Hike in the Minimum Support Price
Context:
- Economic considerations alone are insufficient to justify the amount of the increase.
Introduction:
- The minimum support price (MSP) of wheat that will be planted in the upcoming rabi season of 2023–24 has been increased by the government by Rs 150, to Rs 2,275 per quintal. That is the biggest surge since the same amount of gains during the previous United Progressive Alliance (UPA) rule in the two successive crop years, 2006–07 and 2007–08.
The MSP, or minimum support price:
- A commodity’s Minimum Support Price (MSP) is the price at which farmers must sell their produce to the government in the event that the market price drops below this limit.
- The government releases the fair and remunerative price (FRP) for sugarcane as well as MSPs for the 22 required crops. Fourteen kharif crops, six rabi crops, and two additional commercial crops are the required crops.
- It is predicated on the recommendations made by the Commission for Agricultural Costs and Prices (CACP), which takes into account a number of variables, including intercrop price parity, market pricing trends, supply and demand, and production costs.
The CACP considers the following aspects when recommending MSPs:
- Its manufacturing expenses;
- The trends in market prices (domestic and foreign);
- Pricing parity between crops;
The value of MSP:
- Farmers are eager to make larger investments with the hope of earning bigger returns when they are completely certain of the guaranteed price, or MSP, for their crops and have markets for their produce.
- The Minimum Support Price (MSP) smooths out market imperfections and price swings that directly affect farmers and their products. As prices rise and fall, the market adjusts accordingly.
Late Hike:
- There are political and economic aspects to the most recent increase in procurement prices. Politically speaking, this is the final one before the Lok Sabha elections of 2024 and the state assembly elections of the following month, with wheat serving as a crucial rabi crop in Rajasthan and Madhya Pradesh.
- In terms of economics, wheat stocks in government warehouses, which were 239.95 lakh tonnes on October 1—just above the needed normative minimum of 205.2 lakh tonnes for this date—have been a major factor in the current MSP increase. Concerns have also been raised over the future of the crop, considering that the biggest reservoirs in the nation have water levels that are just 82.4% of last year’s and 94.4% of the 10-year normal for this date.
- Furthermore, rainfall during the rabi season may be impacted by a strengthening El Niño, which is predicted to last through the winter and spring until May. At least a few periods of winter rainfall supply moisture and help maintain the low temperatures needed for the wheat crop. Given the current shortage of supplies, the government clearly does not want to take any chances, particularly in the days leading up to the national elections.
However, Hike is not warranted:
- However, for two reasons, that does not excuse the size of the MSP increase that was approved.
- First, in a large portion of northern and central India, farmers who have access to irrigation typically choose to plant wheat. Beyond guaranteed government procurement, they don’t require any further incentives to grow it. Nearly half of the nation’s rabi crop land is planted with wheat. If the acreage increases this time, it won’t be due to a greater purchasing price of Rs 150 per quintal.
- Second, the government has the option to import if limited supplies are an issue. In the past year, wheat export prices to the European Union have dropped from $360 to less than $250 per tonne. Russian wheat costs between $230 and $235 per tonne. Imports would be feasible, at least on the government’s view, for building its own inventories even after accounting for insurance, ocean freight, and other expenses.
Path ahead:
- In order to assess and recommend improvements for the Food Corporation of India (FCI), the Shanta Kumar Committee was established in 2014. The group suggested that farmers should get subsidies based on income rather than price.
