Do farmers benefit from mere hikes in MSP?

G Chandrashekhar | Updated on May 25, 2020

There are several non-price and non-trade initiatives that are also necessary to strengthen the farm sector

It is time the venerable Commission for Agricultural Costs and Prices (CACP) got out of its cloistered silo. According to media reports, the panel has recommended a hike in the minimum support price (MSP) for various kharif crops for the year 2020-21. Apart from rice and coarse grains, pulses, oilseeds and cotton are covered under the MSP regime.

There is an erroneous belief that recommendation of higher MSP season after season will motivate growers and encourage them to produce more. Empirical evidence, if any, is specious to prove this. On the other hand, anecdotal reports suggest growers are little concerned about MSP and, more often than not, they are unaware of the support price announced. Worse, government announces the MSP well after kharif planting gets under way, defeating even the academic objectives of MSP.

Look at the ground reality. Prices of pulses and oilseeds have been ruling well below the MSP for a considerable period of time. Most growers do not receive the assured price as the procurement or price support mechanism is unequal to the daunting task.

If MSP is treated as benchmark, growers have been losing enormous amounts of money in recent season (see ‘Who will compensate the ₹17,000 crore income loss of pulse, oilseed growers’: BusinessLine, May 20). MSP is a sovereign guarantee announced by the government of India. Having announced, the government cannot abdicate its responsibility towards growers.

Despite poor returns season after season, farmers of this country have been going about their job perhaps philosophically. For them it is a livelihood issue. But we continue to take them for granted. The situation can change anytime. It was only a couple of years ago that this country witnessed widespread protests by farmers.

While making price recommendations, the CACP ought to take into account not only increase in production cost (say due to rise in input prices etc), but also domestic and international market conditions. Export-import policies, customs tariffs, volumes of foreign trade, currency factor, demand conditions all play an important role. It is unclear if the CACP has a clue about all this.

Restrict imports

Take oilseeds, for instance. Growers have suffered enormous loss of income with market prices ruling below MSP. The only way in which domestic oilseed prices will rise is by restricting import of low priced cheap vegetable oils. Unrestrained imports of finished product (vegetable oil) depress domestic oilseed prices.

Even without a hike in MSP, domestic oilseed prices will rise smartly and benefit growers if and only if import of vegetable oil is restricted quantitatively. Tariff changes of last several years have failed to exert any positive effect on domestic oilseed production. This is the route for CACP and the government to follow.

It is a joke that nigerseed has been targeted for a substantial hike in MSP this season. Nigerseed is too insignificant to make any difference to our national oilseeds basket of 310-320 lakh tonnes. In the last ten years its production has not crossed even one lakh tonnes. Nigerseed is not going to help augment domestic vegetable oil availability. CACP has got its priorities mixed up because of limited domain knowledge.

Push for pulses

Pulse growers have done a commendable job by boosting production to 23-24 million tonnes in the last 2-3 years, thereby substantially reducing our dependence on imports. However, they continue to suffer poor returns despite consistent hike in MSP. The hike obviously fails to take into account market conditions.

To support domestic pulse growers, a big boost to demand is the way forward. That can be achieved by including pulses under PDS/NFSM programme — say three or four kilograms per family a month at affordable rate.

A good beginning to distribute pulses as free ration has been made with the aim to mitigate the hardship of people in the wake of the Covid-19 national lockdown. Distribution of pulses under the welfare schemes must continue even after the nation comes out of the current crisis. It will help advance nutrition security by providing much-needed protein to the vulnerable sections of the population.

CACP needs to move well beyond making MSP recommendation a routine ritual twice a year. As a think-tank, it must provide forward guidance to policymakers. On its part, the government must realise, there are several non-price and non-trade initiatives that are necessary to strengthen the farm sector and deliver genuine benefit to stakeholders.

The writer is a policy commentator and agribusiness specialist.

Published on May 25, 2020

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