Cultivation of Wheat in India: Is Minimum Support Price Collapsing the System? A few days after the government announced an increase in the Minimum Support Price (MSP) of Kharif crops, the country is reminded of the 2020-2021 farmers’ protests where discontented farmers, protesting on the borders of Delhi, remained determined to get back the legal umbrellas protecting them. The controversial farm laws proposed by the government earlier proposed a removal of the threshold to liberalize the market and encourage economic growth. However, the new laws induced a fear of products being undervalued in Indian farmers. Against all odds, the government had to repeal the newly-introduced farm laws. However, the question remains: does MSP really meet the claims of supporting farmers for a staple produce such as wheat? What happens if there is no MSP? Introduction to MSP The MSP, a minimum price guarantee for farmers produce, is calculated based on many factors such as cultivation cost, estimated labor value, production cost, etc. MSP is usually declared by the government before the cultivation of crops begins, with an aim to secure farmers (through govt. purchase at MSP) in case market price falls below MSP. Wheat in India The production of most consumed rabi crop, wheat, is dependent on many factors, such as cultivated area, seeds price, fertilizers, climate conditions, crude oil prices, etc. This year India, second largest producer (106 million tonnes in 20221 ) and consumer of wheat, is hoping to produce 112 million tonnes and farmers have sown wheat over 34 million hectares all over the country.2 We found wheat supply to be elastic by looking at factors like cultivated area, seed and fertilizer price, human and technological labor- meaning wheat production is increasing, but the rate of price increase is lesser. The demand for wheat, however, is an entirely different case. Looking at past 20 years data suggests it to be inelastic, meaning that higher prices will not reduce consumption. Demand is driven by factors such as income, population, and prices of substitutes (rice, ragi, bajra etc.) The impact of MSP on the demand and supply of wheat Ideally, the demand and supply of wheat should determine the price at which it should be sold as seen in Fig 3. However, government intervention by procurement of D-D’ quantity at MSP increases the selling price and changes the supply curve from S to S’ as seen. Based on the figure, we find that where MSP will settle depends mostly on the shift of the demand curve, i.e. how much is the government able to procure from farmers. As far as supply is concerned, MSP has a much greater impact. Our analysis showed that MSP announcement can sway the amount of wheat produced. Given the MSP is announced to be ₹2125 per quintal3, the model predicts the wheat production this year to be approximately 115 million tonnes. Does MSP have a similar impact on other crops? The government announces MSP for 23 crops, but only procures wheat and paddy. In 2022-23, FCI procured 18.79 MT, with 98% of the wheat procurement from Punjab, MP & Haryana. 4 MSP reach is limited to wheat-producing regions. We studied wheat & other crops to see if MSP impacts production. We found that despite little variation in MSP announced for these crops, the production wasn’t as high as compared to rice and wheat. The MSP appears biased against farmers that grow other coarse cereals such as ragi and barley and oilseeds. This difference has led to distortion in production of cereals in the country. According to a paper5, coarse cereals have disappeared from the modern Indian diet. As MSP dictates market price for wheat, market price increases with it, which may lead to food price inflation. Farmers, influenced by MSP, prefer growing one crop over the others, which results in changes in soil conditions and over-exploitation of water resources, leading to ecological damage. Moreover, given the bumper harvest of wheat and India’s ban on wheat export due to the Russia-Ukraine conflict, India now faces a problem of surplus. With exports banned, the government ends up as a major buyer from farmers and has limited storage capacity. The storage capacity available with the FCI and the state agencies stands at 96.73 million tonnes6, a large portion of which is already full of earlier stock. As a result, a considerable amount of wheat might go waste. All these adverse effects from MSP could still be forgiven to a degree if the farmers benefited. According to the FCI, about 17,83,192 farmers reaped the benefits of MSP in 2021-22 and are present in no more than 10 states.7 MSP is now discouraging farmers to diversify their crops and getting a better return on costs.8 References: 1. CMIE Commodities: Wheat https://commodities.cmie.com/index.php? 2. Wheat production in India is set to jump to a record on higher planting area, https://www.livemint.com/industry/agriculture/wheat-production-in-india-is-set-to-jump-toa-record-on-higher-planting-area-11673337708616.html 3. Minimum Support Price of Paddy, Wheat and Coarse grain, Food Corporation of India, https://fci.gov.in/procurements.php?view=89 4. Wheat procurement for central pool (marketing season wise), Food Corporation of India, https://fci.gov.in/app/webroot/upload/Procurement/3.%20Wheat%20state%20Procureme nt%202023-24_3.pdf 5. Eliazer Nelson, A.R.L., Ravichandran, K. & Antony, U. The impact of the Green Revolution on indigenous crops of India. J. Ethn. Food 6, 8 (2019) https://doi.org/10.1186/s42779019-0011-9 6. Economic Survey of India, 2021-2022, https://www.indiabudget.gov.in/economicsurvey/ebook_es2022/index.html#p=287 7. Number of Farmers Benefited, Statewise, Marketing Seasonwise (Paddy and Wheat), Food Corporation of India, https://fci.gov.in/app/webroot/upload/Procurement/5.%20No%20of%20farmers%20benfit ed_12.pdf 8. CMIE Commodities: Wheat https://commodities.cmie.com/index.php?
