Wheat price war

The wheat sowing season is here and so is the debate over what should be the minimum support price (MSP) for it. But this year's debate is a little different from the ones in previous years when farmers kept demanding higher MSP and the government paid scant heed.

[Highlights]

This year the Union agriculture ministry as well as the Commission for Agricultural Costs and Prices (CACP) under it have suggested increase in wheat MSP for 2012-13. CACP has suggested that Rs 1,350 per quintal be offered to farmers and the agriculture ministry has proposed a price of Rs 1,285 on the basis of calculations made on CACP recommendation. The proposed hike in MSP is meant to cover rising farm input costs and encourage farmers to increase acreage under wheat farming.

But the food and public distribution ministry is playing spoilsport this time. It has objected to an increase in MSP and has suggested maintaining wheat MSP at Rs 1,170 per quintal.

The final call on what should be the wheat MSP will now be taken by the Cabinet Committee on Economic Affairs (CCEA), headed by Prime Minister Manmohan Singh.

The food ministry’s contention is that the move will increase retail prices and inflate the food subsidy bill. “The average cost of production of wheat is Rs 927 per quintal and the proposed MSP of Rs 1,285  per quintal means a price margin of 39 per cent which is too high and is, therefore, not acceptable,” says a food ministry official. He adds that the food subsidy bill is already projected to increase to Rs 1,03,695 crore in 2011-12 as against Rs 62, 929 crore during 2010-11.

In India, the Central government fixes MSP for about 20 crops. MSP is a price mechanism that gives assured returns to the farmers and acts as a benchmark price for the market. It is also the price at which the government procures crops such as wheat and rice from farmers.

MSP is calculated taking into account various aspects like cost of production, changes in input prices, input-output price parity, trends in market prices, demand and supply, effect on cost of living, international price situation and parity between prices paid and prices received by the farmers.

Punjab cries foul

Punjab Chief Minister Parkash Singh Badal has rejected the MSP of Rs 1,350 per quintal of wheat for 2012-13 proposed by the CACP. He has demanded Rs 2,200 to compensate the farmers for an exorbitant hike in the agricultural input costs. Badal says that the non-remunerative MSP coupled with anti-farmer policies of the Centre was primarily responsible for the slow-down in agricultural growth.