VOL.

IX, ISSUE XXXII, JAN 2020 MULTILOGIC IN SCIENCE ISSN 2277-7601

An International Refereed, Peer Reviewed & Indexed Quarterly Journal in Science, Agriculture & Engineering
A STUDY ON COMPARATIVE ESTIMATION OF CROPS COST OF CULTIVATION OVER MINIMUM SUPPORT PRICE
(MSP) - A REVIEW ON METHODOLOGICAL APPROACH
P. S. Dhananjaya Swamy1, Jaganath Olekar 2 and Vijayachanda Reddy.S.2*
Department of Agricultural Economics, UAS, GKVK, Bengaluru, Karnataka (State)-PIN 560065,
*Assistant Professor, Department of Agricultural Economics, UAS, Raichur-584101, Karnataka.
vijaychandraphd@gmail.com
(MS Received: 25.10.2019; MS Revised: 28.12.2019; MS Accepted: 29.12.2019)
MS 2443 (RESEARCH PAPER IN AGRICULTURAL ECONOMICS)
Abstract
India is primarily an agrarian country with 60 per cent of its population being dependent directly or indirectly on agriculture for their
livelihood. Hence, the development of the agriculture is very important in developing countries like India as the agriculture is the engine of
economic growth. The agriculture development is possible through increasing investment to meet the increasing capital needs of modern
day agriculture. But, the majority of farmers in India has negligible savings and has to depend on borrowed funds to a large extent to adopt
modern technology to realize higher production and productivity that enables farmers to extend their control over resources. However,
agriculture has always been highly vulnerable to unfavorable weather and climatic factors. Hence, aberration in the weather parameters
(mainly monsoon) coupled with non-remunerative price for the agriculture produce results in decrease in the farmers’ income.
Furthermore, irrespective of situation and price prevails in the market, farmers have to sale off their produce even at non-remunerative
price in order to clear off debt. In this situation, Decision makers should focus to protect the interest of farmers by announcing appropriate
quantum of Minimum Support Price (MSP) for the agriculture produce. MSP helps the farmer in realizing the profitable income thereby
ensure adequate food grains production in the country. Hence, the MSP should be fixed taking all the costs into consideration otherwise the
whole objective of this strategy will be futile.
Key words: Cost of Cultivation, Cost of Production, Agriculture Policy, Input costs and Minimum Support Price.
Introduction studies on problems of Indian agriculture were published. The
India is primarily an agrarian country with 60 per cent of its fourth phase extended from 1912-16 to 1939-40, a period in which
population being dependent directly or indirectly on agriculture for village studies were carried out to study specific problems
their livelihood. As a concomitant of growth, the share of pertaining to different regions.
agriculture and allied sector in gross domestic product (GDP) is In 1935-36, the Imperial Council of Agricultural Research, on
16.4 (AE) per cent in 2017-18. The importance of the agriculture request from the Indian Sugar Committee and Central Cotton
goes beyond just share in the GDP, as the economic and social Committee, conducted an inquiry into the costs of cultivation of
indicators. This is evident from the fact that nearly three-quarters of cotton, sugarcane and other crops grown in rotation. The study was
India’s families depend on rural income and the majority of India’s conducted in Lyllapur, Jallandur and Gurdaspur districts in Punjab
poor (70 percent) are living in rural areas. Hence, the development using cost accounting methods. During the same period, in 1936,
of the agriculture is very important in developing countries like the Gokhale Institute of Politics and Economics worked in selected
India as the agriculture is the engine of economic growth. The villages of Wai taluk in Satara district on an application of survey
agriculture development is possible through increasing investment methods to farm business studies in India. The study was aimed at
to meet the increasing capital needs of modern day agriculture. But, evolving a methodology to study the economic aspects of
the majority of farmers in India has negligible savings and has to cultivation of crops and farm economy in line with methods and
depend on borrowed funds to a large extent to adopt modern techniques adopted in western countries (Gadgil and Gadgil, 1940).
technology to realize higher production and productivity that The Period of Comprehensive Scheme for Study of Cost of
enables farmers to extend their control over resources. Over the last Cultivation of Principal Crops in India was started, however the
three decades credit is not only obtained by small and marginal fourth phase (1971 onwards) in the year 1970-71, the Government
farmers for survival, but also by the large farmers as a means for of India, on the recommendation of the Standing Technical
enhancing their income. Hence, agricultural credit appears to be an committee on Indices of Input Costs, initiated the Comprehensive
essential input along with modern technology for achieving higher Scheme for the Study of the Cost of Cultivation/Production of
production and productivity. Thus, institutional credit has been Principal crops (CCPC) in India. This marked the beginning of the
playing a very important role in the development of the agricultural fourth phase in the study of cost of cultivation of crops. The
sector. The evolution of methods to study the costs of cultivation objective of the scheme was to collect data on the use of inputs and
of crops and farm incomes in India since the colonial period. In outputs, both in physical and monetary terms, and to estimate the
India, where a large section of the population depends on cost of cultivation on hectare basis and cost of production in terms
agriculture for its livelihood, it is important to have detailed of per quintal for variety of crops (GOI, 1980). Indian Agricultural
estimates of the costs incurred, returns realized, and net income Statistics Research Institute, New Delhi has the devised technical
derived from farming in order to formulate appropriate farm details of the scheme. In 1970-71, the scheme was started in four
policies and study the impact of various policy measures on the States, i.e. Punjab, Haryana, Madhya Pradesh and Rajasthan, and
well-being of cultivators. was extended in the next year to cover 15 States. In 1973-74,
The study made by Rath (1960), in his study he divided the Himachal Pradesh was also included and thereafter the scheme
progress of research in agricultural economics starting from the covered sixteen States altogether. Government of India (1980),
period of the East India Company till the 1940s into four phases. In Report of the Special Expert Committee on Cost of Production
the first phase, which lasted until 1858, information came mainly Estimates, Department of Agriculture and Cooperation, Ministry of
from travelogues and documents relating to Survey and Settlement Agriculture.
reports. The second phase identified by Rath was from 1859 to In 1990, Second Review Committee was planned and operational
1880, during which period reports on inquiries into famines in India under the Chairmanship of C. H. Hanumantha Rao (GOI, 1990). the
and into the Deccan riots were prepared. The third phase covered Government of India constituted the major recommendations of the
the period from 1880 to 1912- 1916, in which several District Committee were: a) that the crop complex approach be
Gazetteers, the Irrigation Commission Reports and Voelcker’s supplemented with a single-crop approach to ensure that aspects of
VOL. IX, ISSUE XXXII, JAN 2020 MULTILOGIC IN SCIENCE ISSN 2277-7601
An International Refereed, Peer Reviewed & Indexed Quarterly Journal in Science, Agriculture & Engineering
cultivation of minor crops are also studied; b) that family labour be Ministry of Agriculture and Farmers Welfare, Government of India
valued on the basis of actual wages paid to casual labourers rather (GOI.).
than on the basis of the wage rates of attached farm servants; and c) Analytical Techniques
that management costs be calculated by taking 10 per cent of the The data was analyzed using descriptive statistics such as mean,
paid out cost (Cost A2). The Government has acknowledged these percentage, ratio and tabulation. In the present study, these
recommendations with a few modifications. To quote studies techniques were employed to evaluate the share of different inputs
related to this, aspects the study made by Sen and Bhatia (2004) in the cost of production to identify the sinifincat input and their
have shown that many of the methodological shortcomings of the dyanamincs over the period of time. The share of MSP in the actual
CCPC scheme are because of recommendations of the two Review cost of production (Cost C2 or Swaminath recommendation) and
Committees remained unimplemented. On the other hand, the CACPs’ cost of production (Cost of A2+ Family Labour Cost) was
current state of the CCPC scheme reveals that, the major caliberated by using descriptive statistics to determint the adequacy
shortcomings of the CCPC scheme, today, are on account of (a) of MSP in covering the actual cost of production. Finally, the
problems related to coverage and methodology of the scheme; b) growth rates of CoP, CoC, MSP and inputs share were also
problems related to the collection, processing, analysis and quality calculated and compared to generate the meaningfull conclusion.
of data; and c) problems related to the fact that published data are Compound Annual Growth Rate (CAGR)
not disaggregated by any variable other than the extent of Growth rates have been estimated using an exponential function
operational holdings. through OLS method after transforming original data into semi-log
At policy levels these were few issues which has to be rectified specification. Finally, semi-log trend function was used to estimate
whereas on the other end, especially in India it is significantly the growth rate of CoP, CoC, MSP and inputs share etc. The form
evident that, agriculture is still heavily dependent on rainfall as 60 of the semi-log function used is as follows:
per cent of the total food grains and oilseeds are produced during
lnYt = a + bt + e
the kharif season, and a mere 35 percent of the total arable area is
irrigated. Agriculture has always been highly vulnerable to Where,
unfavourable weather and climatic factors. Besides, there are many
instances where farmers are not getting remunerative prices for their Yt is the dependent variable (CoP, CoC, MSP and inputs share etc.)
produce due to existence of anomaly in the marketing of agriculture at the time ‘t’
produce. Hence, any aberration in the weather parameters (mainly ‘t’ refers to time variable in year (1, 2,...)
monsoon) coupled with non-remunerative (unfair) price for the
agriculture produce results in decrease in the farmers’ ln = natural logarithm, e = error term; and
income/revenue. Irrespective of situation and price prevails in the ‘b’ indicates the instantaneous growth (at a point in time)The
market, farmers have to sale off their produce even at non- annual compound growth rate can be worked out by using the
remunerative price in order to clear off debt that they had taken to following formula:
meet the crop production activities which makes them to reel under r = Antilog (b)-1
the situation of vicious cycle of poverty. In this situation, it is When ‘r’ multiplied by 100 gives the percentage growth rate in
important to protect the interest of farmers by formulation and unederlyung dependent variable. That is, Compound Annual
implementation of national policies and programmes, wherein Growth Rate (CAGR) (%) = r = (Antilog (b) -1) x100.
announcing the Minimum Support Price (MSP) for the agriculture Results And Discussion
produce is one such kind. The minimum support price is the price at Economics of Tur cultivation in Karnataka
which government purchases crops from the farmers at whatever The Karnataka is one of Tur growing major states and hence it
price prevail in the market and it gives sufficient remuneration to known as the Tur bowl of India. As the lifestyle of the people
the farmers. Thus, MSP helps the farmer in realizing the profitable changing over the period, farmers are also tend shift from the
income and to ensure adequate food grains production in the traditional cultivation practices to market oriented cultivation
country. Ironically, the basis on which MSP is being announced by practices in order to suit the growing needs of the people. This has
the Government is inadequate to meet the farmer’s requirements. urged the farmers to incline towards cultivation of cash crops so as
Hence, in the present study an effort has been made to evaluate the to reap the highest profitability. In the present study an attempt has
methodology adopted by Government in announcing MSP and the been made to analyze the economics of Tur cultivation and results
extent to which the MSP meets the actual cost of of the same is presents in the table 1. It is evident from the table that
production/cultivation. the farmers were incurring on an average Rs.11729 to cultivate Tur
Methodology in a hectare of land and these figures kept on increasing over the
The study is purely relay on gathered facts of various sources on period time due to the very fact of existence/ prevalence of
the secondary data. The data on cost of cultivation (CoC), cost of inflation. Further, the cost of producing a quintal of Tur was the
production (CoP) and crop productivity were culled from the least during during 2005 (Rs.1426) while it was the highest during
Agricultural Statistics at a Glance published by the Department of 2015 (Rs.7319). The cost of cultivation and production of Tur were
Agriculture and Co-operation, Ministry of Agriculture and Farmers increasing at more or less same rate between 2004-2015 with
Welfare, Government of India (GOI.). In addition, the secondary compound annual growth rate of 12.99 and 12.29, respectively.
data on MSP for different period of time was elicited from CACP,
Table 1: Economics of Redgram (Tur) cultivation in Karnataka over the period of time (2004 to 2015)
Cost of Cultivation Yield /Hectare Cost of Production
Year
(Rs./Hectare) (Qtls/Hectare) (Rs./Qtl)
2004 11729 6.97 1683
2005 12385 8.68 1426
2006 11935 6.67 1788
2007 13140 7.73 1700

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2008 16529 7.61 2172
2009 19583 7.34 2669
2010 22646 7.48 3026
2011 26194 9.86 2658
2012 28126 9.07 3102
2013 32685 10.69 3058
2014 34701 8.47 4097
2015 39214 5.36 7319
2016 42298 7.23 5850
2017 39983 7.67 5213
2018 43425 8.92 4868
CAGR 11.45 0.43 10.98
Source: www.cacp.dacnet.nic.in and www.agrico.nic.in
Importance of inputs used in the Tur Cultivation followed by animal labour. Interestingly, the share of insecticides
Different inputs are used in the cultivation of any crop, hence the has decreased perceptibly from 15.7 per cent during 2004 to 3.3 per
share of different inputs in the total operation cost of Tur cultivation cent in 2015. Across different inputs, the machine labour and
has been worked out and the results of the same are presented in the human labour costs have shown the noticeable growth with
table 2. On average basis between 2004 to 2015, among different compound annual grow rate of 20 and 16 per cent, respectively.
inputs, the share of human labour was the highest with share of 42 This was due to fact of non availability of labour for different
per cent followed by animal labour (15 %), insecticide (12. %), etc. agriculture operation and wider application of machinery in
On the contrary, manure cost found to have the least share (15 %) in agriculture activities. The manure input is the only cost item which
the total operation cost followed by seed cost (4.5 %), fertilizer cost has the negative growth rate during the study period with compound
(10 %). Further, year-wise analysis of the data implied that, during annual growth rate of -1.8 per cent. This was due to the reason that,
2004, the share of human labour was the highest (31.4 %) while that number of farmers maintained livestock has been decreasing over
of manure cost was the least (2.4 %). Similarly, during 2015, the the years which intern results in decrease in supply of farm yard
patter of distribution was on par with that of 2004, that is the human manure.
labour cost emerged has significant cost item of the operation cost
Table 2: Relative share of different inputs in operational cost of Redgram (Tur) cultivation in Karnataka
Total
Human Animal Machine
Year Seed Fertilizer Manure Insecticides Others Operation
Labour Labour Labour
Cost
2510.55 1675.1 731.43 361.35 1052.61 188.82 1255.51 230.24
2004 8006
(31.36) (20.93) (9.14) (4.52) (13.15) (2.36) (15.69) (2.88)
3096.51 1766.18 632.1 425.88 644.17 336.36 827.96 201.64
2005 7931
(39.05) (22.27) (7.98) (5.37) (8.13) (4.25) (10.44) (2.55)
2755.59 1625.94 392.45 399.94 733.19 522.48 1273.56 209.58
2006 7913
(34.83) (20.55) (4.96) (5.06) (9.27) (6.61) (16.1) (2.65)
3351.92 1568.44 661.96 315.58 780.67 523.55 1189.58 220.4
2007 8612
(38.93) (18.22) (7.69) (3.67) (9.07) (6.08) (13.82) (2.56)
4531.65 1943.85 799.13 307.6 970.63 400.52 1168.21 254.27
2008 10376
(43.68) (18.74) (7.71) (2.97) (9.36) (3.87) (11.26) (2.46)
5288.53 1231.71 1551.17 702.79 1119.56 135.62 1285.28 392.61
2009 11707
(45.18) (10.53) (13.25) (6.01) (9.57) (1.16) (10.98) (3.36)
7216.92 1418.74 2100.19 823.13 1526.96 75.31 1621.72 399.68
2010 15183
(47.54) (9.35) (13.84) (5.43) (10.06) (0.5) (10.69) (2.64)
7283.96 1644.69 1969.77 698.74 1286.35 246.05 2210.5 444.03
2011 15784
(46.15) (10.42) (12.48) (4.43) (8.15) (1.56) (14.01) (2.82)
8991.61 2353.58 1893.85 838.82 1854.12 286 2505.52 541.13
2012 19265
(46.68) (12.22) (9.84) (4.36) (9.63) (1.49) (13.01) (2.81)
8454.1 2435.09 3038.7 763.14 2492.25 265.62 2769.74 536.16
2013 20755
(40.74) (11.74) (14.65) (3.68) (12.01) (1.28) (13.35) (2.59)
9544.27 2900.4 2958.71 851.04 2603.57 39.45 2779.08 648.13
2014 22325
(42.76) (13.00) (13.26) (3.82) (11.67) (0.18) (12.45) (2.91)
12847.56 3425 3048.27 1238.42 2475.23 1683.94 883.14 888.76
2015 26490
(48.5) (12.93) (11.51) (4.68) (9.35) (6.36) (3.34) (3.36)
15672.89 3138.51 3882.18 1236.09 3016.53 397.04 2657.39 881.33
2016
(50.75) (10.16) (12.57) (4.00) (9.77) (1.9) (8.60) (2.85) 30882
14298.49 4324.46 3619.36 1293.28 3833.60 361.15 2538.57 826.34
2017
(45.98) (13.91) (11.64) (4.16) (12.33) (1.16) (8.16) (2.66) 31095
2018 16553.22 2870.41 3356.53 1632.25 2650.67 125.26 2419.76 771.34 30379

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(54.59) (9.45) (11.05) (5.37) (8.73) (0.41) (7.97) (2.54)
Mean 8160 2288 2042 793 1803 372 1826 496 17780
CAGR 15.29 6.88 16.96 11.93 12.75 -1.21 6.78 12.68 12.31
Note: Figures within the parentheses indicate percentages to the total
Extent of achievement in meeting the cost of cultivation labour, i.e. C2= A2+FL+cost imputed on rent and interest on owned
The Minimum Support Price (MSP) is the price at which land.
government purchases crops from the farmers, to safeguard the The date on cost of production of tur crop, MSP and extent to which
interests of the farmers, if the price in the open market lower price MSP covers the cost of production is presented in the table 3. If we
than the cost incurred. The minimum support price is a guarantee take the actual/all cost of production (C2), MSP on an average
price fixed by Government of India to protect the farmers against covers only about 90 per cent of the cost during the period 2004-15.
excessive fall in price during bumper production years. Thus, MSP Further, in almost all the years except in few cases, announced MSP
gives sufficient remuneration to the farmers thereby helps them to was not covering the actual cost of production. On the contrary,
supply adequate amount of food grains to maintain the buffer stock MSP was covering the cost of production to an extent of 148 per
and to have a high degree of food security. At present, GoI cent when we take the variable and Family labour cost only
announces the MSP for 24 crops twice a year which covers cereals, (A2+FL). Further, in majority of the years, announced MSP was
pulses, oilseeds and some commercial crops. able to cover the cost production well above the 140 per cent of cost
The MSP is announced before the sowing season by The Cabinet of production. The reported submitted by Swaminath in 2006
Committee on Economic Affairs (CCEA), Government of India implied that MSP should be fixed at rate of 1.5 times of C2 cost.
based on the recommendation of Commission for Agricultural Cost The GoI during Union Budget for 2018-19 has promised to support
and Prices (CACP). For the calculation and recommendation of the MSP for at least 50 percent returns on production costs but failed to
MSP, the CACP takes into account a comprehensive view of the achieve it as they have considered only A2 + family labour cost to
entire structure of the economy of a particular commodity or group fix the MSP. Hence, in true sense and based on the economic
of commodities. There are two ways to arrive at cost of production principle, the GoI should consider all the cost of production (C2)
for announcing MSP wherein first method takes all variable cost for fixing and announcing the MSP so as to generate reasonable
(A2) and add family labour to it (FL). The second one is addition of income to farmers and also retain them in agriculture.
cost of imputed rent and interest on owned land to A2 + family
Table 3: Adequacy of MSP in meeting the Cost of Production (COP) of Redgram (Tur)
MSP as % to the
Cost of Production CACP Cost of Production MSP
Year MSP as % to the COP Cost A2+ Family
(Rs./Qtl) (Cost A2+Family Labour) (Rs./Qtl)
(%) Labour
2004 1683 1180 1390 82.60 117.76
2005 1427 945 1400 98.12 148.12
2006 1789 1262 1410 78.80 111.71
2007 1700 1189 1550 91.18 130.31
2008 2172 1386 2000 92.08 144.33
2009 2668 1623 2300 86.21 141.68
2010 3028 2127 3000 99.09 141.01
2011 2657 1664 3200 120.46 192.30
2012 3101 2157 3850 124.15 178.45
2013 3058 1970 4300 140.64 218.24
2014 4097 2679 4500 109.84 167.95
2015 7316 5077 4625 63.22 91.10
2016 5850 4303 4425 73.67 102.84
2017 5213 4254 5050 96.87 132.25
2018 4868 3905 5540 113.80 169.97
Average 3375 1938 48540 89.87 148.58
CAGR 10.98 11.99 11.87 0.75 0.57
Source: www.cacp.dacnet.nic.in and www.agrico.nic.in
Conclusion institutional system for the collection of farm-level data on crop-
Despite the fact that Indian agriculture serves the source of wise farm business incomes. Nevertheless, the CCPC data suffer
livelihood for more than 60 per cent of the population in rural area from problems in respect of the methodology followed for the
and offer employment to about 55 per cent of the total workforce. valuation of various inputs used for cultivation, and with regard to
The situation of farmers so worst they are reeling under poor data collection and processing. However, it is important to note that,
economic condition due to various factors which are directly or so far there were no single schemes or programmes which cover all
indirectly influencing the agriculture. The establishment of the aspects of support to farmers such as marketing facility, adequate
CCPC scheme under the CACP in 1971-72 marks the beginning of loan, remunerative and competitive price for their produce etc.,
a fourth phase. The methodology of data collection and the concepts have benefitted the farmers. Similar kinds of reviews were
and valuation methods have been reviewed and revised over time. opinioned by Sen and Bhatia (2004). Hence, policies have resorted
The CCPC data base represents what is arguably the world’s largest to different schemes and programme to safeguard the interest of

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An International Refereed, Peer Reviewed & Indexed Quarterly Journal in Science, Agriculture & Engineering
farmers. Among different strategies MSP is one such kind, It would Delhi,February 24th and 25th , 1940, Indian Society of
be still better at policy framing and implementation levels of Agricultural Economics.
decision making while announcing support price appropriate III. Sen, Abhijit, and M. S. Bhatia (2004), “Cost of
economic principles need to considered and also the Cultivation and Farm Income”, Volume 14, in State of the
recommendation of the different experts as well. Hence, in order to Indian Farmer: A Millennium Study, Academic
meet the core objective, decision makers should follow the standard Foundation in association with Department of Agriculture
economic principle for fixing and announcing the MSP. and Cooperation, Ministry of Agriculture, Government of
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