An anti-peasant price regime that has ruined the peasantry

The issue of what price the peasant is able to sell his marketable produce at is very critical in the face of rising input prices being paid by him – it is a question of his livelihood. This has become a matter of serious concern as increasing number of peasants face destitution and ruin.

The issue of what price the peasant is able to sell his marketable produce at is very critical in the face of rising input prices being paid by him – it is a question of his livelihood. This has become a matter of serious concern as increasing number of peasants face destitution and ruin. There is also the necessity to clarify the issue of the prices received by the peasant in the face of rising retail prices of food. As working people in the cities and towns pay over a Rs.100/kg for arhar and moong, Rs.40/kg for sugar and vegetables, etc., there is a grave misconception that the prices paid to the peasant are responsible for these unaffordable prices of various essential food items.

Table 1: Net income earned per hectare during 2008-09 (Rs/ha) (for various crops across some states)









Andhra Pradesh





















Uttar Pradesh























Source : Ministry of Agriculture and Agmarknet/ Economic Times dated 2-2-2010

MSP barely covers cost of production

Successive governments have claimed that Agricultural Price Policy, i.e., Minimum Support Price (MSP) has been an effective tool to ensure that the peasant obtains a price to cover the cost of production. The MSP is the price at which the state agencies like FCI (for foodgrains) and NAFED (for oilseeds and pulses) commit to procure from the peasant.  However, the figures presented here illustrate the extent to which the MSP has covered the cost of cultivation in the production of wheat and arhar over the period 2001-02 and 2006-07. The MSPs are supposed to be announced at the beginning of the crop season, in advance of the sowing, and are purported to be based on the estimated cost of cultivation; this in turn is estimated, taking into account prices of all inputs, imputed costs of peasant families' own labour and notional rent (where peasant is cultivating on his own land).

A Standing Committee appointed by the Ministry of Agriculture to study this matter in 2008 examined the projections of cost of cultivation for 12 foodgrain crops given by the Commission for Agricultural Costs and Prices (CACP) for the crop season 2005-06 with the MSP prevailing in 2004-05 and its report clearly showed that cost of production per quintal (C2 cost) was not covered by the MSP in most states for 12 foodgrain crops.  There are substantial variations in specific conditions in different parts of India, but that the basic situation is unfavourable to farmers.

The Committee further pointed out that the MSP suggested by the official Committee on Cost & Prices (CACP) and announced by the Government have not taken into account the expenses to be borne by the peasants to provide education, housing, health care and other necessities to their families. One of the biggest attacks on the peasant cultivators has been the very concept that the Minimum Support Price should just cover the cost of cultivation. This is far removed from a remunerative price! Whereas fertiliser companies and sugar companies are assured of a minimum 12% return on investment, the peasant is expected to carry on with just barely covering his costs and nothing more.

Across the country, the peasantry has consistently demanded that the government should ensure quality inputs at affordable prices, and stable output prices that would enable the peasant family to not just cover costs of cultivation but enough surplus to enable the family to meet all essential expenses and to have a safeguard against a bad crop year.

The data from the Situational Assessment Survey of Farmers carried out by the NSSO in 2005 revealed clearly the condition of peasant households with respect to income, expenditure and indebtedness. According to the survey, the average annual income from cultivation of the peasant household was Rs.11,628, while the corresponding expenditure on cultivation was Rs.8,791, leaving the peasant with an annual net income from cultivation of Rs.2,837. Aggregating income from all sources, including wage earnings, the average annual income of the peasant household at the all-India level was Rs.25,380 while the average annual consumption expenditure of such a household was Rs.33,240. The reason for this is that the prices the producers received for their produce is far from adequate to cover the cost of cultivation and provide a net income on which he and his family would be able to live a decent life.

Failure to guarantee procurement

Another aspect to the issue is that while the MSP declared by the government has been woefully inadequate, the quantities of foodgrains and pulses and oilseeds being procured by the government agencies have been decreasing. The argument given to justify this is that the market will fetch better prices for the peasant than the prices the government can offer under the Price Support Scheme. Data is not available for the actual prices realised by the producers in the last 2 crop years (2008-09 and 2009-10) but a comparison of the Farm Harvest Prices (FHP) and wholesale and retail prices in earlier years reflect the wide disparity between the price realisable by the peasant and that paid for by the working population in cities and towns.  FHP is the price obtained by the peasant at his farm/village, the Wholesale Price is the price realised by the peasant/wholesale dealer at the mandi/APMC yard.

The figure presented here showing the cost of production (C2), MSP, FHP, wholesale prices and retail prices of arhar dal for the period 2001-02 to 2006-07 clearly reflects that the FHP is not even 30% more than the cost of cultivation and MSP whereas the retail prices are 100% or more higher. It is not clear as to how many peasants even actually realise the FHP that are recorded. The prices at the state level are worked out as the weighted average of the district prices using the average production of crop in the district as weight while district prices are computed as simple arithmetic averages of prices at tehsil and village levels respectively. These averages hide the fact that numerous peasants cultivating small areas and producing small quantities of marketable surpluses have to take the price offered by the traders and have little room for negotiation.

The fact is that neither the FCI (mandated to procure foodgrains) nor NAFED (which is another government agency mandated to procure pulses and oilseeds at the assured MSP) offer any assurance of either procurement or a MSP that covers the cost of production. NAFED undertakes procurement of oilseeds, pulses and cotton under the Price Support Scheme only as and when prices fall below the MSP.

Recommendations have been ignored

There have been several studies and committees investigating into the issue and recommendation for raising the price obtained by peasants for their produce. There have been recommendations that the MSP programme should be expanded to cover all crops of importance to food and income security for small farmers, that MSP should be implemented at the right time and at the right place.

In 2003, the Ministry of Agriculture had set up an Expert Committee under Prof Y.K.Alagh to "examine methodological issues in arriving at the cost of production and the MSP".  Thereafter, the government set up the National Commission (Swaminathan Commission) on Agriculture in 2006 "to improve the economic viability of farming" by ensuring that farmers earn a “minimum net income”. One of the significant recommendations of the National Commission's Report was that the MSP should be at least 50% higher than the weighted average cost of production (C2).

However, the recommendations have not been acted upon. They were neither tabled for serious discussion in Parliament nor have the recommendations been adopted. Further, the reasons for not doing so have not been tabled or discussed. MSP has not been applied to ensure remunerative prices for the peasantry, and consequently peasant incomes have remained abysmally low.

This is clearly seen in the following tables that give the incomes earned by producers of various crops across different states.  Given that marginal, small and medium peasants hold less than 5 ha, and account for 65% of all landholding cultivators, the majority of peasants earned roughly only between Rs. 25000 from cultivation of  pulses (gram, arhar, urad and moong) to Rs.75,000 for cultivation of rice in 2008-09.  In fact, this income reflects the increase in MSPs of Rs.500-800 per quintal for wheat, arhar and other pulses, announced in just the last two-three years.

The Consortium of Indian Farmers Associations, which has been agitating for remunerative prices for the producer, has quoted from the report of the Arjun Sengupta Commission on Unorganised Sector Workers and some studies by the Planning Commission and other organisations to support its contention that peasant incomes are abysmally low and the government is doing nothing about it.  The Arjun Sengupta report had said that the average monthly income per household from cultivation was Rs 1,578 a month for small farmers in 2003. In comparison, the lowest-paid government employee received pay and perks exceeding Rs 10,000 a month.

It is clear that the successive governments have implemented a price regime totally against the interests of the producers. The right of the peasant producers to remunerative prices that will guarantee their livelihood has been denied; the government, has on the contrary, announced increases in MSP from time to time, as if it is a favour that it is granting to the peasants. It is only the consistent struggle of the peasantry that has won even these concessions. The peasantry must escalate the struggle, with the support of the working class, for the complete realisation of their just demands.

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