Introduction
Living incomes are essential in building resilient communities and to make a contribution towards a regenerative food system. Remunerative prices for agricultural produce are key to keep farming families out of poverty and provide protection against price slumps in the market. Both Fairtrade International (FI) and the Government of India (GoI) offer fixed prices to farmers for their paddy. At a minimum, the offered price should be equal to cost of production; otherwise the farmers cannot sustain their cultivation for long.
Fairtrade International is a partnership between producers and consumers based on the principle of building secure sustainable livelihoods. Farmers selling on FI terms usually receive access to better markets and incentives along with improved terms of trade (Eyhorn et al., 2019). This allows them the opportunity to improve their lives and plan for their future. Fairtrade offers consumers a powerful way to reduce poverty through their everyday shopping (Dammert and Mohan, 2015). When a product carries the Fairtrade Mark, it means the producers and traders have met Fairtrade Standards. Fairtrade Standards are designed to address the imbalance of power in trading relationships, unstable markets and the injustices of conventional trade (Fairtrade International, 2016). One of the key features of Fairtrade International certification is the assurance of a Fairtrade Minimum Price (FMP) to certified producers as well as additional premiums to producer organizations. Consequently, there is a need to understand the current cost of production and market prices of different rice varieties produced by Fairtrade Certified Producers. FMP is the floor price which covers producers’ average costs of production and allows them access to their product markets (Fairtrade International, 2016). According to FI guidelines, producers have to receive at least the market price for their Fairtrade product or the Fairtrade Minimum Price (when it exists), whichever is higher (Fairtrade International 2015, p. 15).
The GoI introduced the Minimum Support Price (MSP) in 1966–67. The MSP is the rate at which the government purchases crops from farmers, and 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 rice that the government considers as remunerative for farmers and hence deserving of’ ‘support’.
The MSP is viewed as a policy tool to protect the livelihoods of the farmers, the majority (86 per cent) of whom are small-scale and marginal farmers (Singh & Bhogal, 2021). Farmers are those in possession of agricultural land as owners, renters or sharecroppers. For the purpose of the agricultural census, agricultural land holdings are divided into five categories. These categories are marginal farmers possessing land less than 1 hectare; small-scale farmers possessing land between 1 and 2 hectares; semi–medium-scale farmers possessing land between 2 and 4 hectares; medium farmers possessing land between 4 and 10 hectares; and large-scale farmers possessing land above 10 hectares. The MSP provides guaranteed prices at which the government will directly procure rice from the farmers if the open market prices are less than the costs incurred. The MSP cushions farmers against slumps in price which can arise due to disruptions in the supply chain, lack of market integration and information asymmetry (Sharma, 2020). Paddy and other food grains procured by the government are distributed to those families living below the poverty level through a public distribution system (Kumar & Mittal, 2022).
The objective of this study is to understand the cost components of Basmati rice production, and whether the minimum price offered by FI and the GoI is sufficient to cover the costs of production of the farmers. An appreciation of average costs, particularly at farm gate level, is essential to fix the Fairtrade Minimum Price (FMP) and Minimum Support Price (MSP) that aim to cover the costs of production. The study was conducted in January 2021 and covered four major Indian states – Jammu, Haryana, Uttarakhand and Uttar Pradesh. All the farmers were Fairtrade certified. This study contrasts the approach of FI and that of the GoI in the context of paddy producers in India. The paper also makes policy suggestions on how paddy prices can be reformed.
Literature Review
Fairtrade is a system of certification that aims to ensure that a set of standards are met in the production and supply of a product or ingredient. About 1.66 million farmers and workers from more than 73 countries participate in Fairtrade. As the world’s second largest rice grower, India had 44 million hectares of land in use for the cultivation of rice at the end of fiscal year 2020 and the total production was estimated at 121.46 million metric tons. This cropping area has been relatively consistent over the past three years. The average productivity per hectare is about 2.8 MT/Ha.
The Fairtrade Mark is a trademark owned and licensed by FI. The organization uses two primary mechanisms to achieve its goal of improving the lives of farmers in developing countries. The first is a guaranteed minimum price to be paid if the product is sold as Fairtrade. This is meant to cover the average costs of production and to provide a guarantee that reduces the risk faced by growers. The second is a price premium paid to producers. This premium is in addition to the sales price and must be set aside and invested in projects that improve the quality of life of producers and their communities. The specifics of how the premium is used must be reached in a democratic manner by the producers themselves. It is noteworthy that while FMP is based on the paddy bought from the farmer, the premium is based on milled rice. The premium is paid to the organization aggregating and selling to the foreign buyer. The farmer does not receive the premium; hence it does not defray the costs of production of the farmer.
Fairtrade rice producers are under contract production (CP) supplying to private companies in India. Under contract farming, the companies enter into a verbal or written agreement with the producers, which establishes conditions for the production and marketing of the paddy. Typically, the farmer agrees to provide a certain quantity of a specific paddy, uses the seeds of the contracting company and in general follows their instructions at the various stages of production, harvest and post-harvest. These companies in turn export the bulk of their procurement to Europe and the USA. Oya, Schaefer, Skalidou, McCosker & Langer (2017) provide a detailed analysis on the effectiveness of contract farming and agricultural certification schemes in developing countries. While contract farming is an effective way to reduce transaction costs, Minot (2007) observed that contract farming is economically justifiable only when: (1) the buyer is a large firm (a processor, exporter or supermarket chain); (2) the product is characterized by large quality variations, perishability, technically difficult production and/or a high value–bulk ratio; (3) the destination market is willing to pay a premium for certain product or production attributes that can be ensured only by close coordination between farmers and buyers; and (4) the policy environment is conducive to all parties. The limited evidence from empirical studies (Eyhorn et al., 2019) suggests that contract farming schemes generally raise the income of farmers participating in those schemes. However, the gain to the farmers from contract farming diminishes over the years due to a static MSP and rising costs of inputs (Mishra et al., 2018). Contract farming has been an effective institution for helping small-scale farmers raise their productivity and orient their production toward more remunerative commodities and markets (Sharma, Abidi & Misra, 2020).
All producer organizations must go through an initial on-site audit before they can sell certified products. Flocert, the third-party auditing body for Fairtrade, has certified auditors who undertake the audit. Small Producer Organizations (SPOs)/contract production (CPs) are responsible for auditing fees, while licensing fees are paid by overseas companies near the end of the Fairtrade chain who wish to assure customers that the product sold is Fairtrade certified with a label.
FI has issued ‘Guidelines for Estimating Costs of Sustainable Production’ (Fairtrade International, 2011) for calculating what FI terms ‘cost of sustainable production (COSP)’. Since January 2020, FMP is available only for conventional and organic Basmati rice. The FMP for conventional and organic rice as determined by Fairtrade is shown in Table 1.
FMP and Fairtrade premium per MT of paddy from India (in euros)
Source: For 2015: Network of Asia and Pacific Producers (NAPP); and for 2020: letter of Geikhaa Buirtago, Director of Standards & Pricing, Fairtrade International, dated 8th November 2019. Retrieved from https://files.fairtrade.net/standards/20191108_Rice_Price_Announcement_FINAL.pdf [accessed 20 March 2023].
The Commission for Agricultural Costs & Prices (CACP) recommends the MSPs for paddy. The CACP is an office of the Ministry of Agriculture and Farmers Welfare, GoI, and has five members – three officials and two non-officials. The non-official members represent the interest of the farming community. The CACP considers various factors while recommending the MSP for paddy, including cost of cultivation, demand for rice, market price trends and the inflationary burden on consumers, the environment (soil and water use) and the terms of trade between agriculture and non-agriculture sectors. The CACP collects data from a large number of districts in the country every year. The CACP takes into account the costs of production both at state and all-India average levels. The cost components are:
‘A2’: covers all direct costs incurred by producer in cash and kind on wage labour, lease pay outs, seeds, fertilizers, pesticides, fuel, irrigation charges, and so on.
‘A2+FL’: includes A2 plus an imputed value of unpaid family labour.
‘C2’: the opportunity costs of rentals and interest foregone on owned land and fixed capital assets, on top of A2+FL.
The CACP considers both A2+FL C2 costs while recommending the MSP. The CACP recommendations are presented for approval to the Cabinet Committee on Economic Affairs (CCEA) of the Union Government for a final decision on the level of the MSP. The MSP recommended must ensure a minimum of 50 per cent as the margin over cost of production.
The GoI extends price support to paddy growers through the Food Corporation of India (FCI) and other state agencies. Procurement at the MSP is open ended, so that whatever paddy is offered by the farmers within the stipulated procurement period, and which conforms to the quality specifications prescribed by the GoI, is accepted (see Table 2). Paddy is categorized as being either a superior fragrant variety (Grade ‘A’) or a common variety. Government agencies undertake MSP operations at market yards managed by the Agriculture Produce Market Committees (APMC) or temporary purchase centres/aggregation points.
The MSP of paddy – fixed by the Government of India (per MT)
Source: Department of Agriculture & Farmers Welfare, Ministry of Agriculture and Farmers Welfare. Retrieved from https://farmer.gov.in/mspstatements.aspx#:~:text=3950!&text=**%20Including%20Bonus%20of%20Rs.75%20per%20quintal [accessed 26 June 2023].
Both the FMP and MSP regimes have pros and cons. Oyo et al. (2017, p. 9) have pointed to the contribution of market interventions towards securing more stable producer prices, resulting in higher net profits for agricultural producers. In addition, a Fairtrade premium is paid, which ranges between 5 and 15 per cent of the cost of procurement. The premium is pooled as a community investment, which can then be used as a catalyst for healthcare and education, and also to improve productivity, following a better package of practices to conserve soil, water and biodiversity. The equity and distributive effect of fair pricing is emphasized by Fair Trade protagonists. Participation in certified Basmati value chains that ensure organic and Fairtrade prices enables farmers to substantially improve the profitability of paddy cultivation. (Eyhorn et al., 2019). Small-scale farmers in India are often exploited by middlemen, leading to uneconomical price realization, uncertain cash flow, and limited access to financing. Fairtrade, by bringing farmers to a collective committed to better practices and standards, creates a product differentiation which is rewarded by conscious consumers. By linking the markets and farmers, Fairtrade ensures that the latter get a better price. In the context of rice, that means they are guaranteed an FMP that covers the cost of their production. On the other hand, the MSP provided by the GoI serves as a powerful signal to the farmer to exercise the choice of sowing paddy because then s/he can back-calculate the expected margin. Another welcome effect of the MSP, underlined in a National Institution for Transforming India study (NITI Aayog, 2016), is that farmers receiving the MSP are more likely to adopt improved methods of farming, such as high yielding varieties of seeds, organic manure, chemical fertilizer, pesticides and improved methods of harvesting.
Critics, however, have argued that the expansion of the Fairtrade movement has come with significant costs (Le Nguyet & Segal, 2019). Some have charged that the Fairtrade label has been used as a marketing tool to entice consumers in developed countries to pay higher prices for certain products whose sale does little to benefit producers in poor countries. They argue that the Fairtrade label, whose initial aim was to empower local producers by identifying Fairtrade businesses and products, has been diluted over time and is now being used merely as a guarantee against exploitation. Furthermore, the MSP for rice may not be remunerative due to very small land holdings. Eyhorn et al. (2019) advocate that organic farming systems in the Uttarakhand region of India should focus on diversification involving higher value crops. Interesting developments in recent years have not only been the emergence of organic labels in rice, but also new products where rice is mixed with other products like lentils and quinoa. Despite many decades of operation, the MSP regime in India only covers 6 per cent of farmers, leaving out the other 94 per cent in the country. The skewed MSP-dominated system of rice leads to overproduction of paddy (Singh & Bhogal, 2021). Punjab and Haryana, two erstwhile semi-arid states are also major producers of paddy. It takes 3,504,000 litres of water to produce 1 metric ton of Basmati rice. The use of irrigation water in the production of paddy is the highest compared to other crops grown in India and considered a prime reason for groundwater depletion in Punjab and Haryana (Kumar, 2020). MSPs have incentivized the cultivation of water-thirsty paddy over the cultivation of other less water-intensive crops, giving rise to imbalances of water and land resources and moving land away from crops such as pulses, oilseeds and maize, necessitating costly imports (Sood, 2014). Paddy is, therefore, not considered suitable for the states of Punjab and Haryana, which must sustain their water resources and agrarian livelihoods in the long term. Moreover, the current MSP-based procurement system is at the mercy of a chain of intermediaries and commission agents linked to APMC officials, which leaves small-scale farmers helpless. The systemic deficiencies in the MSP, such as the low level of payments, and the underestimation of production costs, have combined to make the MSP inefficient as a floor price.
In the light of above discussion, the characteristics of FMP and MSP is summarized in Table 3, which shows that for farmers the difference in price between Fairtrade and MSP is small. This may be a reason why a large number of farmers are not joining the Fairtrade movement in India. The cost components of FMP and MSP bear similarities, though they use a different vocabulary.
Methodology
Since the objective of the study is to understand the cost components of Basmati rice production, a survey of 327 FI farmers was undertaken. The cost of production reported by the farmers was compared with the prices offered by FI and the GoI.
Data sources
The study adopted a quantitative and qualitative assessment. The study commenced with a literature review to find common threads from studies on Fairtrade principles, COSP and FMP for rice, the lessons learned and the limitations. The review includes standard guidance documents, audit report, applicable regulations and external papers, as well as studies directly related to COSP and FMP.
For this study, only costs at the level of farmer producers were considered and, accordingly, suitable data collected. The cost of production at the farm level is determined by calculating the costs in four categories: (a) capital investment, such as the purchase of land, farm equipment and machinery, (b) labour, including family labour and hired workers, (c) inputs, such as seeds, fertilizers, pesticides and weedicides, and services, such as machinery and equipment rentals, and (d) harvest and post-harvest costs.
Determination of sample size
There are 1,892 Fairtrade certified producers distributed in four districts of four states in northern India (see Table 4).
To determine the right sample size from the finite population, the following formula was used n’ = n/ (1+ z2 x p̂ (1-p̂)/ (ϵ2N) where: Z is the z score; ϵ is the margin of error; N is the population size; and p̂ is the population proportion
Assuming a population proportion of 0.5, and a limited population size of 1,892, with 95 per cent confidence level and a margin of error of 5 per cent, the required sample size is 327. This means 327 or more measurements/surveys are needed to have a confidence level of 95 per cent that the real value is within ±5 per cent of the measured/surveyed value.
The required sample of 327 is distributed proportionate to the population, except in the cases of Kaithal and Bahraich. In Kaithal, a sample size of 35 is taken instead of 16, which is too small for any meaningful statistical analysis. The proportionate sample size for Bahraich is 153; however, for our purpose a minimal size of 134 is adequate. Our assumption is that the population is normally distributed.
Data collection
The producers from the population of certified producers were selected at random in each of the four states. Following COSP guidelines, information was collected from each producer over 1–2 hour sessions. In many cases, three to five producers participated in groups. The producers provided information on:
size of the representative farm (in Ha);
costs of production related to field operations and harvest/post-harvest activities;
transformation/processing and product preparation/packaging if applicable; and
yields (in metric tons).
The data was verified by the producers and as a mark of acceptance the farm gate COSP was signed individually.
The questionnaire was pre-tested on a sample of twenty respondents in Bahraich, Uttar Pradesh. Data was collected by trained enumerators from the homes of the farmers. The respondents were heads of the household, who were administered a questionnaire, and their responses were duly recorded on the survey forms.
Results and Discussion
The COSP for the different varieties of rice was calculated by determining the farm level costs in four categories – labour, inputs and services, capital investment and harvest and post-harvest costs. The costs were calculated as reported by individual farmers. These costs were then used to calculate the farm gate cost per hectare (Ha) and per metric ton (MT) of rice produced, for each farmer.
Description of the sample
Some 327 Fairtrade rice producers from thirty-one villages in four districts – Bahraich in the state of Uttar Pradesh, Haridwar in Uttarakhand, Jammu in the Union Territory of Jammu, and Kaithal in Haryana, participated in the assessment. The surveyors collected information on the cost parameters of the rice varieties, which was then used for calculation of the farm gate cost or the cost of production. As reported by the farmers, the agriculture period extends from 15th May–30th November, and all of them practised organic farming with only one production cycle.
The farmers surveyed as per the approved sample in the four districts of four states cultivated mainly four varieties of Basmati – CSR-30, HBC-19, Pusa Basmati and Traditional Basmati. Of the total 327 farmers, all the farmers in Bahraich and Kaithal (53 per cent of the total) essentially cultivated the CSR-30 variety, whereas all those from Haridwar (23 per cent of the total) cultivated only the HBC-19 variety of Basmati. Diversity in terms of crop variety is observed only in Jammu (24 per cent of the total), as 89.74 per cent of the total farmers surveyed in Jammu cultivated the traditional variety, 3.85 per cent Pusa Basmati and 6.41 per cent cultivated both. The share of different varieties cultivated, and the details of varieties cultivated in the different districts by the farmers in the sample, is provided in Table 5.
Yield and costs associated with different varieties of rice
The average yield and farm gate cost per hectare and metric ton of rice produced across four districts along with costs associated with labour, input and services, capital investment, and harvest and post-harvest costs for the for varieties of Basmati is provided in Table 4 and Figures 1 and 2. The results show that the FMP plus premium is much lower than the farmers’ production costs.
The average yield value of the different varieties varied from a maximum of 4.40 MT/Ha for Pusa Basmati to a minimum of 2.57 MT/Ha for HBC-19. The average yield for CSR-30 was 2.58 MT/Ha and for Traditional Basmati it was 3.14 T/Ha. In the case of the farmers cultivating both Traditional and Pusa Basmati, the average yield was 3.15 M/Ha. The average farm gate cost per Ha was highest for farmers cultivating both Traditional and Pusa Basmati followed by Traditional Basmati, HBC-19, Pusa Basmati and CSR-30 (see Figure 1). Average labour cost was highest for Pusa Basmati: 2.60, 1.59 and 0.21 times higher than CSR-30, HBC-19 and Traditional Basmati respectively. Both input and services and harvest and post-harvest costs were lowest for the HBC-19 variety, whereas capital investment costs were lowest for Pusa Basmati and highest for HBC-19. It is to be noted that HBC-19 in the sample was cultivated exclusively in the Haridwar district, which had the highest capital investment costs among all the districts, as discussed earlier.
Figure 2 provides the average costs per MT of rice produced for the different varieties reported in the survey. The average farm gate cost per hectare for farmers cultivating both Traditional and Pusa Basmati (INR 1,63,812.50 per Ha) was highest followed by Traditional Basmati (INR 1,44,822.40 per Ha), HBC-19 (INR 1,21,459.70 per Ha), Pusa Basmati (INR 1,10,188.60 per Ha) and CSR-30 (INR 96,645.19 per Ha). The average farm gate cost per MT was highest for HBC-19 (INR 47,150.36 per MT) followed by farms that cultivated a combination of Traditional and Pusa Basmati (INR 46,710.92 per MT), Traditional Basmati (INR 46,314.50 per MT), CSR-30 (INR 38,644.17 per MT) and Pusa Basmati (INR 25067.44 per MT).
Determinants of farm gate costs
To identify the major determinants of farm gate per Ha and per MT, the relationship between farm gate cost per hectare and MT was regressed separately on the area under cultivation, labour, inputs and services, capital investment, and harvest and post-harvest costs per Ha and per MT (Figures 3 and 4).
The results reveal that farm gate cost per Ha and per MT is primarily dependent on capital investment cost as evident from very high R-squared values of 85.43 per cent for farm gate cost per hectare and 84.94 per cent for farm gate cost per MT. Capital investment is the major contributor to the COSP in all the surveyed locations. In Haridwar and Kaithal, capital investment per Ha is above 70,000 INR, while it is 58,000 INR per Ha in Jammu and 38,000 INR per Ha in Bahraich. A variety-wise analysis shows that capital investment is highest for HBC-19 in Haridwar at nearly 80,000 INR per Ha, and lowest for Pusa Basmati in Jammu (11,300 INR per Ha). It is also observed that for the same variety, CSR-30, capital investment is 37,900 INR per Ha in Bahraich while it is nearly double (72,370 INR) in Kaithal.
The other contributor that significantly influences the farm gate cost per hectare and per MT is labour cost per hectare and per MT with R-square values of 25.2 per cent and 19.6 per cent respectively. Other contributors, including inputs and services and harvest and post-harvest costs, have less influence. Both yield and area under cultivation did not have any significant influence on farm gate costs per hectare or per MT. Jammu, being highly dependent on migrant labour, bears a high labour cost of 44,700 INR per Ha. Labour cost in the other three locations is between 15,000 and 22,000 INR per Ha. The survey has found that average daily wage rate paid for hired labour in Bahraich is 196 INR, which is 44 per cent lower than the government of Uttar Pradesh’s notified minimum wage of 353 INR for unskilled labour. The wage rate paid in Haridwar at 296 INR is also found to be lower than the Uttarakhand state government notified minimum wage for the category. The labour rate cited here is the cash component and it is noted that workers are additionally given daily food and sometimes accommodation. Workers in Jammu are men who migrate from other parts of India to work in the rice fields, spending an average of three nights with one farmer, who provides all meals and accommodation.
Conclusion
The basic motive behind the paddy support price policy of Fairtrade International and the Government of India is to protect the interests of both farmers and consumers. The prices of paddy should be decided with utmost care so that neither farmers nor consumers suffer. The FMP and MSP both should ensure that farmers receive a living wage. A living family wage is defined as the minimum income necessary for a farming family to meet their basic needs (Anker & Anker, 2017). These basic needs include food, housing, education, health care and other essentials. Since agriculture is the main source for smallholders, a living family wage is more appropriate if the primary goal is to extend economic and social protection to vulnerable communities. The FMP and MSP both fall far short of ensuring a decent standard of living with a farm income.
The transition from MSP to living family wage will take time. With this in view, some recommendations are made below to improve the support price mechanism.
Re-examining the FMP, MSP and producer costs
The reported producer costs are much higher than the FMP and MSP. The FMP is lower than the MSP, and 29 per cent lower than producer cost. Similarly, contrary to the MSP policy objective, the MSP is not 50 per cent higher than 50 per cent of the producers’ cost, but in fact 25 per cent lower. The Network of Asia and Pacific Producers (NAPP), a partner of Fairtrade International, and the Department of Agriculture & Farmers Welfare, the Ministry of Agriculture and Farmers Welfare, and the GoI together can work on costing methodology, data collection and analysis of findings.
Why do farmers engage in FT certification when the FMP is not covering their costs? There are three plausible explanations. Firstly, the farmers are emotionally attached to their land. Selling land may attract social reproach and disgrace. Secondly, farmers have little or no other skills; working as a wage labour on other farms for erstwhile landowners is considered a fall in social stature. Thirdly, economic logic suggests that a farmer will discontinue production in the long run only when the total revenue gets less than the total variable costs. In the short run, a farmer will continue to produce if total revenue is more than variable costs. Table 7 shows that the variable cost of producing per MT exceeds that of revenue received in the case of CSR-30 and Pusa Basmati. The implication of this in the coming seasons is that the net area under CSR-30 and Pusa Basmati will come down and that of other rice varieties, and Kharif crops like maize, oilseeds, and lentils, will increase. However, none of the farmers are able to recoup their capital investment costs. Since many of these investments are financed by public sector banks under various government schemes, many farmers simply do not pay back their loans. They mount pressure on union territory and state governments to waive and write off farm loans. Large-scale farm loan waivers between 1990 and 2008, and smaller ones by ten state governments in 2014–17, point out that political parties are receptive to farmers’ demand for loan write-offs. The implication of this is that farm loans from financial institutions will remain scarce and fall further (Saini, Husain & Khatri, 2021).
Update FMP biennially
The FMP of paddy was determined in 2015 and then again in 2020. Five years is a long time. The FMP for paddy is also lower than the MSP and market rates (see Figure 5). In contrast, the Government of India sets the MSP for paddy in June every year, well before the planting season begins. Biennial updating of the FMP by the Fairtrade International Standards Committee will help to keep it closer to current market realities.
Fix the FMP at the state level not at national level
The Fairtrade Minimum Price plus premium is 41 to 78 per cent lower than the reported cost of farmers. This is partly accounted for higher input prices for petrol, diesel, power and fertilizers. The average farm gate cost per hectare in the four districts is INR 120,747 and ranges from a maximum of INR 142,418 per Ha for Jammu to a minimum of INR 87,516 per Ha for Bahraich. The average farm gate cost per metric ton is INR 43,498 and ranges from a maximum INR 47,150 per metric ton in Haridwar to a minimum of INR 36,920 per metric ton for Bahraich. Given the wide variation in cost of production, fixing an FMP is problematic. A low FMP based on, say, cost of production in Bahraich, Uttar Pradesh, will put Jammu producers at considerable disadvantage because of their relatively high cost of production. On the other hand, an FMP fixed at Jammu cost of production prices may offer undue advantage to low-cost producers in Bahraich. Theoretically, the MSP may be used only to protect the producers against an excessive fall in price during bumper production years. However, the Fairtrade premium is being used as an incentive tool to promote sustainable production, rather than as a safety net. Fairtrade and other promoting bodies should review the objectives of the FMP and its implementation in the Indian context in consultation with all stakeholders. An FMP determined at the level of the individual state might be more reflective of the situation.
The Government of India fixes the MSP for paddy at the national level. However, state governments are free to procure at higher costs to compensate the farmers where the average cost of production is higher than the nationally fixed minimum. Thus, the MSP takes into account differentiated cost structures found in different states.
Promote Autonomous Small Producer Organizations (SPOs)
All the surveyed rice farmers operate within in the contract production (CP) model affiliated to respective trader companies who are the promoting bodies. The small producers are aggregated by producer/trader companies who act as the chief patron for the group. The company called the promoting body facilitates the farmers’ certification as Fairtrade producers, and allocates the Fairtrade premium. This study observed that the CP model is limited to farmers agreeing to provide to the producer company quantities of a specific agricultural product if the market is favourable. In return, the producer company supports production through, for example, the supply of farm inputs, land levelling and the provision of technical advice. Though the producer companies are designated as promoting bodies by Fairtrade, the researchers’ conclusion is that the promoting bodies under CP have become controlling agencies. In accordance with the Fairtrade guidelines, the CP groups may be transformed into autonomous SPOs to empower small-scale producers. The onus of organizing the FPOs lies with Fairtrade International.