MSP Hike for Rabi Crops

Why in news?

The government has recently approved an increase in the minimum support prices (MSP) offered for rabi crops.

Click here to read on MSP hike for kharifs.

How are prices fixed?

Earlier - The CACP used to earlier take into account a host of factors apart from cost of cultivation, while recommending the MSP.
They include:

Now - However, this changed with the Union Budget for 2018-19.
The government accepted the so-called Swaminathan formula of fixing MSP for crops at 1.5 times their estimated production costs.
Different production costs are taken into consideration in this regard, namely A2, A2+FL or C2.
A2 covers all paid-out costs directly incurred by the farmer in cash and in kind on seed, fertiliser, pesticide, hired labour, leased-in land, fuel, irrigation, etc.
A2+FL includes A2, plus an assigned value of unpaid family labour.
C2 is a more comprehensive cost that factors in the rentals and interest forgone on owned land and fixed capital assets, on top of A2+FL.
The CACP’s job thus became simply to estimate production costs of crops for a particular season.
It then recommends the corresponding MSPs by applying the 1.5-times formula.

What is the recent decision?

The government has settled for the intermediate A2+FL cost formula to arrive at MSPs.
It has fixed the all-India average A2+FL production costs, for the upcoming 2018-19 rabi planting season, for six crops.
These are wheat, barley, chana (chickpea), masur (lentil), rapeseed-mustard and safflower.
The projected increase in costs for 2018-19 over last year’s rabi season ranges from 1.8% for barley to 7.2% for chana.
Government claims that farmers would get a price at least 150% above their production cost, and their incomes would be doubled over time.

What are the concerns?

The concern now relates to “how” the estimation is done, as only the production costs are taken into consideration by the CACP.
The CACP recently gave the price policy report for the ensuing rabi season.
It has constructed a Composite Input Price Index (CIPI), based on the latest available price data for major farm inputs.
Notably, the retail price of diesel (used as fuel for tractors, harvesters and irrigation pumps) is nearly 32% higher than a year ago.
Likewise, farm fertiliser and pesticides prices have also gone up to significant levels.
The raw materials/intermediates and technical material/active ingredients for these are largely imported.
So their prices are linked to global crude oil and gas rates.
In effect, the CACP cost projections are lower than the actual prices that farmers are currently paying for inputs.
E.g. Rs 17-18/litre increase in diesel price for a wheat farmer consuming at least 80 litres/acre translates to an additional cost of roughly Rs 1,400 per acre.
If the higher prices of fertiliser and pesticides are added, the extra production cost for these inputs increase substantially.
This would erode a significant chunk of the gains from the increase declared in the MSP.

What is the way out?

Higher minimum support prices often do not translate into better returns for farmers.
India’s farm sector has multiple stress points, and ground-level procurement often does not take place at stipulated support prices.
So a robust mechanism that actually helps farmers get the declared MSP for a crop is essential.
The price deficiency payment scheme and private procurement plan are steps towards this.
All these being in a nascent stage, there needs to be a holistic reboot of the agriculture sector.

Source: Indian Express, The Hindu