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‘There is a need for price parity between wheat and paddy’

‘There is a need for price parity between wheat and paddy’
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First Published: Thu, Jun 26 2008. 12 10 AM IST

Ear to the ground: Commission for Agricultural Costs and Prices chairman S. Mahendra Dev says poverty cannot be removed with 55% of the population in agriculture.
Ear to the ground: Commission for Agricultural Costs and Prices chairman S. Mahendra Dev says poverty cannot be removed with 55% of the population in agriculture.
Updated: Thu, Jun 26 2008. 12 10 AM IST
New Delhi: The new chairman of the Commission for Agricultural Costs and Prices (CACP), S. Mahendra Dev, has taken over at a difficult time for the economy and a controversial time for the institution. The government, with an eye on fighting inflation, has set aside, for the first time in years, CACP’s recommendations for setting the minimum support price (MSP) for paddy at Rs1,000 per quintal. Dev, former director of the Centre for Economic and Social Studies, Hyderabad, said in a candid interview with Mint that CACP disagrees with the government’s decision, even as he laid out the logic behind the recommendation and the food security outlook for the economy. Edited excerpts:
Ear to the ground: Commission for Agricultural Costs and Prices chairman S. Mahendra Dev says poverty cannot be removed with 55% of the population in agriculture.
Some experts feel that the government, which has fixed the MSP for paddy at Rs850 per quintal (as against CACP’s recommendation of Rs1,000 per quintal), will not be able to procure enough rice and will, therefore, increase our dependence on costly imports.
Both in wheat and paddy, Rs850 per quintal covers the cost of production. Only the margin is reduced. There are three arguments here. One, from the farmers’ side, the cost of production is the same for wheat and paddy. So, the farmers say MSP for the two should be the same. That is to maintain inter-crop price parity.
The consumer’s argument is that for Rs1,000, I can buy 100kg of wheat but only 66kg of rice (which is derived after dehusking from the paddy) since the quantity of rice is only two-thirds of that of paddy. So, the government is taking that view and bringing parity in the prices for wheat and rice rather than wheat and paddy. CACP goes by cost of production but the government may have its own considerations because at an MSP of Rs1,000, the (food) subsidy will increase.
But with an MSP of Rs850 a quintal, wheat procurement suffered during the rabi season in 2006-07, while at Rs1,000 in the rabi season in 2007-08, the procurement soared to 22 million tonnes (mt).
There is no problem of procurement of rice. But yes, you are right that (if the MSP for rice is not increased) over the time, farmers may feel that cost-wise it is not beneficial and as a result they may reduce the rice area and then food security may be threatened. Already, there is a move to shift from rice to oilseeds and other crops. From a medium-term point of view, I think there is a need for price parity between wheat and paddy based on cost of production.
Traditionally, too, there has always been price parity.
That is true. In fact, I have numbers from 1980 to 2008. In the first 10 years, there is price parity between wheat and paddy. However, since the late 1990s, there has been higher MSP for wheat. That is why CACP thought of restoring price parity by recommending (an MSP of) Rs1,000 per quintal for paddy last March.
One view is that the government was more concerned about inflation while announcing MSP for paddy this year.
That is why I gave all different views. CACP favours bringing price parity between wheat and paddy but the government is more concerned about price parity between wheat and rice, inflation and subsidy. But we stick to our view.
Considering that inflation is the biggest problem the country is facing at present, wouldn’t an MSP of Rs1,000 for paddy fuel inflation?
Yes, it will, but farmers say that they should not be penalized just because consumers are facing higher prices due to higher costs of production. So, there should be some mechanism to address the concerns of the consumers. This is up to the government.
What is your reaction to the government’s decision to refer CACP’s recommendation on paddy to the PM’s economic advisory council?
CACP is not happy (with this). I just took over, but other members are not happy. I hope they (the Centre) consult us. In fact, we are giving our reports to them.
There has been a shake-up in the agriculture sector worldwide, especially with respect to prices. How does CACP capture this dynamic scenario of foodgrain shortages and increasing costs?
While fixing prices we take into account factors such as cost of production, (the) global situation as well as domestic supply and demand. Sometimes, you may want to promote certain crops.
So, it is not just the cost of production that is important. We also need to ensure that prices are not too high from the consumer’s point of view. Universities from 16 states collect the data and send them to the directorate of economics and statistics in the ministry of agriculture. So, CACP is the user of data, not the generator of data.
Has the methodology been tweaked or has CACP introduced new parameters or changed the relative weightage of different parameters?
No. There is no change in the methodology because, compared with other countries, India is better off in terms of foodgrain availability. We have 22mt of wheat and 25mt of rice (procurement figures) and we would not have to import. However, access to food depends on people’s purchasing power.
Do you, however, feel that there is a need to fine-tune CACP’s methodology?
Several committees have recommended that. The Y.K. Alagh committee suggested that tariffs policy (that is setting the import duties) for agriculture commodities should be given to CACP instead of the department of commerce.
Do you agree with that?
Do you think we need to revive the concept of procurement price (the price at which the government procures from farmers) as against MSP (which essentially sets the floor price)?
Earlier they used to fix both. I feel that should be the case. But the problem is that whatever is fixed as MSP, they want it to be the procurement price, too.
I think India should maintain buffer stocks even if it is a little costly because dependence on large-scale imports will be problematic. So, at a time of shortages, it is better to remain surplus for contingencies and also help other countries like the African nations. At any point in time we should have 20-25mt.
Coming to the flip side of the procurement process, do you think the public distribution system (PDS) has been effective?
In all these anti-poverty programmes, the regional aspect is important. In south India, the PDS is effective, while in north India it is not. Moreover, there are lot of leakages in the PDS. A Planning Commission study itself says that 38% of rice and wheat is leaked to the open market.
Why don’t we procure from states other than a few from north India?
Maybe private traders are not as active in some of the states. But this time, for wheat, private traders are not coming due to high MSP.
Even in PDS, do you think there could be a scenario to outsource (the distribution process) to private players in order to effectively distribute the foodgrains?
Actually, someone suggested food coupons like the ones distributed in Sri Lanka and some other countries. So, you can provide these coupons to people who can buy from a private store and thus get a subsidy of Rs10 or Rs20. This method is effective in some cases, but in India this has not worked.
Do you think that if greater play of market forces was allowed, in the sense that we allow farmers to benefit from high prices as well as survive troughs, it would be better system?
That’s what Sharad Joshi and Ashok Gulati advocate. They think that farmers are net-taxed; because although they are given subsidies, they are net-taxed in terms of lower prices. But in practice I don’t think it is really the case. But there should be better marketing of the agricultural produce. We need to cut the middle level so that farmers get a better price for their produce and consumers get the commodity cheaper.
But yes, over time I think markets can play an important role. Also, we need the people to move from agriculture to non-agriculture sectors because 55% of the people involved in agriculture with 19% of the GDP cannot be sustained.
Poverty cannot be removed with 55% of our population in agriculture. They have to be shifted out.
Do you think the costs of cultivation in India are higher?
That’s true. For example, in Andhra Pradesh the use of pesticides is high although there is no need. Like for Bt cotton less pesticides need to be used— yet farmers are using a lot. Farmers are using inputs indiscriminately and that’s one of the reasons for (farmer) suicides—high costs.
There is also a problem with the data collection. At some places there is no field assistant. But experts like Abhijit Sen, who have studied the problem, say that the data is reliable at the all-India level, but one can improve. That’s why I suggested that we should have pilot studies in different states to see if the data collection is reliable. Because farmers complain that the cost of production (for paddy) is Rs1,000 per quintal and not Rs650 per quintal (the accepted figure as of now).
So, when you are recommending MSP, your core concern is the farmer.
Yes (it is) the farmer. That the pricing is remunerative is central to CACP. But the government will have to weigh the concerns for the farmer and the consumer.
Bajinder Pal Singh contributed to this story.
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First Published: Thu, Jun 26 2008. 12 10 AM IST
More Topics: Wheat | Paddy | S. Mahendra Dev | Price | Government |