A legally guaranteed MSP will not hit exports

Kavitha Kuruganti | Updated on January 22, 2021

Towards sustainable farming   -  REUTERS

Farm shipments form a small part of the total production and operate independently of the support prices regime

When farmers’ movement in India raises a demand for a legally guaranteed MSP (minimum support price), there is often a counter argument posed about how this would affect India’s agricultural export competitiveness. India’s agriculture exports were estimated at $38.7 billion in 2019, a mere 7 per cent of India’s production. The picture of exports is also one of stagnation. India’s market share in global agri markets is estimated to be around 2.5 per cent.

Exports, in value, are led by marine items, basmati rice, spices, buffalo meat, non-basmati rice, sugar, raw cotton, castor oil, oilmeals, tea, fresh fruits, coffee, groundnut, fresh vegetables, and cashew. The situation with regard to export competitiveness of each of these commodities is variable, understandably.

So will we lose our export competitiveness if the MSP is made into a legal right?

To begin with, increased exports from India do not necessarily translate into better prices for farmers in their interfaces with markets. For most farmers, therefore, this is a question that is not directly relevant to them. Be that as it may, there are economists and policy-makers who want to raise this question as their main concern with regard to legally guaranteed MSP.

It needs to be understood that farmers’ livelihoods don’t depend on global markets primarily, and nor does the agriculture sector itself depend on exports in any major way. Agricultural exports, as a percentage of India’s agricultural GDP, though increasing, is less than 10 per cent.

For instance, in a crop like paddy in which many farmers are engaged in, only 9-10 per cent goes for exports. About 11-14 per cent in the case of cotton. It is significantly lower in crops like wheat (around 0.50-0.70 per cent). In the case of cashew, around 12 per cent, and around 6.5 per cent for groundnut. Fresh fruits and vegetables were around 1-2 per cent of the total production.

As can be seen from above, the picture across different commodities is different and there is no point in talking in general terms about this matter. It is also clear that the domestic market is a more important element to be considered.

When we look at rice in general, MSP-based procurement on a significant scale has not affected India’s exports to the global markets. In 2019-20, despite FCI procuring a record 44 per cent of production at MSP, exports were not affected and non-basmati rice export doubled from the earlier year.

MSP and cropping pattern

It is also predicted that a guaranteed MSP for all agricultural commodities will shift the cropping patterns in the country and lead to crop diversification. It is hoped that this would lead to greater production of oilseeds and pulses, and that this will lead to a change in the current import-export picture of agricultural commodities in the country. It could very well be that India’s over-dependence on imports for edible oil demand in the country will see an import substitution happening. This would save on forex outflows.

An equivalent of what happens with a mandated compulsory MSP that is enforceable on market players — public and private — is apparent in the case of sugarcane. Here, a Fair and Remunerative Price (FRP) is the minimum purchase price by sugar mills. This applies to public sector, cooperative and private mills. There are, of course, huge complaints and associated struggles that farmers have had to wage about pending arrears from sugar mills. India’s sugar exports, however, have not been affected in any significant way due to other mechanisms put into place. Wherever so required, such other mechanisms might have to be thought of.

What is very important to note is that the global markets and prices that prevail for various commodities are not a result of free or fair markets, but of rigged rules in international trade.

In such a case, without understanding that the so-called export competitiveness of Indian products might already be compromised due to such rules that favour hidden subsidies in different countries, there is no point trying to think about only MSP-based consequences. The international markets also present a volatile picture for farmers whose livelihoods need to be secured in a stable fashion.

It is apparent that export competitiveness is determined by factors like the cost of production of a commodity, and this is a factor that can be addressed by large scale adoption of natural and organic farming (to set right the environmental degradation in our farming too) to shift the production paradigm to low-cost farming, and by subsiding some inputs. The government is already attempting the former. Further, export competitiveness in chosen commodities can be worked out strategically, with well thought-out policies through other mechanisms and crop value chains can be developed in a well-planned manner.

It appears that the arguments around export potential being affected with legally guaranteed MSP for all farmers do not take all the above into consideration. In the end, our agricultural policies have to be decided prioritising our farmers’ interests and not just about protecting export markets.

The writer is with the Alliance for Sustainable and Holistic Agriculture (ASHA-Kisan Swaraj)

Published on January 22, 2021

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