Poor MSP growth led to farm distress, says Crisil

Tepid growth in minimum support prices (MSP) of different agricultural products since the National Democratic Alliance (NDA) government took over was one of the major reasons for the current farm distress, according to an independent research report released on Tuesday.

“While the average annual growth [in MSP] between agriculture year 2009 and 2013 was 19.3 per cent, it was only 3.6 per cent between 2014 and 2017,” said a research report published by rating agency Crisil. It added that limited support from the floor price has further depressed market prices. The falling profitability would continue to distress farmers.

Other factors that contributed to the slump in the prices of farm products were global supply glut and demonetisation.

While record production of most foodgrain crops – on account of good monsoon last year helped tame food inflation – the fall in prices caused a decline in profitability for many crops. For pulses and oilseeds, prices fell below their MSP and cost of cultivation, reducing profits for farmers, the Crisil report said.

Moreover, the greater integration of Indian agriculture with the international market, has been hitting domestic agricultural prices, too. “The weakness in global commodity prices is getting transmitted to domestic markets to a greater extent,” it said.

This is particularly visible in rice, which tops the list of agricultural commodities exported from India in terms of value. The prices of rice in the domestic market have followed its international prices for the last two years.

According to the Food and Agriculture Organisation’s (FAO) Rice Price Index, rice prices were 8.1 per cent lower in 2016. This has reflected in the fact that exports of rice from India fell by 1.2 per cent in fiscal 2017 – the second straight year of negative growth.

According to Crisil, trade restrictions placed by the government on pulses, also impacted the farmers. While exports of all pulses, except gram, were restricted to a maximum of 50,000 tonnes per annum, there were no restrictions on imports.

“Despite record production, there were 6.6-million tonnes of pulses last fiscal, 14 per cent higher on-year, induced by lower international prices. On the other side, exports fell 0.5 per cent to 0.14 million tonne. This added to excess supply and led to a fall in prices,” the report said.

Equally contributing was the delay in lifting the restrictions on holding of stocks of pulses by exporters, licensed food processors and large departmental retailers due to the shortage in production in 2015. “These limits continued in 2016-17, which further reduced avenues for absorption of excess supply. Although the central government directed States to remove the stock-holding limits in May 2017, this came too late, after the peak arrival period was over,” the report said.