Surging cultivation costs behind hike in support price



The Commission for Agriculture Costs and Prices (CACP) has justified the hike in minimum support price (MSP) for kharif crops such as paddy and oilseeds on sharp rise in cultivation costs.

The Government last week approved the hike in MSP for crops such as paddy, oilseeds and pulses ranging from 16 per cent to 53 per cent, as recommended by CACP.

Defending the MSP for common paddy, which has been hiked by 16 per cent over last year’s Rs 1,080 a quintal, the CACP said that the recommended MSP for 2012-13 just about covers the projected cost of cultivation (C2) for farmers. C2 includes the paid out costs, the imputed cost of family labour and the rentals of land foregone on account of cultivation.

The C2 works out to an average of Rs 1,185 a quintal for paddy this year. At the same time, the CACP has pegged the paid out costs (A2+FL) including the costs of inputs such as seeds, fertiliser, interest on capital and imputed family labour at Rs 847.


The CACP said cultivation costs for farmers have shot up in past three years on account of sharp rise in inputs such as labour wages, fertilisers, diesel, fodder and cattle feed. The average labour wages shot up 74 per cent in the past three years and so also the price of fertilisers such as DAP, which have more than doubled in the past one year.

The C2 for paddy at Rs 1,185 for the current year is 53 per cent higher than the actual projected costs in 2008-09, it said. But the paddy MSP has gone up by 20 per cent in the past three years, resulting in a substantial margin squeeze.

“Overall, the rationale of MSP pricing this year is to keep the paddy farmers incentivised by covering their weighted average costs, but work more on coarse cereals, pulses and oilseed whose production has fallen, and cotton where exports have been rising and domestic stocks have fallen,” the CACP said. The maximum focus, however, is to encourage growers of oilseeds and pulses, which are the country’s largest agri-imports, at least to the extent that they remain internationally competitive.


The Commission has strongly recommended that exports of common rice and cotton should be kept open else there could be a pricing crisis for farmers. “If the Government wants to regulate exports, it can use the tariff policy (export duty) rather than abruptly and absolutely banning export of any agri-product. In case the Government puts an export ban on common rice or cotton, it should simultaneously announce a bonus of at least 10 per cent on those commodities in addition to their MSP,” the CACP said. It also recommended that exports of pulses be opened in larger quantities so that farmers are incentivised to produce more of them.


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