4.2.1. Price Deficiency Payments to make existing “support price” effective and meaningful beyond procurement by government of a few commodities in some locations; Recommendations of Ramesh Chand Committee report on MSP fixing formulae should also be accepted and implemented. Recommendations of the M.S. Swaminathan Committee that the MSP should be set in such a way that the farmers must earn 50% profit over their cost of production, should also be implemented. [as per Para 2(a) to (c) of Present ToR]
4.2.2. Market Intervention Scheme for perishables and those products not covered under price support schemes. [as per Para 4 of Present ToR]
4.2.3. Price Stabilization Fund for plantation crops. [as per Para 4 of Present ToR]
4.2.4. Minimum Support Prices should be effectively implemented for pulses and oilseeds, operationalizing the new MSP concept articulated in Economic Survey 2016-17 (social and environmental rationalization of MSP). [as per Para 4 of Present ToR]
4.2.5. The Public Distribution System should be used to procure pulses and millets too, to increase the food basket for poor consumers and to encourage farmers to diversify through assured markets. [as per Para 11 of Present ToR]
4.2.6. Import of food grains, particularly wheat and pulses, should be carefully monitored so as to ensure that the off-take of domestic production takes place first. Due to over production, farmers are selling pulses (particularly arhar aka pigeon peas) below minimum support prices. However, due to import contracts made in July, 2016, India is importing pulses from other nations at much above MSP. [as per Para 7 of Present ToR]
4.2.7. Universal Crop Insurance that covers all cultivated land against all forms of crop loss and damage, where the Government shall pay the basic premium. The PMFBY has not yielded the promised results and therefore should be reviewed and recast to ensure that both loanee and non-loanee farmers are covered by the security net [as per Para 3 of Present ToR]
5. New mechanism and new modalities for the fresh approach
5.1. The Minimum Support Price being announced at an amount that just about covers the cost of cultivation is unreasonable. With such price realization, the farmer can at the most invest back the proceeds into the farming operations. What about the farm household’s other needs beyond the enterprise, like food, clothing, education, healthcare etc., if no margin is built over the C2 in the price realization? This is where the CACP has to incorporate the Swaminathan Commission recommendation of C2+50%. As a transitional measure for implementation of RUPYA, this is perhaps one of the most effective tools available for doubling income of farmers in the short term. This is all the more important today, to bring down income disparity of farmers with other sections of society, especially in view of the recommendations of the 7th Pay Commission. It is time for CACP to act like the Pay Commission to comprehensively understand the income need of farmers and ensure that they receive it – that is the mandate of CACP.
5.2. Recommendations of the Ramesh Chand Committee report should be implemented. The report was submitted in April 2015. Many recommendations were unanimously agreed upon and therefore there is no bar in their implementation. Even on those recommendations where DES had reservations, there is positive action possible for farmers of India. In any case, there are many technical suggestions in that report that do not require government’s approval. The Commission can consider these suggestions on its own.
5.3. The practice of dissuading State governments from paying bonuses to farmers should be discontinued; States should actually be encouraged to do so, keeping in mind local conditions and diversity of crops.
5.4. MSP announced should under no circumstances be lower than C2 cost estimates. The current practice of not even ensuring that MSP is never below the C2 estimates arrived at, leave alone improve cost estimates and then provide a dignified margin above C2, should be forthwith abandoned.
5.5. Just as some noteworthy improvements in MSP have been announced in crops where procurement does not take place and where market prices are in any case significantly higher than the MSP, crops that are procured by the Government should be treated on the same footing.
5.6. Government should ensure that no trading ever takes place below the MSP as otherwise announcing MSPs becomes meaningless. In fact, Government should ensure that the procurement price is higher than MSP within the limited procurement done by the State and MSP should not become the default procurement price.
5.7. Mechanism should be immediately evolved to ensure that effective market intervention takes place all over the country by a designated agency, to meet the above objective of restraining trade below MSP and procuring at remunerative prices above MSP for all the farmers, unlike the present situation.
6. Correcting existing anomalies in the calculation of MSP
Even within the existing mechanism and the limited understanding of its own mandate, the CACP can make a significant change in the method by which it arrives at the recommended MSP. Some of these immediate suggestions involve correcting the anomalies that are apparently contributing to suppressed estimations of cost, and thereby MSP. This is completely within the scope of DES and CACP together and they can make changes straightaway, to improve cost estimations.
6.1. There are many components, which are contributing to the suppression of costs, across crops and states and which need to be included:
6.1.1. Family labour is counted only for days of major farm activity – not counted for other days – they should be counted.
6.1.2. Interest on credit is counted only at institutional credit rates even though data is collected for non-institutional credit including actual interests being paid by sample farmers – they should be counted.
6.1.3. Interest on working capital is calculated for only one season, though the entire cycle upto the marketing cycle getting completed could take a whole year. This should be calculated for one whole year.
6.1.4. Land lease rates are fixed only at rates that are allowed under tenancy laws and not taken at what the data is revealing, as real land rental value – they should be taken at real values.
6.1.5. Cost of maintenance of bullocks is limited to only the actual use of bullocks in the farm operations – this should be taken on annual basis.
6.1.6. No managerial cost is being added though 10% is calculated and presented, over revised C2 – they should be added.
6.1.7. Post-harvest costs are not included and can be presented in the CS for allowing CACP to incorporate them into MSP recommendations – they should be included.
6.2. Some components need to be corrected for their irrationality: Labour wage rates even for family labour are taken as “unskilled wage rates” (actual payment and minimum wages for unskilled workers are used to finally invoke whatever is higher). This should be taken as skilled wages since this involves managerial skills (it is another matter that we think that even workers’ wages should be seen as skilled workers’ wages).
6.3. Sampling Related Issues:
6.3.1. The number of sample villages in selected blocks should be increased.
6.3.2. Equal number of farmers from 5 landholding class categories does not make sense since the large farmers might have a benefit of economy of scale to an extent and then skew the average to the lower side because of that. The sample selection should be from within the same class.
6.3.3. Minor crops’ sample size is too small. It should be increased.
6.3.4. Irrigated and un-irrigated farmers are clubbed together – irrigated farmers might have higher yields which bring down the average cost of production per quintal. This may not reflect the reality of a majority of farmers. The sample selection should be from within the same class.
6.3.5. Sample size could be too low to accommodate the diversity of growing conditions of farmers in any crop.
6.4. Resolving the discrepancy between yield figures used: CACP has to understand better and address why the yield figures used in the Comprehensive Scheme (CS) are always higher than APY estimates of the departments, since this brings down the cost of cultivation per quintal and thereby, MSP figures.
6.5. Statistical Issues: Weighted averages being used to finally arrive at the C2 at the national level is unscientific and problematic. For maximum coverage of farmers, bulk line cost should be arrived at, and used.
6.6. All the factors considered while converting A2+FL and C2 estimates into MSP should be quantified and there should a clear formula that explains the logic of the final MSP recommended by the CACP.
6.7. Pulses: The concept of Social-Value based MSP articulated in the Economic Survey and the Arvind Subramaniam Report must be immediately heeded by CACP. This concept makes it clear that MSP is not just about cost of cultivation, but the need to incentivize pulses in the form of higher MSPs. These recommendations to be implemented. The Report seeks Rs.60 for tur and urad in Kharif 2017 and Rs.70 in Kharif 2018. Right now, MSP is only Rs.46.25, which is too low. Even with a bonus, it is being bought for Rs.50.50, which is also low.
6.8. Perishables: CACP should push for 100% Centrally Sponsored Market Intervention Scheme. The present MIS has very few takers since it asks for 50% outlay from state government. Meanwhile, horticulture crops have increased in production in substantial way compared to grain production.
7. Expanding the power and the mandate of the CACP
It is customary for all Commissions to make recommendations to the government about changes in its own mandate and functioning. The CACP may ask the government to make the following changes to its ToR and its infrastructure.
7.1. CACP should not be required to weigh its recommendations against all the parameters as listed out today, including balancing prices across crops and for both consumers and farmers. The only focus of CACP should be on better price realization by farmers of India.
7.2. CACP should also put out information on Farm Incomes and prepare recommendations for particular crops, regions and categories of farmers for improving their Farm Incomes. Income realization data is being collected in the CS as of now but not being analyzed and put out.
7.3. CACP should be mandated to monitor price realization and ensure that prices do not fall below the MSP.
7.4. CACP should be involved in all trade policy decisions as pertaining to farmers’ interests and ensure that decisions on export-import of agricultural commodities cannot go against CACP’s recommendations in each case.
7.5. CACP should have farmers’ organizations’ representatives in its constitution.
7.6. CACP’s recommendations should be adopted as-is by the Government and prices can certainly not be fixed under any circumstance below the MSPs recommended by CACP.
7.7. CACP should as the government for more outlays and more human resources for doing justice to its mandate. More rapid data processing and software improvements are also required and should be asked for.
8. Some other issues
8.1. State Governments: CACP should encourage more state governments to have state level CACPs that are expected to deal with more localized conditions and also support farmers with bonuses etc.
8.2. Exim Policies: CACP should ensure that these policies favour farmers and not just industries dependent on agricultural raw materials. Presently the import-export policy is anti- farmer. For example, not only was tur imported for Rs.90 per kg, but export Indian tur was also banned. This is a double-whammy, which is most likely to bring down the consumer price. The new report should include a study of the impact of trade related decisions on wheat and pulses.
8.3. CACP must recommend that farmers should be interfaced with markets in a stronger fashion through FPO investments, infrastructure and capacity building. The current schemes are not adequate and there are anti-farmer policies like Income Tax of 30% on FPOs.
8.4. Given the impact of ‘demonetization’ on farmers, the CACP should get special studies on how it has impacted the cost and recommend a special component in Kharif 2017-18 to compensate the farmer for the same.
8.5. This was the first year of the implementation of the PMFBY and the results have not been satisfactory. The CACP should make special recommendations for review and revision of this scheme.
8.6. The CACP should commission a comparative paper on the variations between state and national estimates of cost.
On Behalf of
Jai Kisan Andolan of Swaraj Abhiyan
Alliance for Sustainable & Holistic Agriculture
Karnataka Rajya Raitha Sangha
Kisan Sangharsh Samiti, Madhya Pradesh
Raithu Swarajya Vedika, Telangana
Bhartiya Kisan Union (Arajnaitik), UP
Bhartiya Kisan Union (Beniwal), Punjab
Yogendra Yadav Avik Saha
Founder National Convenor
Jai Kisan Andolan Jai Kisan Andolan