MSP had almost no impact on 12 of the 14 crops covered by the scheme: Analysis.
According to an analysis, if the very low level of procurement under the MSP is any indication, the scheme itself is inefficient, given the low intake and massive price differences between support and market prices. The government announced an average 6% increase in minimum support prices (MSPs) for the Kharif marketing season (2022-23) on Wednesday, the highest in the previous three seasons.
However, based on data from the previous three years, the MSP had almost no impact on 12 of the 14 crops covered by the scheme, according to the analysis. Also Read | Cabinet raised MSP for Kharif Marketing Season 2022-23, may lead increase investment.
According to Crisil, of the 14 crops covered by MSP, only paddy and cotton saw meaningful procurement over the last three years, with 45 percent of paddy output and 27 percent of cotton output procured at MSP, but groundnuts received only 4-5 percent of production and pulses received even less.
The massive price difference is due to the government’s announcement in fiscal 2019 that MSPs would be fixed at 50% of the all-India weighted average cost of production going forward.
When assessing MSPs, the agency considers three factors: the increase in production costs, the level of crop procurement at MSP, and crop traded prices.
According to the agency, the scheme is beneficial for farmers in none of these parameters because both intakes at the MSPs – which are as low as 47% of the mandi price in the case of cotton and other crops – and prices are never on par with market prices.
Even the Commission for Agricultural Costs and Prices (CACP) cost of production assessment for this season is flawed, with the actual cost being 5% lower than the calculated cost of 3%, according to the report.
Based on ground-level interactions, the agency estimates that the cost of production increased by 5% during the previous Kharif season, compared to the 3% shown by CACP. This was due to an increase in diesel prices (which occurred after the CACP assessment), which impacted machine labor, which accounts for 12-13 percent of total production costs.
Furthermore, while fertilizer prices remained largely stable due to an increase in subsidies, pesticide prices increased by 7-8%, which is not fully accounted for in the current MSP revision.
Labor and irrigation have also become more expensive, accounting for 55-60% of farm costs.
The second important factor to consider when evaluating MSP is the level of procurement because farmers can only benefit from MSP if their crop is procured at or near MSP.
While paddy farmers in the north will benefit from a 5% increase in the MSP, cotton farmers will be better off selling in the open market because the cotton MSP is 47% lower than mandi prices in May 2022.
When it comes to oilseeds, the MSP for soybean has increased by 9%, followed by sesame and sunflower (7 and 6%, respectively). Despite the 9% increase in soybean MSP, it is still 36% lower than the mandi price for May. While mandi prices are expected to fall during the peak arrival season in October-November, they are still expected to be higher than the MSP for cotton and oilseeds, according to the report.
Moong has the highest MSP increase among pulses, at 7%, followed by jowar at 8% and ragi at 6% over last year.