This article by Vivian Fernandes in thequint.com
The Congress Party’s promise to farmers in its manifesto to give “legal guarantee to minimum support prices (MSP) announced by the government every year, as recommended by the Swaminathan Commission,” will be a financial wrecking ball like the traditional pension scheme for government employees which the party reverted to in Rajasthan in 2018 after winning the state elections (It lost in 2023).
The National Commission on Farmers headed by the architect of India’s green revolution M S Swaminathan recommended in its revised national draft policy for farmers in October 2006 that MSP should be “at least 50 percent more than the weighted average cost of production.” The commission was set up by the Congress-led government in 2004. The commission did not define the weighted average cost of production. The Commission on Agricultural Costs and Prices (CACP) which recommends MSP for 23 crops every year bases it on a set of costs which include cash expenses on seed, fertilizer, pesticides and interest on working capital, and the notional value of family labour. But farmers who ended their year-long agitation in Delhi in 2021, and again protested earlier this year, want MSP to be based on comprehensive or C2 cost, which they assume the Swaminathan Commission meant. This cost includes in addition depreciation on farm equipment, the rental value of own cultivated land and interest of own fixed capital).
The Swaminathan Commission did not seek a legal guarantee for MSP either. But in its second report, it took note of the Long-Term Grain Policy suggested in 2002 by the High Level Committee headed by the agricultural economist and member of the erstwhile Planning Commission, Abhijit Sen. That committee had said that “in recommending MSPs,” the CACP should go “strictly on the basis of C2 cost of production… in more efficient regions.” It also recommended that “all agencies, central, state, cooperative or private, which are a part of public grain management, should be legally bound by MSP policy.” Once the government announces the MSP, it should buy the produce that farmers offer to sell it, the Sen committee said.
But these recommendations of the Grain Policy are not part of Swaminathan’s revised national draft policy.
By legally guaranteed MSP, farmers unions mean even private trade should obliged to buy at not less than the MSP. The Sen committee perhaps did not venture that far, because it was concerned with “public grain management.”
Legally guaranteed MSP based on C2 cost cannot have a margin of 50 percent, C Rangarajan and S. Mahendra Dev have argued in a newspaper article. Traders will not buy at that price and the government will be the only buyer. But this will not be possible because it will be very difficult to replicate the marketing structure and storage facilities that the government will need to procure 21 crops for which MSP is declared in addition to wheat and rice, which it currently procures. They suggest a margin of 10 percent instead. The Congress cannot brush aside their opinion because Rangarajan was the chairman of Prime Minister Manmohan Singh’s Economic Advisory Committee and Dev was chairman of CACP between 2008 and 2010.
MSP based on weighted average cost will compensate farmers differently because of regional variations in yield. While the MSP of paddy is Rs 2,183 per quintal (100 kg), the paid-out cost per quintal is the lowest in Punjab at Rs 864, because it has the highest paddy productivity. West Bengal’s has the highest paid out cost of production for paddy at Rs 1,766. But if the use of irrigated water was factored in (for environmental sustainability), Punjab’s advantage against the eastern states which get more rainfall will get eroded.
Agriculture economists Ashok Gulati and Manish Kumar Prasad have calculated that MSP based on comprehensive cost will lift the prices of 23 commodities for which MSP is declared by an average of 25 percent over their current levels. The MSP of paddy, for instance, will go up by 31 percent or Rs 677, that of wheat by 9 percent or Rs 191 and of mustard by 8 percent or Rs 436. These changes in relative prices will trigger shifts in cropping patterns leading to significant paddy surpluses, while wheat and sugarcane will lose area, necessitating higher MSP hikes than indicated by the comprehensive cost plus 50 percent formula.
The manifesto also says it will give “paramount” importance to the interests of farmers. Can that happen? When onion prices shoot up will it refrain from imports or imposition of stock limits? When wheat and rice prices rise internationally, will it allow exports? So farm consumer interests have prevailed over those of farmers.
Legally guaranteed higher MSP will not drive diversification to other crops, especially in Punjab, where a shift from water intensive paddy is most needed. As former agriculture secretary T Nanda Kumar and agriculture economist Shweta Saini has shown, no crop combination in Punjab that does not include paddy is not the most profitable. For instance, based on current MSP and yields, a combination of paddy on the rainy season, wheat in winter and spring maize yielded Punjab farmers an average of Rs 3,34,000 per hectare. If maize were to replace paddy, which is desirable, the earnings with wheat will decline to Rs 1,87,000.
The Congress Party’s promises can have unintended adverse consequences.
Agricultural markets are not entirely free. Smallholder farmers have little bargaining or holding power. Prices fall at harvest time, when smallholders are obliged to sell in order to repay their crop loans and other debt. But making MSP a legal guarantee may not be the solution. Smallholders need income support. There are other non-trade-distorting ways of providing it.
(Top photo of he Congress Party releasing its manifesto on 6 April, 2024 courtesy of the party).
