Monday, February 5, 2018

Why Minimum Support Price (MSP) is a bad idea for farmer and Indian agriculture.

Today we are moving toward the global economy. In Global economy, everyone wants a barrier-free market access.  Under the pressure of several organizations, Govt has announced that govt will announce MSP of agriculture produce which will be 1.5 times of the cost of cultivation.  This idea seems very attractive, but it will be a very dangerous idea for Indian agriculture and farmer. It seems more political and temporary decision then solution of the exact problem.

Injustice among farmers :

Cots of cultivation of wheat are more for the farmer of M.P. than Framer of Punjab who produces same wheat crop, As electricity and water are free in Punjab due to its geographical location but farmer of Madhya Pradesh has to pay the cost. At another side, Punjab farmer produces 40 Qt wheat in one hectare and MP farmer produces only 20 Qt.  Both the farmers will get different assistance from govt. Due to Geographical Identification, a farmer produce same rice in any part of Haryana is considered as Basmati and same rice cultivate in Sheopur Area of MP is considered as non-basmati. With same produce, the same cost of cultivation and same area farmer of Haryana will have an added advantage over farmer of Shopper ( M.P).

Over Production of few commodities :

Govt will decide the MSP of few agriculture commodities. It will attract farmers to go into the production of those selected MSP backed agriculture commodities. Cultivation area of other minor agriculture commodities will come down.  At the end of the year, there will be a vacuum in production and consumption. A lot of foreign agriculture produce will be imported to India and Indian over produced agriculture produce will be rotting in godowns. Most of MSP backed agriculture commodities will be purchased through the Govt channel and it will take time to reach up to the private processor through a defined channel. Up to that time, the private player would have ordered to foreign agriculture produce to keep their venture running.

India will become an easily accessible market :

India will become an easily accessible market for global agriculture production. For example, right now MSP of wheat is 1700/100 kg if govt announce to revise this MSP then it may reach to 2000/100Kg or more. The global price of wheat is around 1200 Rs/100 KG. Under the MSP govt will procure the wheat and private companies will be moved out from the market as the price of local wheat will be around 2000. Now the wheat-consuming industries will look toward global supplier.  The global supplier will adjust their price to Indian price.  After paying duty, transportation and another cost Ukrainian/ Russian/ Australian (example only) deliver wheat to Indian company at 1900/100Kg ( or lesser than Indian MSP).  after having good production, the Indian company will buy same agriculture commodity from a foreign supplier. A lot of foreign exchange will go out after having sufficient production India. We will lose the foreign exchange.

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Cost of Production of processed material will increase :

Cost of Indian agriculture commodity based processed food item will increase It will be very hard for Indian exporter to find the buyer for their Indian raw material-based product.  Indian investors will establish their industry in other country and supply the material to other export destination. Might be some foreign company will find it easy to enter in the Indian market for same processed food.

Cost of Seeds :

If the price of the base commodity will increase, then it will lead to increase the price of seed production and price of crop produce grown as seeds. Generally, seeds companies distribute seed among farmers and give buyback guarantee at a premium price than market price. Seed companies will have to offer more at a premium price. Untimely this increased cost burden will transfer to farmers only. Generally, seed companies keep incentive or margin for dealer and retailer on parentage basis. There will more margin addition in the final retail price of seed.

Export of Indian agriculture produce will go down :

As govt will decide MSP of few agriculture commodities. then farmers who take other minor crops will switch to main crops. Total production of other minor crops will come down. Our competitor will capture that market. For example, in the case of Rice if Indian rice will costly then Pakistan of other Asian countries will access that foreign market. India generates a lot of foreign exchange through species export, fruit export, herbs export.  With the new policy cultivation area of these products will come down. Indian produce a lot of important industrial crop like Guar. There is no MSP of GUAR. Then Guar cultivation area will come down and prices of Guar will increase for one or two years it will be good but after that Guar will be started to cultivate in foreign countries and Share of Indian Guar will come down. In long term, it will kill Indian guar gum industry.

Quality decrease :

The private player purchases a superior quality material at the lower price from the market. With Govt involvement, Govt officers & elected members will have direct interfere in the procurement process and govt will pay for more money for lesser quality material. For example; ITC will find it difficult to purchase quality wheat from the local market they may move toward foreign wheat because buying from the foreign supplier will be easy and less time-consuming.

Wastage of Natural Resources :

Agriculture requires a lot of resources, like water, electricity, finance, subsidy, labor. With increased MSP these resources will go to the production of overproduction agriculture commodities.   The country will have requirements of other important crops and country will depend on import of these important crops like Pulses. During last years with increased prices of pulses, the country was depending on pulses from Australia, Canada, Africa, Myanmar because farmers of good agriculture production states prefer wheat and rice due to govt procurement support.

Vegetable and Fruit production will come down :

Generally, farmers prefer of the switch of vegetable, fruit, dairy and other diversified agriculture as he gets the good return in comparison to conventional agriculture. These diversify agriculture require more challenging work, physical work, more care and more investment.  If Govt will increase MSP then production of these agriculture commodities ( Fruit and Vegetable) will come down. These will become costly in consumption for farmers/poor.

Against poor :  

Every poor don’t live in the village and he is not engaged only in agriculture. The process of increased MSP will increase the cost of their food. Govt provides few commodities in public distribution.  General Indian food is prepared with 5-6 spices, 4-5 pulses, 2-3 type of cereals, fresh vegetable and milk.  Might be govt can supply 1-2 cereals and 1-2 pulses to poor/farmer at lower price. For rest of food ingredient, poor / farmer will have to purchase it from the open market and it will cost more to poor/ farmer.

Every country has the specific climatic condition. India is a unique country due to its climatic condition. We can take three crops a year. Whereas in Europe or America, they have taken only crop a year. In those countries, winter is not good for cultivation due to heavy snowfall. Indian must identify those opportunities that India can supply regular food to these countries in extreme condition. For a good business environment, there must be healthy competition. MSP based on the cost of cultivation will not give an edge to the healthy competition. India must work on quality enhancement and Industrialization of agriculture so that India can produce cheaper agriculture produce and other countries will depend on Indian agriculture output. As per economic condition of farmers is concerned they can covered under social security scheme. Indian must work as Global leader it must take care of poor and business both separately but not by intersecting each other.


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