By Prof. Dibakar Naik* in Bhubaneswar, March 25, 2018: Agricultural Price Commission set up in 1965 and was renamed as Commission for Agricultural Costs and Prices in 1985 recommends minimum support price (MSP) for major farm produce covering cereals, pulses, oilseeds, fiber crops keeping in view the prospective of overall needs of the economy with due regard to the interests of the farmers and the consumers.

Since inception of the commission, the M.S.P for rice and wheat is fixed by giving incentives over Cost A2 (all actual expenses in cash and kind incurred in production by owner and rent paid for leased in land) + FL (family labour is imputed on the basis of statutory wage rate or actual market rate whichever is higher). Now the farming community demand for a M.S.P which should be more than Cost C2. It may cause to increase food inflation and will hurt poor consumers. With this background the long practice of fixing MSP for Paddy has been critically examined and discussed in this article and suggested that the costs to be covered for fixing MSP and other incentives which are directly linked to productivity and income rise.

The Commission, while recommending the MSP for Paddy, see that the farmers get a good return over all paid out costs including cost of family labour engaged in production, trends on international prices, its impact on national economy, food inflation, food security, national demand for food, import and export and adaption of high value crops and improved technology.

Cost of production is directly linked with productivity. The productivity of Paddy varies from 13.5 quintals per hectare in Jharkhand to 60.49 quintals per hectare in Punjab during 2010-11 (As per cost study report, Ministry of Agriculture). The productivity in terms of rice varies from 14.79 quintals per hectare in Madhya Pradesh to 39.89 quintals per hectare in Punjab during 2012-13 (As per estimate made by Ministry of Agriculture, GoI).

Thus the variability of yield across the states is almost 170 percent. There is also dissimilar production environment. Irrigation which is one of the most important factor for increasing yield and reducing cost of production per quintal of Paddy, its availability to farming community varies from 4.90% in Assam, 20.40 % in Madhya Pradesh and 33.20 % in Odisha to 99.80% in Haryana, 99.60% in Punjab and 97.10 in Andhra Pradesh of the total area under Paddy in the concerned states.

Besides, the rainfed areas where paddy is grown is frequently experienced by abnormal rainfall which reduces the productivity and subsequently farm income by 20 to 25%.The opportunity cost of family labour vary from state to state due to wide variation in availability of nonfarm activities in rural areas across the states.

In such varied environment, the farmers produce and their M.S.P is fixed at national level. At present even at the existing level of M.S.P, growers get on an average Rs. 69,286.00 per hectare over Cost A2 + FL (imputed value of family labour) in Haryana, Rs 60,470.00 in Punjab and only Rs. 4,564.00 in Odisha and Rs. 6,623 in Jharkhand during 2014-15. It is mainly due to wide variation in productivity and adaption of modern technology.

Although Haryana growers incur additional Rs. 3526.00 per hectare towards operational expenses and family labour as compared to Odisha farmers, their total additional return at the present level of MSP is Rs. 64,722 per hectare of Paddy as compared to Odisha farmers. It is mainly due to low productivity of rice in Odisha state, which constrains them to get higher return. Rental Value of owned land , which is one of the major cost item included for estimating cost C2 varies from Rs.13,789.20 in Bihar, Rs.13,886.90 in Assam and Rs. 14612.20 in Odisha per hectare to Rs.39,213.30 in Punjab and Rs.27,147.60 in Andhra Pradesh per hectare during 2014-15. Such variation is mainly due to wide variation in productivity.

Keeping in view the wide variability in production environment, irrigation and technology availability to rice farms, the low rice productivity states like Odisha, Assam, Jharkhand and Bihar need more emphasis to increase productivity by strengthening technology transfer system and rice research. In such cases, low productivity states should get incentives linked directly to productivity rise.

Alone increasing MSP will not only increase food inflation but will further increase the income disparities between farmers of high yield states and low yield states. Even the existing disparities in farm income between marginal, small and large farmers will further increase. The price incentives should be proportionate to the extent they are away from the national average productivity.

Such incentives may continue till the low productivity states reach at least at the national level on productivity and cost of production per quintal of Paddy. Seventy-five per cent of the Paddy grown area in each state is to be irrigated which will able to increase the productivity of low rice yielding states at least 25% above the existing level. The concerned state government should focus such issues in the forthcoming budget. Rental value of owned land is not directly incurred by the farmers but included as a major cost in Cost C2. It is almost imputed on the basis of yield per hectare. Thus Cost C2 can be redefined in estimating MSP.

Former Professor Economics, College of Post Graduate Studies, Central Agricultural University, Imphal and Director Research, Orissa University of Agriculture and Technology.

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