The Hindu Business Line : ‘Minimum support prices are not fixed mechanically’

New Delhi, Dec. 10 This year, during kharif sowing, the Centre came up with minimum support prices (MSP) that were “unprecented” in terms of the increase. Even as a decision on MSP is being awaited for rabi crops, the Chairman of Commission for Agricultural Costs and Prices, Prof S. Mahendra Dev, shares his views on what his panel’s views are and what farmers have to be paid.

In recommending minimum support prices (MSP) for various crops, your Commission was initially guided by the Abhijit Sen formula of pegging these at their ‘C-2’ cost levels. Then, with global commodity prices shooting up, you apparently shifted to the M.S. Swaminathan Committee’s formula of paying farmers 50 per cent over cost. And now, with the meltdown, it looks you may return to the Abhijit Sen formula….

Price fixation is not mechanically linked to costs. While recommending prices, we also factor in demand and supply situation, international prices, agricultural terms of trade, inter-crop parity, and so on. But generally we take ‘C-2’ costs of cultivation in proposing the MSP.

Is ‘C-2’ cost the minimum?

Well, minimum on an all-India average basis. But at the State level, you have both low-cost as well as high-cost producers. For high-cost States, the MSP usually covers ‘A2+FL’ (all paid-out costs plus imputed value of family labour). In the case of low-cost States, the MSP at ‘C-2’ would also cover the opportunity cost of land and capital -- i.e. rental value of owned land and interest on owned capital assets such as tractors and implements. By fixing MSP at the weighted all-India average ‘C-2’ cost, farmers in low-cost States end up getting a fair margin.

Hasn’t this formula changed?

In the last 2-3 years, a view has emerged both in the government and the CACP that MSPs need to be fixed above ‘C-2’ costs. This has come because of the reports of farmers’ suicides, agriculture not being remunerative relative to other professions, and the farm sector growing at just two per cent annually. That is why you have seen unprecedented MSP increases being undertaken in recent years, more so in the current kharif season.

Is this the Swaminathan formula effect?

The Government has not officially accepted the Swaminathan formula. But if you look at current MSPs, in three crops – paddy, wheat and rapeseed-mustard – they are actually above the 50 per cent cost-plus level. In cotton, maize, groundnut, lentil, bajra, arhar and urad, the MSPs now are 20-30 per cent above ‘C-2’ and in others between 10 and 20 per cent. So, instead of having a fixed 50 per cent plus formula, the Government has felt it is better to be flexible and leave it to the CACP to suggest prices depending upon crop-specific situations. And as I have mentioned, in some crops, we have gone beyond Swaminathan.

There is some controversy around cotton, where the trade and industry feels the MSP has been set far too high.

We have estimated the weighted average ‘C-2’ cost of kapas (un-ginned cotton) at Rs 2,100 a quintal. Against this, the MSP for 2008-09 has been fixed at Rs 2,500 for medium staple and Rs 3,000 for long staple varieties. Last year, the MSP was Rs 1,800-2,030 a quintal, which was actually below the ‘C-2’ cost. This year, I think it is the volume of MSP increase over last year – 40 per cent – that has caused problems. When we recommended this year’s price, our logic was that cotton happened to be one of those crops where the MSP did not cover the ‘C-2’ cost. It was then thought necessary to provide a one-shot increase to make the MSP not just a basic support but a remunerative price to farmers. But I agree that in the new scenario (slowdown in textile industry and export market for cotton), we should be flexible while fixing the rates.

In sugarcane, the CACP has reportedly recommended a base statutory minimum price (SMP) of Rs 125/quintal for the ensuing 2009-10 season, compared to this time’s Rs 81.18. How does one explain this magnitude of increase in just one year?

I can neither confirm nor comment on the SMP recommended for 2009-10 since it is yet to be acted upon by the Government.

But in cane, we have gone mainly by inter-crop price parity considerations and the fact that the more remunerative MSPs announced for paddy and wheat could lead to diversion of cane area. Costs have not been the primary issue, though it is true no cane grower will accept that the present SMP covers his costs. In fact, in its supplementary report for 2008-09, the CACP had proposed a price of Rs 155/quintal taking into account the inter-crop price parity factor, but it was rejected by the Government.

More Stories on : Interview | Agricultural Policy

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Monsoon may be active until weekend

Rs 10,000-cr fertiliser bonds issued

Sharing of social cost with plantation cos on cards

Spot rubber prices gain

A rubbery toughness

Volume continues to fall at Coonoor tea auction

Madras Aluminium suspends production

Platinum group metals to rule higher next 10 years

Row over virgin olive oil import duty

‘Minimum support prices are not fixed mechanically’