Understanding MSP for agri produce

The Minimum Support Prices (MSP) were announced by the Government of India for the first time in 1966-67 for Wheat in the wake of the Green Revolution and extended harvest, to save the farmers from depleting profits.

Since then, the MSP regime has been expanded to many crops. Minimum Support Price is the price at which government purchases crops from the farmers, whatever may be the price for the crops.

The MSP is announced by the Government of India for 25 crops currently at the beginning of each season viz. Rabi and Kharif. Following are the 25 crops covered by MSP:

Rationale behind MSP
If there is a fall in the prices of the crops, after a bumper harvest, the government purchases at the MSP and this is the reason that the priced cannot go below MSP.

So this directly helps the farmers. How MSP is decided? The government decided the support prices for various agricultural commodities after taking into account the following: Recommendations of Commission for Agricultural Costs and Prices Views of State Governments Views of Ministries Other relevant factors.

How MSP is decided?

The government decided the support prices for various agricultural commodities after taking into account the following:

• Recommendations of Commission for Agricultural Costs and Prices
• Views of State Governments
• Views of Ministries
• Other relevant factors

Fixing the MSP Policy
While the hikes in minimum support prices (MSP) have been the highest for pulses, few expect a production response to since, with little procurement of farm produce other than wheat and rice—and cotton once in 5 years or so—farmers find it too risky to grow other crops.

As a result, if the monsoon does do poorly, chances are India will import even more pulses, and at higher prices since there is little global supply of the pulses.

India consumes—imports rose from $1.8 billion in FY14 to $2.8 billion in FY15. Imports of vegetable oils, similarly, have shot up hugely, from $7.2 billion in FY14 to $9.7 billion in FY15.

Under the circumstances, the government needs to work on completely overhauling the current MSP policy where prices are announced for 21 products, other than wheat and rice, for which there is little procurement—there is 100% procurement for sugar in the sense mills are mandated by law to buy all production.

For starters, MSPs should be announced for just 4-5 crops after studying where there is excess production and where there is excess import.

It is obvious, for instance, that India needs to produce more pulses since pulse inflation is very high. While it is the combination of higher MSPs and procurement that makes farmers grow more of a crop, getting FCI or other state agencies to step up procurement may not always be possible—in even the case of wheat and rice, procurement takes place in just 4-5 states.

In which case, the options may be to give income support—pay cash to farmers directly in case prices fall below, say 75%, of the MSP. In the case of crops like palm oil, procurement is not even an option since the crop is a plantation one and it takes 5-6 years to start bearing the first output.

The way to fix the MSP-procurement cycle is to do a larger analysis of costs and benefits. The extra costs of rice and wheat are well known—just carrying the extra buffer costs around R7,500 crore each year while the actual purchases lock up another Rs 40,000 crore or more. There is also a high cost in terms of power, fertiliser and water subsidies.

Between the Centre and the states, India spends around R2 lakh crore each year in these 3 subsidies, most of which are used up in the production of wheat, rice and sugar—indeed, the export competitiveness of wheat and rice would be quite different if these subsidies were not given.

So, if the government wanted to double the area under pulses, it would need to look at what the profits from growing these are and compare this with wheat and rice.

Farmers could then be given a compensation if market prices fell below the MSP or they could simply be given a per acre subsidy—equivalent to the difference in profits between pulses and rice/wheat—to encourage the switchover.

None of this is terribly new thinking, indeed in even the UPA’s tenure; the government had been experimenting with a subsidy to encourage diversification. The problem, however, is that it was never scaled up to any meaningful level.

This is what the NDA now needs to do—keeping in mind the total subsidy outgo today; it needs to find a way to switch this between crops to get the biggest bang for the buck. It is this kind of work that the NITI Aayog needs to be doing.

Kharif Crops	Rabi Crops
1.Paddy	13. Sesamum
2.Jowar	14. Nigerseed
3.Bajra	15. Wheat
4. Maize	16. Barley
5. Ragi	17. Gram
6. Arhar(Tur)	18. Masur (Lentil)
7. Moong	19. Rapeseed
8. Urad other crops/Mustard	20. Safflower
9. Cotton	21. Toria
10. Groundnut	23. De-Husked
11. Sunflower Seed	24. Jute
12. Soyabeen BlackCocunt	25. Sugarcane

MSP for 2016-17

• Govt approves increase in the Minimum Support Prices (MSPs) for all Kharif Crops of 2016-17 Season
• To incentivise cultivation of pulses and oilseeds, Govt announces a bonus on these crops, payable over and above the approved MSP
• Pradhan Mantri Fasal Bima Yojana -Low premiums to be paid by farmers - 2 % of sum insured for Kharif crops, 1.5% for Rabi crops
• Govt launches crop insurance portal & Mobile app to help farmers find out complete details about insurance cover available
• Govt launches scheme to develop a pan India electronic trading platform under ‘National Agriculture Market’ (NAM) scheme
• Soil Health Cards being issued to farmers across the country - Card provides information on fertility status of soil
• Paramparagat Krishi Vikas Yojana: Govt promoting organic farming and development of potential market for organic products
• Pradhan Mantri Krishi Sinchai Yojana: Scheme implemented with the vision of extending the coverage of irrigation
• Govt focusing on improving production & productivity of rice, wheat, coarse grains and pulses under National Food Security Mission

Besides increase in Minimum Support Prices (MSP) of Kharif crops, Government has taken several farmer friendly initiatives over the last one year. These, inter-alia, include the following:

• The Government had declared a bonus, over and above the MSP, of Rs 200 per quintal for Kharif pulses of 2015-16 season and a bonus of Rs 75 per quintal for Rabi pulses of 2016-17 marketing season.
• A new crop insurance scheme ‘Pradhan Mantri Fasal Bima Yojana’ has been launched by the Government. Under this scheme, the premium rates to be paid by farmers are very low - 2 % of sum insured for all Kharif crops, 1.5% for all Rabi crops and 5 % for commercial and horticulture crops. The new insurance scheme involves use of simple and smart technology through phones & remote sensing for quick estimation and early settlement of claims. The Government has also launched crop insurance portal and Mobile app “Crop Insurance” which will help farmers to find out complete details about insurance cover available in their area and to calculate the insurance premium for notified crops. During kharif 2016-17 season, 24 states have already intiated necessary action for implementation in their state. Out of which, 15 states have already completed the biding tendering process for selection of insurance companies.
• The Government has also launched a scheme to develop a pan India electronic trading platform under ‘National Agriculture Market’ (NAM) scheme with the aim to integrate 585 regulated markets with the common e-market platform. Each State is being encouraged to undertake three major reforms - allow electronic trading, have a single license valid throughout the State and a single entry point market fee. It will also enable farmers to discover better prices for their produce. 21 markets in 8 states have already been brought on the e-NAM platform.
• Soil Health Cards are being issued to farmers across the country. These will be renewed every two years. The card provides information on fertility status of soil and a soil test based advisory on use of fertilizers. As on May 31st 2016, 191,80 lakh Soil Health Cards have been distributed.
• Under Paramparagat Krishi Vikas Yojna (PKVY), the Government is promoting organic farming and development of potential market for organic products.
• The Pradhan Mantri Krishi Sinchai Yojana is being implemented with the vision of extending the coverage of irrigation ‘Har Khet ko Pani’ and improving water use efficiency ‘Per Drop More Crop ' in a focused manner with end to end solution on source creation, distribution, management, field application and extension activities.
• Government is focusing on improving production and productivity of crops such as rice, wheat, coarse grains and pulses under the National Food Security Mission (NFSM). For 2016-17, out of the total Central Share of Rs 1700 crore under NFSM, Rs, 1100 crore has been allocated to improve pulse production.
• A dedicated Kisan Channel has been started by the Doordarshan to provide 24 x 7 information in the hands of farmers regarding weather updates, agri-mandi data etc.
• Government is also encouraging formation of Farmer Producer Organisations.
• To stabilize prices of pulses, Government is creating buffer stocks pulses through both domestic procurement and import.
• A handbook for women farmers ‘Farm Women Friendly Hand Book’ containing special provisions and package of assistance which women farmers can claim under various on-going Missions/ Submissions/ Schemes of Department of Agriculture, Cooperation & Farmers Welfare has been brought out. Women farmers/beneficiaries could approach the nearest Project Director (ATMA) / Deputy Director (Agriculture) office at District or Block Technology Manager/Assistant Technology Managers at Block level for instant help and facilitation for availing the benefits.