Crop price policy: Guaranteed minimum price via area planning

SS Sangwan

THE year-long agitation by farmers ended last month after the Union Government repealed the three farm laws and agreed to set up a panel on guaranteeing the minimum support price (MSP) of various crops. Farmers are hopeful that the government will agree to make MSP legally binding. Experts are debating on the possible impact of legalising MSP in terms of the cost to the government and inflation in the context of the economy, but broader aspects such as optimum utilisation of land, water, fertilisers, labour and other inputs are not part of most of the discussions. Big agricultural nations such as Australia and the US have been planning their production with these considerations while ensuring guaranteed prices to their farmers. During my survey on protected farming in 2017, a farmer in Rohtak, while complaining about the price crash, told me that his friend had a farm of about 1,200 hectares in Australia and his produce was sold at a guaranteed price on his farm. One had to get the farm plan (area under different crops) approved. It’s the normal practice for farmers in Australia. It’s known as area planning.

Area planning can result in production closer to the required figure for individual crops. It may synchronise MSP and market prices due to production as per demand. It can reduce the demand for govt procurement at the MSP. When the relevance of the MSP decreases, marketing reforms may boost private procurement, which is not happening at present. Area planning may also optimise the use of scarce resources such as water and fertilisers by preventing a glut in the production of individual commodities.

Except cereals such as wheat and rice, India is deficient in oilseeds, pulses, fresh and dry fruits and spices. The procurement at MSP has been instrumental in increasing the production of wheat, rice and pulses in recent years. But our price policy — started in the wake of deficiency in cereals — has been favourable to wheat and rice vis-à-vis oilseeds, pulses and other crops. It has resulted in lopsided production. Further, the unlimited procurement of wheat and rice by FCI has benefited the farmers of a few irrigated states which even claim taxes and commission for their arhtiyas from the Union Government. In the case of less irrigated states producing pulses and oilseeds, the National Agricultural Cooperative Marketing Federation of India (NAFED) undertakes limited procurement only under the Price Support Scheme (PSS) and it does not pay tax to the states and commission to the arhtiyas.

Therefore, the panel set up by the Centre to decide the MSP issue should first consider dismantling the discriminatory price policy in view of the present demand in the country. Second, the area planning approach must be inbuilt with the guaranteed MSP, which will not only lesson the huge government expenditure but also result in optimum utilisation of our scarce land, water, fertilisers and other inputs by controlling overproduction. The overproduction of any commodity may cause an abrupt fall in the prices and losses to farmers; if procured by the government, it will be at a huge cost to the exchequer when international prices are lower. Area planning may take care of both these problems and also save on the costs of inputs and post-harvest management.

Area planning is the alternative mechanism adopted by countries such as the US, Australia and the UK. In Australia, the departments of agriculture and food provide information and advice to the Australian Planning Commission and local governments to ensure strategic planning at the farmers’ level for the growth of agriculture as per demand. The demand may consist of domestic human and animal requirements, industrial use and exports. In the US and Australia, the zoning process regulates the types of activities that can be accommodated on a given piece of land, as well as the amount of space devoted to those activities. Subsidies are also linked to area allocated under a crop. In the UK, all farms above 5 hectares have to get approval for use of land not only for growing crops but also for erecting buildings, carry out excavations and engineering operations needed for allied activities. Contrary to this elaborate exercise, our departments of agriculture and horticulture have been generally setting targets of production higher than that of the previous year with the thumb rule of 10 per cent or so.

Our basic needs of cereal, pulses, oils, milk, meat, fruits and vegetables, clothing, fuel and shelter must be met from the land, which is in limited supply in our country. Traditionally, farmers have been deciding the area under different crops mainly in view of their own requirements but nowadays, more of them are growing for marketing, considering the price they will get. Earlier, market prices used to be the outcome of demand and supply, but at present, market prices are replaced by the MSP for some crops wherein the procurement by the Union Government has been a critical factor. The implementation of the MSP regime is limited to a few states, and that too for wheat and rice out of the 23 crops for which the MSP is announced.

At the national level, precise estimation has to be made of the total demand of each agricultural commodity well in advance of their sowing seasons. It may include requirement for domestic consumption both for humans and animals as well as exports. Then that demand may be divided among the states in proportion to their acreage under the crop concerned in the past five years or so. The state may sub-divide the demand at the regional/district level in view of previous acreages. State officials of the agriculture and horticulture departments may register an individual farmer’s area under individual crops well before the sowing season for assuring purchases at the MSP. When the aggregate registered area under a particular crop reaches the allocated limit of the district/state, its registration may be stopped and the remaining farmers may register for the next best-paying crop where the limit has not been reached or sow any crop on their own. To benefit the maximum number of farmers, a cap on area can be put for each farmer, say 3 acres for potato, 5 acres for paddy/wheat and groundnut/mustard seed, depending on the area concerned and the total requirement.

Area planning can result in production closer to the required figure for individual crops. It may synchronise the MSP and market prices due to production as per demand. It may reduce the demand for government procurement at the MSP. When the relevance of the MSP decreases, marketing reforms may boost private procurement, which is not happening at present. Area planning may also optimise the use of scarce resources such as water and fertilisers by preventing a glut in the production of individual commodities.

The author is former Professor, SBI Chair, CRRID, Chandigarh

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