Centre's 5-crop MSP proposal: Why Punjab farmers are reluctant to diversify

As Centre proposes purchase of alternative crops at MSP, a look at why Punjab farmers are reluctant to diversify

A few days ago, a central team of ministers held out a carrot to protesting farmers to break the stalemate in talks.
 

They proposed to purchase the entire lot of masoor, urad, arhar, maize and cotton over the next five years at minimum support price (MSP) under a contractual agreement.
 

The purchases will be made through the National Agricultural Cooperative Marketing Federation of India, the National Cooperative Consumers’ Federation of India and the Cotton Corporation of India.
 

And the sellers would be farmers who diversify from wheat and paddy.
 

Whether the purchases will be limited to just that cohort or extended even to those who have been always cultivating the three pulses, maize and cotton is open to interpretation. The proposal, according to experts, is directed towards farmers from Punjab and Haryana who are at the forefront of the current agitation that has a cry for MSP at its core.
 

This, however, is not the first time an attempt is being made to nudge farmers of these two crucial agrarian states from paddy and wheat towards other crops — particularly pulses and maize. None of the efforts has led to any large-scale diversification yet. Paddy and wheat continue to overlay the farmlands of Punjab and Haryana.
 

“To me, one big reason why farmers of Punjab have so far not shifted from wheat and paddy to any other crop in a big way is that no serious attempts have been made to wean them away from the two,” says R S Ghuman, professor of eminence at Amritsar-based Guru Nanak Dev University.

Wheat is a “natural” crop for Punjab, but the problem lies with paddy, which is not consumed much in the state, he adds.

“In the 1970s, the area under paddy in Punjab was around 9 per cent of the total net sown area while the number of tube wells was around 200,000. At present, the area under paddy in Punjab is 75 per cent of the total net sown area while the number of tube wells has grown to almost 1.45 million,” he points out.
 

The net sown area in Punjab is around 4.1 million hectares.

 

“Punjab farmers aren’t averse to diversi­fi­cation, but it is assured procurement of wheat and paddy for the central pool that is prevent­ing them from doing so,” Ghuman says.
 

According to him, the Centre needs to guide the state in making the transition from paddy to other crops.
 

Paddy and wheat preference in Punjab
 

Data sourced from the Commission for Agri­cultural Costs and Prices (CACP) shows that in the triennium ending (TE) 2021-22, among all the major paddy-growing states in India the average gross returns over the actual A2+FL cost of cultivation (the benchmark costing used by the central government to calculate the MSP) in Punjab were the highest at 150.3 per cent. Punjab was followed by Haryana at 143 per cent and Chhattisgarh at 100 per cent.
 

A triennium is a specified period of three years. A2+FL are broadly all input costs plus own and family labour.
 

Punjab’s share in the national paddy cultivation was around 10.40 per cent. In contrast, in West Bengal, India’s largest paddy-producing state with a share of 13.65 per cent in the national paddy output in TE 2021-22, the average gross returns over A2+FL cost of cultivation were just 3.4 per cent.
 

A major reason for the unusually high returns despite a smaller share in overall production is the higher per-hectare yield of paddy in Punjab than in other states.
 

Punjab’s projected per hectare paddy yield in the kharif marketing season of 2023-24 was the highest in the country at 69.84 quintals. In West Bengal, it was just 42.05 quintals.
 

In Haryana, the projected per hectare yield of paddy in this period was the second best, at 52.21 quintals. The state’s share in the national production in TE 2021-22 was a meagre 3.85 per cent. A similar trend is seen in wheat as well.
 

In TE 2021-22, the average gross returns of wheat over the actual A2+FL cost of cultivation in Punjab were the highest among all states at 172.5 per cent.
 

Punjab’s share in India’s overall wheat production in TE 2022-23 was around 15 per cent, followed by Haryana at 10.5 per cent.
 

By comparison, in Uttar Pradesh (UP), the state with the largest share in the country’s wheat production, the CACP data shows that average gross returns over the actual cost of cultivation were just 93.4 per cent.
 

The reports lay bare the reason why Punjab farmers are reluctant to switch over from paddy and wheat.
 

In the kharif season, among alternative crops competing with paddy in Punjab, the average gross returns from cotton in TE 2021-22 over the A2+FL cost of production were 134 per cent, while in case of maize they were just 5.7 per cent.
 

Only moong was an outlier, as it promised a return higher (248 per cent) than the cost of cultivation among all crops other than paddy.
 

Similarly, among alternative crops grown in the rabi season, the average gross returns over the A2+FL cost of cultivation for mustard in Punjab in TE 2021-22 were just 116.5 per cent, significantly lower than that from the primary produce of wheat.
 

Assured procurement
 

The role of assured procurement of almost all the production of paddy and wheat is a major reason for the high returns over cultivation cost in comparison to the alternatives.
 

The CACP data shows that in TE 2021-22 in Punjab, 98.8 per cent of the rice produced was procured by central and state governments for running the country’s public distribution system. In Telangana, 81.1 per cent of the rice production was procured.
 

In sharp contrast, in West Bengal — it had the highest share in India’s paddy production for the period — a mere 12.5 per cent of the rice produced was purchased by governments. In Uttar Pradesh, a large paddy producer, only 27.3 per cent of rice was procured in TE 2021-22.
 

Likewise, CACP data for wheat shows that in TE 2021-22, UP’s share in the total marketed surplus of wheat was the highest (26.6 per cent), followed by Madhya Pradesh (20.7 per cent), Punjab (18 per cent) and Haryana (11.7 per cent).
 

Uttar Pradesh, which is India’s largest wheat producer, accounted for only 7 per cent of the total procurement in TE 2023-24. Punjab, which accounted for 18 per cent of the market surplus, had a significantly higher procurement share of 39.6 per cent.

In contrast, purchases of alternatives are almost negligible.
 

Sardara Singh Johl, an agriculture economist and former vice chancellor of Punjab Agriculture University, says the reason why Punjab farmers are reluctant to shift from wheat, paddy mono-cultivation is simple: Free power and electricity.
 

“Due to free power and water, paddy has be­come a paying crop and no other crop can com­pete with it in terms of returns. Also, when a farmer sees that the immediate returns on his in­vestment are higher in paddy than in any ot­her crop, he is not ready to shift,” Johl explains.
 

He observes that unless governments show a will to price water and power in Punjab, the right cost of cultivation will never be discovered and no other crop will be able to find enough takers.
 

Ajay Vir Jakhar, chairman of peasants’ forum Bharat Krishak Samaj and former chairman of the Punjab State Farmers’ & Farm Workers’ Commission, cites three reasons for the reluctance of Punjab farmers to diversify.
 

First, the profitability of paddy and wheat is much higher than other crops.
 

Second, weather-related risk is much lower in paddy than in other crops. “One bad spell of rain in case of crops such as moong can lead to a significant drop in yields, while no such thing happens in case of paddy,” Jhakhar explains.
 

And, third, he says, there is a trust deficit in the state government. Farmers fear that even if they shift and produce other crops, the government might not procure despite offering assurances.
 

“It has happened in the case of moong. The state government had promised to purchase at MSP but soon realised that it was a costly affair and abandoned the process after a few mon­ths, leaving farmers in the lurch,” Jakhar says.
 

The CACP data shows that moong was the only crop to offer returns that were even higher than paddy during kharif.
 

Jakhar discounts the argument that MSP and assured procurement would persuade Punjab farmers to make the shift.
 

“The price parity is too large to make any sizeable shift from paddy. The farmers need to be paid something extra over the MSP to cover weather-related risks and other emergencies,” Jakhar says.
 

In all of this, it comes as no surprise that Pu­n­jab farmers view with suspicion the Centre’s la­test offer of assured purchase of five crops.
 

“Punjab farmers fear that the five-year assured purchase agreement (promised last week) could bring through the backdoor contract farming, which was part of the now repealed three farm Acts,” says Ghuman of Guru Nanak Dev University.
 

Clearly, governments need to offer more than promises.