MSP policy for crops has little impact on 'meaningful procurement': Report

If the very low extent of procurement under the MSP is any indication, the very scheme is inefficient, given the low intake and massive price differences between the support and market prices, according to a Crisil analysis.

The government on Wednesday announced an average 6 per cent increase in the minimum support prices (MSPs) for this Kharif marketing season (2022-23), which is the highest in the past three seasons.

But going by the past three years' data, the impact of the MSP has been almost nil on 12 of the 14 crops covered under the scheme, according to the analysis.

According to Crisil, of the 14 crops covered under MSP, only paddy and cotton saw a meaningful procurement during the past three years, with 45 per cent for paddy and 27 per cent of cotton output were procured at MSP but when it comes to groundnuts it was only 4-5 per cent of production and for pulses, it was even less.

The massive price difference is due to the fact that in fiscal 2019, the government had said going forward MSPs would be fixed at 50 per cent over the all-India weighted average cost of production.

According to the agency, three aspects have to be looked at when assessing MSPs: the increase in the cost of production, level of crop procurement at MSP and traded prices of crops.

However, from none of these parameters, the scheme is beneficial for farmers, the agency said, because both intakes at the MSPs -- which are as low as 47 per cent of the mandi price in the case of cotton and other crops, also the prices are never on par with the market prices.

Even the cost of production assessment by the Commission for Agricultural Costs and Prices (CACP) for this season is flawed and much lower than the actual cost to the tune of 5 per cent as against 3 per cent calculated, the report said.

Based on ground-level interactions, the agency estimates show the increase in the cost of production for the previous Kharif season was much higher at 5 per cent, compared to the 3 per cent shown by CACP. This was due to an increase in diesel price (which happened after the CACP assessment), which impacts machine labour that constitutes 12-13 per cent of the cost of production.

Additionally, while selling prices for fertilisers remained largely stable due to a rise in subsidies, that of pesticides was up 7-8 per cent, which is not factored in fully in the current MSP revision.

Labour and irrigation also turned dearer, which together account for 55-60 per cent of the farming cost.

The second important aspect while assessing MSP is the level of procurement since farmers can obtain the benefit of MSP only when their crop gets majorly, if not fully, procured at the MSP.

While paddy farmers in the North can benefit from the 5 per cent increase in the MSP, for cotton farmers it will be better to sell in the open market as the cotton MSP is 47 per cent lower than the mandi prices in May 2022.

When it comes to oilseeds, the MSP for soybean has the sharpest rise of 9 per cent followed by sesame and sunflower (7 and 6 per cent jump, respectively. But despite this 9 per cent increase in soybean MSP, it is still 36 per cent lower than the mandi price for May. While the mandi prices are expected to cool off during the peak arrival season in October-November, they are expected to be above the MSP for cotton and oilseeds, the report said.

Among pulses, moong has the highest rise in MSP at 7 per cent, followed by jowar at 8, and ragi at 6 per cent over last year.