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Here’s How Much We Should Be Compensating Our Farmers

Calculating the true price of farm produce.

14/07/2017 8:58 AM IST | Updated 14/07/2017 8:58 AM IST
Jayanta Dey / Reuters

All of us irrespective of our financial situation need food to survive. We cannot eat nuts and bolts or software but only food. And yet we hardly give a thought for farmers who provide us food. Hence we do not give adequate compensation for farm produce, with the result that farmers are suffering. This is obvious in the recent agitations and suicides. Farming today is completely non-remunerative and the children of today's farmers are not keen on working in the fields. The dwindling of the farming community will have a serious impact on farm productivity and may imperil our food security. Thus, it is necessary that we should think about the mechanisms by which farmers can be adequately compensated for their labour.

For this to happen we need to calculate the correct price of farm produce. Presently the prices of food grains and other farm produce are decided by minimum support price (MSP) given by the Government of India (GOI). However, this is only valid when the GOI procures the grains and produce from mandis. With overflowing and rat-infested government godowns this mechanism of procuring grains at fixed prices is non-functional and collapsing under its own weight. Secondly, only a few food grains are procured by the GOI and hence fixing MSP for various commodities has no meaning.

I would like to propose a novel pricing structure which is based on the importance of food in our lives as well as the amount of energy spent in producing it.

The prices of farm produce are therefore mostly fixed by middlemen who buy and sell the commodities in mandis. It is just like the share market where the actual price of commodities has no relationship with the cost of production and their utility. It is essentially gambling.

I would like to propose a novel pricing structure which is based on the importance of food in our lives as well as the amount of energy spent in producing it.

Basis of calculations

When we go into an average restaurant we do not bat an eyelid when our bill comes to ₹400-500 per head. We normally eat 300-500 g of food and this translates to our paying on an average ₹1000 for one kilogramme of food consumed! And yet an average farmer gets only 15-20/kg for his produce.

Since our survival and well-being depends on the food we eat, we should seriously think of giving at least 10% of our restaurant bill back to farmers as cost of their produce! This should bring cheer to the farmer's life. Thus all farm produce (grains and oilseeds) should be priced at a minimum of ₹100/kg. This costing is not far-fetched and is borne by other calculations as well.

Around 85% of the farmers in India own less than 2 ha of land and the average land holding is about 1.18 ha from which he/she produces mostly cereals and oilseeds. Thus about 80-85% of cropped land area in India is used for growing food grains and oilseeds whereas only 6-7% is used for fruits and vegetables. The prices of grains and oilseeds fluctuate anywhere between ₹16-35/kg and are wholly inadequate to make farming remunerative. From his 1.18 ha a farmer earns anywhere between ₹70,000 to 80,000 each year. For raising a family of four or five this is wholly inadequate.

Farmers who produce food, which is far more important than white goods, should be at least paid factory wages.

The average wage of a factory worker in India is ₹400-500/day. He or she spends 7-8 hours doing physical work. These factory workers mostly produce white goods such as cars, two wheelers, smartphones, refrigerators, etc. We define our quality of life by owning a variety of such goods. Farmers who produce food, which is far more important than white goods, should be at least paid factory wages. In fact, farmers do much harder work while standing in the sun and work for longer hours than the factory workers and yet are paid much less.

With factory wages as the norm, the income of a husband-wife pair of farmers can be ₹3.6 lakh/year. On an average the yield of grains/oilseeds combination from a marginal farm is 2000 kg/ha per season. So for two seasons and from 1.18 ha a farmer can produce about 4720 kg of food grains/oilseeds per year. If factory wages are given then it will translate to about ₹76/kg for produce.

We can also calculate the produce cost by taking into account the energy cost of farming as compared to that of white goods. On an average, the energy of manufacturing white goods is ~ 55 MJ/kg. Calculations show that we pay on an average ₹10-20/MJ for white and industrial goods. I feel we should give the same payment for the most essential item—food. The specific energy for food grains and oilseeds production is around 6-8 MJ/kg, and with white goods energy cost of ₹10-20/MJ applied for food we again arrive at a price of around ₹100/kg for food grains and oilseeds!

Thus I feel that MSP for food grains and oilseeds should be around ₹100/kg and should be raised periodically based on inflation.

How should the farmers be compensated?

Most farm produce is sold through auctions in mandis all over the country. The traders then ship it all over the country depending on demand. Fruits and vegetables are also sold through these mandis, but as they are perishable items they are generally consumed in nearby areas. Besides their quantities are much less than food grains.

The GOI can play the role of a being a regulatory authority in mandis so that middlemen are forced to buy the produce from farmers at MSP or at the enhanced rate of ₹100/kg.

The GOI can play an important role of a being a regulatory authority in these mandis so that the middlemen are forced to buy the produce from farmers at MSP or at the enhanced rate of ₹100/kg. It is not an easy exercise but a regulatory structure may force the traders to comply. The cost of production of farm produce is dependent on local factors and hence MSP should be fixed locally at the state level. A general countrywide MSP is not very useful.

The GOI gives a subsidy of about ₹7.6 lakh crores to the weaker sections of society. This subsidy includes that given for PDS, LPG, electricity, fertilisers, kerosene, MNREGA, etc. and also includes periodic farm loans write off. Very little of this subsidy (25-30%) actually goes to the poor people and most of it is siphoned by corrupt officials.

I feel that the entire subsidy should be given to the farmers directly. They are the engines of growth. With their increased income they can also provide employment to the poorest of poor landless labourers in rural areas. This direct payment will also encourage those farmers who are presently are not farming to get into agriculture again. Cost calculations show that payment from subsidy together with their present produce will give the marginal farmers an income of about ₹1.5 lakh/yr. This is almost half of what they will get if they are given factory wages but still, it is a start.

There are also estimates that the GOI gives sops, tax write-offs, etc. to the corporate sector to the tune of ₹5.32 lakh crores/year. The corporate sector has not been shown to be a paragon of virtue and their growth is quite slow. Besides this "subsidy" only benefits a few. If this subsidy is diverted to the marginal farmers then their total subsidy can become nearly ₹13 lakh crores/year (7.6+5.32).

If [corporate] subsidy is diverted to the marginal farmers then their total subsidy can become nearly ₹13 lakh crores per year...

According to the latest GOI figures these are close to 100 million individuals with farm holdings of less than 2 ha. If all of these farmers are given the total subsidy of ₹13 lakh crores/year, then the average income of a marginal farmer from subsidy and produce will be about ₹2 lakh/year. This is similar to what an average sugarcane farmer gets presently from his farm. Such a boost in income would bring much relief to the marginal farmer.

The wealth of a country comes from its land. Around 55% of India's population is connected with farming. If farm income can be increased by the above mechanism then it can benefit a huge chunk of the population and can have a multiplier effect on the Indian economy.

Too often politicians have said that farmers should do something else besides farming to alleviate their suffering. This is a cop out and a lazy person's "solution". In fact, we should double our efforts in making farming modern though precision and container agriculture so that the productivity and income from farming increases.

Also, it is worth pondering on the fact that for the majority of farmers, farming is a way of life. Even if they are given alternative employment they prefer to farm and if given adequate income they will be happy to do so year after year.

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