Mitigating Farmer distress

What is the issue?

Poor earnings of the farmers result in an unending distress in the agricultural sector and there is need for an appropriate policy response.

What is the current scenario?

• Agricultural prices are rising less than others and as a result, the rural wages are depressed.
• 70% of India's recent disinflation has been led by the fall in rural inflation.   
• When incomes are low, the demand for some food items such as milk and protein tends to be weak, leading to a fall in their prices.
• Chronic income crunch is pushing farmers into a debt trap, leading to a clamour for loan waivers and higher MSPs.

What are the concerns?

• MSP calculation – The National Commission for Farmers had recommended that MSP for crops be fixed at 50% above the C2 cost.
• But the government is still using 50% margin of Cost A2 or maybe cost A2+FL, which is lower than cost C2.   
• Pricing - The arbitrarily fixed prices tend to cause distortion in production, perpetuating a glut and depressing prices to the detriment of producers.
• Efficient, transparent, competitive and hassle-free marketing is a must to ensure reasonable prices to the growers.
• This will ensure demand-driven production, thereby, restricting surpluses and shortages to manageable levels.
• Focus on productivity - Most of the agricultural development schemes aim largely at boosting crop productivity and production.
• It disregards the negative impact of higher output on prices in a surplus situation.
• External trade policy - These are focused more on managing inflation than on maintaining the price line to safeguard the farmers’ interests.
• An export window is usually denied for farm products by imposing import and export curbs, which makes it difficult to mitigate domestic surplus.
• Frequently modifying duties and minimum export prices on the pretext of controlling inflation add to the woes.

What should be the future course of action?

• The focus has to be shifted from farm income to farmers’ income.
• A recent discussion paper brought out by the NITI Aayog reveals that about two-thirds of rural income now comes from non-agricultural sources.
• Also, 70^th round of NSSO finds that wage employment is the principal source of income for 56% of small and marginal farmers.
• Clearly, expanding job avenues in and around rural areas is imperative to boost farmers’ earnings.
• Promoting relatively lucrative allied activities of agriculture such as horticulture and floriculture also helps boost farm incomes.
• Thus, a multifaceted income-generation plan, rather than MSP hikes and loan waivers, can mitigate farmers’ disquiet.

Source: Business Standard

Quick Facts

MSP calculation

• The Commission for Agricultural Costs and Prices (CACP), gives three definitions of production costs: A2, A2+FL and C2.
• A2 costs - It basically cover all paid-out expenses, both in cash and in kind, incurred by farmers on seeds, fertilisers, chemicals, hired labour, fuel, irrigation, etc.
• A2+FL costs - It cover actual paid-out costs plus an imputed value of unpaid family labour.
• C2 costs - These costs are more comprehensive, accounting for the rentals and interest forgone on owned land and fixed capital assets respectively, on top of A2+FL.
• The M.S. Swaminathan Committee report had recommended a minimum support price of 50% profits above the cost of production classified as ‘C2’ by the CACP.