Govt MSP purchases chiefly driven by poor market prices the past few years

In other words, it is political compulsion, not political expediency, that has prompted the Centre to lift higher quantities of grain, pulses and other farm commodities

In order to reinforce its commitment to provide Minimum Support Price (MSP), the Central government has time and again shown to the protesting farmer, comparisons of its track record on the procurement of major cereals, pulses, oilseeds and cotton over the past few years, with that of the previous regime.

On paper and on the ground, there has been a marked improvement in both, the quantity and the value of cereals, pulses and oilseeds procured at MSP.

Data sourced from various official channels show that between 2016-17 and 2019-20, procurement of rice has risen 1.23 times by quantity and 1.76 times by value from the period between 2009-10 and 2013-14.

In the case of wheat, the quantity procured has gone up by 1.17 times by volume, while in the case of pulses, the volume increase has been 74 fold between 2016-17 and 2019-20 as compared to 2009-10 and 2013-14.

Similarly, MSP procurement of oilseeds and copra, has risen almost 10 times by volume and 10.23 times by value during the both the periods.

Data also shows that due to the relentless increase in MSPs over the years, there has been an over 121 per cent increase in payments to farmers for wheat from 2013-14 to 2020-21 and a 122 per cent increase for rice from 2013-14 to 2019-20.

Clearly, when it comes to expanding the scope and ambit of procurement there has been marked change the last few years.

But has this change been prompted by a sharp drop in market prices below the state-mandated MSP or by something else?

In several commodities where Central intervention has risen in the last few years, market prices have ruled much below MSP, which had necessitated such purchases.

While low market prices could stem from bumper harvests, low demand and a host of other factors, the fact remains that markets weren’t able to provide a price above MSP, which led to such huge purchases by the Centre.

Had the market been able to provide remunerative prices to the farmers, the need for intervention would have gone down.

Data sourced from the latest kharif and rabi reports of the Commission for Agriculture Costs and Prices (CACP) showed that between 2016 and 2020, weighted average domestic market price of wheat was below the MSP in two of five years in major growing states. And the market price of chana was below the MSP in main growing states, in three out of five years and four out of five years in the case of mustard.  

Similarly, in the kharif seasons, between 2015 and 2019-20 (October to January), the weighted average domestic market price of paddy was below MSP in four of the six years in major growing states, in the case of maize it was two of the six years in major growing states, and in soybean it was in three of six years.

But the weighted average domestic market price of cotton was below MSP in just one of the six years.

Clearly, while government procurement has no doubt spiked the last few years, there's a very valid reason behind it.

The following section shows that how and to what extent prices of major cereals, pulses, oilseeds and cotton have stayed or moved above MSP in the past five-six years under the Modi government.

Wheat

CACP reports show average market price of wheat stayed above MSP during Rabi Marketing Season (RMS) of 2016-17 and RMS 2017-18.

However, the gap between market price and MSP narrowed from 3.8 per cent in RMS 2016-17 to 0.5 per cent in RMS 2017-18.

The average market price fell below MSP by 2.7 per cent during RMS 2018-19 but moved up and was 1.2 per cent higher than the MSP in RMS 2019-20.

The market price was very close to MSP in RMS 2020-21 and the difference between the two prices was negligible.

One of the reasons for marginally lower prices in some States was higher percentage of damaged, shriveled and broken grains and luster loss due to unseasonal rains

Gram (chana)

The reports also show that the average market price of gram was significantly higher (57.5 per cent) than MSP during RMS 2016-17, due to low production for two years on the trot. However, gram output rose from 7.1 million tonnes in 2015-16 to 9.4 million tonnes in 2016-17, and to 11.4 million tonnes in 2017-18.

Two straight years of bumper harvest and higher imports of pulses, particularly yellow peas caused a sharp decline in market prices of gram in RMS 2017-18, but average remained above the MSP.

During RMS 2018-19, there was a further decline in market prices and average market price of gram was 21.1 per cent below the MSP.

In RMS 2019-20, market prices improved and the average was Rs 4,160 a quintal, but was still 10 per cent below MSP.

However, market prices declined again during RMS 2020-21 and average price of gram was 16.7 per cent lower than the MSP of Rs 4,875 per quintal.

Mustard

The market price of rapeseed and mustard was significantly higher (15.1 per cent) than MSP during RMS 2016-17 but fell below MSP in RMS 2017-18.

Thereafter, there was a slight improvement in RMS 2018-19, but due to an increase in MSP, the gap between the two widened to 10.9 per cent, and further to 14.6 per cent in RMS 2019-20.

The Marketing Season 2021-22 average market price improved to Rs 3,916 per quintal from Rs 3,586 in RMS 2019-20 and the gap between market price and MSP narrowed to 9.2 per cent.

Paddy

Data shows that the all-India average market price of paddy remained below MSP during the past five marketing seasons, that is, between Kharif Marketing Season (KMS) 2015-16 to 2019-20.

The average difference between the two prices was the highest (4.7 per cent) in KMS 2018-19, when the MSP was hiked by 12.6 per cent.

The difference has narrowed down to 3.8 per cent in KMS 2019-20 due to recovery in market prices.

Maize

Market prices of maize were higher than MSP by 4.2 per cent in KMS 2015-16 and 1.4 per cent the following season.

However, market prices dipped sharply and ruled a significant 14.6 per cent below MSP in KMS 2017-18 and 10.7 per cent the next season, due to higher domestic production and sharp revision in MSP from Rs 1,425 per quintal Rs 1,700 between the two seasons.

In KMS 2019-20, market prices were significantly higher than MSP in October 2019, but dipped marginally below MSP in November 2019, only to recover and stay above MSP during the December 2019-January 2020 period.

The average market price was 4.8 per cent higher than MSP in KMS 2019-20 due to lower domestic output and higher demand.

Oilseeds

Market prices of groundnut were higher than MSP during the procurement period of KMS 2015-16 and KMS 2016-17.

However, they fell from Rs 4,505 per quintal in KMS 2016-17 to Rs 3,927 per quintal the following season, leading to a significant difference of 11.7 per cent between MSP and market prices in KMS 2017-18.

This decline in market prices was due to a substantial 24 per cent increase in groundnut production in 2017-18 over 2016-17. Market prices recovered in KMS 2018-19 but remained 12.6 per cent below the MSP due to a near 10 per cent increase in MSP in 2018-19. In KMS 2019-20, due to low market arrivals in October 2019, market prices rose sharply to reach the level of the MSP.

However, an increase in market arrivals in later months led to a downward movement in market prices. Overall, the average market price was 6.7 per cent lower than MSP in KMS 2019-20.

Cotton

CACP reports show that market prices of cotton were above MSP from KMS 2015-16 to KMS 2018-19 before dipping below MSP in KMS 2019-20.

Season-wise analysis shows that market prices of cotton followed a continuous upward trend in KMS 2015-16 and KMS 2016-17 and the difference between market price and MSP widened from 12.1 per cent in KMS 2016-17 to 27.2 per cent in KMS 2017-18.

There was a sharp reduction in cotton market prices in October 2017, from Rs 5,286 a quintal in January 2017 to Rs 4,317 in October 2017, but prices rose during October 2017-January 2018 and October-November 2018.

This was followed by a decline in market prices from November 2018 until November 2019. The difference between market price and the MSP continued to narrow during KMS 2017-18 (14.1 per cent), 2018-19 (5.9 per cent) and 2019-20 (5.6 per cent, with MSP ruling higher).

Market prices in Gujarat and Maharashtra have remained mostly below MSP, but were higher in Telangana.

Table: Increase in MSP between the 2009-14 period and 2016-21 period (till November 2020)

Crop	Increase by volume	Increase by value
Paddy	1.23 times	1.76 times
Wheat	1.17 times	1.69 times
Pulses	73.96 times	87.76 times
Oilseeds and Copra	9.91 times	10.23 times

Source: Government Data