The Central government has done well to announce the Minimum Support Price (MSP) for kharif crops for the season 2007-08 well in advance. It has given enough time to farmers to decide their planting pattern and make preparations accordingly. By making an across the board hike in MSP of virtually all sorts of crops the government hopes to offer incentives to farmers to increase production. With the forecast of a more or less normal monsoon, the hike is expected to boost the sentiment. When the country is witnessing an alarming trend of stagnation in farm production, any form of incentives to farmers to produce more is welcome.

The government is also facing the daunting task of combating the rise in prices of essential commodities like foodgrains and edible oils. In fact, a section within the government feels that hike in MSP will to some extent negate the efforts to control inflation. But it will be unfair to deprive farmers of remunerative prices. Market realities should be taken into account while fixing the MSP. In the case of some crops like wheat and rice farmers are getting higher prices for their produce from private traders than the MSP. As a result the procurement of foodgrains by state-owned bodies like the FCI is below the target. This in turn makes the building up of the buffer stock to meet food security requirements and supply of food stock under the targeted Public Distribution System difficult.

However with the country marching towards a market economy, the very relevance of MSP is being increasingly questioned. A variety of factors like market complexities that distort the supply demand equation in the domestic and global markets, change in food habits and changes in crop patterns have a bearing on this. The government should focus more on evolving a long-term foodgrain policy including a strategy for boosting agricultural production along with the offer of short-term incentives to farmers through enhanced MSP. It should go into the reasons for the current phenomenon of stagnation in foodgrain production and the large yield gaps in many crops. There is also a trend among the farmers to move away from cereals to non-food cash crops. Efforts must be made to bring more and more crop land for cultivation of food crops with an enhanced focus on boosting agricultural productivity.