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Ever Wondered How Much a Fair Price for an Indian Farmer’s Produce Should Be?

The cost of production of farm produce is dependent on local factors and hence MSP should be fixed locally at state level.

All of us, irrespective of our financial situations, need food to survive.  We cannot eat nuts and bolts or software but only food.  Hence for our survival food is the most important thing.

And yet we hardly give a thought for farmers who provide us food. We do not give adequate compensation for the farm produce with the result that farmers’ situation in the country is really bad which ultimately results in their suicides and farmer unrests. Recent events of farmers agitation all over the country attest to this. Farming today is completely non-remunerative and no farmer’s children would like to go into farming. This decline of the farming community will have a serious impact on farm productivity and may imperil our food security.

In order to alleviate the crisis on farming fronts, it is necessary that we should think about and debate the mechanisms by which farmers are adequately compensated for their labor.

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 Government of India (GOI).  However this is only valid when the GOI procures and lifts the grains and produce from mandis. With over- flowing 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 GOI and hence fixing MSP for various commodities has no meaning.

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

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

Basis of calculations

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

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Since our survival and well-being depends on food we eat, we should seriously think of giving at least 7-10% of restaurant bill back to farmers as cost of their produce! Thus all farm produce (grains and oil seeds) should be priced between Rs. 70-100/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 oil seeds. Thus about 80-85% of cropped land area in India is used for growing food grains and oil seeds whereas only 6-7% is used for fruits and vegetables. The prices of grains and oil seeds fluctuate anywhere between Rs. 16-35/kg and are wholly inadequate to make farming remunerative.  From his 1.18 ha a farmer earns anywhere between Rs. 70,000 to 80,000/year. For raising a family of 4 or 5 this is wholly inadequate.

Average wage of a factory worker in India is ~ Rs. 400-500/day. He or she spends 7-8 hours in physical work. These factory workers mostly produce white goods such as cars, two wheelers, smart phones, refrigerators, etc. We define our quality of life by owning 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 undertake much harder work while standing in the sun and working for longer hours than the factory workers and yet are paid much less.

Hence with factory wages norm the farmer family (husband and wife) income can be Rs. 3.6 lakh/year.  On an average the yield of grains/oil seeds combination from a marginal farm is 2000 kg/ha per season.  So for two seasons and from 1.18 ha a farmer can produce ~ 4720 kg of food grains/oilcseeds per year. If the factory wages are given to him then it will translate into ~ Rs. 76/kg for his 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 producing white goods is ~ 55 MJ/kg. Calculations show that we pay on an average Rs 10-20/MJ for white and industrial goods. I feel we should give the same payment for the most essential item-the food.  The specific energy for food grains and oil seeds production is around 6-8 MJ/kg and with white goods energy cost of Rs. 10-20/MJ applied for food we again arrive at price of around Rs. 100/kg for food grains and oil seeds!

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

How should the farmers be compensated?

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

GOI can play an important role of  being a regulatory authority in these mandis so that the middlemen are forced to buy the produce from farmers at MSP or at enhanced rate of Rs 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 state level.  A general country- wide MSP is not very useful.

GOI gives a subsidy of about Rs 7.6 lakh crore to the weaker sections of society. This subsidy includes that given for PDS, LPG, electricity, fertilizer, 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 and system.

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I feel that the entire subsidy should be given to the farmers directly through bank transfers. Farmers are the engine of growth. With their increased income they can also provide employment to the poorest of poor landless laborers in rural areas. This direct payment will also induce those farmers who presently are not farming to start farming again. Cost calculations show that payment from subsidy together with their present produce will give the marginal farmers an income of about Rs. 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 GOI gives sops, tax write-offs, etc. to corporate sector to the tune of Rs. 5.32 lakh crore/yr.  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 Rs. 13 lakh crore/yr. (7.6 + 5.32).

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 Rs. 13 lakh crore/year then the average income of a marginal farmer from subsidy and produce will be about Rs. 2 lakh/yr.  This is similar to what an average sugarcane farmer gets presently from his farm. Such income will bring in cheer to the marginal farmer.

The wealth of a country comes from its land.  Around 55% of India’s population is connected with farming. If the 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 in the recent past have said that farmers should do something else besides farming to alleviate their suffering. This is a cop out and a lazy person’s statement.  In fact we should double our efforts in making farming modern through precision and container agriculture so that the productivity and income from the farm increases.

Also it is worth pondering on the fact that for majority of farmers, farming is a way of life. Even if they are given an alternative employment they prefer to farm and if given adequate income they will be happy to do so year after year. After all, producing something from the land is a very creative and enjoyable act.

Contact the author at anilrajvanshi@gmail.com

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Written by Anil K Rajvanshi


Anil K Rajvanshi is a spiritual engineer who runs a rural NGO in Maharashtra.