Support Prices Moon in the Mirror

A price guarantee for farmers• The Agricultural Prices Commission was set up in January 1965

to advise the Government on price policy for agricultural commodities, with a view to evolving a balanced and integrated price structure in the perspective of the overall needs of the economy (emphasis added) and with due regard to the interests of the producer and the consumer” (GOI, 1965).

• Later on extended to 25 crops– Cereals: Paddy, Wheat, Jowar, Bajra, Maize, Ragi, Barley– Pulses: Moong, Urad, Arhar, Gram, – Oilseeds: Groundnut, Rapeseed and Mustard, Niger, soybean,

Sunflower, Sesamum and Safflower– Fiber Crops: Cotton and Jute– Others: Sugarcane, VFC Tobacco, Onion, Potato, Coconut

Various Committees

• 1965: LK Jha Committee• 1980: Sen Committee• 1990: Hanumanth Rao Committee• 1995: Report of the Task Force on Terms of

Trade between Agriculture and Non-Agricultural Sectors

Strategies

• Announcement of MSP for major Foodgrains• Procurement prices for purchasing surplus

from the cultivators• Public Distribution System and building proper

buffer stocks for the purchased• zonal restrictions for the movement of

foodgrains to manage the supply and demand.

Factors considered

1. Cost of production2. Changes in input prices3. Input-output price parity4. Trends in market prices5. Demand and supply6. Inter-crop price parity7. Effect on industrial cost structure8. Effect on cost of living9. Effect on general price level10. International price situation11. Parity between prices paid and prices received by the farmers.12. Effect on issue prices and implications for subsidy

Regional Variations

• Costs of Production per Quintal of Paddy 2012-13 – Andhra Pradesh : Rs. 1207.11– Chhattisgarh : Rs. 1111.07– Jharkand : Rs. 1433.98– Maharashtra : Rs. 1766.92– Uttarakand : Rs. 813.96– Punjab : Rs. 908.48

• MSP for Quintal– Common Variety : Rs. 1250– Fine Variety : Rs. 1280

Problems in estimating yields• Considerable divergence exists between yields obtained from Crop

Cutting Experiments (CCEs) and those from Comprehensive Scheme (CS Scheme) to study Cost of Cultivations both by Department of Economics and Statistics (DES) of Ministry of Agriculture

• In the last ten years between 2001-01 to 2009-10 on average the yields estimated by CCEs were lower than CS Scheme across crops viz., – Paddy (19.7%)– Maize (10.80%)– Tur (17.12%)– Soybean (16.41%)– Groundnut (-0.82%)– Cotton (301.97%)

• CACP takes the yields from the CS scheme significantly underestimating per quintal cost of production.

• CACP collects the data from CS Scheme through 5800 centres through the state agriculture universities where as the CCEs are done across 9,73,184 centres with the help of State Governments.

FARM HARVEST PRICES AND MINIMUM SUPPORT PRICES OF PADDY IN AP

Farm Harvest Price Minimum Support Price

YEAR Kharif Rabi Average Grade-A Common

1998-99 510.53 426.17 486.35 470 4401999-00 559.42 524.44 538.66 520 4902000-01 507.93 478.58 499.61 540 5102001-02 565.77 529.40 550.16 560 5302002-03 623.29 578.08 609.27 560 5302003-04 569.37 572.27 570.38 560 5302004-05 605.49 604.07 605.02 580 5502005-06 648.21 579.59 616.95 600 5702006-07 670.19 622.22 650.30 610 5802007-08 777.76 767.17 773.66 675 6452008-09 1035.75 892.28 963.56 921 9502009-10 1100.67 955.76 1072.66 1030 10002010-11 880.65 850.76 865.70 1080 10302011-12 1050 1110 1080Source: DES, AP Govt

Prices recommended by AP government for 2012-13

Crops Cost of Cultivation

Rs /acre

Rec. Support Price Rs /acre

MSP in 2012-13 Rs/Quintal

Paddy (Fine var) 28,784 2,135 1280

Paddy (Common) 27,140 2,102 1250

Groundnut 13,456 5,543 3700

Jowar 6,321 1,953 1520

Maize 20,890 1,844 1175

Redgram 9,819 6,066 3850

Blackgram 8,974 5,544 4300Greengram 7,677 5,691 4300

Soyabean 13,316 3,086Cotton 25,731 6,359 3300Sugarcane 67,458 312 139.12Ragi 8,994 2,381 1500

Sunflower 11,998 5,559 3700

Sesame 5,008 6,890 4200

State governments irresponsibleMSPs recommended for 2013-14 (Rs/q)

Crop Announced MSP (Rs/q) 2011-12

Announced MSP (Rs/q) 2012-13

Recommended MSP (Rs/q) 2013-14

Paddy 1110 1280 2811

Blackgram 3300 4300 7295

Soybean 1650 2200 4382

Groundnut 2700 3700 8019

Sunflower 2800 3700 7412

Sesame 3400 4200 7847

Ragi 1050 1500 2925

Maize 980 1175 2100

Jowar 1000 1520 2862

Redgram 3850 7277

Greengram 4300 7287

Government of Andhra Pradesh

Procurement of various food grains by the Government (2004-05 to 2010-11)

Year Rice Wheat Coarse grains Total

Prod Procur. Prod. Procur. Prod. Procu Prod. Procu.

2004-05 885.3 246.85 721.5 167.95 276.0 8.27 1882.8 423.07

2005-06 831.3 276.56 686.4 147.87 334.6 11.51 1852.3 435.94

2006-07 917.9 251.06 693.5 92.26 340.6 0.00 1952.0 343.32

2007-08 933.5 287.36 758.1 111.28 339.2 2.03 2030.8 400.67

2008-09 966.9 336.85 785.7 226.89 407.6 13.75 2160.2 577.49

2009-10 991.8 301.34 806.8 253.82 400.3 4.08* 2198.9 555.08

2010-11 225.25*

Source: Koushik Basu (2010) Economics of Food grain management in India and Data from Directorate of Economics and Statistics and updated from Ministry of Food and Civil Supplies website.

Crop States where the C2 cost projection by CACP were not covered by MSP

Paddy A.P, Assam, Haryana, Karnataka, Kerala, M.P, Tamil Nadu & West Bengal

Jowar A.P, Karnataka, M.P, Maharashtra & Tamil Nadu

Bajra Gujarat, Haryana, U.P, Maharashtra

Maize A.P, H.P, Karnataka, M.P, Rajasthan & U.P

Ragi Karnataka, Tamil Nadu

Tur [Arhar]

A.P, Gujarat, Karnataka & Orissa

Moong A.P, Maharashatra, Orissa & Rajasthan

Urd M.P, Maharashtra, Orissa, Rajasthan & Tamil Nadu

Gram Haryana, Rajasthan

Barley Rajasthan

Real Prices lower than MSP (2010-11)

Source: CACP Kharif Price Report,, 2011-12

Crop

MSP M.P. Maha -rashtra

Gujarat Rajasthan

Paddy 1000 850 785,853

Jowar 880 601 851

Maize 880 860 793

Bajra 880 700

Prices to Farmers during 2010-11 and 2011-12

Crop 2010-11 Rs/Quintal 2011-12 Rs/QuintalCotton 6500 3600Turmeric 14000 4000Chillies 12000 5500Redgram 5000 3500Blackgram 5200 3500Bajra 4000 2000Jowar 2500 1800Onion 16000 2500Sweet Orange 75000 60000

CropProduction cost MSP

Market price

C2+50% Target price

Addl exp (in Cr) C2+10%

Addl exp (in Cr)

Paddy 1530 1250 1300 2295 14575 1683 6039.2

Jowar 1994 1500 1400 2990 379 2193 189.3

Bajra 1258 1175 955 1887 40 1383 18.6

Maize 1147 1175 1244 1720 1209 1262 43.9

Ragi 1177 1500 1289 1765 13 1295 0.2

Redgram 3668 4000 3826 5502 174 4035 21.6

Greengram 3840 4500 4712 5556 78 4224 0

Blackgram 3495 4300 4103 4628 128 3845 0

Groundnut 3746 3700 4678 5619 580 4120 0

Soya 1918 2200 2932 2877 0 2110 0

Cotton 27833600

38844174 98 3061 0

Sunflower 3992 3700 3650 5988 172 4391 5.5

Total 17614 6318.3

Swaminathan recommendation?

Procurement of rice during 2009-10 by FCI and State Agencies

State / U.T 2009-10 *(OCTOBER to SEPTEMBER)FCI State agencies Total

Andhra Pradesh 6228 204 6432Assam 8 0 8Bihar 283 549 832Chandigarh 14 0 14Chhatisgarh 437 2705 3141Haryana 81 1737 1818Jharkhand 15 7 23Karnataka 72 10 83Kerala 0 261 261Madhya Pradesh 0 194 194Maharashtra 55 156 211Orissa 190 2277 2467Punjab 474 8801 9275Tamil Nadu 0 1143 1143Uttar Pradesh 374 2317 2691Uttaranchal 207 169 375West Bengal 252 914 1166Total : 8690 21443 30134Neg. - below 500 tonnes *Position as on 30/07/2010.

(In '000 tonnes)

Current Status MSP

• MSP, if implemented properly, can effectively play the expected roles: to act as incentive price, crop pattern and input intensity navigator, risk abater and technology promoter

• Not an incentive price for the crop or technology adoption• Largely, the crops which received raw deal in terms of

relative prices were the ones grown by resource poor farmers and in slow growth regions.

• Not a remunerative price• Do not drive rational land use pattern

Main issues• Faulty Price determining mechanism– Estimating costs of cultivations– Factors taken into account by CCEA

• Problems in administering– Not in all crops and regions– No procurement operations like in Odisha– Dependency on Rice millers like in AP– Only land owning farmers getting benefit like in Chhattisgarh

• Not a statutory right• Minimum Support Price becoming Maximum Price because of levi• Restricting Open Market prices using Essential Commodities Act• Higher MSPs may lead to inflation and encourage cheaper imports• Impact of NFSB