Minimum Support Price Regime Must Deliver Intended Outcomes

On June 19, the Union Cabinet has approved an increase in the Minimum Support Price for all the 14 mandated Kharif season crops for the marketing year 2024-25. The Kharif season runs concurrently with the southwest monsoon from June to September.

Support prices for the upcoming Kharif crops (mainly rice, pulses, coarse cereals, oilseeds, cotton) are hiked to ensure growers obtain remunerative prices for the harvested produce. Different crops have received different amounts of hike.

Without doubt, farmers of this country face daunting challenges and deserve to enjoy incomes that are well above subsistence living. Increase in MSP is one way to compensate the growers for their toil and to neutralise the increases in input costs.

Also, the announcement of MSP is intended to inform the farmers well in advance about the price they can feel assured about upon harvest. Such assurance helps them to plan their choice of crops and acreage.

The Commission for Agricultural Costs and Prices recommends MSP to the government. The CACP makes its price recommendation after considering various factors including cost of production, overall demand-supply situation of various crops in domestic and world markets, domestic and international prices, inter-crop price parity, terms of trade between agriculture and non-agriculture sector, the likely effect of price policy on the rest of the economy and a minimum of 50% as the margin over the cost of production.

Some aspects of MSP deserve close attention. One is the rationale for hike in MSP for each crop. It is necessary to spell out the objects and reasons for announcing a specific MSP for a specific crop. More importantly, it is necessary to clarify the considerations based on which the decision was arrived at.

There are several factors, including domestic and global factors, that often impact agricultural crop prices. Some crops, say for example, oilseeds and pulses, may deserve special attention, given perennial shortfall and import dependence. MSP must reflect domestic and global market realities for crops.

It is logical to assume that crops that received special attention in terms of sharp increase in MSP must perform well in terms of higher acreage, higher yields and higher production.

However, a close look at the data of recent years has not generated any meaningful evidence that higher MSP results in higher acreage, yield and production. We need outcome-based assessment of the performance of MSP season after season. Without this outcome-based assessment, MSP will continue to be a ritualistic or routine annual exercise.

Take pulses for example. Over the past five years, MSP for pulses has been hiked consistently. Specifically, Tur (Arhar) saw its MSP increase from Rs 6,000 a quintal in 2020-21 to Rs 7,550 in 2024-25. Moong's MSP rose from Rs 7,196 to Rs 8,682 during the same period. Urad also experienced a steady rise from Rs 6,000 to Rs 7,400. According to the government, this significant rise underscores the efforts to support and incentivise the production of pulses.

But look at the ground reality. Despite these price hikes, the planted area for Kharif pulses has stagnated at about 130 lakh hectares. Production of tur/arhar, known as pigeon pea, has actually declined in the last three years. The same goes for urad or black matpe. New Delhi is forced to open up import. Free import of these two pulses, in addition to others like masur or lentil, is currently allowed till March 2025.

Other examples include oilseeds and cotton. In oilseeds (mainly soybean and groundnut) over the last five years, MSP has been increased significantly, but with very limited impact on yield, production and market prices.

The second aspect of MSP—which should be seen as some kind of an assurance from the government to the farmers—is that MSP must be defended, that is, farmers must obtain at least the declared minimum price. Unfortunately, this does not seem to happen as seen in many cases. When market price falls below MSP, the government agencies are required to step-in and buy in such quantities that the market prices do not remain below the specified MSP.

However, given the size of our country and volume of production, more often than not, the government agencies fall short of what is expected of them. Inadequate manpower and logistics support is the bane. There is a strong case for making the price support system more robust.

It is here that the government would do well to enlist the support of the private sector, to augment the price support or procurement work of the state agencies. Without doubt, the private sector can perform these functions more efficiently and can reach where state agencies do not usually reach.

It would be a good idea to enlist the services of professionally managed private sector warehousing companies with good track-record, to augment the efforts of state agencies. It is an idea whose time has come.

G. Chandrashekhar is a senior journalist and policy commentator specialising in agribusiness and commodity markets. He provides policy inputs for the government. Reach him at: gchandrashekhar@gmail.com.

The views expressed here are those of the author, and do not necessarily represent the views of NDTV Profit or its editorial team.