Why MSP will not provide even minimum support to farmers

With a projected 5-25% rise in input prices of fuel, agricultural rentals and agrochemicals, the new MSPs for kharif crops will not lead to any gains

By Kiran Pandey
Last Updated: Monday 02 July 2018 | 14:27:15 PM

This year, monsoon had a staggered start. Last year, too, the monsoon was anything but normal, and not surprisingly, farmers did not gain from an erratic monsoon. This is evident from the fact that 34 major farmer protests have been recorded across 15 states since 2017. Farmers took to streets, demanding a fair price for their produce and a guarantee of assured income.  

In the coming week, the Centre will announce minimum support prices (MSPs) of 23 crops for the kharif season. The MSP will be 1.5 times of farmers' investment, Prime Minister Narendra Modi said in his nation-wide interaction with the farmers recently. In the last budget, Centre pledged to boost farmers’ returns by increasing government’s purchase prices for crops by more than 50 per cent of the output cost.

Even as farmers question the methodology behind the calculation of MSPs, which, according to them, does not cover the entire input cost, they are already bearing the burden of increased input cost.  Here is a low-down on how increasing input prices will diminish the gains of MSP in the kharif season.

Fuel prices: 25 per cent additional burden on paddy farmers

Fuel prices, which recorded a consistent increase in May and June this year, added to farmers’ woes. They are already suffering the brunt of low prices for their products across the country. According to experts, the share of fuel in the cost of cultivation per acre is between 10 per cent and 25 per cent and the rise in diesel price will certainly increase the input cost of paddy and other crops. Rice is a major kharif crop grown in Punjab, where farmers will have to bear at least 25 per cent spike in their input cost this year. According to a news report, the Punjab farmers will witness a spike of Rs 1,000 per acre in paddy input cost as diesel rates went up

20 per cent projected increase in rental cost of farm equipment and operations

According to the Economic Survey 2018, use of improved implements has the potential to increase productivity by up to 30 per cent and reduce the cost of cultivation by up to 20 per cent. At present, Indian farmers are adopting farm mechanisation at a faster rate in comparison to recent past. Farm mechanisation may suggest prosperity for farmers, but only if they can afford it. Small farmers with meagre landholdings and limited capital get implements and machines on rent, which increases the input cost. 

While cost of irrigation has gone up due to increasing fuel price, the cost of renting tractor-related farm operations has also increased by about 20 per cent since 2017, according to Goldfarm, which provides such equipments on rent.

Fertiliser prices increase by at least 20 per cent

Prices of non-urea fertilisers like di-ammonium phosphate (DAP) and muriate of potash (MoP) have increased due to rise in international prices. These are decontrolled fertilisers and hence, depreciation of rupee since the beginning of this year has affected their imports and made them costlier. DAP is the second most widely used fertiliser in the country after urea.

The country's annual requirement of phosphoric acid is at 2.6-2.7 million tonnes, which is mostly used to produce Di-ammonia phosphate. The Centre has increased the import duty on phosphoric acid from 5 per cent to 20 per cent as a retaliatory move against US’ protectionist trade practices. The price of phosphoric acid is currently around $730 a tonne—an increase by $150 from a year ago. The price of DAP has increased consistently since January 2018. In fact, prices of DAP and MoP have gone up by close to 20 per cent in six months.

For 2018-19, the government increased subsidy expenditure by Rs 1913.07 crore in comparison to 2017-18 to protect farmers from the impact of increase in international prices of fertilisers. But the increase in subsidy under the Nutrient Based Subsidy scheme has not helped offset the hike of input cost.

Insecticides sector gets ready to reap gains of a good monsoon

Insecticides India Ltd (IIL) and Dhanuka Agrotech—major players in the pesticide sector—have decided to increase the prices of their products by at least 5-10 per cent. The sector was unable to revise their prices for the last two years due to agricultural distress. The pesticide firms get 65 per cent of their annual business during the monsoon season. By the end of this month, the Pesticides Manufacturers and Formulators Association of India (PMFAI) is expecting an approval from the Ministry of Chemicals and Fertilisers on price rise.

Need to go beyond MSPs

While the idea of MSP is being sold as a silver bullet, reports show that crops with MSP account for only 28 per cent of the total value of agricultural output. In fact, less than 5.8 per cent of agricultural households across India are actually able to sell their produce to the government, said the high-level Shanta Kumar Committee report. Under such circumstances, it is important to re-analyse the economics of farm input cost, MSPs, farm income and also ensure that farmers get access to markets at the right time, which still remains an issue.

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