Minimum Support Price (MSP) – Most Challenging to reach Consensus Article by GB Reddy Sir

 

Minimum Support Price (MSP) – Most Challenging to reach Consensus

 

Following the debate on the “Big Fight” of NDTV on 25 Feb 2024 between the Kisan Sabha stalwarts, Agriculture experts and Member of the MSP Committee, two issues of contention in general, which are difficult to reconcile, came out clearly: Farmer vs. Consumer; and result on Exports. Left out of debate is the “Supply Chain Businessmen or Middlemen”.

 

The quote “You can’t go to a negotiating table with a gun in your hand” is quite apt to the current farmer’s protests and their leaders postures.

 

Admittedly, the government is caught in a Catch-22 situation on all counts. If the MSP is made into Law, there will be “Chain Cycle Reaction” on the retail prices to be borne by the consumers - inflation. The working class to include Labor Unions in particular, would demand enhancements in their pays/wages proportionately corresponding to increase in market prices. More importantly, demands for exports would also decrease if the prices are more than the “international prices”.

 

The Department of Agriculture & Cooperation on the recommendations of the Commission for Agricultural Costs and Prices (CACP) fixes the MSPs for wheat and paddy on annual basis based on Swaminathan’s formula of C2+50%, which stands for Cost of Production (C2) plus 50% of C2.

 

In the case of wheat the MSP in 2014-2015 was Rs.1400.00; increased in 2019-2020 to Rs. 1840.00; and in 2023-2024 to Rs.2125.00.

 

The MSP for wheat of Rs.2125.00 per quintal was increased from Rs.2015.00 per quintal in 2022-2023.

 

But, what will be the increase in market rate on the consumer?

 

FACT: 100% extraction rate: 10 kg of wheat berries will produce 10 kg of whole grain flour. For white flour, that is Atta, extraction rate is approximately 75%, that is, 7.5kgs of Atta out of 10kgs of Wheat (100kg of Atta out of just over 133kgs of Wheat berries). Converted into an MSP increase, it would be Rs.2125+708= Rs.2833.00 per 100 kg of Atta or Rs.28.33 per kg of Atta.

 

But, the price of white flour Atta in Hyderabad, Telangana ranges from Rs.6000 to Rs.8300 per quintal or Rs.60.00 to Rs.83.00 per kg.

 

In 2024-2025, the MSP declared is Rs.2275.00 – the highest increase of Rs.150.00 since 2008. With increase in the MSP, there would be an increase by a minimum Rs.5.00 per kg, that is, Rs.65 to 85 per kg or Rs.6500.00 to Rs.8500.00 per kg. Thus, the Consumer bears the burden of increase in the MSP.

 

Next, there were two Grades of Paddy – Common and Grade A.  The MSP for common Grade in 2014-2015 was Rs.1360.00; increased in 2019-2020 to Rs.1814.00; and in 2023-2024 to Rs.2203.

 

Whereas, the MSP for Grade A in 2014-2015 was Rs.1400.00; increased in 2019-2020 to Rs.1835.00; and in 2023-2024 to Rs.2183. 

 

So, the MSP of the common grade variety of paddy has been increased by Rs.143 to Rs.2,183 per quintal for the 2023-24 crop year, from Rs.2,040 in the previous year. The support price of 'A' grade variety of paddy has been hiked by Rs.163 to Rs.2,203 per quintal from Rs.2,060.

 

For roughly 1 ½ quintal paddy yields one quintal rice. At the current rate of Rs.2183.00 per quintal, the price of rice will be around Rs. 3300 per quintal or Rs.33 per kg.

 

Whereas today’s current rate of Sona Masoori price at Hyderabad is Rs.60 to 70 per kg or 6,000/ top 7000/ per quintal. 

 

The above data clearly shows that the Consumer pays over double the rate of production. Although the retail rate is more than double the production rate of finished products at the Mills, the farmer does not get a fair share of profit.

 

Let me highlight the latest MSP increases for other crops for the 2024-2025 include: largest rise in lentils (Masoor) at Rs. 425 per quintal: up from Rs.6000.00 in 2023-24 to Rs.6425 in 2024-2025; Barley at Rs. 1850 per quintal up from 1735; Gram at Rs. 5440 up from Rs. 5335; Rapeseed & Mustard at Rs. 5650 up from 5450, and Safflower at Rs.5800 up from Rs. 5650.

 

Yet another significant factor to be considered is the “Supply Chain actors” (Millers, Wholesale and Retail traders) increments/profits.   No need to lay the blame on exorbitant rates for the consumers. Even the “Supply Chain – Millers, Wholesale and Retail traders” too have their own tale of woes like higher interest rates for borrowings, extended periods of storage in the Mills, higher rents for shops in Cities among other incidentals.

 

Furthermore, even the international prices for all agricultural products must be taken into consideration while enacting the MSP as Law. Let me highlight that if the prices of agricultural products are higher than international prices, then exports will be adversely affected. Surpluses held in Food Corporation of India (FCI) warehouses will ROT or be eaten by rodents.

 

Thus, it is imperative to consider various inputs of all the stakeholders – farmers, consumers and supply chain businessmen – but also international prices before finalizing the MSP as Law.

 

Add to them are the subsidies to the farmer to include free electricity, seeds, fertilizers, Kisan Credit Cards, and crop insurance facility. Most importantly, 80% of the consumers are today receiving ‘Free Rations”.

 

Let me also highlight that rental value of lands, particularly around the cities, is not easy to estimate. If the current market rates are considered then one acre value may be Rs.3-10 Lakhs. At the rate of 7%, the rental value will be Rs.21, 000.00 to Rs.70, 000.00. How to factor the input to fix the MSP is also vexatious.

 

In sum, the issue of enactment of the MSP as Law is not so simple as the protesting farmers are demanding. The Chain-Cycle reaction fallout on all actors will be a real prospect.  “Bush-fire fighting” will do no good. Finally, all actors must sit across in a “give and take” atmosphere to reach consensus on the most challenging issue of enacting MSP Law and farmer’s loan waiver.