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MSP for Jowar: At 150% of cost, it will distort market price
Commodity Online | April 16 2018
UPDATED 12:03:30 IST

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The government's plan to declare minimum support price (MSP) for the entire range of rabi crops may not be a great idea, the renowned agriculture economist Ashok Gulati and his team of experts have suggested in a working paper published by the Indian Council for Research on International Economic Relations (ICRIER).

The experts also have doubts over the effectiveness of the price deficiency payment (PDA) mechanism Bhavantar Bhugtan Yojana (BBY) that was experimented by the Madhya Pradesh government for eight khariff crops last year.

The government's plan for implement minimum support price for Jowar at 150% of the production cost would jack up consumer prices and distort the market dynamics of the “poor man’s cereal”. Besides, the measure would also dampen exports, analysts warn.

At 150% of the cost, the MSP for Jowar for the next season could be at least 37% higher than the Rs 1,700/quintal announced for 2017-18 crop year (July-June); the resultant increase in retail prices to the consumer will be even steeper because a higher MSP would also inflate traders’ margins.

“Under such a pricing structure, farmers may find it profitable to allocate more area for Jowar cultivation and increase its production significantly. However, in the absence of commensurate demand for the cereal, market prices may fall way below the announced MSP, necessitating large-scale procurement at MSP. This would not be an economically rational choice,” said Ashok Gulati, noted economist and former chairman of Commission for Agricultural Costs and Prices (CACP).

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