Price support policy needs to be rationalised

It is essential to promote diversification of crop production to pulses, oilseeds and millets. There is a need to spur the development and adoption of innovative technologies and practices for resource use efficiency and reducing the cost of production. Such innovations should also focus on adaptation to climate change. The integration of farmers into the value chain of agricultural commodities should be prioritised for ensuring better incomes with a larger share in consumer prices.

A. Amarender Reddy and Tulsi Lingareddy

INDIA’S price support policy has played a crucial role in helping the nation achieve self-sufficiency and food security by enhancing foodgrain production. While the minimum support price (MSP) regime has been operational for decades, the demand for its legal guarantee has brought it into focus in recent policy debates. The panel on MSP and natural farming, set up by the government in July 2022, has been holding discussions on strengthening the price support mechanism and promoting natural farming. It is essential to understand the background and implications of the price support policy, and thereby suggest short-term and long-term policy measures for rationalisation of its implementation across crops and to ensure remunerative prices for the farmers.

Globally, providing price support and other incentives is common to protect the income and livelihoods of farmer-producers, especially the smallholders, against the distress and revenue loss arising from price fluctuations and market volatility. India’s price support policy was introduced in the late 1960s with the focus on promoting the adoption of Green Revolution technology for enhancing foodgrain production, primarily of rice and wheat. Subsequently, the announcement of MSP at the beginning of the crop season was extended to other major crops, though not necessarily accompanied by procurement.

At present, the government announces MSP for 22 crops and a Fair and Remunerative Price (FRP) for sugarcane, based on the recommendations of the Commission for Agricultural Costs and Prices. While the Food Corporation of India oversees the procurement of cereals, mainly rice and wheat, NAFED procures pulses, oilseeds and other commodities under the price stabilisation scheme as well as the price stabilisation fund. Sugarcane is directly procured by sugar mills, while cotton is procured by the Cotton Corporation of India.

The roadblocks

Despite the announcement of MSP/FRP for 23 crops, procurement operations have been largely confined to rice and wheat with limited coverage of farmers across the country. Procurement of other cereals, pulses and oilseeds has improved in the past few years, but it is still very low. Procurement of rice and wheat accounted for about 45% and 35% of their total production on an average during the triennium ending 2021-22, while that of pulses and oilseeds accounted for about 7% and 3%, respectively, during the same period.

As a result of the skewed distribution of assured procurement for a few crops (rice, wheat, sugarcane and cotton), the intended implications of price support are not uniform across all crops and areas, leading to extensive changes in the cropping pattern. There is a significant shift in the cropping pattern from the cereal-pulse system to the cereal-cereal or cereal-cotton system, particularly in irrigated areas. The area irrigated for sugarcane, wheat and rice stood at 96%, 95% and 65%, respectively, while that of pulses was only about 23%, according to estimates of the Department of Economics & Statistics, Ministry of Agriculture. Among pulses, the irrigated area of chana (Bengal gram) increased significantly to 45-50% in the last decade or so, but that of tur (red gram) remained extremely low at 5-7%. The considerable increase in the irrigated area and production of chana has coincided with a significant increase in its procurement.

With negligible procurement and the resultant price uncertainties adding to the low yields, the production of pulses and oilseeds, which are low water-consuming, soil-enriching crops and essential for nutritional security of the vast population, has not increased adequately to meet the domestic consumption demand. The production of sugarcane and cotton, which are water-guzzling and soil fertility-exhausting commercial crops, has increased significantly to reach surplus quantities. Consequently, the availability of sugar increased from about 3 kg in 1961 to about 19 kg per capita per annum in 2021, whereas that of pulses and coarse cereals declined from about 25 kg and 44 kg per capita per annum, respectively, to 18 kg and 31 kg.

A major fallout of the skewed implementation of price support and procurement is the alarming deterioration in soil fertility and the groundwater table. Farmers are exhausting scarce natural resources with continuous cultivation of input-intensive crops, especially sugarcane and rice. It is evident from the falling crop yields and depletion of groundwater in all major areas where rice, wheat, sugarcane and cotton are cultivated across the country.

Open-ended procurement and legal guarantee of MSP face several hurdles. First and foremost is the enormous fiscal burden for ensuring the same. Second, extensive subsidies and support policies may render the Indian agricultural production system less competitive globally. Third, there are commitments on subsidies and price support mechanisms under the WTO’s Agreement on Agriculture, which broadly suggests that the extent of support under each crop should not exceed 10% of its value of production.

The way forward

It is essential to rationalise the operation of the price support and procurement policy to promote diversification of crop production to pulses, oilseeds and millets. There is a need to spur the development and adoption of innovative technologies and practices for resource use efficiency and reducing the cost of production. Such innovations should also focus on adaptation to climate change. The integration of farmers into the value chain of respective agricultural commodities should be prioritised for ensuring better incomes with a larger share in consumer prices. Corporates in the agricultural commodity retail chains can play a crucial role, along with public sector agencies, to connect with farmers and make them part of the value chain by creating awareness, building capacity and providing technological support.

Reddy is Joint Director, School of Crop Health Policy Support Research, ICAR-National Institute of Biotic Stress Management, Raipur; Lingareddy is a consultant economist, financial markets and sustainable agriculture. Views are personal