Why is it in the News?

India's Farmers are back on the streets yet again, demanding guarantees on Minimum Support Prices, work on the Swaminathan Committee report, Electricity amendment bill, and debt waiver.

Why are Farmers Protesting?

• Farmers have demanded MSP assurance across all crops, implementing Swaminathan Commission recommendations, debt relief, pensions for farmers, and withdrawing cases against past protestors.
• Advocacy for India's exit from WTO and free-trade agreements are also demands that have been put forth by the farmers.

What is the Minimum Support Price (MSP)?

• Minimum Support Price (MSP) is the lowest rate at which government procurement agencies buy crops from farmers.
• It shields farmers from market fluctuations, offering stability and income security.
• MSP is crucial for ensuring fair prices for farmers and is determined by the Commission for Agricultural Costs and Prices (CACP), considering factors like production costs, market trends, and demand-supply dynamics.
• Established in 1965, CACP operates under the Ministry of Agriculture and Farmers Welfare.
• After the CACP submits its recommendations, the Cabinet Committee on Economic Affairs (CCEA), chaired by the Prime Minister of India, makes the final decision on MSP levels.

Which Crops are Covered Under MSP?

• Kharif crops such as Paddy, Jowar, Bajra, Ragi, Maize, Arhar, Moong, Urad, Cotton, Groundnut, Sunflower Seed, Soybean, and Sesamum.
• Rabi crops such as Wheat, Barley, Gram, Masur, Rapeseeds & Mustard, Safflower, and Toria.
  • Additionally, MSP is announced for Copra, De-husked Coconut, and Jute, and Fair Remunerative Prices are declared for Sugarcane.

How is MSP Calculated?

• The Minimum Support Price (MSP) is calculated by considering both the explicit and implicit costs incurred by farmers.
• Explicit costs cover expenses like chemicals, fertilisers, seeds, and hired labour, while implicit costs include factors such as family labour and rent.
• These variables are represented by A2, FL, and C2.
  • A2 refers to the expenses for inputs like chemicals, fertilisers, seeds, and hired labour for crop growth, production, and maintenance.
  • A2 + FL includes both actual and implicit costs, such as family labour.
  • C2 incorporates A2 + FL along with fixed capital assets and rent paid by farmers.
• Additionally, the Commission for Agricultural Costs and Prices (CACP) takes into account various other factors:
  • Cost of cultivation per hectare and crop costs in different regions.
  • Cost of production per quintal and regional differences.
  • Market prices of relevant crops and their fluctuations.
  • Other production and labour costs, along with associated changes.
  • Prices of commodities bought or sold by farmers and any fluctuations.
  • Information on product supply, including area, yield, production, imports, exports, and stocks with public agencies or industries.
  • Demand information across regions, including total and per capita consumption, processing industry trends, and capacity.

What Changes Did the Swaminathan Formula Propose?

• The National Commission on Farmers, chaired by agricultural scientist M S Swaminathan, in 2004, submitted a report to the government in 2006, suggesting that the solution to the farm crisis was to provide remunerative prices to the farmer.
  • The commission recommended that the MSP should be 1.5 times the farmers’ input costs.
• For the calculation of input costs, however, the Swaminathan Commission laid down a different formula.
  • Along with the paid-out cost (A2) and the imputed value of family labour (FL), also included the interest on the value of owned capital assets, rent paid for leased-in land, or the rental value of owned land (C2).
• Key difference:
  • The government sets MSP at 1.5 times the Cost of Production (CoP), where Cop is A2+FL.
  • The Swaminathan Commission, however, suggests that CoP should be based on C2, proposing the 'C2+50 per cent' formula for setting MSP.