Procurement at MSP key to self-sufficiency

Sher Singh Sangwan

The implementation of the minimum support price (MSP) regime for wheat and rice has proved to be a decisive incentive for farmers in achieving self-sufficiency in cereals. The unlimited procurement of these crops at MSP is carried out by the Food Corporation of India (FCI) through the respective state agencies. The procurement of rice was earlier mainly in the states of Punjab, Andhra Pradesh/Telangana and Haryana, but in recent years, states like Uttar Pradesh, Chhattisgarh and Odisha have joined, resulting in its higher production. Similarly, wheat procurement was confined to Punjab and Haryana, but over the past decade or so, Madhya Pradesh and Uttar Pradesh have become major contributors, giving a boost to its production. Owing to sustained procurement of rice and wheat at their MSP, inter alia, their present stock with the FCI is more than double of the required buffer, whereas pulses and oilseeds worth about Rs 1 lakh crore were imported till 2016-17.

Instrumental variable

MSP was initiated as an instrumental variable to achieve desired production. Procurement at MSP was started by FCI for augmenting cereal stocks for the public distribution system and food security. As a result, at present, we have excess stocks of cereals.

Since Kharif-2017, the Union Government has procured pulses and oilseeds at an unprecedented level through the National Agricultural Cooperative Marketing Federation of India (NAFED) under the price support scheme (PSS). The purchases were across Rajasthan, Haryana, Andhra Pradesh, Telangana, Karnataka, Maharashtra, Madhya Pradesh, Gujarat, Odisha and West Bengal. Most of these states were non-beneficiaries of procurement of wheat and rice. As a result, farmers of these states have increased acreage under the crops. It is depicted from the trend in the production of pulses and oilseeds during the past 15 years.

Due to enhanced procurement of pulses, their import has been negligible since 2018-19; it was around 6 million tonnes in 2016-17, accounting for about Rs 30,000 crore. It again proves that procurement at MSP is most attractive to farmers. But the increase in oilseed production is not adequate and we are still importing about 15 million tonnes of vegetable oils and seeds of both edible and non-edible categories, accounting for about Rs 70,000 crore. The farmers may still apprehend a price risk to shift more acreage under oilseeds in the wheat-growing states of Punjab, Haryana and UP due to limited procurement i.e., 25% of the production or 25 quintals per farmer under the PSS, unlike the unlimited procurement of wheat by the FCI. For instance, two years ago, farmers from Kaithal district, the wheat bowl of Haryana, said they could get more income from mustard than wheat but the uncertainty over total procurement at MSP was holding them back. Kaithal district has the highest yield of mustard in Haryana at 11 quintals per acre and its gross value at MSP of Rs 4,425 in 2020 works out to be Rs 48,675 as against Rs 39,500 from wheat (Rs 1,975 per quintal) and an average yield of 20 quintals. Moreover, the cost of production of mustard will be less than that of wheat. Yield up to 12 quintals per acre has been reported in a few districts of Punjab. If the price risk of mustard is neutralised by 100 per cent procurement at MSP, many farmers will shift acreage from wheat to mustard for a higher income.

We know that MSP was started as an instrumental variable to achieve desired production. Procurement at MSP was started by FCI for augmenting cereal stocks for PDS and food security. As a result, at present, we have excess stocks of cereals; similarly, self-sufficiency has been achieved in pulses after enhanced procurement since Kharif-2017. The expectation that the market price will increase after 25 per cent purchases of oilseeds and pulses by NAFED has not happened, as revealed during our study of eight states in 2018-19. Therefore, after achieving self-sufficiency in cereals and pulses, the Centre should procure 100 per cent of oilseeds and 50 per cent of pulses for a few years to boost their production and save about Rs 1 lakh crore per year in imports. Many farmers in irrigated areas may shift their acreage from wheat to mustard if the price risk is taken care of by 100 per cent procurement at MSP.

A Rohtak farmer, who was fed up with distress sale in 2016-17, gave me a hint. “Sir, my friend has a farm in Australia and all his produce is lifted from the farm gate at a minimum guaranteed price. But he has to get his production plan approved every year before the sowing season.” It means agricultural production is not for the sake of farmers alone but for the requirement of the society/country as a whole. Our farm sizes are small; hence, instead of prior approval for each famer for all crops, the production of major crops can be regulated by using MSP as an instrumental variable. Hence, before the sowing season, procurement at MSP may be assured for 100 per cent of the oilseeds and 50 per cent of the pulses, whereas procurement of wheat and paddy may be rationalised i.e. 100 per cent up to 5 acres to cover 86% of the farmers in view of the demand. It may be a no-loss situation for the Centre in oilseeds, as the market price of mustard has increased to about Rs 6,000 per quintal as against procurement at Rs 4,425 in 2020. On the basis of my studies in area allocation behaviour of the farmers since the 1980s, India will achieve self-sufficiency in oilseeds and maintain the same in pulses along with cereals. It will result in more optimal use of vital agricultural inputs like fertilisers and water across the country.

The author is former Professor, SBI Chair, CRRID, Chandigarh