The current problem faced by farmers is essentially an agricultural distress emanating from shrinking agricultural margins and the newly-announced minimum support prices (MSP) will offer only a partial benefit to farmers, said India Ratings and Research on Wednesday.

Fixing MSP at 1.5 times of A2+FL (family labour) will marginally benefit rice farmers, whereas applying the same formula will not help wheat farmers at all as MSP rate prevailed in past many years was more than 1.5 times of A2+FL, it said in a statement.

To arrive at this conclusion, India Ratings analysed MSP data for three periods: FY04-08, FY09-13 and FY14-18. For the analysis, the rating agency considered agricultural value growth in MSP of rice and wheat as proxy for an increase in output prices, while growth in farm wages as a benchmark for input prices.

Another way to look at agricultural distress was to assess margins as a percentage of cost of production. A glance at farmers’ margins using the MSP over the A2+FL cost of rice and wheat provides some interesting insights, India Ratings said. During FY04-08, wheat margins were relatively high compared to those of rice. In the second, both margins increased significantly but subsequently in FY14-18, they fell below FY04-08 levels, leading to widespread discontent among farmers.

Another major insight emerged from the study was that uncoupling of agricultural economy and rural economy of late. The role of agriculture in rural economy has been so dominant that they were used interchangeably.

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