Govt wheat pricing is such that farmers are barely breaking even

A lot has changed. Reforms in the law have allowed direct buying by private players which is elbowing out the Government in states like Rajasthan and Madhya Pradesh. And then there is the simple arithmetic of cost and price.

Ask Jaspal Singh, 54, of Sukhomajra village in Morinda. He isn’t a man given to keeping accounts. But he sure knows one thing. The current MSP of Rs 850 a quintal for wheat will not even get him to break even.

“Why does the government not simply link it to the market index?” asks the farmer who’s waiting for the harvest on his 12 acres.

Ask him to list his inputs per acre, and he unspools a long one. “It’s 40 kg of seed (Rs 1200), a quintal of fertiliser (Rs 920), three bags of urea (Rs 420), 36 litres of diesel for tractor and thresher (Rs 1100), pesticides (Rs 550), water (an inexpensive Rs 100) and labour (Rs 2,000)”, he stops to catch his breath.

Add to this Rs 6,270 — the cost of labour he and his two sons put in, transport charges from the fields to the mandi, the high rate of interest on the loan he has taken to buy these inputs, the depreciation of the machinery, the rent of the land. Total: Rs 12,000 for an acre.

But the average output from his acre is only Rs 14,450 — for the 17 quintals he hopes to harvest — which translates into a return of Rs 2,450 an acre. Take into account his 12 acres, and you realise this team of three takes home a mere Rs 29, 400 for nearly five months of toil, a major chunk of which goes into repaying loans taken from the arhtiya (middleman).

B S Duggal, Haryana’s Assistant Director, Agriculture, says that were the farmers to calculate fixed costs like the value of rented land, management costs, risk management cost as well as transportation charges, they would say goodbye to farming.

Last year, Haryana Agricultural University calculated Rs 11,167 as the total cost of inputs for growing wheat on an acre and found that an average farmer’s net income was a mere Rs 583 for an acre (when MSP was Rs 700).

The Department of Economics at Punjab Agricultural University calculated Rs 811 a quintal as the cost of wheat production in 2006-2007 but this sum doesn’t factor in risk and other overheads.

“There has to be a reform in the way the Commission of Costs and Prices sets the MSP. The efficient farmer has to be rewarded for his work. If the government is serious about making agricultural growth their priority, they should support a farmer when he does things like land development,” said Y K Alagh, former member, Planning Commission and who headed a committee looking at MSP in the time of globalisation.

Jaspal Singh’s figures aren’t anecdotal. Statistics of wheat in Punjab tell a tale of rising input costs and declining yield. The huge jump in the operational and input cost of wheat per acre has resulted in a major slump in profits. According to an official PAU study, between 2000 and 2005, when the government froze MSP, the cost of operations and inputs shot up by 53 per cent and 62 per cent respectively while yield went into the red showing a fall of 8 per cent leading to a 34 per cent dip in profits. A far cry from 1995-2000 when farmers enjoyed a profit of 67 per cent and yield rose by 18 per cent.

“The freeze in MSP which saw it rise by only Rs 30 in five years from 2000 to 2005 also contributed to the vicious circle of debt which, in turn, rendered agriculture unprofitable,” says S S Johl, former PAU Vice Chancellor.

This vicious circle traps the farmer into debt leaving him with few options. He’s at the mercy of the arhtiya who decides when and who the wheat is to be sold to. Plus, he does not have the option of storing his wheat until prices start hardening.

Malkiat Singh, who owns 35 acres at Dhandra village near Ludhiana, is one of the few Punjab farmers who has never taken a loan. That’s why he’s never had to step into a mandi. “I sell my grains directly to the trader in the winters,” says Singh, whose wheat fetched him Rs 1,150 per quintal last year when the MSP plus bonus stood at just Rs 700. “It’s because I have never been in debt. So I have the option of holding on to my wheat.”

But wary of the risks inherent to farming, this shrewd farmer has contracted out 20 acres of his land. “That assures me a return of Rs 17,000 an acre without lifting a finger”, he explains the logic behind his move. The uncertainty of returns is increasingly driving many farmers to lease out their land to smaller farmers for an assured sum ranging from Rs 20,000 an acre around Karnal, Rs 18,000 in Malwa and Rs 12,000 in Doaba.

“It depends on supply and demand. More land and few takers translate into lower rentals,” says farmer Rachchpal Singh of Phagwara.

With the economy of scale making it easier for a big farmer to reap profits, Kalu Ram, a farmer-cum-commission agent who owns 50 acres in distant Kachchwa village near Karnal, says he is satisfied with the MSP. “Wheat is an essential, how can we expect its MSP to spiral? The government should subsidise the inputs instead,” he says.

But then, that doesn’t stop him from stocking his grains with the Central Warehousing Corporation at Karnal. “Last year, I earned a profit of Rs 2.5 lakh by selling wheat in the winter,” he smiles. This year too, he’s already booked space for 500 sacks.

It’s a move that a small farmer like Jaspal Singh can only dream of. No wonder his sons Kulwinder and Sarabjeet, both in their late 20s, tell you they wouldn’t think twice before selling their land were it to fetch them crores. “Then we can start a business or go abroad,” says Sarabjeet, a matriculate.