Minimum price support, maximum gain for farmers

As climate change compels farmers to diversify from wheat and paddy, how can the government make minimum support price available to farmers by making the system more effective and transparent?

There are two ways to understand repeated agitations by farmers. One is that workers of all unorganised sectors have low incomes. For instance, artisans and weavers of Moradabad, Bhadohi, Aligarh, Bidar and Bhagalpur are similarly placed. However, they are too disorganised to even highlight their plight.

The second is that farmers face the additional challenge of uncertain climatic conditions and are therefore more vulnerable than other workers in the unorganised sector. In the last few days alone, untimely rains have damaged standing crops in several districts of north India. 

The ongoing farmers’ protest in Punjab and Haryana is the latest chapter in a series of similar agitations. In March 2023, a large number of farmers marched from Nashik to Mumbai. Punjab farmers are more visible as their operational holdings are larger and, compared to farmers elsewhere, they earn higher income from cultivation. They have the wherewithal to protest. Lastly, the political space presently available to them to mount agitations is not available to farmers in most states.

Farmers in Punjab have seen remunerative incomes due to the assured minimum support price (MSP) regime for wheat and paddy. While it may not have provided high returns, at least they were not subject to huge fluctuations in prices, which was a common experience for farmers growing crops like mustard, chana, fruits and vegetables, soybean, tur, maize and sunflower. Now that water tables are going down in the region, farmers are realising that growing paddy may not continue to be a viable option. This situation has created the need to diversify. To protect a similar level of income, they want to assure MSP for other crops.

One of the points of agenda for the committee set up in July 2022, after an agitation by farmers, was to suggest how to make MSP available to farmers by making the system more effective and transparent. The committee has not submitted even an interim report, presumably because of the complexity of the issues involved and a lack of consensus among its members.

The guarantee of MSP 

Even though the farmers are demanding higher MSP based on the Swaminathan formula — it does not necessarily mean that they can realise assured prices during the sale of the crop.

There is a lot of fluctuation in prices in wholesale markets.

All India prices may not provide an accurate picture as prices are lower in states producing surplus crops or are higher in non-producing states.

At the time of peak arrivals of most crops, the prices are at their lowest. Most farmers find themselves compelled to sell their produce during this time to repay their loans and purchase inputs for the next season.

Edible oils

Despite all the talk of the National Mission on Edible Oils, mustard farmers are currently receiving little remuneration for their crops.

At Rs 4,738 per quintal in Rajasthan in February 2024, the wholesale price of mustard is significantly below the Minimum Support Price (MSP) of Rs 5,650 per quintal. 

Similarly, the wholesale prices of chana have mostly remained below the MSP in the last five years.  Only, since September 2023, wholesale prices of chana have shown an increasing trend and they are now closer to MSP.

Poultry growers have also faced a similar crash in prices even though the demand and supply are better managed due to the dominance of the National Egg Coordination Committee. In January and February 2020, egg prices fell to Rs 340 to 350 per 100 eggs in Namakkal, Delhi and Hyderabad due to fake news on social media linking the consumption of chicken and eggs to the spread of coronavirus.

As a result, poultry demand was destroyed and broiler prices in Delhi crashed to Rs 45 per kg. Many were forced out of business.

Cost of cultivation

One reason why the diversification from paddy is yet to be successful in Punjab could be due to low returns from other crops. If we look at gross returns, paddy gave the highest average gross returns over the cost of cultivation plus family labour for Kharif crops in the triennium ending (TE) 2021-22.

The average gross return of paddy over cultivation cost during the TE 2021-22 was 42.1%. The average gross return for maize, tur, moong, urad and cotton were 42.2%, 56.7%, 25.3%, 27.1% and 30.2%  respectively. 

During this period, sugarcane gave the highest return of 110%. Sugarcane is the only crop for which sugar mills are mandated by law to pay the price fixed by the government.

For the diversification from paddy to succeed, Punjab farmers have been demanding assured and remunerative returns by demanding a legal guarantee of MSP for all 22 crops for which the Union Government declares MSP.

Way forward

Farmers may be hoping that an agitation on the eve of elections has a better chance of success. The example of reservation for Marathas in Maharashtra would not have been lost on them. On February 20, 2024, the Maharashtra Legislative Assembly and the Legislative Council unanimously passed a bill which provides 10% reservation for the Maratha community in education and government jobs. This agitation has been going on since the 1980s and it can be argued that impending elections may have persuaded the state government to enact the reservation law.

However, it is unlikely that the demand of farmers for legal MSP would be accepted even though the announcement of Lok Sabha elections is only weeks away.

Even if MSP is made a legal right, there would be practical difficulties in implementing the same as less than a third of agricultural produce is sold in APMCs and there is no record of buyers and sellers in the case of transactions that take place outside the APMCs.

Farmers are paid in cash by village traders who also function as aggregators. It will be next to impossible to change this informal arrangement. 

In the case of agricultural commodities that are imported to meet domestic demand like edible oils and pulses like tur and masoor, the government can easily adjust tariffs to protect MSP.

The government would however like to keep food inflation under check and this challenge prevents it from imposing higher tariffs on imports.

In July 2018, the government decided that MSP in future will provide at least a 50% return on the cost of cultivation. This was a response to farmers’ distress in the preceding years. As a result, the MSP of several crops increased substantially. However, in the absence of assured procurement, the farmers of several producing areas did not realise the same.

Therefore, it may be a good idea for the government to reconstitute the committee on MSP and appoint bipartisan members whose recommendations will be widely accepted across the political spectrum.

If an acceptable mechanism is evolved to share the financial burden between the Union government and the state governments, it may be possible for the states to agree to take more aggressive steps to protect MSP.

 A committee headed by a bureaucrat is unlikely to be credible on such contentious and critical issues. 

(Hussain is a former Union Agriculture Secretary. Khurana is a PhD scholar of economics at BITS Pilani, Hyderabad.)