Several crops sell below MSPs amid legislation debate
A range of kharif, or summer-sown, crops are selling below federally fixed minimum support prices (MSPs), or floor rates, as record output dampens prices at a time when farmers are protesting against a set of laws enacted recently to liberalise farm trade in the country.
Crops, such as soyabean, ragi, maize and cotton, are selling up to 30% below MSPs, data from Agmarknet, the agriculture ministry’s portal that tracks prices in mandis or wholesale markets, show.
Poor returns from crops have been a lingering problem for farmers, especially during episodes of gluts, such as now. MSPs, which are fixed at 50% over cost for nearly two dozen crops, don’t necessarily lead to higher farm incomes as the government’s procurement at MSP rates is largely restricted to wheat and rice. For most other crops, farmers are mostly price takers, meaning they are forced to accept whatever the markets dictate.
Output of kharif foodgrains this year is likely to touch a record 144.5 million tonnes, marginally higher than last year’s 143.4 million tonnes.
The unprofitable sales come despite the government’s assurances of robust procurement at MSP rates. For example, the government last week announced that it would procure 1.4 million tonnes of pulses and oilseeds at MSP rates. However, at just about 15% of the total production, this is too small a quantity to make a difference in prices offered by private entities.
For efficient farm markets, the government recently enacted three laws, allowing farmers to bypass state-controlled market yards run by agricultural produce market committees (APMCs) and enter into five-year farming contracts with agribusinesses. The government also freed up several commonly consumed food items from strict stocking limits that discouraged private investment in cold storages.
Farmers’ groups are protesting against the reforms, including the move to end the monopoly of APMCs, because they fear deregulation will leave them vulnerable to powerful agribusinesses and in an even weaker negotiating position than before. They also fear the reforms may weaken the MSP mechanism.
The average wholesale price for soyabean during September 16-23 in nine states worked out to Rs 3,683.02 per quintal (100 kg), against the promised MSP of Rs 3,880 per quintal, data from the ministry shows.
In Madhya Pradesh, average soyabean prices during the period stood at Rs 3648.09 per quintal, while in Maharashtra it was Rs 3719.81 per quintal.
Maize has seen a sharp fall in prices this year. The MSP for maize has been set at Rs 1,850 per quintal. Against this, the average wholesale price of maize in 17 states was nearly 30% below MSP at Rs 1,295 during September 16-23.
In one of the biggest growers, Bihar, which abolished the regulated markets system in 2006, maize has sold for a pittance. “The average prices were 60% lower than MSP because of poor demand,” said Mintu Kushwaha, a trader from the state’s Purnea district.
Ragi, a millet grown by small farmers, too is selling below its minimum price of Rs 3,295 per quintal. The average ragi wholesale price in Karnataka between September 24-30, for instance, was Rs 2,062.61 a quintal.
The MSP for cotton for 2020-21 has been fixed at Rs 5,515 per quintal. In states such as Gujarat, however, in the third week of September, cotton sold at an average wholesale price of Rs 4,500 per quintal, while in Punjab, the rates ranged between Rs 4,500 and Rs 5,000.
“Part of the problem is how MSPs are fixed. They are fixed by a formula based on 50% over A2 + FL ( a measure of cultivation costs). So, MSPs are cost-based and they have nothing to do with market conditions and, arguably, demand conditions,” said economist Abhijit Sen.
Economists say if the government wants to ensure a price higher than private markets are willing to offer, then it has to procure sufficiently. Often, the government resorts to token purchases, such as of pulses and oilseeds, which doesn’t help.
The solution to poor returns is to have a market-clearing mechanism, which is the price at which quantity demanded equals to quantity supplied, economists say. “Nudging the private sector towards triggering a market-clearing price that is closer or equal to MSP will depend on the extent of government’s procurement,” Sen said.
The latest reforms, however, are no silver bullet, experts warned. “The expectation with these reforms is, once you allow markets to determine both production and prices and what to produce, it will help farmers with better price discovery. That’s the assumption but we need to see how things go from here,” said NR Bhanumurthy, the vice-chancellor of Bengaluru BR Ambedkar School of Economics.
Bhanumurthy said the opening up of state-run APMC markets to private competition alone won’t work if it is not accompanied by other factors, such as an efficient crop insurance, expansion of food processing, storage infrastructure and better market information systems.
Prices could further dip in October, potentially intensifying farmer protests. “We have called a general meeting on October 8-9 of major farm organisations to take our agitation forward. MSP is our main concern. The recent laws will ruin the MSP system,” said Gurnam Singh, the Haryana president of Bharatiya Kisan Union.