Hike in MSP not enough to uplift drought stricken Agriculture sector

Written by Sabrangindia | Published on: July 6, 2019

A rainfall deficit of 33 percent has affected the sowing of kharif crops in June. However, agriculture minister Narendra Singh Tomar says that’s “no cause of concern”. Surprisingly then, media reports have highlighted the marginal Minimum Support Prices (MSP) hike announced by the cabinet as the one which will “alleviate the suffering of the farmers”.

Image Courtesy: quora.com

The MSP of Paddy was increased by 3.7% (a hike of Rs. 65); from Rs. 1750 per quintal in 2018-19 to Rs. 1815 per quintal in 2019-20.
The MSP of Ragi and Jowar (millets) has been hiked by 8.7% and 4.9% respectively.

Last year, which was marked for the fact that elections were due in subsequent months, the MSP of Paddy was increased by Rs. 200.
Experts have said that the only commodities with MSP will ensure a higher than 50 percent return over input costs are Bajra (85%) and Urad (64%) and tur dal (60%). But even for these crops, returns are lower this year.

The MSP is the rate at which the Centre procures these crops from farmers.The Minimum Support Price (MSP) should be at least 50% more than the weighted average cost of production. As per the Swaminathan report, the “net take-home income” of farmers should be comparable to those of civil servants.”The Commission for Agricultural Costs & Prices (CACP) in the Ministry of Agriculture recommends MSPs for 23 crops. These include 14 grown during the Kharif/post-monsoon season and six in Rabi/winter (wheat, barley, chana, masur, mustard and safflower), apart from sugarcane, jute and copra. The CACP is supposed to consider various factors while recommending the MSP for a commodity, including cost of cultivation. The CACP has three different definitions of productions costs – A2 (actual paid out cost), A2+FL (actual paid out cost plus imputed value of family labour) and C2 (comprehensive cost including imputed rent and interest on owned land and capital). As is evident, C2 > A2+FL > A2.

However, as many as 93% farmers in the country don’t have access to MSP. They are left to deal with market fluctuations on their own. There is no provision in the budget to increase the ambit of farmers covered by MSP.

It is a myth that hike in MSP is the only step forward. Procurement levels vary significantly across crops and regions. Much of the Paddy procurement is concentrated in the states of Punjab, Haryana, Andhra Pradesh and Chhattisgarh. Procurement as a percentage of production remains low in states like West Bengal, Assam, Uttar Pradesh and Bihar. In the absence of proper procurement, the prices of crops even falls below MSP. For instance, the price of Rice has fallen below MSP in states such as West Bengal, Assam, Uttar Pradesh and Bihar.

Some have also claimed that the increase in MSP is a “symbolic increase” because at most places the crops are sold at lower prices.
The All India Kisan Sabha (AIKS), in its post said that in a situation in which farmers across the country are in “acute distress” due to severe drought, the prices announced add salt to injury.

Several studies have highlighted the inaccuracy of the calculation of CACP cost and that the weighted average costs arrived at by making “drastic undervaluation” and are “nowhere near the actual costs”.

For example, in the case of paddy,

State projection of Cost of Production for 2017-18 by Andhra Pradesh was Rs. 1866 per quintal, CACP projection was Rs. 1495 per quintal But. AP had proposed Rs. 2799 per quintal. States of Maharashtra, Chhattisgarh and Madhya Pradesh had proposed MSP of Rs.3251 per quintal, Rs.2200 per quintal and Rs.2700 per quintal respectively for paddy in 2017-18. Other major paddy growing States like Tamilnadu and Punjab had recommended MSP of Rs.2300 per quintal and Rs.2000 per quintal for 2017-18.

The C2 costs as per BJP and JD-U ruled Bihar for paddy is Rs.1605 per quintal but CACP considers it as Rs.1398 per quintal only. Odisha State projection is Rs.2344 per quintal while CACP considers it as only Rs.1713 per quintal. This is the case in most crops. Even taking the C2 costs as arrived by the CACP that is Rs.1,560 per quintal the C2+50% would come toRs.2,340 per quintal. But the MSP announced is only Rs.1,815 per quintal. It is also worth noting that Kerala already procures paddy at Rs.2,650 per quintal.

In the case of Arhar/Tur the weighted average C2 costs projected for 2018-19 was Rs.4981 per quintal. This also is arrived by similarly deflating the actual costs arrived at by State Agriculture Departments. The MSP announced is way below C2+50% as that would have been at least Rs.7,471.5 per quintal as per 2018-19 projected costs. The MSP announced now is Rs.5,675 per quintal only. This also is below the C2 costs in Karnataka, which is one of the main producers of Arhar/Tur.

The AIKS highlighted in its analysis of the recent hike, “It is also notable that the Niti Ayog is talking of freeing farm sector from controls. This would lead to further increase in input prices. The Government is planning to shift from procurement to the deficiency payments and pushing for greater corporate investments in agriculture. AIKS had warned that the Pradhan Mantri Annadaata Aay Sanrakshan Yojana and Pradhan Mantri Kisan Samman Nidhi were tailored to shirk responsibility from public procurement and would lead to collapse of the support system. This is coming true now.”