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Mainstream, VOL LIX No 50, New Delhi, November 27, 2021

The farmers’ struggle and the Swaminathan Commission recommendations | Upal Chakraborty

Saturday 27 November 2021

by Upal Chakraborty *

The long-drawn struggle of the farmers has resulted in the Government unilaterally scrapping the three Bills. The farmers view this as a partial victory while the apologists for the Government maintain that the farmers are shifting goalposts. The latter contention is not at all true. The demand for a legal sanction for the MSP and implementation of Swaminathan Commission recommendations on the exact quantum have been long-standing demands included in the recent struggle right from the beginning. Successive Governments have failed to implement the report’s clear recommendations.

Firstly, the struggle of the farmers stems from a mistrust of the Bills (The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020, is relevant to the topic discussed here) which, they felt, was targeted at dismantling the Mandi structure and the concept of MSP (Minimum Support Price) in the long run. It was believed that the main aim of the Bills was to facilitate crony capitalists close to the powers that be to purchase farm products through a monopoly or oligopolies, enabling predatory practices by initially offering high prices and, after the Mandis die their natural deaths, step in with lower prices – the farmer now at the mercy of the traders. The Acts stipulated that sales outside the mandis would be tax-free, which only deepened the suspicion. Although it did not scrap the existing APMC (Agricultural Produce Market Committees) regulations, it restricted its enforcement to the physical boundaries of the markets.

The farmers of Punjab and Haryana spearheaded the movement because the APMCs were most effective and widespread in Punjab, Haryana and West UP. Punjab and Haryana receive a MSP of more than Rs 80,000 crore every year. Apart from the farmers and their families, the livelihood of traders, shopkeepers and other beneficiaries are traditionally dependent on MSP.

What do the Swaminathan Commission reports state? A little background may not be out of place here. The National Commission on Farmers (NCF), chaired by Prof. M. S. Swaminathan, submitted five reports through the period December 2004 - October 2006. The final report focused on causes of famer distresses and the rise in farmer suicides, and recommended addressing them through a holistic national policy. It covered a gamut of solutions – including land reforms, irrigation, credit and insurance, food security, employment, productivity of agriculture and farmer competitiveness.
The measures suggested by NCF included:

• Promotion of commodity-based farmers’ organisations such as Small Cotton Farmers’ Estates to combine decentralised production with centralised services such as post-harvest management, value addition and marketing for leveraging institutional support and facilitating direct farmer-consumer linkage.

• Improvement in implementation of Minimum Support Price (MSP). Arrangements for MSP need to be put in place for crops other than paddy and wheat.

• MSP should be at least 50% more than the weighted average cost of production.
There are various methods used to calculate the cost of production. Let us consider a manufacturing unit and draw analogies. What do the costs include? The cost of production – labour costs, raw materials, consumables, maintenance of machines, depreciation on capital items, electricity and fuel costs, etc. These are termed as direct costs. The overheads included in supporting the manufacturing activities – like the salaries of accountants, the maintenance staff, the IT systems, etc. are also included while computing the costs and allocated to individual products. And finally, the interest cost on capital expenditure and a notional rental value for the premise (if owned by the organisation) are also included.

Now, let us draw an analogy with the cost of production for farm produce. There are at least six methods to compute this, known as: A1, A2, B1, B2, C1 and C2. It has been argued by the Government that the Swaminathan report states that “MSP should be at least 50% more than the weighted average cost of production” without specifying which cost of production is to be used. This is not true.

The C2 measure is clearly recommended in Annexure 2.2 of the report. On September 28, 2017, Dr. Swaminathan himself tweeted that MSPs should be calculated to cover C2+50%, in addition to being accompanied by procurement, storage and distribution costs.

Prof. Sukhpal Singh, the Principal Economist (Agriculture Marketing) Punjab Agriculture University (PAU), Ludhiana, has explained this concept in details. A1 includes all actual expenses in cash and kind incurred in production by owner which includes the value of hired human resource, value of owned machine labour, hired machinery charges, value of seeds both farm produced and purchased, value of pesticides, value of manure owned and purchased, value of fertilisers, irrigation charges, depreciation on implements and farm. The C2 formula of calculating cost of cultivation also includes the imputed cost of capital of machinery owned and the rent on the land, rather than a frugal measure that takes into account only paid-out costs incurred by a farmer and the value of family labour (A2+FL). Is that not the manner in which manufacturing units compute their costs? Even if the factory building or shed is owned and not rented-out, the notional value of the rent is considered because there is an associated opportunity cost if the building is rented out and due to risks involved in manufacturing, the returns are expected to be higher.

To explain this in more details,

A2= A1 + rent paid for leased-in-land

B1= A1 + interest on value of owned capital assets S (excluding land),

B2= B1+ rental value of owned land or rent paid for leased-in-land (should ideally be equal)

C1=B1+ imputed value of family labour

C2=B2 +imputed value of FL (Family Labour)

It has been found that the average MSPs fixed for winter-sown crops are lower than C2 costs although it is higher than A2+FL (imputed cost of Family Labour) costs, returns being higher than 50% in crops such as paddy and wheat. The MSP for wheat and paddy for the year 2020-21 should have been be Rs 2,138 and Rs 2,501, respectively against Rs 1,925 and Rs 1,888 per quintal actually paid to farmers.

The farmers’ struggle after the withdrawal of the Acts therefore is not just for a remunerative price for their produce but expansion of the concept of MSP both geographically as well as for all crops. The movement will only sharpen in days to come.

* (Author: Upal Chakraborty has worked for various corporate organizations in a long career of 35 years, and, after retirement, currently focuses on writing articles on various social topics, consultancy and teaching.)

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