Wheat price war

Central ministries disagree on minimum support price for wheat

By Jyotika Sood
Published: Tuesday 25 October 2011

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.


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.

Minimum Support Price (MSP) for wheat (per quintal)
  CACP recommended

Government fixed

2006-07 Rs 650 Rs 650*
2007-08 Rs 700

Rs 750**

2008-09 Rs 1000 Rs 1,000
2009-10 Rs 1080 Rs 1,080
2010-11 Rs 1100 Rs 1,120
2011-12 Rs 1350

Rs 1,285***

*additional bonus of Rs 50 per quintal

**an additional incentive bonus of Rs 100 per quintal was payable on procurement during rabi marketing season 2007-08. It was subject to the condition that state government fully exempts this bonus amount from all state taxes and levies.

***as suggested by the Ministry of agriculture to the Cabinet Committee on Economic Affairs. The final decision is yet to come.

He says factors like withdrawal of subsidy on fertilizers and the consequently near three-fold hike in the cost of diammonium phosphate (DAP) fertilizer has put the farmers in quandary and that it was obligatory on the part of the Centre to announce an adequate hike in wheat MSP. He adds that the MSP of Rs 2,200 was worked out by the state’s agricultural department in consultation with the experts of the Punjab Agricultural University in Ludhiana. It is based on the recent escalation in the prices of agriculture inputs like seeds, fertilizers, pesticides, diesel, cost of irrigation and labour.

Harcharan Bains, the chief minister's media adviser says, “Punjab’s demand for wheat MSP of Rs 2,200 still stands. But if the Centre feels the demand is too high they should not give farmers anything less than Rs 1,800.”

But when agriculture economists at Punjab Agricultural University in Ludhiana were asked about their calculations on MSP, they refused to talk, saying that it’s a political matter in Punjab and they would prefer to refrain from commenting.

Farmers Unhappy

While the political battle between the Central ministries and the Centre and state government is on, farmers are the sufferers. Despite their regular opposition to the way MSP is decided, the Central government is not ready to listen to them.

Bhartiya Kisan Union (BKU) spokesperson, Dharmedar Singh, says agricultural universities have arrived at estimates between Rs 1,500 to 1,600 as input costs for wheat cultivation. This includes Punjab Agricultural University in Ludhiana,  Govind Ballabh Pant University of Agriculture and Technology in Uttarakhand and universities in Haryana.

Now if MSP is decided as per the recommendations of the Commission on Farmers Welfare, formed in 2006 and headed by agriculture scientist M S Swaminathan, the MSP turns out to be around Rs 2,200 to Rs 2,300. Swaminathan in his recommendations had said that the MSP should be 50 per cent over the cost of cultivation as even the land is a big resource. But the Centre is yet to accept the recommendation, Singh complains.

Singh says if the government fails to meet farmers'  demand, they would be forced to take a six-month holiday from farming every year for 10 years.

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