At the recent NITI Aayog Governing Council meeting under the Prime Minister’s watch, much emphasis was laid on making the minimum support price (MSP) for crops more effective. While some States demanded higher MSP, others sought a more robust procurement system especially for oilseeds and pulses. Crop diversification was also suggested.
Can higher MSP alone ensure higher production and productivity or crop diversification? No. Can a robust procurement system alone deliver sustained benefit to growers? No. How can crop diversification happen without creative disruption of the entrenched cropping systems? While these daunting issues must engage the attention of policymakers, there is much more to India’s farm sector policymaking than a simplistic production and price-centric approach.
Agriculture is subject to several risks including weather, production, quality, market, and price. Crop cultivation is seasonal and regional in nature. During the short marketing period (usually two months), prices tend to collapse because of perceived glut. As our domestic markets are largely integrated with the global markets (through trade and investment routes) our crop prices often tend to reflect global trends.
The logic of MSP
So, assurance of a minimum price to ensure that the farmer recovers his cost of production plus gets a decent return on investment is necessary. MSP is a kind of sovereign guarantee that farmers will not be allowed to suffer losses if the crop price falls below the specified minimum support price.
Indeed, MSP is a deemed or unwritten options contract. The government has an obligation to buy from farmers if crop price falls below MSP; and farmer has no obligation to sell (to the government) if price stays above MSP; farmer is free to sell in the open market.
While growers deserve support, a routine hike in MSP season after season does little to drive crop production and productivity. Over the years, MSP has ceased to be an instrument to encourage crop choices or diversification.
Again, MSP not backed by a robust procurement system is doomed to fail, especially in the context of a production centric approach. Procurement becomes all the more imperative in the event crop prices fall below MSP. Currently, several parastatals engaged in crop procurement (grains, pulses, oilseeds) seem to be unequal to the job in terms of quantities procured and geographies covered. It is time to enlist the services of the private sector to complement and supplement the efforts of the government parastatals.
Importantly, the crop procurement policy must take into account environmental concerns. We are well aware that grain mono-cropping (rice and wheat) and open-ended procurement at support price are leading to disastrous environmental impacts
A holistic approach to agriculture is called for. With MSP we need a robust but nuanced procurement system that helps advance sustainability. Alongside, an appropriate trade (export/import) policy and tariff (customs duty) policy is necessary. The trade and tariff policies must seek to protect the interests of domestic growers, without compromising the interests of consumers.
The oilseeds sector is an example of the failure of MSP, procurement, trade and tariff policies. Despite chronic shortage, the country’s oilseed growers more often than not fail to receive even the MSP. Their fortunes are thwarted by persistent low yields combined with unimaginative and often hurtful trade and tariff policy for edible oil.
In the production centric approach of the government’s farm policies, demand side is often overlooked. There is little policy effort to boost consumption of key food crops, despite the fact that our per capita availability is relatively low and there is a skew in the pattern of consumption.
If our policies focus on boosting consumption as much as on production, the downward price pressure faced by growers will ease. There is now a case stronger than ever before for boosting the consumption of essential food commodities including pulses and edible oil, especially targeted at the vulnerable sections of the population. They are the ones facing the brunt of undernutrition — pervasive protein and calorie deficiency.
Food and nutrition security is critical for the country. Agriculture is the country’s largest private sector enterprise. We have an estimated 113 million farming families and each farmer is an entrepreneur in his own right. Although he is a risk taker, the farmer has historically been challenged and vulnerable to huge uncertainties. Agriculture accounts for 15-18 per cent of our national GDP but provides livelihood for over 50 per cent of the workforce.
We need to reimagine our farm policies and review the working of related institutions. A combination of MSP plus robust procurement with environmental consciousness plus a judicious export/import policy combined with a sound tariff policy that dynamically adjusts to global and domestic market conditions and above all, policies to boost consumption are the need of the hour.
Newer issues including worsening land constraints, looming water stress and climate change are sure to pose additional challenges.
The writer is a policy commentator and agribusiness specialist. Views are personal