Does MSP drive crop acreage decisions?

 

 

Minimum Support Price (MSP) is the government-set minimum price for procurement of essential agricultural produce guaranteed to the growers. The main reason why the government fixes MSP is to ensure a minimum positive net return to the farmers for their produce that reflects the cost of production and also provides necessary incentive structure to continue investment and production of agricultural commodities. Every year MSP for major agricultural produce is announced after taking into account the recommendations of the Commission for Agricultural Costs and Prices (CACP). The CACP while recommending MSP takes into account factors such as cost of production, change in prices of inputs, demand and supply, market price trends and cost of living among other factors.

 

In the current year too government has announced the MSP for khariff crops at the time of the preparations for sowing.

 

MSP for the current year…

 

A year before was the worst year for all the kharif season crops that got affected due to the drought condition that prevailed during the months of June - September. In order to boost the production the MSP for the current year has been increased for all the crops except for cotton and Jute. 

 

Pulses remained the main focus for this year. In order to encourage the cultivation of pulses government increased MSP upto 33 per cent. The main aim behind this move is to push up the supply (as India is the major producer as well as consumer of pulses) and therefore to stabilize the price, which has increased to almost double in two-year time frame. It is important to augment the supply of pulses, as it is the main source for protein. It is also important, as it forms an important ingredient in our daily food basket.

 

The MSP for Arhar (tur) has been increased the highest by Rs.700 per quintal followed by Moong and Urad of Rs.410 per quintal and Rs.380 per quintal respectively. The MSP for all the pulses has been increasing for the last five years. However, this has not resulted in increase in pulses production. The production of these crops is highly volatile with production rising one year and falling the next year.

 

From the graph it could be inferred that the tur production is increasing one year and the immediate year it is declining. Basically, tur is a long duration crop, highly sensitive to weather and also it requires lots of attention. The up-down swing could also be attributed to higher input cost and the erratic monsoon in the recent years.  However, a 33 per cent hike in MSP this time may boost the farmers to go for more area coverage in tur.

 

 

On the other hand, the cotton production has been increasing over the years but the same is not seen with the MSP. The MSP for cotton has been steady for the third consecutive year. The acreage under cotton reached at a record level of about 100 lakh hectares the previous year. The current year is also projected to be higher on better realization of prices. The demand from the domestic and international markets was also very good.

 

So, is the MSP a motivating factor for the farmers to go for a particular crop in a year?

 

To some extent yes, the MSP is one of the factors for the farmers to go for a particular crop. For instance the FRP (fair remunerative price) for sugarcane in the current year has been raised by around 7 per cent that led to the increase in acreage along with the higher prices realized the previous year. A continuous record production in wheat for the last three years is mainly on higher MSP and an assurance that the government will procure at that rate, motivating farmers to go for wheat time again. Even though the government does not procure many commodities, but intervenes in case prices fall below the MSP.

 

The rise in MSP for Arhar by nearly Rs.700 per quintal for the first time in the last five years might induce farmers to go for Arhar, as the sowing has just begun and it is not late. Hence we hope that the government measures actually turns out to be positive in driving farmers for a better agricultural output. Finally, all that matters is the actual output of all agricultural crops for the year and not the driving forces.

 

Minimum Support Price (MSP) for 2010-11

 

Note: Rs. per quintal

*An additional incentive of Rs. 5 per kg for tur, urad and moong was payable over MSP during the harvest/arrival period of two months to procurement agencies.