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Why MSP at cost plus 50% is no big deal

The MSP for many crops is already 1.5 times cost; and procurement is either absent or very minimal except for paddy and wheat
There has been much speculation on the Budget promise to farmers of 50 per cent return on cost of production. But this may not help farmers much, as many crops already enjoy 50 per cent profit at minimum support price (MSP), according to the price policy document of the Commission for Agricultural Costs and Prices (CACP).
The MSP of rabi crops such as barley, gram, lentil, rapeseed and wheat is already more than 1.5 times the cost. For wheat, in fact, it is two times — with cost at ?817/quintal and MSP at ?1,735.
For kharif crops such as bajra, arhar and urad, too, the MSP is over 1.5 times the cost of production. The cost considered by CACP is as per the A2+FL formula, which includes expenses on farm inputs — including seeds, fertilisers, fuel and irrigation — and imputed value of Family Labour. That said, there are crops where the support price just about covers the cost. MSP is likely to go up sharply in such crops. These include jowar, ragi, sunflower seed, sesamum and nigerseed. For jowar, the MSP will increase by 44 per cent, and for ragi, by 54 per cent.
However, the MSP increase will be ineffective in crops where the market prices are higher. For instance, the current jowar price is about ?26/kg in Gujarat. The MSP at 1.5 times the cost (assuming a 5 per cent increase in cost of production from last kharif) will work out to ?2,450/quintal, or ?24.5/kg.
The same is the case with sesamum (gingelly), where the market prices now rule at ?65-75/kg, while the MSP next season is likely to be ?64/kg.
Poor procurement
In the few crops where the MSP is actually attractive, it is doubtful if the Centre will be able to enforce MSP. Though MSP is announced for over 20 crops, procurement is effective only in paddy and wheat. In all others, it is either absent or very minimal. In 2016-17, the total procurement of pulses was 1.47 million tonnes, against production of 23.13 million tonnes.
For oilseeds, the picture is worse; in 2016-17, kharif procurement in groundnut by the National Agricultural Cooperative Marketing Federation of India (NAFED) was 1.8 lakh tonnes, versus the season’s production of 60.5 lakh tonnes. Sunflower, procurement stood at 4,249 tonnes against the kharif season production of 98,000 tonnes.
“There is no guaranteed procurement today. There is no action if someone buys below MSP, so there is no point in even announcing the support price…,” says GV Ramanjeneyulu, Executive Director, Centre for Sustainable Agriculture.
Rice may shine
One crop that will turn more remunerative under the new MSP, and where there is also strong procurement, is rice.
But rice is a water guzzler, and the Centre may want to think twice about more farmers shifting to this crop.
Also, since India exports about 10-12 million tonnes of rice a year, a higher minimum support price will see the country losing competitiveness in the export market.
The new MSP on cotton, too, may have an impact, as the Cotton Association of India (CAI) steps in whenever market prices drop below MSP.
But that again will impact the export competitiveness of Indian cotton.
Three new schemes
To enforce MSP, the NITI Aayog had suggested three plans to the States last month. One, a Market Assurance Scheme, proposes procurement by States, with the Centre compensating them for the loss up to a certain limit.
The second, a Price Deficiency Procurement Scheme, allows the farmer to be compensated for the difference between MSP and actual price received.
The third, a Private Procurement and Stockist Scheme, proposes that the government provide tax incentives to private players to procure produce from farmers.
In a recent paper titled ‘Supporting Indian Farmers: Price Support or Direct Income/Investment Support?’ Ashok Gulati, a noted agricultural economist from ICRIER, has pointed out that the cost of a Price Deficiency Payment scheme, if ramped up at the national level, will be a whopping ?1.13-1.69 lakh crore if prices are down 20-30 per cent from MSP.
The moot question, therefore, is whether States will be willing to bear the financial burden of these schemes.