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Experts unconvinced about the efficacy of MSP policy

Higher minimum support price by the government has been the sole driving force for farmers to finally hike acreage for pulses this kharif.

, ET Bureau|
Sep 25, 2010, 08.07 AM IST
NEW DELHI: Higher minimum support price (MSP) by the government has been the sole driving force for farmers to finally hike acreage for pulses this kharif. Upto August 13, pulses acreage was apparently higher by 24% compared to the same period last year. This year, the acreage is pegged at 103.21 lakh ha thus far -17.33 lakh ha higher than the same time last year.

Pulses and edible oil are the most imported agri-commodities in the country to meet domestic demand, toting up bills of several crores annually. Increased acreage should be good news and hiking MSP has ostensibly worked very well for the government in the foodgrains sector over the years.

Experts, however, aren’t convinced on the efficacy of the MSP policy as a sustainable driver of agricultural productivity for a country that is being tipped to be part of the world s topmost commodity hub in the next decade. MSP to drive crop acreage and to increase production should be used to motivate agricultural growth only as a last resort and not as a convenient first option, they contend, even if the MSP policy has had a favourable impact on farm income.

By merely increasing prices, we are deferring the problem for some time instead of finding a permanent solution.....response from farmers can be improved through factors such as physical market price, high yielding varieties, better government as well as private procurement systems; these are more important for influencing/guiding acreage under crop, commodity market analyst Vandana Bhatt and Shivanand Upadhyay of SMC Global Securities stressed in a recent article.

Indeed, they contend that MSP had little to do with higher acreage under pulses, notwithstanding the government’s belief to the contrary. Pulses were the main focus of the MSP policy this year and the government almost doubled support prices in the thick of a prolonged double digit food inflation in order to bridge the demand-supply gap.

Pulses support prices were hiked upto 33% and real support was raised in the range of Rs 380-700/qtl. The key objective of the government was to lure farmers in rain-fed areas to plant more pulses and boost domestic output so as reduce dependence on exports.

The MSP for moong increased fir the three successive years since 2008-09o from Rs 2520/qtl to Rs 2760/qtl in 2009-10 to Rs 3070/qtlo in 2010-11. Moong cultivation was taken in 36,185 ha in 2008, which rose to 38,750 ha in 2009 and is expected to reach 39,000 ha this kharif season. However, the analysts point out, there has been no automatic direct co-relation between higher acreage and production, which has either remained stagnant or even plummeted.

Production has successfully fallen by 30%o from 1.4mt in 2008-09 to 0.73mt in 2009-10 thanks to lesser use of fertiliser, cultivation in marginal land and absence of improved farming practices. Toor production, for instance, increased one year and declined the next - between 2007-08 and 08-09 - thanks to higher input costs and erratic monsoon in recent years. Analysts say similar growth stories were observed with other pulses too.

Higher-than-MSP market prices for pulses (arhar almost hit Rs 100/kg early this year) this Kharif due to a widening demand-supply gap at home acted as a catalyst to increased acreage by farmers, experts suggest, apart from abnormally strained import availability.

Yet the MSP policy has ostensibly worked very well for foodgrains and served to hike rice and wheat farmers income manifold. Over the last few years, the government has increased the MSP for wheat and rice substantially. The MSP of wheat, which was Rs 550/qtl in 1999-2000 is Rs 1100/qtl in 2010-11. In paddy, for the common variety, the MSP has increased from Rs 490/qtl in 1999-2000 to Rs 1000 in 2009-10. Between 2002-03-03 and 2009-10, the MSP was increased by over 88% for rice but production area is almost stangant and production increased gradually. Paddy production in 2009-10 fell by 14% to 89.13mt because of delayed and deficient rains. The hike in MSP and the bounty of weather gods is expected to boost rice production in 2010-11 could touch 100mt.

To a certain extent, it is true that it is the MSP that was effective for rice and wheat. A continuous record production in wheat for the last three years appears due to higher MSP and an assurance that the government will procure at that rate, motivating farmers to go for wheat again. Bhatt and Upadhyay agree in their write up in the Commodity Participants Association of India (CPAI) first research journal.

But, they stress, a deeper look at the overall reasons behind the bumper production of wheat and rice shows that MSP is not the only reason behind the growth story. The figures improved also due to adoption of HYVs, use of better technology. IPM and better facility of irrigation started in the 60s and resulted in the Green Revolution.

Again, acreage under cotton and its production have been increasing without a commensurate hike in the MSP, which has remained unchanged at Rs 2500/qtl for three consecutive years. The acreage reached a record level of about 100 lakh ha last year and is projected higher this year, primarily because farmers reacted to better price realisation driven by good international and home demand.

Higher MSP fixation, infact, could act counter-productively to food security, as evidenced in the price parity see saw between foodgrains and sugarcane periodically. Food prices are unlikely to come down in a hurry with demand increasing significantly, hiking pressure on farm land and the Centre uses MSP as the key policy to increase acreage, whether the crop is sugarcane or food grain, says Sunil Kakaria, MD, Mawana Sugars.

Merely declaring a higher MSP on pulses or oilseeds would continue to be a highly discouraging factor to pulses and oilseeds farmers in the long run, experts say, without extending the guaranteed procurement policy applying to foodgrains, ensuring direct access to agri markets for small and marginal farmers in rainfed areas, providing good irrigation and a proper storage system for pulses and oilseeds.

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