Farm Harvest Price or FHP is a critical variable in determining incomes of farmers from crop production. Farm harvest prices are also used to estimate the contribution of agriculture to national incomes. In this post, we examine how farm harvest prices are defined, collected and reported in India. Our main finding is that farm harvest price as collected and reported in India is likely to be the wholesale price and not necessarily the price actually received by the farmer for her produce. Secondly, the data on farm harvest prices are published and reported at a highly aggregated level, and does not allow us actually to identify locations where farmers receive lower than reported prices. If we are concerned about the prices received by millions of farmers, we need to improve the data base on farm harvest prices.

According to the Food and Agriculture Organization (FAO 2018), farm gate prices are “the prices received by farmers for their produce at the location of farm. If the produce is sold at another location, the costs of transporting from the farm gate to the nearest market or first point of sale and market charges (if any) for selling the produce is, by definition, not included in farm gate prices.” In many countries, including India, farmers sell their produce at various points in the distribution channel, including the actual farm gate, and wholesale or retail trade outlets. In such cases, according to the FAO, average prices are to be worked out using the output disposed of through various channels as weights.

In India, the Farm Harvest Price (FHP) of a commodity (DES 2016) is defined as follows:

The average wholesale price at which the commodity is disposed of by the producer to the trader at the village site during the specified marketing period after the commencement of harvest. In cases where village site transactions do not take place, the price reported relates to what the farmer receives for his produce, and is obtained by subtracting transport and other marketing charges from the wholesale prices quoted at the mandi where the produce is disposed of.

The main source of data on FHP in India is the Directorate of Economics and Statistics, Government of India (DES 2016). The method followed by them is described thus;

A certain number of representative villages are selected in each district at the rate of one, two, or three villages from each Tehsil, depending upon the extent to which the crop is grown in the Tehsil … In each selected village, the price at which the commodity is sold by the producer is recorded in the specified form by the price reporter every Friday during the peak period of marketing after the commencement of the harvesting season. If no sales take place on that Friday, the price at which the commodity was sold last during the week is recorded instead.

In cases where village site transactions do not take place, the price reported relates to what the farmer receives for his produce, and is obtained by subtracting transport and other marketing charges from the wholesale prices quoted at the mandi where produce is disposed of. The price recorded is the wholesale price of the specified variety of the commodity.

Usually six to eight weeks during the peak period of marketing after the commencement of the harvest season is taken to be the period during which farmers are generally expected to dispose of their produce. The price reporters (different in each State) are required to visit the selected villages on the appointed dates, enquire personally the prices at which the commodity has been sold by the farmer, and record them in the specified form.

This detailed quote reveals a lack of clarity on how the concept is implemented, namely what price and for whom is being referred to as FHP. For the selected villages, where the “reporter” goes to collect prices, the source of information is left ambiguous in this definition. Very likely, the reporter goes to one or more village-level traders and not to farmers (as it is not clear how he or anyone else would identify “the farmer”). Secondly, it is clear that if there is no trade or market at the village site, the data refer to wholesale prices from a nearby mandi or wholesale market. Thirdly, the date on which price is collected could vary even within a district, as the instruction is to collect price for six to eight weeks after the beginning of the harvest.

In other words, the Farm Harvest Price may not be the price at which some (or many) farmers of the selected village sold their produce. These data cannot capture any intra-village variation in prices (such as if a small producer sells to a local trader and a larger producer to a wholesale dealer). Secondly, in the published data, there is no way of identifying which reported price refers to a village transaction and which to the wholesale market.

Further, the average price received by farmers for a specific product in a specific region should be the weighted average of prices received at different points of the marketing chain. There is no mention of any weighted average at the “centre” level.

The next stage of aggregation is as follows (DES, 2016):

The method of arriving at the average price of a commodity for the State as a whole is the method of weighted average, with the district production figures for the concerned year as weights. However, the average price for the district for each week may be obtained as a simple arithmetic average of the Tehsil prices, which, in turn, are the simple arithmetic average of village prices. The average price for the season is the simple arithmetic average or the district prices for each commodity. The farm harvest prices, when multiplied by the production figures of the crops, give an estimate of the income of the producers of the commodity, which is equal to the contribution of that particular commodity to the National Agricultural Income.

The main point is that data on FHP reported and published by DES refer to the average wholesale price at which the commodity is sold after the harvest begins, that is, a highly aggregated level. Data are presumably aggregated over varieties as well as over time. While the existence of different varieties is recognized, the final reporting is for a single harvest price for a commodity at the State level. Another practical problem is the reference period of harvest and the subsequent peak period of marketing for each crop, as these tend to vary widely depending upon the variety of the crop and the nature of cultivation. In some cases, it is even difficult to define a harvesting period, as in the case of cotton, where there are more than four pickings in a year.

Further, there appears to be a huge problem of missing data in published reports. We examined data on FHP for oilseeds in major producing States for 2006-16 and found missing data for villages, for seasons, and years, and even for an entire State for a selected commodity.

There are also State-level variations. From a visit to the Directorate of Economics and Statistics, Government of Karnataka, we found that a different method is used in Karnataka.

Since the bulk of the farm produce is sold at the regulated markets, i. e., APMC instead of the village sites, the wholesale price from APMCs are collected by taking the modal price[1] on every Friday for eight weeks during the peak harvesting period of the respective selected agricultural commodities. The taluka statistical inspectors/programme assistants collect the weekly wholesale price in the prescribed form by contacting the APMC secretaries (GoK 2018).

As prices are collected at the APMC, transport and other marketing charges are deducted at the rate of five to ten per cent of the price. In taluks where APMCs are not established the procedure suggested by Government of India is followed.

So in Karnataka, farm harvest prices are collected from the APMC for crops with a coverage of more than 1000 hectares. The interviewer does not visit any farmer. Secondly, for crops with more than one harvest season (such as onion), the reference period is assumed to be the first season of the agricultural year, and the exact dates are based on the sowing and harvesting period of principal crops in Karnataka as fixed by the government.

To conclude, the farm harvest price is a critical variable for cultivators, since it is a determinant of their gross incomes. In India, the approach followed to collect data is such that it is inevitably the wholesale price that is collected and reported as FHP. Further, these data are published at a high level of aggregation, not permitting a study of variations in prices obtained by farmers belonging to different socio-economic classes, in different locations, different time periods and seasons, and growing different varieties of crops. There is urgent need to collect better data on the prices actually received by farmers.

[1] Modal price is the price at which most of the transactions take place on the day of reporting.

References

Food and Agriculture Organization (FAO) (2018), “Concepts on Price Data” available at http://www.fao.org/economic/the-statistics-division-ess/methodology/methodology- systems/price-statistics-and-index-numbers-of-agricultural-production-and-prices/4-concepts-on-price-data/en/, viewed on February 20, 2018.

Directorate of Economics and Statistics (DES) (2016), Farm Harvest Price of Principal Crops in India 2015-16, Department Of Agriculture, Cooperation and Farmers Welfare, Ministry of Agriculture and Farmers Welfare, Government of India, New Delhi, available at http://eands.dacnet.nic.in/fhprice/FHP_2015-16.pdf, viewed on January 24, 2018.

Government of Karnataka (2018), “A Note on Collection of Farm Harvest Prices,” Directorate of Economics and Statistics, Bengaluru.