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Analysis: Why higher MSP alone won’t assure higher output of pulses and oilseed

Small increases in acreage for pulses and oilseeds are not enough. And measures such as higher MSP to encourage the cultivation of pulses and oilseed have not helped bring down the area under paddy.

June 14, 2021 / 02:42 PM IST

The Union government announced a modest increase in the minimum support price (MSP) for a range of crops in an annual ritual ahead of the summer sowing season but the measure by itself may not enthuse farmers to vastly increase the acreage for pulses and oilseeds. Thus, as was seen in the previous years, the increase in the acreage for pulses and oilseeds may be incremental. However, elevated market prices for these crops may compel farmers to expand the sown area. 


Small increases in acreage for pulses and oilseeds are not enough to narrow the huge shortfall in supply of these crops from domestic sources quickly; a large-scale diversification away from paddy and wheat is required. The total area under paddy during the kharif seasons has been 15-25% more than the sum of area under pulses and oilseeds. However, even a small expansion in acreage and a rise in output can cool the prices of the two staples.


The increase in the MSP for the current kharif season was mostly modest – 3.8% for paddy, 5% for tur and urad and 1.1% for moong. For oilseeds, the increase ranged between 1.8% for soyabean and 6.6% for sesamum. Soyabean oil is among the more widely used refined edible oil while sesamum oil is used in some dishes in south Indian households. 


Regulatory tool


The Union government uses MSP as a mechanism to regulate the production of various crops. Sharp increases are announced when the government wants to encourage the cultivation of specific crops.


It is also the price at which government agencies procure various crops from farmers. Private buyers are not required to buy at that price and therefore market prices of these commodities tend to drift lower than the MSP. More recently, the government has tried to encourage private buyers to procure at the MSP.


Measures such as higher MSP to encourage the cultivation of pulses and oilseed have not helped bring down the area under paddy. It has been stable at about 39-40 million hectares during the kharif season for the years, agriculture ministry data show.


Growing paddy is a relatively risk-free proposition for farmers, particularly in the plains of north India, as the MSP provides fair returns on their cost of production and procurement is assured. It is also an easier crop to grow, unlike pulses that need constant attention due to insect infestation.


The area under pulses fluctuates from one during the kharif season to another. The area under tur peaked at 5.34 million hectares in 2016-17, for urad at 4.73 million hectares and moong at 3.83 million tonnes in 2018-19.


The area under all pulses during the kharif season has contracted in recent years. It was down to 13.2 million hectares in 2020-21 from 13.5 million hectares in 2019-20 and 14.8 million hectares in 2018-19. That increased the shortfall in supply and led to a rise in prices in the wholesale and retail markets.


Tur dal acreage peaked in 2016-17 after prices of the pulse climbed to Rs 200 a kilo in October-November of 2015 and stayed high for several months while urad dal acreage got a boost when prices stayed elevated all through 2016 and early 2017.


The area under kharif oilseeds saw a rapid expansion in the last two seasons, recovering from a contraction in 2017-18 due to some measures taken under the Pradhan Mantri Annadata Aay Sanrakshan Abhiyan (PM-AASHA), an umbrella scheme with three components launched in 2018 to ensure better transmission of MSP to farmers. The total area under oilseeds rose to 20.8 million hectares in the kharif season of 2020-21 from 17.2 million hectares in 2017-18, led by an increase in the area under groundnut and soyabean.


Farmers’ reluctance to diversify away from the primary cereals – paddy during the kharif season and wheat during the rabi season – cannot be attributed to MSP alone. Assured procurement plays a significant role. The procurement process for paddy and wheat is well established due to the stocking requirements of the government.


What about paddy and wheat?


Paddy and wheat are procured for building buffer stocks as well as for distribution at subsidised rates through the ration shops. In states such as Punjab, Haryana and Telangana, more than 80% of paddy offered for sale are procured by government agencies, as procurement is open-ended. In Punjab, as much as 90% of the marketable surplus gets procured.


There are no limits on the quantity that may be procured from any individual farmer. A similar practice extends to wheat procurement also, where more than 75% of the marketable surplus is procured in Madhya Pradesh, Haryana and Punjab.


The procurement of pulses and oilseeds, in comparison, is abysmally low. Therefore, farmers depend on open market sales where prices are lower than the MSP. According to the Commission for Agricultural Costs and Prices (CACP), a body under the ministry of agriculture and farmers welfare that’s responsible for recommending the MSP ahead of the sowing seasons, just about 17% of the tur production, 8% of moong and 1% or urad were procured at the end of the 2019-20 kharif season.


For oilseeds, procurement for groundnut stood at 7.2% of the production and for soyabean at 0.1%. Procurement of pulses and oilseeds fell from the levels reported in 2018-19, which the CACP attributed to an improvement in the market prices.


The Commission has advised the Union government to end the practice of open-ended procurement of paddy and wheat and to revise procurement policies to favour small and marginal farmers as a measure to encourage diversification away from the two foodgrain. Additionally, it wants the Union and state governments to prepare programmes to promote crop diversification in Punjab, Haryana and western Uttar Pradesh and strengthening the procurement system for pulses, oilseeds and nutri-cereals under the PM-AASHA. 

The Union government claimed that a detailed plan to expand acreage and productivity of both pulses and oilseeds would be implemented. This will include the distribution of a high-yielding variety of seeds, the government said while announcing the MSP for the current kharif season. The government estimates that the plans will bring additional 0.637 million hectares under oilseeds to produce 1.20 million tonnes of oilseeds. The results will be known when these crops are harvested in October-November.

Tina Edwin is a senior financial journalist based in New Delhi.
first published: Jun 14, 2021 02:41 pm

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