Recent government announcements on support prices for wheat, pulses, oil seeds as well as sugarcane may not have the beneficial effects on agriculture that a well thought-out farm price support system should ensure. All countries provide support to farmers either through subsidies or fixing minimum prices for important crops. This system guarantees a certain minimum earnings to the farmers and, to a large extent, reduces the uncertainty inherent in the market mechanism. It protects livelihoods and has a direct bearing on the availability of food articles in the public distribution system. Also, through price signals, the government can encourage farmers to grow a particular crop which is in short supply or environment-friendly. But all these benefits will accrue only if the support mechanism is operated efficiently. While extra-economic considerations can never be kept out of the decision-making process, attempts must be made to minimise them. The government has not been successful in this regard as the two recent price announcements on wheat and sugarcane show.
In India, price intervention has been in two forms. The government announces a minimum support price (MSP) for staples — wheat and rice — as well as oil seeds and pulses. This in effect is an open-ended commitment to pay a fair price for whatever quantity is offered. The other method that applies to sugarcane is for the Centre to fix a statutory minimum price (SMP) that sugar mills have to pay the farmers. The States have been fixing a higher price (SAP) which in practice becomes the floor price. The MSP mechanism has become inflexible. And this stands in the way of encouraging specific crops such as pulses over the water-thirsty paddy. This year, there has been just a token increase of Rs.20 a quintal for wheat, no doubt prompted by the fact that the Centre has adequate buffer stocks from last year’s crop. The new MSP of Rs.1,100 is well below market prices and the private trade is expected to play a much larger role than last year. The government’s policy towards trade has been inconsistent. The recent fiasco over sugarcane prices is due to an ill thought-out plan to shift the burden of state-advised prices to the States themselves.