Agriculture Economics Prelims cum Mains

Marginal hike in MSP for 14 kharif crops

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In News

  • The Centre has announced an increase in the minimum support price (MSP) of all 14 Kharif (summer-sown) crops for 2019-20.
  • The increase is in line with the principle of fixing MSPs at a level which is at least 1.5 times the cost of production, which was announced last year.

 

News Summary

Higher MSP hikes for nutri-cereals

  • The government had notified millets (Jowar, Bajra and Ragi) as ‘nutri-cereals’ due to their high nutritional value early last year.
  • Syncing its efforts to promote ‘nutri-cereals’ with the support price mechanism, less water consuming and climate resilient millets (Ragi and Jowar) got a bigger hike than water guzzling paddy. While the MSP of the common variety of paddy got a hike of 3.7% (from Rs 1,750 per quintal in 2018-19 to Rs 1,815 per quintal in 2019-20), the support price of Ragi got raised by 8.7% and the popular variety of hybrid Jowar by 4.9%.
  • Farmers opting for Bajra will get the highest return (84%) over their cost of production.
  • Farmers opting for pulses like tur (arhar) and urad will get a return of 60% and 64%, respectively, over their cost of production, which may push its production.

High MSP hike for Soy to reduce imports:

  • In percentage terms, the MSP of key oil seed, Soybean (yellow), got the highest increase (over 9%). The move may spur farmers to opt for this crop which may, in turn, reduce India’s import of edible oil.

 

In focus: Minimum Support Price

  • The Minimum Support Prices (MSP) were announced by the Government of India for the first time in 1966-67 for wheat in the wake of the Green Revolution, to save the farmers from depleting profits.
  • It is a form of market intervention by the government to insure agricultural producers against any sharp fall in farm prices during bumper production years. It is an important part of India’s agricultural price policy.

Objective

  • Assure remunerative and relatively stable price environment for the farmers by inducing them to increase production and thereby augment the availability of food grains.
  • Balanced realization of sufficient food production and consumption needs
  • Improve economic access of food to people.
  • Evolve a production pattern which is in line with overall needs of the economy.
  • Note: A counterpart of the MSP is the Market Intervention Scheme (MIS), under which the state government procures perishable commodities like vegetable items.

 

Determination of MSP

  • The Cabinet Committee on Economic Affairs (CCEA), determines the Minimum Support Prices (MSP) of various agricultural commodities in India based on the recommendations of the Commission for Agricultural Cost and Prices (CACP).
  • For the calculation of the MSP, the CACP takes into account a comprehensive view of the entire structure of the economy of a particular commodity or group of commodities.

Factors considered in arriving at MSP:

  • Various supply related information viz. area, yield and production, imports, exports and domestic availability and stocks with the Government/public agencies or industry is taken into account.
  • Cost of processing of agricultural products, cost of marketing – storage, transportation, processing, marketing services, taxes/fees and margins retained by market functionaries; etc. are also considered.
  • Other Factors include cost of production, changes in input prices, input-output price parity, trends in market prices, demand and supply, inter-crop price parity, effect on industrial cost structure, effect on cost of living, effect on general price level, international price situation, parity between prices paid and prices received by the farmers and effect on issue prices and implications for subsidy.

 

Crops covered

  • Crops covered under MSP are
    • Cereals (7) – paddy, wheat, barley, jowar, bajra, maize and ragi
    • Pulses (5) – gram, arhar/tur, moong, urad and masur(lentil)
    • Oilseeds (8) – groundnut, rapeseed/mustard, toria, soyabean, sunflower seed, sesamum, safflower seed and nigerseed
    • Raw cotton
    • Raw jute
    • Copra
    • De-husked coconut
    • Virginia flu cured (VFC) tobacco
    • Sugarcane (Fair and remunerative price)

 

Issues with MSP

  • No guaranteed procurement mechanism: There is no guaranteed procurement mechanism for most crops. Just over a third of the paddy harvest is bought by the Food Corporation of India for use in the public distribution system. Whatever the government announces may cover costs, but is available to so few farmers that it is almost a ritual.
    • For example, paddy was sold at Rs. 1,100-1,200 per quintal in Uttar Pradesh and Bihar last year when the official MSP was Rs. 1,750 per quintal. MSPs will not actually help the farmer unless procurement can be increased.
  • MSP not high enough: Moreover, historically MSPs have not kept pace with the input cost of the crops.
  • No benefit for subsistence farmers: A very large chunk of the farmers do not produce marketable surplus, due to which the MSP mechanism fails to make a difference to such farmers.
  • Lack of storage: Excess procurement of a few crops, without adequate means to store them properly leads to rotting and wastage of buffer stocks.

 

Way Ahead

  • The government had come out with a new procurement mechanism (PM-AASHA) which resulted in relatively higher procurement during 2018-19 as compared to previous years. Hence, it is important that the government ensures efficient and complete implementation of PM-AASHA scheme.
  • The central government should also ensure that procurement agencies have sufficient funds so that procurement is smooth and without the usual obstacles that farmers have to face like a limit on quantity, delay in payment.
  • More importantly, the government should focus on improving farm productivity through mechanisation of farming, improved irrigation and a robust post-harvest infrastructure.

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