Tatsat Chronicle Magazine

Will Legally Guaranteed Enhanced MSP Aid Crop Diversification?

For the cereal bowl of India to diversify from the rice and wheat growing cycle, the government needs to come up with innovative solutions rather than just offering legally guaranteed enhanced MSP. The key issue is better savings per hectare for growing alternative crops
March 18, 2024
MSP
Rabbi crop wheat in India. Photo Credit- Wikimedia Commons

The protesting farmers of Punjab have put their stir on hold after suffering a fatality and some casualties in Haryana Police’s tear gas firing in the third week of February. Their strategy is not clear as, once the model code of conduct for the 2024 Lok Sabha elections kicks in, they won’t be able to extract concessions from the government. It’s puzzling as to why they marched on Delhi again, after forcing the government to repeal three farm laws after their year-long agitation in 2020-21. Their main demand for assured procurement at minimum support price (MSP) is already being met in practice for wheat and rice, which are their principal crops.

In the three years ending in 2021-22, the government procured a shade less than 99% of Punjab’s rice production. In the previous triennium ending in 2017-18, rice procurement was slightly less at nearly 88%. Over 70% of the state’s wheat production is also procured. Unlike rice, which Punjab produces principally for export to other states, wheat is locally consumed as well. But of wheat’s marketed surplus, 81% was procured in the three years ending in 2022-23. Wheat and rice procurement might decline in future with lower poverty levels in the country and subdued demand for these rationed cereals.

The state’s farmers might also want to shift away from production of cereals, which are misaligned with demand trends. According to the latest National Sample Survey, the share of cereals in monthly per capita expenditure in rural India has declined to 4.91% and in urban India to 3.64% from 10.69% and 6.61%, respectively, in 2011-12.

But for now, rice and wheat are stable and high-yielding crops for Punjab farmers. Though rice is water intensive and not suited to Punjab’s ecology, it’s the most profitable kharif crop. Rice sold at MSP in the three years ending in 2021-22 yielded the state’s farmers a surplus of ₹74,000 per hectare over paid-out costs (on seed, fertilisers, pesticides, diesel, wages, etc.) and the imputed value of family labour, or A2+FL cost. The saving was 39% over comprehensive or C2 cost at ₹36,352 per hectare. This comes close to their demand for MSP to be 50% above C2 cost. Despite the high cost of cultivation, the high average rice yield of 69.42 quintals made the crop lucrative to grow.

The state’s wheat growers (most of whom are rice growers too) are not badly off, judging by official statistics. They would have earned ₹54,274 a hectare or 159% above cash costs of cultivation and the wages for family labour. The savings in the 2021-22 triennium were 29% above comprehensive cost or ₹20,389 per hectare.

Also Read: Farmers Protest 2.0: The Bell Tolls For The Government

Would Punjab’s farmers be better off growing alternatives? During negotiations with farmer union leaders, the government had offered to procure pigeon pea (arhar), black gram (urad), lentil (masur) and maize for five years at MSP from farmers who register on a specially-created government portal. The portal identifies farmers by their Aadhaar IDs. Self-declaration about cultivated area under the above crops is verified with land records linked to their IDs and payments are made to Aadhaar-linked bank accounts.

The government is keen on increasing ethanol production from maize for blending with petrol, as the other feedstock — rice and sugarcane — are water intensive. The production of pulses has increased over the past 10 years, but the supply of pigeon pea, black gram and lentil still falls short of demand.

Maize requires less than half the quantity of rainfall that rice needs if grown in the rainy season. Apart from its use in alcohol production, maize goes into animal feed. Demand for it tends to increase with prosperity, owing to the propensity of those with higher incomes to consume less cereals and more protein in the form of eggs, milk, meat, and fish.

In 2013, the Punjab government wanted about 5.5 lakh ha of area under paddy diverted to maize. But kharif maize area has remained between 1.05 lakh ha and 1.27 lakh ha since. The cost of cultivation is higher than of rice, and the income lower. There is hardly any procurement of kharif maize, not only in Punjab but in other major maize producing states.

Maize procurement was just three percent of production during triennium 2021-22. Prices in the country were below MSP in 11 out of 20 quarters between 2018 and 2022. Even if Punjab farmers had sold at MSP, they would have earned a profit of just 10% over cash costs and family labour wages or about ₹6,100 per hectare. Maize is grown in spring as well and fetches a better price due to lean season demand from the starch and feed industries. But spring maize needs more water and is not recommended for the state.

A shift from rice to pulses can happen if there is guaranteed government procurement at MSP plus compensation for their ecological services. Pigeon pea, for instance, needs 15 kg of nitrogen per hectare, compared to 105 kg for rice. The nitrogenous fertiliser urea is highly subsidised. It sells for a fifth of the imported price. Pulses add 40 kg to 60 kg of nitrogen per hectare, which they absorb from the atmosphere. Even after using a part of it, some is left behind.

Pulses-growing farmers should be compensated for this as also for electricity and water saved. Shorter duration pigeon pea varieties that mature in about 140 days — before the sowing of wheat — have been developed. A former pulses breeder at Punjab Agricultural University says the state’s pigeon pea yield is about 15 quintals per ha and the cost of cultivation about ₹33,000. At the MSP of ₹7,000 per quintal, earnings will be less than from rice and need to be made up with payments for eco-services. In the absence of assured procurement, farmers were selling at prices that were lower than MSP over a five-year period. Urad and moong also cannot displace rice as they are not as paying. Lentil is a winter crop. It can displace wheat, not rice.

But the area under rice cultivation in Punjab at 30 lakh ha is too large to be effectively diversified to other crops. Those concerned about environmental sustainability say that rice growers should opt for direct seeding rather than transplanting.

Direct-seeded rice (DSR) does not require stagnant water. So, there is a water saving of 10% to 20%. But it needs skill in weed management. If not, there is a loss of yield. Of course, the cultivation costs are lower, but Punjab farmers tend to obsess with yield and not profitability. There are other ecological gains. As there is no hard pan formed below the surface, water percolates and recharges the aquifers in DSR fields. This is necessary as in many blocks of Punjab groundwater is used up faster than the recharge rate.

Poultry, fisheries, dairying, and horticulture are more remunerative than the cultivation of cereals. The poultry industry (chicken meat and eggs) has grown annually at 8.3% between 2010-11 and 2021-22, fisheries at 7.7%, dairying at 5.5% and horticulture at 4.5%. Growth in government supported cereals has been low — 3.1% for paddy and 2.4% for wheat.

Punjab farmers do need to diversify from rice and wheat. That cannot happen if they are legally guaranteed procurement of these commodities at enhanced MSP. Creative solutions will be needed to address the issue of stagnant incomes and ecologically unsustainable farming. This will have to take the form of income support to those with uneconomic holdings, consolidation of fields through formal leasing, proper pricing of agricultural inputs and linkage of farms with markets through contract farming arrangements. Raising MSP to C2 cost plus 50% will only make rice more profitable to grow.

Vivian Fernandes

He is senior journalist and columnist for several reputed publication. He was formerly with CNBC-Network18 and specializes in the agriculture sector and economy. He has written more 450 articles on agriculture alone.