The well know basic economic principle for the marketable produces is : Cost of production + considerable percentage of margin= Price of the product. But this basic principle is not applied to Indian farmers, their farm products are sold at horrible losses. The government and the government advisory commissions are forcing the farmers to sell their produces with very less prices which are not even matched to the cost of production. The government fixes the Minimum Support Prices ( MSP) for major agriculture commodities by the Commission for Agriculture Cost and Prices (CACP) recommendations. The CACP considers various valid points to determine the support / remunerative prices for the agriculture produces. Nevertheless, the CACP has not been recommended the remunerative price for farmers from past ten years.
Based on the " Cost of the production theory of value", each and every product or service price can be decided by the cost for producing the same. CACP has been considering the Cost of Cultivation (C2) while assessing the agriculture commodity prices, but there is some serious flaws in calculation criteria which causes the underestimate of actual costs and moreover the MSP doesn't even equal to the actual Cost of Cultivation. As we know that how the input costs have been increased from past few years such as fertilizers, labor cost, diesel, fodder and cattle feed. The average labor wages have increased by 75% in past three years and the fertilizers are more than doubled. But the CACP has announced the MSP hikes for 2012-2013 crops are ranging from 16% to 53% on 2008 -2009 data. CACP has been using the old data ( 2008-2009 )for assessing the current crops support prices and also the data of 2008-2009 itself had contested by the farmers organizations in terms of number of samples and calculation mechanism.
CACP usually depends on Department of Economics and Statistics (DES) of Department of agriculture for data collection and the data contains the information of Area/Production/Yield (APY). But there are some controversies on interpretation of the data among the determining of MSPs and other purposes like calculating GDP, planning commission and economic indicators. Sometimes CACP also collects the data on its own but it's not collecting ample number of samples and also while computing the cost of production there is no consideration for crop insurance, marketing and transportation cost paid by the farmers. Still, the CACP's recommended MSPs are faulty and unfavorable to the farmers and they are losing Rs.240,000 of crores every year for just because of underestimated MSPs by CACP.
All farmers organizations have been reiterating for National Commission on Farmers recommendations for fixation of the remunerative price i.e. C2 +50% profit margin on C2, but the CACP is computing the prices on the obsolete data of 2008-2009. It has to take previous year data for computing the consecutive year prices and it should consider all prescribed 12 factors while formulating the price recommendations. Not only 12 aspects but also other issues like inflation, cost of living for farmers, and losses due to import - export policies. However, Indian farmers need a revived CACP since it fails to protect their best interests, it should be dismantled and restructured with new terms and references.