The Hindu Business Line : Price signals and the farmer

It is by now common knowledge that the announcement of minimum support price (MSP) for various crops during the kharif and rabi seasons has become a ritual rather than a worthwhile signal to help growers exercise their planting choices. That conceded, the least one would expect from the Government is that this ritualistic price prescription is not inordinately delayed, but announced in time for the benefit, however ephemeral, of growers. We are already in January. A large part of rabi season planting is already done; and the harvest of some crops is only a few weeks away. It is a sad commentary on the government’s working that even at this stage of the crop cycle various ministries are squabbling over whether to hike the MSP, and by how much, of major grains such as wheat and of oilseeds such as rapeseed/mustard. Krishi Bhavan may not have made much headway in addressing entrenched structural problems of the country’s agriculture, something, one must concede, is never going to be easy. But what excuse will the mandarins in various Bhawans in New Delhi possibly come up with for the habitual delay even in making a largely administrative decision such as the MSP?

Prices do influence farm production and productivity. Beginning 2007 and until the first half of 2008, the world country faced record-high open-market prices of various crops and food products. High prices resulted in higher farm output in advanced economies such as the US; but that did not happen in India. The government, as late as September, announced an unprecedented hike in MSP. Yet, the kharif 2008 output of major crops — coarse cereals, pulses, oilseeds, sugarcane — has actually shown a decline over kharif 2007. In the rabi season, despite fall in prices of a number of crops globally and in some cases within the country, area planted to various crops has shown a healthy progress so far, suggesting once again that price may not be the only factor driving the country’s farming activity. It may be noted that rabi area under coarse cereals and pulses is not only better than last year’s but also higher than the average of the past five years. Oilseeds are doing well too.

The inference is clear. Unlike in developed economies, the supply response in India to prices will be rather limited as the farmers toil under challenging conditions with too many structural inefficiencies and imponderables affecting production. In simple terms, treating ‘price’ alone as the strategy for driving output higher will not work. This is not to suggest that farm-gate prices and thereby farm incomes are unimportant for growers; far from it. Growers must be assured of remunerative prices; and their capacity to benefit from high prices must be raised. In other words, the country’s agricultural policy that rests mainly on price as output driver needs a review.

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