People's Democracy

Lies, Untold Truths and The Myth of Remunerative Prices

Vijoo Krishnan

“BONANZA for Farmers”, “Price Shoots Up” were some of the shrill headlines in 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, 2012. Almost every newspaper vied with the others to portray it as the biggest ever hike and to 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 the food subsidy burden and that the government’s procurement costs will soar. Most newspapers wilfully concealed the fact that input prices have undergone massive hikes in prices over the last few years, the last year being no exception to the trend. None bothered to look at the cost of production for different crops or cross-check with the peasantry the veracity of the government claims that the prices were “handsome” or “fair and remunerative.” It was as if all of them preferred to take the government’s claims on their face value, not as something that must, or may, be questioned. Unfortunately, sections of the media and economists uncritically peddled the lies of the government and helped construct the myth of remunerative prices over time.

However, it would not have required much common sense to comprehend that the prices announced were neither “fair” nor “remunerative” if only the reporters had browsed through their own newspapers that reported massive price hikes in all non-urea fertilisers for the current kharif planting season on the same day as they reported the kharif MSP.

DEFLATED COSTS

OF PRODUCTION

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 have realised how cultivation costs had reached sky-high. Those blinded by their distrust for farmers’ opinions could at least have bothered to look into the deflated costs of production which the government’s own advisory body, the Commission on Agricultural Costs and Prices (CACP), came up with in 2011-12 in the Kharif Price Policy document brought out by it. It has to be emphasised here that, according to the CACP’s own admission, it had 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. However, these data were themselves much contested by peasant organisations at that time. And now the CACP conveniently seems to have forgotten to upwardly revise these figures while computing the MSP for kharif 2012-13.

According to the document, the weighted average cost of production (C2) for paddy in 2011-12 was Rs 887.82 per quintal. This figure is deceptive as it is an average of the costs of production in different states. It ranges from a low of Rs 688.39 per quintal in Uttarakhand to a high of Rs 1482.13 per quintal for Maharashtra. The cost projection by states was much higher and ranged from a low of Rs 950 per quintal in West Bengal to Rs 1780 per quintal in Maharashtra. Even if one were to uncritically take Rs 887.82 per quintal as the C2, and apply the M S Swaminathan Commission’s recommendation of C2+50 per cent to compute the MSP, it would have come to Rs 1331.73 per quintal in 2011-12. Now after one full year the government has announced an MSP of Rs 1250 per quintal and Rs 1280 per quintal for paddy for 2012-13 kharif. According to the CACP’s own admission, the 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 the assurances that the overall cost of production would include the crop insurance premium paid by the farmers, marketing and transport cost incurred by them, and the apparent approval for the same by the government, it has just remained on paper. The CACP, however, had conducted in 2011-12 an exercise to calculate the cost of production inclusive of marketing, transportation and insurance premium. These figures are even higher as shown in Table 1 alongside.

TABLE 1

Comparison of 2011-12 Costs of Production

With 2012-13 MSP and C2+50% Figures

Even on the basis of the 2011-12 data for the costs of production, the C2+50 per cent comes to far higher than the MSP announced for the kharif 2012-13 in case of all crops except urad for which it is only 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 had 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.

INCREASED INPUT

COSTS IGNORED

The truth which, however, neither the CACP nor the experts have told is that ever since 2008-09 the prices of inputs have increased drastically. Here we shall take the case of fertiliser prices only to illustrate our case. The increase in fertiliser prices over the last two years, ever since the nutrient based subsidy (NBS) regime came into being, has been phenomenal.

On the same day as 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 cut in subsidies on different nutrients by the government under the NBS scheme. The maximum retail price (MRP) of di-ammonium phosphate (DAP), which is the most widely used fertiliser after urea, has gone up from Rs 9,350 per tonne  in 2010 April to Rs 24,000 per tonne. The price of muriate of potash has risen from Rs 4,455 per tonne to Rs 17,000 per tonne during the same period. These are net figures and do not include the state taxes. Experience from across the country has been that the farmers are forced to pay much higher due to black marketing and artificial scarcity created by unscrupulous traders. Farmers have been paying as high as Rs 26,000 per tonne  for DAP even in April 2012. Table 2 alongside compares non-urea fertiliser prices at present with the prices during the last rabi.

Moreover, the Department of Fertilisers has also proposed a hike of another 10 per cent in urea prices. Moves are afoot to cut the subsidies on 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 and percentages. It becomes all the easier when these truths are kept concealed or remain untold. The apologists of neo-liberal policies and their voices in the media are just doing that.

But the disliked truths will have to be spoken, and the myth that farmers are being given “fair” and “remunerative” prices will have to be debunked.