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Kisan Log: Why government’s support prices are not effective

​​The aim is to improve the returns of farmers across the country. If procurement is similar to last season, it is estimated that rice farmers alone will make Rs 7,000 crore more than last year.

Mumbai Mirror|
Jul 18, 2018, 01.09 PM IST
Critics of this government say it has jacked up the support prices with an eye on the 2019 Lok Sabha elections.
(This story originally appeared in on Jul 18, 2018)
By Parth MN

The Narendra Modi government has increased the minimum support price (MSP) for major kharif crops. The price of paddy has been raised by 13 per cent, or Rs 200, a quintal. The price of millet has been hiked by 52 per cent, maize by 19 per cent, cotton by 28 per cent and moong by 25 per cent.

The aim is to improve the returns of farmers across the country. If procurement is similar to last season, it is estimated that rice farmers alone will make Rs 7,000 crore more than last year.

Critics of this government say it has jacked up the support prices with an eye on the 2019 Lok Sabha elections. But if it is beneficial for farmers, how does it matter? The main questions are whether the decision will really help farmers and has the government delivered on its promise of providing MSP that is 1.5 times the production cost.

The Commission for Agricultural Costs and Prices (CACP), a government panel, has three definitions of production cost. The first definition, A2, covers the basic costs incurred by farmers for buying things such as seeds, pesticides and fertilisers, and for hiring labour. The second category, A2+FL, refers to the unpaid family labour along with basic costs. The third category, C2, is a comprehensive account of resources a farmer spends on a crop. It includes rentals and forgone interests on fixed capital and land, on top of A2+FL.

Modi described the increase in support prices as “historic”. That would have been accurate if history began in 2014. The MSP hike for paddy was 15.7 per cent in 2012-13 and 20.8 per cent in 2008-09. After the rise in MSPs of 14 kharif crops, their prices are now 50 to 97 per cent over A2+FL. But they are still short of 1.5 times of C2, which I assume was the target since the UPA government had set the MSP at 1.5 times of A2+FL.

If one goes by the production cost of 2017, paddy is still Rs 476 per quintal short of 1.5 times of C2, while arhar and moong are Rs 1,243 and Rs 1,575 off the mark, respectively. Interestingly, the C2 projections for this year have disappeared from the CACP report posted online, unlike previous seasons. Na rahega baans, na bajegi bansuri?

In the past one year, diesel prices have gone up by around 20 per cent, pushing up input costs. Fertilisers like DAP and zinc sulphate have also become expensive by 25 per cent and 60 per cent, respectively. In fact, farm labour, pesticides, fertilisers and diesel prices have all increased manifold since 1992 and the hikes in MSPs have hardly been proportionate. The latest hike in prices is, at best, an expression of intent by Modi. An intend of reaching out to distressed farmers.

Modi had expressed similar intent in February, when the government announced an increase in MSPs for rabi crops. Farm leaders in Maharashtra later told me it had hardly materialised on the ground. Avik Saha, convener of the Jai Kisan Andolan, also said the same thing on a news channel. This highlights another problem with the MSP announcement: lack of procurement centres.

In India, only 6 per cent of farmers manage to sell their crops at MSPs. The rest sell their harvest at market prices. The highest hike in terms of percentages is for millet, which is hardly procured by the government. Currently, the government procures wheat and rice in substantial quantities. So the hike in their MSPs will mostly help farmers in Punjab and Haryana where dedicated procurement takes place. But West Bengal, the largest producer of rice in the country (around 140 lakh tonnes), does not stand to gain as the procurement there in 2017-18 has been only 57,000 tonnes. In Maharashtra’s Buldhana district, urad farmers are on a hunger strike because they have not received payments from the National Agricultural Cooperative Marketing Federation of India (NAFED) for six months.

While increasing MSPs the government has not provided any clarity on how it plans to tackle the gaps resulting from the lack of procurement centres, without which any hike will, more or less, remain only on paper. The government is well aware of the problem. (Sample this: a mandi in Punjab covers 120 square kilometres of area, while in Assam, it covers over 6,000 square kilometres.) The only hope for the rest of the farmers is that the market responds to the hike in MSPs. Maize, for example, is still sold at Rs 750 per quintal in the market even though the MSP is up at Rs 1,700. This is why the CACP has recommended to make the support price a legal right for farmers. The government maintains that the Food Corporation of India and NAFED will continue to procure from farmers. But the two haven’t been buying enough.

According to one estimate, the MPS hikes would cost the exchequer Rs 35,000 crore. A news report pegged the cost at Rs 1,75,000 crore in a full year if market rates are lower than the support price by 20 per cent.

The Organization for Economic Co-operation and Development, an intergovernmental body of 36 developed countries, analysed agriculture policies in India over the past two years. The study showed that the government’s interventions have actually reduced gross farm revenues by 6 per cent, contrary to the perception that farmers have been benefiting from subsidies. The latest hikes are another policy intervention. Whether it will help the sector is anybody’s guess.
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