Explainer: Minimum Support Price (MSP)

There are many misconceptions about MSP, which I had written about in an earlier post. To help my students understand this better, I put together a short explainer on the topic, including some inputs from my colleague.  I’m sharing a link below, in case regular readers of this blog find it useful too.  Please do share your feedback in the comments section below.

MSP Explainer

Minimum support prices (MSP): For whom and for what?

Every year we see news of increase in government announced Minimum Support Prices (MSP) and how the MSP benefits farmers get a reasonable income from their production.  We also hear about complains by farmers about how low the MPS is.  This year was no exception.

What is MSP?

The MSP and the government system of foodgrain procurement are all part of the 1960s green revolution policies aimed at achieving food security for the country.

 As part of these policies, the government created a system of food grain procurement for multiples reasons:

  • Maintaining reserve stocks of food (national food security)
  • Providing price support to farmers by declaring, and procuring at, ‘minimum support price’ for various commodities
  • Selling the grain at subsidized rates for those who cannot afford it

 

The MSP is calculated by the CACP (Commission for Agricultural Costs and Prices), based on estimate of the average costs of production of each commodity and a desired farmer profit.  The MSP is declared for 24 commodities, for Kharif and Rabi seasons.

The MSP is simply the recommended price for the government to buy produce at.  Over the years, the nominal MSP has increased for all produce, but real MSP (inflation adjusted) have varied quite a bit.

MSP real over decades

How much does the govt. procure?

If the MSP is intended to provide reasonable income to farmers, such a system would work only if the govt. directly procures the majority of the produce.  Of all the 24 commodities, government procurement is greatest for wheat and rice.  GOI currently procures about 30% of all wheat and rice produced in the country (for market and subsistence) and about 6-7% of other commodities.

Who benefits from MSP?

The government’s procurement operations concentrate on a few crops and a few states. For paddy, about 50% of the total paddy procured for the central pool came from three states: Punjab, Andhra Pradesh and Telangana.  For wheat, about 60-65% is procured just form Punjab and Haryana. Even within these states, procurement takes place only in a small number of districts.  Strong lobbies (e.g. wheat and rice in Punjab and sugarcane farmers in Maharashtra) also influence where and how much procurement takes place. (For more details on procurement, see Pocketbook of Agricultural Statistics 2016).

In the case of oilseeds and pulses, in principle the government is supposed to procure these commodities when market prices crash. However, the quantity procured as a percentage of the marketed surplus is usually negligible.

As the govt. procurement is concentrated at a few centres, it requires farmers to have transport facilities to reach the procurement centres. There are sometimes delays in govt. procurement which makes it difficult for small and marginal farmers to wait for sale of their crops. In districts where a large proportion of production is procured by the government, the MSP can also affect the overall market prices at which the traders buy produce, due to competition from govt. agencies.

So direct procurement benefits only a small percentage of farmers because

  1. procurement is concentrated in some states and districts, e.g. Punjab, Haryana, AP,
  2. while MSP is set for 24 commodities, the government procures mostly wheat and rice
  3. most of the MSP procurement by the govt. happens from medium to large farmers

 

In fact, in 2015, a High Level Committee on Reorienting the Role and Restructuring of Food Corporation of India estimated that only about 6% of farmers benefit from the MSP.  This is also evident from various data from the NSSO, as below.

MSP procurement

So the next time we see a lot of debate over MSPs, it would be useful to remember that currently it benefits only 6% of farmers. But if the region, crop, and land holding bias of MSP could be fixed, MSP could provide much needed income assurance and risk reduction for the most vulnerable farmers .

Update November 2018:  Here is a more detailed ‘MSP Explainer’.

References

  • Kannan 2015. Trends in Agricultural Incomes: An Analysis at the Select Crop and State Levels in India. Journal of Agrarian Change. 15(2)
  • NSS Report 473 Statement 3.12b
  • Pocketbook of Agricultural Statistics 2016, Table 9.2
  • Report of the High Level Committee on Reorienting the Role and Restructuring of Food Corporation of India (“Shanta Kumar Committee Report”). January 2015. pp 12-13

Food archaeology

It seems that archaeo-botanists are studying ancient food grains to figure out what climate was like based on stresses on food grains found (e.g. lack of sufficient water).

It seems that “when barley grass gets insufficient water while growing, the proportion of heavier carbon isotopes deposited in its cells will be higher than normal.” Using this in reverse, they can figure out what the local climate was hundreds of years ago.They analyzed grains of barley up to 12,000 years old from 33 locations across the Fertile Crescent. “Riehl found that periods of drought had noticeable and widely differing effects on agriculture and societies in the Ancient Near East, with settlements finding a variety of ways to deal with the problem.”

Read more at: http://phys.org/news/2014-08-archaeobotanists-probe-ancient-grains-drought.html

 

Online Course on Sustainability in the Indian Context

Whatsapp Tech

After months and months of preparation and production, I’m so excited that this course is ready for launch!  It’s a unique multi-instructor course exploring sustainability ideas and actions in the Indian context.  As the course is designed with weekly faculty interaction and feedback, it’s a ‘closed enrolment’ course with a cap on class size and not an impersonal MOOC.  We’ve already gotten quite a few applications.

Footprint of the food we eat

I came across this interesting article on the greenhouse gas (GHG) footprint of the food we eat, recently published by the World Economic Forum. This is particularly interesting as it focuses on fresh produce, and less on processed foods.

The summary infographic is below. As usual, vegetarians can rejoice in their lower GHG footprint.  But the dairy question remains unanswered.  Cattle have very high footprint, so why is milk shown with low footprint?  This is important to ask because India has the largest number of cattle in the world.

 

ghg-carbon-footprint-food-we-eatghg-carbon-footprint-food-we-eat

 

 

Full link: https://www.weforum.org/agenda/2016/12/your-kitchen-and-the-planet-the-impact-of-our-food-on-the-environment

Pulses: Links

Following up on the previous post about pulse production and imports, this is a brief blog with links to interesting points of view on pulses.

Some of the reasons more farmers don’t grow pulses: 

“Both farmers have sugarcane on their fields too and insist they will continue to water the sugarcane, a 100% irrigated crop, even if means less production of tur or the remaining urad/moong in their field. Per acre, sugarcane will give them an assured profit of Rs 30,000 while the profit from pulses is only Rs 7-8,000 per acre.”

…Logically, if pulses need little water, little processing, fetch such great prices, are always in demand and if we lose so much foreign exchange in buying pulses from Canada, Myanmar and Australia, why are farmers not planting more, asks the report.”

Inadequacy of government reaction [Indian Express]:

In a country where the consumption of tur hovers between 3.3 to four million tonnes, aiming to control rising prices by importing 7,000 tonnes exposes the government’s ignorance in pulse price management.

Pulses Production, Imports and Availability: By the numbers

With pulses prices topping 200/kg in many parts of India, it is an obvious topic for a blog.  Pulses are a category of produce which have intrigued me for a long time.  India is the largest producer and consumer of pulses.  India is also the largest importer of pulses.  While we have achieved “food security” in terms of cereals, we are increasingly dependent on pulses imports.  Imports currently account for about a fifth of our pulses consumption.

Given all this, I thought it might be useful to take a look at pulses strictly by the numbers.

1510 Pulses image1

India has produced 17-19 million tonnes of pulses in the last 3-4 years including all varieties of gram, tur (arhar), urad, etc.  To put this in perspective, we produce about a 100 million tonnes of rice (about 5% of which we normally export).  Another interesting thing to note is that while production of almost all foodgrains (rice, wheat, millets, pulses) declined last year, tur daal and gram declined more significantly.

Pulses import export

1510 Pulses image3

Every year we import about 20% of total pulses we consume. We hardly export anything – whatever we do export is primarily intended for Indians living in other countries.  In the case of tur daal, we import about 15% of  consumption.  India consumes 76% of the global supply of tur daal, followed far behind remotely by Myanmar at 14% and (mostly eastern) Africa at 9%.  This implies that India probably drives the international prices for tur.

Two other points of interest:

  1. In response to uproar over daal prices, the government recently announced the creation of 40,000 tonne buffer stock. For a country which requires 60,000 tonnes per day, 40,000 seems quite inadequate as a buffer to manage prices and/or supply.
  2. Another interesting question to ponder is whether 20-22 million tonnes of pulses are enough for the country. The chart below depicts the long-term trend which shows a longer term decline, with a slight recovery in recent years.

Per capita availability of pulses in India (grams/day)

More on yields and productivity of pulses in a future blog…

UPDATE March 24, 2016:  Related article from Washington Post about how India’s demand for pulses is luring farmers in Canada, US to grow pulses instead of wheat

SOURCES:

  1. Pulse production: http://eands.dacnet.nic.in/Advance_Estimate/4th_Adv2014-15Eng.pdf
  2. Import/export last two years:  http://agricoop.nic.in/imagedefault/trade/Pulses.pdf
  3. Import/export older: http://www.iipr.res.in/pdf/13_1_24072015.pdf
  4. Per-capita availability: http://indiabudget.nic.in/es2014-15/estat1.pdf
  5. Global consumption of tur (pigeonpea):  http://oar.icrisat.org/191/1/98_2010_BO49_CP_and_PP.pdf