The recent decision of the government to fix the minimum support price (MSP) for notified kharif (and later, rabi) crops at an arithmetical “cost plus 50%” has been described as a political MSP—impractical and difficult to implement, etc—by various experts. The government spokespersons have described this as path-breaking and “promises fulfilled”; in fact, promise fulfilled to the last decimal. Sample this: the Commission on Agricultural Costs and Prices (CACP) recommends a support price of Rs 2,895 per quintal for ragi, the government raises it to Rs 2,897 (not Rs 2,900) per quintal, to make it 50.01% over “cost”. So much for fine tuning!
A major problem faced by the CACP is the estimation of “cost”, whether it is A2, A2+FL (family labour) or C2 ( denoting the various types of costs in agriculture; for details, refer to CACP reports). Given the variability of costs, especially of labour costs, and the range of productivity across India, they do the obvious: calculate a weighted average across India based on production matrices. Therefore, MSP today is 50% over weighted average cost (A2+FL).
I examine the implications of this for major producing states. Do all farmers get 50% over cost or do some get more and some less? Obviously, the more efficient farmers get more and the less efficient ones, less. There is no way in which the MSP regime can correct this. A ‘state-specific, cost-based’ MSP is a clear invitation to chaos. Let’s look at the current MSP regime for major crops, and how does it look like for major producing states of paddy, maize and wheat (wheat MSPs are for rabi 2018) .
The calculations indicate the disparity between highly productive states and those caught in the low productivity trap. The Punjab farmer will get a ‘return’ of above 100% of the ‘cost’ (‘cost’ in this article refers to the cost used by CACP, viz.,A2+FL; there is no attempt here to justify this cost as the correct basis for calculation) of his paddy and wheat. Whether this is good in the long term for Punjab is a matter for another discussion.
Farmers of Punjab, Chattisgarh, Bihar, Andhra Pradesh and Haryana, who account for 37% of total production of paddy, will get a percentage point higher income than the national average, while farmers in states like Uttar Pradesh, Odisha and West Bengal, who account for 36% of the production, will fare poorly. Is there a case for these states to take a serious look at the technology and management of paddy cultivation?
Similar is the situation for maize. While farmers in Andhra Pradesh and Bihar (together 21% of production) can claim to get incomes above 100% of the ‘cost’, farmers in other states will have to do with less. Farmers in UP and Maharashtra, who account for 19% of the production, will get less than 50%. Does it therefore make sense for them to grow maize, or is it that they have large rain-fed areas where only maize can be grown?
The wheat story is different. As per CACP data, the MSP is 112% of the “cost” (the other similar case is sugarcane). Since there is no possibility of MSP being lower than that of the previous year, the wheat farmers can expect a nominal increase in MSP as was the case this year with sugarcane. Even in the case of wheat, regional disparities exist.
Now that cost plus 50% is here to stay, (I do not see a possibility, definition of cost may change at best!), does this mean a ‘profit-sensitive’ shift in cropping patterns? Will Punjab continue to produce rice and ignore water depletion warnings again? If, and if at all, that happens and Punjab ‘curtails’ free electricity, will rice remain as competitive in Punjab? Can the big states (with large areas under these crops) do something significant to reduce the cost of cultivation in their states as part of ‘doubling farmers’ incomes?
An interesting analysis would be to consider the area under cultivation for some of these crops in the context of costs and MSP. There may be variations within the state as well. Such an analysis might hopefully lead to an actionable plan to reduce costs and increase incomes of farmers.
If this method of fixing MSP is to stay for a longer term, then the states (and Krishi Vigyan Kendras of the Indian Council for Agricultural Research ) should re-engineer their agriculture research and extension programmes to focus on reduction of costs, increase in productivity and creating marketing infrastructure to optimise farmers’ returns per acre of land. If they fail to do this, they might find themselves at the receiving end of farmers’ anger and protests! Here is an unmissable opportunity to restructure many institutions and programs in agriculture, and a time to restructure Rashtriya Krishi Vikas Yojana!
Over to the states for some creative thinking and decisive action!
T Nanda Kumar is former secretary of food & agriculture and is currently a senior visiting fellow, ICRIER Views expressed are personal.