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Farmers’ demand for legally guaranteed Minimum Support Price (MSP) has got the government thinking: Will the legalisation be feasible for all crops covered by the price support scheme?
While legalising MSPs would provide insurance or guaranteed prices for resource-endowed farmers, concerns of groundwater depletion, the parity between MSPs and costs of production of competing crops, and carbon emissions by water-guzzling crops must receive policy attention.
First, we examine the crop-wise production costs, that is, A2 + FL (paid-out costs plus imputed value of family labour) and their MSPs from 2020-21 to 2022-23. The Chart depicts the CAGR of production costs and MSPs for 23 crops, segregated into cereals, oilseeds, pulses, fibre, etc.
It is clear that the Commission for Agricultural Costs and Prices significantly increased the MSPs relative to the production costs for oilseeds and pulses from 2020-21 to 2022-23. Even so, cereals have been at an advantage for a variety of reasons.
The legal guarantee of MSPs for paddy and wheat may not be justified for farmers compared to oilseeds and pulses. In other words, farmers will likely be more incentivised if they move from mono-cropping to inter-cropping with pulses and oilseeds.
Second, CRISIL Market Intelligence and Analytics reported that the “real cost” of guaranteeing MSP would be around ₹21,000 crore for the marketing year 2023-24. Considering kharif 2022 and rabi 2023, 41 per cent of paddy and 24 per cent of wheat produced during the years were procured, while only 9 per cent of the rapeseed-mustard produced was procured. The procurement was less than 3 per cent of the output for other crops.
The increased participation rate of paddy and wheat in the MSP-based public procurement system suggests offtake of custom-milled paddy/wheat by the State Food and Civil Supplies and Food Corporation of India to meet the requirements of a subsidised targeted or universal public distribution system.
Third, the fair price ration system promotes subsidised rice/wheat sales, while the share of pulses and oilseeds remains insignificant. Though a few States offer pulses to beneficiaries as part of their monthly quota, universal adoption of nutrient-based recipes is yet to take off.
Thus, augmenting pulses and oilseeds distribution through PDS will increase demand, encouraging farmers to grow more of these crops and contribute to nutrition security and ecological safety.
Fourth, groundwater-based irrigation puts immense pressure on the already depleted aquifers. While Punjab and Haryana are top producers and exporters of rice, accounting for 98 per cent of the crop area under irrigation, groundwater extraction is more than the replenishment. An average of 2,500 litres of water supplied by rainfall or irrigation (with a variability of 800 to 5,000 litres) is required to produce 1 kg of rough rice.
Fifth, free power and subsidised tube well installation schemes incentivised farmers to go for water-guzzling crops rather than otherwise remunerative oilseeds and pulses.
Legalising MSPs for pulses and oilseeds could reduce government imports and improve farmers’ incomes, nutritional security, and soil health.
Horizontal coordination for knowledge and technology transfer and payment for ecosystem services-enabled natural resource management could incentivise farmers’ adoption of pulses and oilseeds.
Promoting a nutrition-driven targeted PDS and incentivising farmers’ adoption of pulses, oilseeds and climate-resilient crops would give a fillip to sustainable agriculture and food policies.
Dey teaches at IIM Lucknow, and Das is a Ph.D. student at IIM Lucknow. Views are personal
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