Budget's MSP proposal to bring cheer to four million jute farmers

The announcement in 2018-19 Budget to fix the Minimum Support Price (MSP) at 1.5 times the cost of production is expected to bring significant benefits for four million jute farmers.

Even by conservative estimates, the MSP of raw jute could touch Rs 45000 per tonne. The pricing estimate is after taking into account all operational costs, inputs and family labour. 

The current MSP for raw jute recommended by the Commission for Agricultural Costs & Prices (CACP) is Rs 37000 per tonne. This includes the total cost of production and an additional profit margin for the farmers. The government, though, is yet to announce the price.

As per the estimates worked out by CACP, the total cost of production of raw jute for 2018-19 is Rs 30230 per tonne. In CACP terms, it is known as C2. The C2 is made up of two components A2 and FL (family labour).  A2 is made up of input and operational costs like seeds, fertilizers, pesticides, machinery, manpower, rental value of owned land, interests on capital assets, depreciation, land revenue, cess and tax.  

Only the price of jute sticks is deducted from the total cost of production (C2) as jute sticks are realized and used by the farmer himself for household fuel purposes. 

However, if the only A2 component is taken into consideration, the cost of production comes to around Rs 22670 per tonne. Hence, 1.5 times of A2 component would be around Rs 34000 per tonne. 

It is unlikely that the government would announce an MSP that is Rs 300 lower than the MSP of Rs 37000 per tonne already announced by CACP for 2018-19. The government is yet to announce its MSP. 

CACP’s suggested MSP of Rs 37000 per tonne for jute in 2018-19 is a rise of almost 5.71 per cent and Rs 200 in absolute terms as against the previous year’s Rs 35000 per tonne. 

Since 2015-16, jute MSP has periodically gone up by 12.5 per cent in the first year and then 18.5 and 9.3 percent for the subsequent years in 2016-17 and 2017-18. In 2015-16,  jute MSP was Rs 27000 per tonne. For 2016-17 it was Rs 32000 per tonne and Rs 35000 per tonne in 2017-18.  

Calculated on the base year of 2011-12, a recent note prepared by the Government shows that the average weight of jute in the Wholesale Price Index (WPI) is 0.05453. The MSP already announced by CACP covers 100 per cent percent of the farmers total cost of production. 

According to CACP calculation, the MSP of Rs 37000 per tonne would give the farmer a return of 63.2 percent over A2 and FL and 22.4 per cent over C2. Fixing of MSP is a mechanism that represents the supply side of production, identifies trends in the domestic and international markets, brings in inter-crop price parity that impacts the consumer and economy and helps in the rational utilization of production resources. 

Jute is primarily cultivated on 684,000 hectares in four states of West Bengal Bihar and Assam. Bengal accounts for 78 percent of the production followed by 14 and 8 per cent of Bihar and Assam. In the total cost of production around 52.1 per cent is labour cost, 25.6 per cent is land cost and 7.7 percent is capital cost. According to Shimla Labour Bureau statistics agricultural wages across the country have gone up by 5.6 percent of current prices in 2016-17.