It’s procurement, not price, that matters

Rajalakshmi Nirmal BL Research Bureau | Updated on July 04, 2018

In 2008-09, which was also an election year, the UPA government had announced a hike in MSP for paddy by 20.8 per cent, but the present hike is just 12.9 per cent   -  M SRINATH

The Centre has loosened its purse strings to please farmers. The increase in MSP for Kharif crops is, however, largely in line with our expectations.

In the BusinessLine article ‘Why MSP at cost plus 50 is no big deal’ dated April 22, 2018, it was indicated that a few crops such as jowar, ragi, sunflower seed, sesamum and nigerseed, where the MSP was just enough to cover cost, were likely to see a significant increase in the support price once the procurement price was hiked to give 50 per cent return on the cost of production. On Wednesday, the Cabinet announced an increase of 30-50 per cent in MSP for these crops.

However, it was a surprise that some crops where the MSP was already 1.5 times or more relative to cost have also seen MSP go up, indicating that the cost of production has been reworked. These include bajra, arhar and urad.

The MSP in bajra last year, at ₹1,425/quintal, was already 1.5 times the cost (₹949/quintal). But now the MSP is jacked up to ₹1,950. If they had assumed a 5 per cent increase in cost of cultivation of bajra, the cost would have risen to ₹997. At 1.5 times the cost, the MSP should have been ₹1,495, much lower than what was announced.

It needs to be noted that the Commission for Agricultural Costs & Prices (CACP)’s recommendation on MSP as approved by the Cabinet is based on ‘A2+FL’ costs that includes expenses on farm inputs — such as seeds, fertilisers, fuel and irrigation — and imputed value of Family Labour. The ‘C2’ costs which includes imputed rent and interest on owned land and capital has not been used for arriving at the MSP this year.

While higher MSPs are good news for farmers, it can add to their income only if the government is able to enforce it. Currently, though the MSP is announced for over 20 crops, procurement is effective in just two — paddy and wheat.

In most crops, procurement is either absent or very minimal. In 2016-17, Kharif procurement in groundnut by the National Agricultural Cooperative Marketing Federation of India 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. In soyabean, it was practically nil.

The three crops which have seen the maximum increase in MSP this year — ragi, nigerseed and jowar — don’t see any central procurement.

However, two crops where the higher MSP will make a difference is paddy and cotton.

In rice, about 40 per cent of the produce is procured from farmers by FCI and other central agencies, every year.

In cotton too, farmers may stand to benefit given the CAI (Cotton Association of India) plays a relatively more effective role in procurement. The MSP announced is ₹5,150/quintal, up 28 per cent over last year. As of the latest sowing report, cotton sowing has been done on 32.2 lakh hectares (versus last year’s 46.1 lakh hectare). Many farmers in Maharashtra and Gujarat are still awaiting more rounds of rainfall to start sowing. These farmers may now sow more cotton.

In case of other crops, however, without an effective procurement mechanism, MSP hike will only stoke retail inflation without the farmers’ actually benefiting, say farm activists.

Published on July 04, 2018

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