Abhijit Sen- renowned agriculture economist passed away

Abhijit Sen- renowned agriculture economist passed away

Subject: Economy

Context:

Abhijit Sen, renowned agriculture economist and former member of the Planning Commission, chairman of the Commission for Agricultural Costs & Prices (CACP), passed away Monday.

Major contribution:

• He authored the report of the High Level Committee on Long Term Grain Policy that was submitted in July 2000.
  • Major recommendations:
    • CACP be made an empowered statutory body.
    • The  fixation of minimum support prices should be based on the ‘C2’ cost of production—to include all paid-out cultivation expenses in cash and in kind, plus the imputed value of unpaid family labour and rent/interest forgone on owned land and fixed capital assets.

• It paved way for the Swaminathan formula
• Universal public distribution system with uniform central issue prices for rice and wheat, while doing away with ‘below poverty line’ and ‘above poverty line’ categories as
• • This paved the way for the National Food Security Act of 2013.

Concept:

Minimum Support Price (MSP)

• The MSP is the minimum price set by the government for certain agricultural products, at which the products would directly be bought from the farmers if the open market prices are less than the cost incurred.
• It is based on a calculation of at least one-and-a-half times the cost of production incurred by the farmers.
• MSP is a “minimum price” for any crop that the government considers as remunerative for farmers and hence deserving of “support”.
• It is announced  to protect the farmers against a fall in prices in a year of bumper production.
  • When the market price falls below the declared MSP, the government would purchase the entire quantity from the farmers at MSP.
• The chief objectives of setting up MSP are:
  • Support farmers from distress sales
  • To procure food grains for public distribution

Crops under MSP:

• As of now, CACP recommends MSPs of 23 commodities, which comprise
  • 7 cereals (paddy, wheat, maize, sorghum, pearl millet, barley and ragi),
  • 5 pulses (gram, tur, moong, urad, lentil),
  • 7 oilseeds (groundnut, rapeseed-mustard, soyabean, seasmum, sunflower, safflower, nigerseed), and
  • 4 commercial crops (copra, sugarcane, cotton and raw jute).
• CACP submits its recommendations to the government in the form of Price Policy Reports every year, separately for five groups of commodities namely Kharif crops, Rabi crops, Sugarcane, Raw Jute and Copra.

Factors for Recommending the MSP:

• The CACP considers various factors while recommending the MSP for a commodity, including cost of cultivation.
• It takes into account –
  • the entire structure of the economy of a particular commodity or group of commodities
  • Cost of production
  • Changes in input prices
  • Input-output price parity
  • Trends in market prices
  • Demand and supply
  • Inter-crop price parity
  • Effect on industrial cost structure
  • Effect on the cost of living
  • Effect on the general price level
  • International price situation
  • Parity between prices paid and prices received by the farmers
  • Effect on issue prices and implications for subsidy

Production Cost:

• The CACP projects three kinds of production cost for every crop, both at state and all-India average levels.
  • A2–Covers all paid-out costs directly incurred by the farmer in cash and kind on seeds, fertilisers, pesticides, hired labour, leased-in land, fuel, irrigation, etc.
  • A2+FL–Includes A2 plus an imputed value of unpaid family labour.
  • C2–It is a more comprehensive cost that factors in rentals and interest forgone on owned land and fixed capital assets, on top of A2+FL.
• CACP considers both A2+FL and C2 costs while recommending MSP.
  • CACP reckons only A2+FL cost for return.
  • However, C2 costs are used by CACP primarily as benchmark reference costs (opportunity costs) to see if the MSPs recommended by them at least cover these costs in some of the major producing States.

Swaminathan formula:

National commission on farmers headed by M.S Swaminathan recommended the MSPs of crops be at least 50 per cent more than the ‘C2’ costs.

The Commission for Agricultural Costs & Prices (CACP)

• It is an attached office of the Ministry of Agriculture and Farmers Welfare, Government of India.
• It came into existence in January 1965. 
• Currently, the Commission comprises a Chairman, Member Secretary, one Member (Official) and two Members (Non-Official).
• The non-official members are representatives of the farming community and usually have an active association with the farming community.
• MSP for major agricultural products are fixed by the government, each year, after taking into account the recommendations of the Commission.