Can the Swaminathan Formula for MSP Determine Cash Crop Income Fairly?
- Animakshi Bhushan
- Aug 5, 2024
- 5 min read
To understand whether the farming communities of Kinnaur are adequately compensated for their crops we carried out a small data-driven exercise. The goal of this exercise was to assess whether the farming community received adequate compensation and to evaluate how it compares to the minimum standards set by the Government of India for other crops. If so, then is this income sustainable for future generations too?
We collected data on the actual income of farmers and compared it to the expected income of farmers calculated using the famous Swaminathan formula. This formula is employed by the Government of India to determine the Minimum Support Price (MSP) for essential farm commodities. The MSP is legally binding for both government and private buyers of these 23 essential commodities, making it a reliable benchmark for comparison. Our focus was on farmers in Kinnaur, who primarily rely on income from cash crops that are currently excluded from the MSP framework due to the belief that these crops are fairly remunerated in the markets.
In the Green Revolution states of Punjab, Haryana, and Western Uttar Pradesh, MSP incomes are a reality for all farmers, regardless of landholding size. However, over time, these agricultural fields have undergone significant changes. Soil degradation, groundwater contamination, and biodiversity loss due to excessive fertilizer and pesticide use are rendering these lands unsuitable for traditional crop cultivation. These environmental issues are directly impacting the incomes that have sustained farmers and the agricultural economy for over 60 years. Using the example of our neighboring states, we aim to initiate a discussion on the intangible costs to soil health and generational wealth resulting from the indiscriminate use of chemical fertilizers and pesticides and seek input from community members on effective strategies to address this issue proactively, to prevent potential adverse impacts on our soil. Soil health isn't just a privilege; it's a legacy passed down by our ancestors through centuries of careful preservation. It's our responsibility to safeguard it for the benefit of generations to come. This exercise aims to begin a conversation about soil health and its long-term effects on future generations, focusing on sustainable practices for maximum productivity with minimal harm.
Swaminathan Formula
The Swaminathan Formula became a popular discussion point among farming and political communities across India during recent farmer protests against the three farm laws in agrarian states of Punjab, Haryana, and Western UP. Named after the renowned agricultural scientist and economist Professor M.S. Swaminathan, the formula was first proposed to the Government of India in 2006 by the National Commission of Farmers (NCF), which was chaired by Professor Swaminathan himself.
The Swaminathan Formula considers various components when calculating the comprehensive costs of crop cultivation (C2) for farmers and aims to provide a reasonable estimate for adequate compensation as income. Consequently, C2 + 50% was proposed as the Minimum Support Price (MSP) by the NCF to ensure remunerative returns to farmers and improve their income.
How is C2 calculated?
C2 = A2 + FL + Interest forgone on rent and fixed capital
A2 : Actual paid out cost by farmers The actual cost borne by farmers includes all input costs such as seeds, fertilizers, pesticides, and machinery. In the context of apple farming, we have also included miscellaneous expenses such as post-harvest costs for packaging and transportation of produce under the category of A2.
FL: Family Labour Indian farming communities typically involve multiple family members in their fields. When calculating input costs, family labour is often overlooked. Therefore, the NCF recommended including FL (family labour) as one of the additional input costs that should be compensated. Depending on the number of family members working exclusively in the fields, these costs can be calculated accordingly. Note: In our spreadsheet, we have included additional labour costs (paid out as daily wages to labourers) under FL for convenience. Other surveys may calculate these values as part of A2. Either approach will give the same outcome.
Interest forgone on rent and fixed capital The third and final, and perhaps the most controversial, component of the Swaminathan formula is the interest forgone on rent and fixed capital. Farmlands are often owned by farmers who invest their own money each season to maintain them. Farmers forego rent (i.e., the rent they would have received on their land if it were not cultivated) and interest on fixed capital (i.e., the money invested in equipment and raw materials for farming that would have earned interest if not spent on the farm). This forgone rent and interest on fixed capital must also be considered when calculating the income of farmers from their agricultural products.
How is MSP calculated?
MSP = C2 + 50%
Given that most farming communities in Himachal Pradesh, especially in Kinnaur, do not benefit from the MSP scheme, this formula can serve as a conservative measure to estimate the minimum expected income of farmers who intend to sell their produce in the market.
In this exercise, by having C2+50% as the baseline expectation, we will compare the minimum expected income value with actual income values to get an estimate of the difference (if any). We will then calculate actual monthly expenditure and actual yearly expenditure (including miscellaneous expenditure in the year) to calculate expected savings (against Swaminathan formula) and actual savings. We take it a step further by calculating savings to get an estimated savings (expected and actual) for retirement. Using these data, we hope to start a conversation on farmers’ income, if this income is sufficient remuneration, and further delve into long-term cost of agriculture to soil, and how this will impact generational wealth.
Please download the spreadsheet and fill relevant data to get an idea of where your agricultural income stands against the Swaminathan formula. You may share your results by saving the excel sheet and sending it to us at saryanfoundation@gmail.com for research purposes.
Summary of terms used in spreadsheet:
Land owned (in biga): Please provide the total amount of land owned and used for cultivating crops commercially. This information will help calculate the potential income forgone, such as rental value.
Total cost of seeds: Please provide the total cost of seeds per season for all commercially cultivated crops.
Total cost of fertilisers: Please provide the total cost of fertilisers per season for all commercially cultivated crops.
Total cost of machinery: Please provide the total cost of machinery (purchased or rented) per season for all commercially cultivated crops. If it's a long-term investment, you can provide an estimated cost per season.
Total cost of misc raw materials: Please provide the total cost of miscellaneous raw materials not specified elsewhere in this spreadsheet but essential for cultivation and production, such as packaging and transportation expenses.
Family members in farming: Number of family members exclusively dedicated to farming, foregoing other income opportunities.
Cost of additional labour: Total daily wages for additional labour per season.
Interest forgone on rent: What would be the estimated income from rent - if you rented out your farm land for farming or other activities? Please provide an estimate that you think is reasonable for your land.
Interest forgone on fixed capital: Please estimate the interest you would have earned yearly if the money spent on agricultural inputs had been invested or kept in a bank instead.
Actual yearly income: Please provide your annual income from selling agricultural produce in the markets.
Actual monthly expenditure: Please provide your average monthly fixed expenditures.
Additional yearly expenditure (outside of monthly expenditure): Please provide the annual expenditure on additional household expenses.
Expected years to retirement: Please provide an estimate of how many years from 2024 you plan to remain actively involved in commercial agriculture.
Kommentare