By T Nanda Kumar
A law to guarantee Minimum Support Price (MSP) is the new slogan. Different groups, politicians, farmers, activists and other folks help this. The farmers have a proper to demand what they believe is very good for them, but there are dangers ahead. A mandated help price tag implies that no private trader can acquire beneath such price tag. Typically, violators will be prosecuted in such a legal framework!
What are the implications of such an thought?
Let me state upfront that continued economic help to farmers is necessary. One should really not neglect that farmers, with help from the MSP method, have fed millions of Indians and ensured meals safety. Highly input-intensive agriculture supported by public procurement continues to be our approach for meals safety.
Over time, nevertheless, demand has changed the climate has develop into variable, and the aspirations of farmers have risen. It is time to concentrate on farmers’ incomes, sustainability and nutrition. Some of this has occurred currently. Changes in markets and production are reflected in the composition of the gross worth of output in agriculture and allied sectors. The ‘MSP crops’ (mostly, cereals, oilseeds, pulses and fibres) add up to only 25% of the worth (2018-19). Farmers who make the other 75% (mainly perishables) are dependent on the industry and its price tag fluctuations.
Currently, 23 crops are beneath the MSP regime, the most seminal getting paddy and wheat. The procurement of these crops is supported by the Public Distribution System (PDS). Till a decade ago, the query prior to the policymakers was ‘will the MSP give us enough grains to meet the PDS requirement?’ There had been prolonged discussions (mainly in the course of 2006-08) about procurement price tag getting kept greater than the MSP. Things changed later, mostly on account of enhanced production and 3 essential choices: (i) to retain a strategic reserve of 5-6 million tonnes in addition to buffer stocks, a outcome of the severe shortage of public stocks in 2006 followed by a worldwide meals shortage in 2008, (ii) the enactment of the National Food Security Act guaranteeing extremely subsidised meals to just about two-thirds of the population, resulting in enhanced pressures on procurement, and (iii) the choice to calculate the MSP at price (A2+FL) plus 50% (2018). The Commission on Agricultural Costs and Prices (which was constituted to advise on the price tag policy for chosen commodities, with a view to evolve a balanced and integrated price tag structure against the point of view of the all round requirements of the economy and with due regard to the interests of the producer and the customer) was decreased to undertaking easy tasks of calculating the price of production and adding 50%. The procurement of rice and wheat went up to about 90 million tonnes (51mt rice and 39 mt wheat) this year, which is about 50% extra than the requirement (a surplus of about 25-30 mt). Procurement, as a percentage of production, is increasing although production is also increasing (see graphic).
With non-standard states like Madhya Pradesh, Odisha, Chhattisgarh stepping up, procurement has touched 43% of the production of rice and 37% of wheat. When UP and Bihar catch up, procurement could attain 50% of production. Apart from the enormous logistical challenges, meals subsidy will balloon to unsustainable levels. What will take place to the private industry and meals inflation when the government is forced to sit on such enormous stocks is anyone’s guess. Add to this the calls to expand the basket of 23 commodities. There was a demand to include things like milk a couple of years ago. The Kerala government has announced a MSP for chosen vegetables (interestingly, rates fixed are A2+FL plus 20%). The demand for C2 fees as the basis for MSP (about 30% extra) can get stronger. The financial price of wheat and rice, at present, is about 40% extra than MSP fees. Imagine the size of the meals subsidy bill!
Add to this the situation of a mandated MSP. The private sector (and that incorporates all compact traders) will have no alternative but to keep out of the industry or cheat on the price tag. The state agencies will finish up shopping for just about every little thing and will want to resort to ‘Open Market Sales’ to meet customer demand. Traders can sit back, acquire from FCI, and make a neat profit, although the government loses enormous sums of revenue.
To have an understanding of this situation far better, let me examine the case of sugar. Sugarcane, in contrast to other commodities, has a statutory minimum price tag (named Fair and Remunerative Price , or FRP), that sugar mills are mandated to spend. In addition, states like UP have a state advised price tag, generally greater than the FRP. During the final sugar season, production of sugar (thanks to the improve in productivity), in spite of adverse climate situations in Maharashtra and Tamil Nadu, stood at 31 mt, at least 25% extra than the domestic requirement. The government was compelled to (i) announce a pre-determined price tag and acquire substantial quantities of ethanol via PSU oil providers, (ii) announce a ‘nudged and incentivised’ export of 6 mt of sugar with a subsidy of about Rs 10/kg of sugar (Rs 6,000 crore), and (iii) repair a minimum ex-factory sale price tag of Rs 31/kg of sugar, imposing an involuntary burden on the customer. Consumers paid extra and taxpayers paid Rs 6,000 crore since cane price tag got fixed at about 75% above price (A2+FL) in 2018-19. Our sugar rates rule far above international rates. This subsidy regime is topic to a challenge in the WTO, and if non-compatible, we will have severe troubles in our hands. This year also, we are staring at a big surplus. Clearly, this is not the way forward!
Open-ended MSP itself is a large challenge at present. If it is decided for any purpose to ‘mandate’ MSP, we are staring at disappearing export markets, a disrupted domestic provide chain, unmanageable surpluses and an unaffordable subsidy burden. In the existing situation of complicated demands in a surcharged atmosphere, a tectonic shift to a extremely decentralised meals and agriculture management, providing extra legal authority, economic help and responsibilities to states could be an alternative worth contemplating.
The author is Former secretary Food & Agriculture, Govt of India. Views are private