IMPACT OF MINIMUM SUPPORT PRICES ON AGRICULTURAL ECONOMY: A STUDY IN KARNATAKA

R S Deshpande T Raveendra Naika

Agricultural Development and Rural Transformation Unit Institute for Social and Economic Change Nagarbhavi, Bangalore-560 072 December 2002

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CONTENTS CHAPTER NO. TITLE PREFACE ACKNOWLEDGEMENTS LIST OF TABLES LIST OF APPENDIX TABLES LIST OF FIGURES/GRAPHS CHAPTER I INTRODUCTION 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 CHAPTER II Introduction Making of the Agricultural Policy Need for Revisiting MSP Objectives Methodology Profile of the Selected Regions Plan of the Study Limitations

EFFECTIVENESS OF PRICE POLICY AT THE STATE LEVEL 2.1 Introduction Price Policy at the State Level 2.2 2.3 Analysis of Agricultural Price Trends 2.4 MSP as an Incentive Price 2.5 Impact on Input Use Regional Variation in Prices 2.6 Factors Dictating Failure or Success of MSP 2.7 2.8 Towards a Sustainable Policy Annexure 2.1 & 2.1.1

CHAPTER III

ADMINISTRATION OF MSP SCHEME AT THE STATE LEVEL 3.1 3.2 3.3 3.4 3.5 Introduction Agricultural Growth and MSP Relevance of MSP for Major Crops of the State Implementation Process of MSP Policy Measures

Annexure 3.1 (Govt of Karnataka Order) Annexure 3.2 (Figures)

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CHAPTER NO. CHAPTER IV

TITLE ANALYSIS OF IMPACT OF MSP AT THE STATE LEVEL 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 Introduction Land Use and Crop Pattern Impact of MSP on Area Allocation Decisions Impact of MSP on Adoption of Technology Cost of Cultivation Disposal and Income Determinants of Prices Received by the Farmers MSP Process at the Micro Level Resume

CONCLUSIONS AND POLICY IMPLICATIONS CHAPTER V 5.1 5.2 5.3 5.4 5.5 5.6 5.7 Introduction Objectives Methodology Analysis of MSP in the Context of Karnataka Conspectus Feasible Policy Options Specific Steps Needed

REFERENCES

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PREFACE Agricultural Price Policy has assumed a greater significance in the current phase of liberalization. Historically, after the Jha Committee report of mid-sixties, the first detailed statement of Price Policy came in the form of a booklet from the Agricultural Costs and Prices Commission in 1986. The Price Policy elaborated in this document included various instruments as well as perceived impacts of these instruments on the agricultural economy. During the following years annual reports from the Agricultural Costs and Prices Commission indicated the changes that have taken place in the Price Policy scenario. But these were not put together at one place. In the present context, the open economy within the liberalisation process has opened up new challenges for undertaking new initiatives in this policy sphere. The connotation under which the Price Policy was formulated earlier as well as the parameters of the economy have now undergone substantial changes. Therefore, it became quite imperative to make necessary amends in the Price Policy. The debate about the necessary changes in the present circumstances has already begun in the country at the national level as well as state level. This has induced us to have a fresh look at the major instruments of Price Policy, viz., Minimum Support Price, Procurement and Public Distribution System. The area of Public Distribution System has been reviewed carefully by the Expert Committee on Long Term Grain Policy. However, the other two areas have remained more at the discussion level. This study is an attempt at analysing the effectiveness of Minimum Support Prices (MSP) in Karnataka as an instrument of Price Policy. In the ADRT Unit, we had the privilege of preparing the proposal of the study and Coordinate the wider study across the ten states in the country. This study on Karnataka focusses on arriving at the determinants of effectiveness of MSP and its impact on the agricultural economy of the State. The study reveals that in the case of Karnataka State, the MSP Policy has not played its intended role in the overall Price Policy. In fact, the MSP Policy has provoked intense debate on the political front than impacting the economic parameters in any positive manner. The study also suggests quite a few policy steps to improve the effectiveness of the policy tool in the State of Karnataka. Karnataka, being the pioneering State in establishing an Agricultural Prices Commission under the Chairmanship of a senior Agricultural Economist, has paved the way to incorporate quite a few policy changes in the recent past. It is expected that the other states will also follow suit. I believe that the study will be quite useful in the policy circles and in the Price Policy formulation of the State as well as the country. G.K. Kadekodi Director Institute for Social and Economic Change Bangalore-560 072

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ACKNOWLEDGEMENTS

This study began at the initiative of Shri D K Trehan, former Economic and Statistical Adviser, Government of India. It was his vision that spearheaded and steered the proposal of the study. The proposal was discussed with Dr. Bhatia, former Member, Commission on Agricultural Costs & Prices (CACP) as well as other former members of the CACP. They gave encouraging response and we received a large number of suggestions on the proposal. In the light of the new proposal the study took longer time than expected. However, it was the help from a large number of people that could see the study through. I am grateful to Shri M M Nampoothiry, Economic & Statistical Adviser, Ministry of Agriculture, Government of India, New Delhi, for his support. I must also mention the help received from Prof. G K Chadha, presently Vice Chancellor, Jawaharlal Nehru University, New Delhi and former Chairman, Agricultural Costs & Prices Commission, Govt of India, New Delhi and Prof. T Haque, Member and Chairman, Agricultural Prices Commission, Govt of India, New Delhi. The CACP conducted two significantly important workshops at New Delhi and they provided a few interesting issues for analysis. Prof. V M Rao, former member of the CACP was always helpful in clarifying various issues and he was quite keen that I complete the study at the earliest so that it can initiate some debate. I feel, I have lived up to his expectations. My grateful thanks to all of them for their significant contributions in completing this study. At the Institute, Prof. M Govinda Rao, Former Director, Institute for Social and Economic Change, has been extremely helpful and encouraging in the work that we have undertaken in the ADRT Unit. I am grateful to Professor Gopal Kadekodi, Director, ISEC, for encouraging us to bring out this study as a monograph. Professor S.K. Ray, a renowned agricultural economist and formerly Professor at Institute of Economic Growth, New Delhi, painstakingly reviewed the earlier draft of the study and made quite a few suggestions to improve upon it. I am immensely indebted to him for this help. This study owes a lot to him for his encouragement. Among the close academic colleagues who have contributed to the study through discussions. I must make a mention of Prof. S Bisaliah, Chairman, Agricultural Prices Commission, Government of Karnataka, Dr. S C V Reddy, Additional Director, Dept of Agriculture, Government of Karnataka. They certainly helped me in various aspects of the study and therefore, rightfully deserve a word of gratitude from me. They are very close to me and therefore, I was able to prevail on them for the information that I required and they complied very happily. My heartfelt thanks are due to them for their help. The officers of the Karnataka State Food & Civil Supply Department; the Managing Director, Karnataka Oilseed Growers Federation; Managing Director, Karnataka State Marketing Board; Shri Hari, Deputy General Manager, Karnataka State Food & Civil Supplies Corporation; Shri Thangavelu, Asst Manager, National Agricultural Marketing Federation; Shri Nagannanagowda, Karnataka State Co-operative Marketing Federation; have all helped me in clarifying some of the ticklish issues and providing some of the data. I am grateful to them for extending this help and tolerating our nagging questions. The farmer-respondents from Mandya, Belgaum and Gulbarga districts deserve a special mention for withstanding our long schedule of questions and the arduous process

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of enquiry. This study entirely owes to their wholehearted support and I will be very happy if the study helps them in terms of policy formulation to augment their welfare. I sincerely thank them for their help. I am also grateful to the field workers who did the excellent job of collecting the data. Shri T Raveendra Naika has processed the entire data of the study and provided various tables and results. He deserved the co-authorship in the study due to his untiring efforts. Shri M K Mohan Kumar typed the numerous drafts of the study with his excellent control and untiring zeal. I am grateful to him for this ungrudging help despite my awful moods. The errors of interpretation and commissions are entirely mine and I shall be responsible for them.

R S Deshpande

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CHAPTER I INTRODUCTION
1.1 Introduction The technological change of the mid sixties was a step towards meeting the food crisis that threatened food security of the country during those years. At that time it was suggested that the technological change alone might not bring the required dynamism in the growth of agricultural sector and it needed to be supported with proper institutional backup. Therefore. a series of institutional reforms were undertaken in order to supplement and induce growth. As a first step, land reforms were revamped to herald its second phase in the early seventies. Agricultural administration and extension formed the second step in the process of institutional change. This was accompanied by strengthening the system of agricultural education. As a next crucial step the banking sector underwent the metamorphosis through nationalisation with a renewed thrust on priority sector lending. The most important step followed by this was the initiative taken to evolve an agricultural price policy encouraging the envisaged growth through price incentive. In order to understand and construct a proper price policy framework, the Government of India appointed a committee under the Chairmanship of Late Shri L K Jha to suggest the required steps towards organising the agricultural price policy of the country. Following the Jha Committee report, a series of measures were taken and as a result the Agricultural Prices Commission came into being in January 1965. The first report was submitted in August 1965 covering the Kharif Season. The preface of this report makes clear the focus of the then emerging price policy. It is stated in the preamble of the report that “The Agricultural Prices Commission was set up in January 1965 to advise the Government on price policy for agricultural commodities, with a view to evolving a

balanced and integrated price structure in the perspective of the overall needs of the economy (emphasis added) and with due regard to the interests of the producer and the consumer” (GOI, 1965). The focus on the overall needs of the economy was very clear and it needed to be kept in view. The Commission was headed by Prof M L Dantwala and in its final report the Commission suggested the Minimum Support Prices for Paddy.

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This was the beginning of the price intervention scheme that went through for the last three and half decades. Agricultural Prices Commission through its reports framed and directed the price policy of the country during the last four decades. In the early years, the price policy supported the initiatives taken on the technological front providing initiative to accept the new technology. Over the years it became an accepted fact that farmers responded to price incentives more sharply now than in the past. Raj Krishna in his seminal paper, for the first time, emphasised the price response of Indian farmers despite the dominance of subsistence farming (Raj Krishna 1963). Following this, a number of price response studies showed the strong role of prices as incentives in agricultural sector. It has been noted by Acharya (Former Chairman of the CACP) that “In fact, the instruments of Minimum Support Prices, food subsidy and input subsidies have played an important role in achieving the objectives of food security and accelerated growth of the economy and benefits all the sections of the society” (1997). Thus, the contribution of Agricultural Price Policy towards sustaining the tempo created by the technological change of the mid-sixties has been widely acknowledged. During the last four decades the agricultural policy connotations have changed significantly. Prices played a much wider and more crucial role than just It was during the eighties that the farmers’ supporting the adoption of technology.

organisations emphasised remunerative role of prices and insisted on revisiting the method of arriving at the Minimum Support Prices. Quite a few changes were introduced in the methodology and approach following Sen Committee (GOI 1980) and Hanumantha Rao Committee (GOI 1990) reports. The next issue was marked by the debate on terms of trade between agriculture and non-agricultural sector (GOI 1995). The situation in the agricultural sector underwent substantial changes in the wake of liberalisation. In this context, questions are being raised about the efficacy and effectiveness of the instruments of price policy specifically the Minimum Support Prices. address this issue. 1.2 Making of the Agricultural Policy Agricultural Price Policy in India emerged in the context of food scarcity and price fluctuations provoked by drought of mid-sixties and war with Pakistan. The policy was framed keeping in view three different angles, viz., (i) providing foodgrains for the Public Distribution System, (ii) ensuring reasonable (affordable to consumers) prices for We intend to

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foodgrains, and (iii) inducing adoption of the new technology. In a specific theoretical term, the Agricultural Price Policy ensured the impact of various economic factors on the rate of growth as well as the quality of growth and provoked the most desired crop-mix. This incidentally ensured allocation of resources, capital formation and inter-sectoral terms of trade, which formed a theoretical base for the price policy. Initially, on the recommendation of the Jha Committee, the Agricultural Prices Commission was constituted and a set of terms of reference were drafted for the Agricultural Prices Commission, viz., (i) to provide incentive to the produce for adopting technology and for maximising production; (ii) to ensure the rational utilisation of land and other production resources; (iii) to keep in view the likely effect of the price policy on the rest of the economy, particularly on the cost of living, level of wages, industrial cost structure, etc; (iv) to recommend from time to time, in respect of different commodities, measures necessary to make the price policy effective; (v) to examine, where necessary, the prevailing methods and cost of marketing of agricultural commodities in different regions, suggest measures to reduce costs of marketing and recommend fair price margins for different stages of marketing; (vi) to keep under review the developing price situation and to make appropriate recommendations, as and when necessary, within the framework of the overall price policy; (vii) to keep under review studies relating to the price policy and arrangements for collection of information regarding agricultural prices and other related data and suggest improvements in the same; and (viii) to advise on any problems relating to agricultural prices and production that may be referred to it by Government from time to time” (GOI 1965). The specific steps through which these functions were to be operationalised included: (i) announcement of MiSP for major foodgrains; (ii) procurement prices for purchasing surplus from the cultivators; (iii) Public Distribution System and building proper buffer stocks for the purchased; and (iv) zonal restrictions for the movement of foodgrains to manage the supply and demand. Thus began the operations of the price policy through its instruments. The Agricultural Prices Commission during the sixties and seventies followed the cost of production approach to arrive at the MSP and procurement prices. They kept under consideration nine important factors while fixing the MSP, levy prices and procurement prices, viz., (i) cost of production, (ii) risk under cultivation, (iii) changes in the input prices, (iv) trends in the market prices, (v) demand and supply of the commodities, (vi) cost of living index and general price index, (vii) fluctuations of prices in the international market, (viii) price parity between crops input and output across

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sectors, and (ix) trends in the market prices.

In order to reconsider the prevailing

structure of the Agricultural Prices Commission and review its methodology, a Committee under the Chairmanship of Dr. S R Sen was appointed in 1979. The Committee was to examine the methods in arriving at cost of cultivation, and suggest required modifications. The Sen Committee in its report gave a number of recommendations towards this (GOI 1980). Following this, the nomenclature as well as focus of the The Commission was named as Agricultural Prices Commission were changed.

Commission on Agricultural Costs and Prices (CACP) with a completely changed terms of reference. A policy document issued in 1986 under the title Agricultural Price Policy: A

Long Term Perspective officially confirmed the redefinition of the objectives of the price policy as also the terms of reference of the Commission on Agricultural Costs and Prices as under (GOI 1986:32-3): “1. (i) The need to provide incentive to the producer for adopting improved technology and for developing a production pattern broadly in the light of national requirements; (ii) The need to ensure rational utilisation of land, water and other production resources; and (iii) The likely effect of the price policy on the rest of the economy, particularly on the cost of living, level of wages, industrial cost structure, etc. 2. 3. 4. 5. The Commission may also suggest such non-price measures as would facilitate the achievement of the objectives set out in 1 above. To recommend from time to time, in respect of different agricultural commodities, measures necessary to make the price policy effective. To take into account the changes in terms of trade between agricultural and nonagricultural sectors. To examine, where necessary, the prevailing methods and cost of marketing of agricultural commodities in different regions, suggest measures to reduce costs of marketing and recommend fair price margins for different stages of marketing. 6. To keep under review the developing price situation and to make appropriate recommendations, as and when necessary, within the framework of the overall price policy. 7. 8. To undertake studies in respect of different crops as may be prescribes by the Government from time to time. To keep under review studies relating to the price policy and arrangements for collection of information regarding agricultural prices and other related data and

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suggest improvements in the same, and to organise research studies in the field of price policy. 9. To advise on any problems relating to agricultural prices and production that may be referred to it by the Government from time to time.” . Following the farmers’ unrest during late eighties and early nineties in Punjab, Karnataka, Tamil Nadu and Maharashtra, the Government of India appointed another Committee under the Chairmanship of Prof. C H Hanumantha Rao to review the methodology of cost of production of crops specifically focussing on valuation of labour, imputed costs of family labour and managerial costs. The Committee submitted its report covering these aspects and suggested that actual wages to be taken to value the labour cost and family labour should be valued at the wage rates of casual labour (Govt. of India, 1990). The Commission also recommended inclusion of 10 per cent managerial cost in the total cost of production. All these provided a `scientific attire’ to the entire process of arriving at the cost of production. However, as can be seen from the data, the prices recommended by the CACP were more often modified by the Government of India with the intervention of the political representatives and therefore, fixation of the prices with an elaborate structure and mechanism remained only an exercise for exhibition. Such intervention occurred selectively across crops depending on the political interventions and therefore, some of the crops received better deal whereas a few other crops suffered a deliberate neglect. This certainly hampered the price parity across crops. It also created distortions between the trends in factor prices and product prices probably for a few selected crops and groups of farmers growing these crops. The price parity across sectors reflected through Terms of Trade (ToT) between agriculture and non-agriculture sectors was first brought forth in Thamarajakshi’s (1969) seminal paper on Terms of Trade. Nadkarni (1987). This was followed by the work of Dar (1968), Dantwala (1981), Kahlon & Tyagi (1980), Venkataramanan & Prahladachar (1984) and During the mid-seventies the debate on Terms of Trade between agriculture and non-agricultural sector had picked up as the of Terms of Trade started showing signs of turning against the agricultural sector (See arguments of Sharad Joshi in Dhanagare, (1990). This, along with the farmers' movements during that decade, led to a review of the price policy and also the methods of arriving at the MSP. Once again there was the likelihood of facing the question of remunerative prices in the context of withdrawal of subsidies on inputs (fertilisers, water, credit and power) as well as

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increasing demand for consumer durables and consequently the changing relative prices with the non-agricultural sector. Similarly, the price wedge between the goods produced in urban sector as against the farm products gave rise to the necessity of looking afresh into this issue of price intervention. Viewed from this angle the effectiveness of MSP assumes a totally different context. In sum, the debate pointed out that the Terms of Trade went against agricultural sector till the mid-sixties and slightly became favourable to agricultural sector for a short while in late sixties and early seventies to revert back against agriculture during late seventies and early eighties. It is only in the recent past and specifically during the nineties that the Terms of Trade are turning in favour of the agricultural sector (GOI, 1995). The computations of the Terms of Trade largely rests on the data from National Accounts Statistics and hence, there are a good number of corrections that are required in the data provided in the framework of National Accounts Statistics. Even with these corrections it was observed in one of the recent study that the Terms of Trade in the recent past are slightly turning in favour of Agriculture, but needed to be watched carefully. (Thippaiah and Deshpande 1998). The issues that emerged in the debate on price policy from independence till recently are provided by Krishnaji (1991), Rao (2001) and Tyagi (1990). A few important questions which were discussed in the context of price polity over and again but remained unanswered include relationship between cost of production and prices, authenticity and quantum of managerial costs and other input costs, distortions in the price parity across crops due to politicisation, building of excess public distribution stocks, inefficiency in the Public Distribution System and ineffectiveness of the price policy to serve the objectives set forth by the policy statement of 1986. In addition to these, another issue that has emerged recently which needs maximum attention is the efficacy of the continuation of the price policy with the changed economic policy in the context of liberalisation. This manifests strongly in the present imperfections prevailing in the agriculture markets and the renewed awareness of the farm lobby. With the changing scenario of agricultural sector under liberalisation, the price and market intervention schemes may require significant changes. We find two opposite view-points expressed by academics in the wake of the changes in agricultural sector. The first group believes in fully revamping the price policy in the context of liberalisation

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(led by Ashok Gulati, Sharad Joshi). The second group suggests retaining the schemes but changing the structure slightly to suit the present needs. (Bhalla 1994; and GOI 2002). Therefore, the scenario of agricultural price policy in the post 1991 needs to be viewed carefully. The current trends due to liberalisation have induced competition separately in the factor and product markets. This can be seen in the new marketoriented changes in the cropping pattern and availability of new inputs – seeds, pesticides and fertilisers. Quite a few changes are taking place in the product markets too but these are sporadic in nature. Agricultural marketing being in the State jurisdiction, the changes are not uniform across states and have not been planned under a proper theme. A few states have taken initiatives to provide the farmers with updated market information through electronic media on daily basis and in some states on weekly basis. Farmers’ markets are established giving away the earlier process of marketing dominated by middlemen. The removal of the restriction on interstate movement on agricultural commodities has also contributed significantly in making the markets more vibrant. The issues that feature the discussion now are, therefore, quite different from those featured prior to nineties. 1.3 Need for Revisiting MSP The initial emphasis of the Agricultural Prices Commission (APC) was on reducing the fluctuations in foodgrain prices in order to insulate the consumers against price increase, providing price incentives to the producers and inducing the producers to adopt new technology. As seen earlier during the mid eighties, the emphasis of the price policy, however, transformed substantially due to subsequent changes in the agricultural economy. These changes brought forth modifications in the objectives of price policy and its emphasis. Consequently, the focus of analytical issues also changed during this period. MSP is now viewed as a form of market intervention on the part of the State and also as one of the supportive measures (safety nets) to the agricultural producers. Even though it is perfectly WTO compatible, eye-brows are raised about its continuance and effectiveness to deal with the objectives set by its architects. The issues that dominate the current debate include reasons for the continuation of the price support scheme, its effectiveness in terms of the objectives set forth in the 1986 document and support price

vis-à-vis statewise remunerative price approach. More pertinent problem relates to the effectiveness of the implementation of the policy of MSP.

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In sum, the context of price policy has changed substantially over the years and so also the direction and effectiveness of price policy as a tool to influence the agricultural economy. This has provoked many social scientists to have a fresh look at MSP as an instrument for interacting with the important parameters of the agricultural economy. Among the major objectives of the Price Policy (as reflected from the 1986 policy statement), the incentives to adopt new technology, rational utilisation of land and other resources, the effect of prices on the cost of living, agricultural wages as well as wages in the other sectors of the economy, have together assumed greater importance. In the wake of liberalisation, MSP assumes a significant role in the form of state intervention in the agricultural product markets as well as a component of the safeguard measure. This also has a strong linkage to the factor market. In this situation, two important aspects deserve attention, viz., (i) insulating the farm producers against the unwarranted fluctuations in prices, provoked by the international price variations (Nayyar and Sen 1994) and (ii) creation of an incentive structure for the farm producers in order to direct the allocation of resources towards growth/export-oriented crops. The focus is to create value addition for the cultivators. Therefore, it becomes necessary to review the implementation process and effectiveness of MSP as an instrument in this background. It has been noted in the recent past that the growth pattern is changing in favour of certain crops due to various reasons. At times questions are raised about the suitability of area allocated to such crops and the aggregate welfare implication of this changing crop constellation. This has an implicit provocation to check the hypothesis relating to the producer's response to MSP through market prices and infrastructure. Similarly, the trends in the gross capital formation in the recent past are also disturbing especially in the regions where technological change has not made its initial impact. Therefore, it becomes necessary to see the effectiveness of MSP as a tool to encourage the adoption of technology in the present context, capital formation as well as to ascertain and document the producers’ responses to this scheme of price intervention at the micro level. The assessment of the effectiveness of the MSP scheme includes its role as an instrument of price policy as well as an effective tool given the present administrative mechanism. It has to be viewed both in terms of its impact at the macro-level and in the form of functional ease at the micro-level. The question of its relevance and operation incidentally becomes an integral part of the analysis. These questions, however, will not

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fetch monosyllable answers and one needs to go in depth to locate other policy tools as possible alternatives. The present study has been undertaken with the focus on effectiveness of the Minimum Support Prices in its impact on various parameters of agricultural economy. These include growth parameters, distribution aspects, decision-making in the allocation of resources, environmental effects and above all as an operational instrument of the price policy. The specific objectives of the study are as follows: 1.4 Objectives 1. To analyse the effectiveness of the price policy in Karnataka in the context of the objectives set forth by the Commission on Agricultural Costs and Prices, viz., (a) impact on market prices in terms of reduction in seasonal and cyclical fluctuations and influencing market prices; (b) to examine the degree of incentives provided to the producers for increasing investment, use of technology for raising growth in output; (c) to examine the impact on use of inputs and land and water resources besides adoption of socially desirable cropping pattern; (d) to identify regional variations in the degree of implementation of price policy; (e) to identify factors responsible for success or failure of MSP with special focus on rural infrastructure and optimal use of natural resources; and (f) to suggest policy measures to enhance effectiveness of agricultural price policy under different situations. 2. To document the impact of Minimum Support Prices on agricultural growth and distribution parameters in the State based on the secondary data. 3. To analyse the overall relevance and effectiveness of MSP in the case of Paddy, Ragi, Jowar, Tur and Sugarcane in Karnataka. 4. To analyse the process of implementation of Minimum Support Prices and allied measures at the state level specifically: (a) evaluating the system of implementation; and

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(b) factors responsible for the success or failure of MSP with special infrastructure.

focus on rural

5. To suggest policy measures in order to enhance the effectiveness of MSP. 6. To assess the impact of MSP on adoption of improved technology and their relative contribution in increasing the production and productivity of the specified crops. 7. To examine the impact of MSP on the income of the farmers and investment in agriculture by them. 8. To study whether the MSP has created inter-crop distortion in their pricing, production and desired production pattern of rainfed crops. 9. Impact on the sustainability of the trends emerging in the cropping pattern especially crop rotation. We shall also attempt here to analyse the very existence of MSP as a tool of price policy in the context of its effectiveness. The study is expected to highlight the factors responsible for the success of MSP as a tool of price policy as well as the parameters responsible for its failure. 1.5 Methodology The macro-level analysis in the study is based on time series data of Minimum Support Prices and other prices collected from secondary sources at the State level from 1990-91 to the latest year. We have also attempted an overall analysis of the price situation in the State with the help of data on wholesale prices and farm harvest prices at the State level. Availability of markets and other infrastructure, market arrivals, procurement of foodgrains, the operations of public distribution system, use of inputs and changes in input prices, changes in the cropping pattern also form important components of our study. In addition to this, our analysis is also supported with the primary data collected from a micro-level survey conducted in three distinct regions of Karnataka representing commercial crop region, high growth food crop region, and coarse cerealspulses dominated slow growth region. The field survey covered the information on

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markets in these regions in addition to a household survey of the cultivators. The study is also supported by a well-designed PRA exercise carried out at three locations in the State. The study is confined to the major crops of the State viz., groundnut, ragi, tur and sugarcane covered under MSP operations. The primary data for the present study were collected from three locations (Belgaum, Mandya and Gulbarga districts) in the State one each representing the following categories: i. A region in the State, growing one of the major food crops as a dominant crop, characterised with moderate to high growth of agricultural sector: Represented by Belgaum District. ii. A region in the State, growing one major non-food crop, and having commercial crop-oriented economy, with high growth rates in the agricultural sector: Represented by Mandya District. iii. A region in the State, growing mainly food crops, characterised with slow growth in the sector: Represented by Gulbarga District. Some important questions were attempted through a Participatory Rural Appraisal (PRA) Method but mainly the study depends on the survey data. The important aspects that were covered under the PRA exercise were: i. ii. iii. iv. v. vi. Awareness of the MSP and related aspects Area response parameters and decision-making criteria of the farmers Prices received during the recent past, price expectations, and the behaviour of relative prices across competing crops and non-agricultural sector. Recent trends in production, marketing, consumption, marketable and marketed surplus in the rural economy. Allocation of resources in response to product prices specifically fertilisers, irrigation charges, pesticides, management practices etc. Details of marketing and other infrastructure like distance of market, participation in the market, role of middlemen, procurement by the state, awareness of policy variables etc. paddy, jowar,

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vii. viii. ix.

The difficulties and constraints faced by the farm households in accessing the product market as well as factor market, market inefficiencies. The process of implementation of the price policy and difficulties faced. Response of farmers to changes in the agricultural economy. It was strongly felt that the PRA exercise should be supplemented or

superimposed with the hard data collected through the sample survey. surplus.

The survey

required concentration on those farmers who generated at least some marketable This was required as their participation in the product market was a prerequisite for ascertaining their views about the implementation process. We followed a four stage, stratified random sampling method. At the first stage, three districts were selected with the criteria and characteristics indicated above. A taluka was identified from among these districts with similar characteristics as a second stage of the sample selection. The villages were selected keeping in view the dominant crops instrumental in the selection of the districts and talukas. After the choice of the villages, the last stage of sampling required to segregate the farmers with some marketable surplus, so that the price intervention policy became relevant for them. The lists of farming households were divided into two groups (having marketable surplus and those not having marketable surplus) based on local level information and sources. And finally, the sample was chosen from the group of households having marketable surplus.

Table 1.1: Distribution of Sample Households
Size Class of Operational Holding Up to 1 ha 1 to 2 ha 2 to 4 ha Above 4 ha Total Mandya 1 3 25 21 50 Belgaum 3 12 23 12 50

(No. of households) Gulbarga Total 0 1 4 45 50 4 16 52 78 150

The secondary data analysis covered broadly the following aspects: i. ii. Time series data on Minimum Support Prices for the State from 1990-91 till the latest year by crops. Similar data on Farm Harvest Prices for the major crops grown in the State at the State level from 1990-91 onwards.

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iii. iv. v.

Wholesale Prices for major crops of the study at the State level from 1990-91 onwards. Area under major crops grown in the state from 1990-91 onwards and the incremental area over the years to analyse the trends in reallocation of area. The marketing infrastructure and trends in such infrastructure over the years (1990-91 onwards) in order to analyse the access and availability of infrastructure.

1.6 Profile of the Selected Regions As indicated earlier, three districts were selected for the purpose of the study representing three different crop situations and patterns of growth. Mandya district from south Karnataka was selected as a high growth commercial crop dominant economy. The district has a sizeable area under sugarcane and it is a district known for its commercial crop economy. Belgaum district from north Karnataka was chosen for its food crop based economy with high growth potential. The market-orientation of the agricultural sector of Belgaum is also quite known. The third district chosen was Gulbarga falling in north Karnataka region. This is a typical rainfed district of Karnataka with food crop dominant cropping pattern. We have sketched below a brief profile of the districts and talukas selected for the purpose of the field study. This can serve as a background for further analysis. While selecting the talukas for the study we have discussed with the district and state level officials about the suitability of the region based on the criteria. The talukas represent the crop pattern which combines crops included under MSP with good marketable surplus and market-orientation. 1.6.1 Mandya

Mandya is a paddy and sugarcane growing district of south Karnataka. It is often referred to as Punjab of Karnataka due to its irrigation based cropping system.The district received irrigation water way back in 1930s and thus, the cropping pattern is predominated by paddy, sugarcane and other commercial crops. There are seven talukas in the district and we have selected three talukas for the present study, namely Mandya, Pandavapura and Srirangapatna. According to the 1991 census, the population of Mandya district was about 16 lakhs and the density of population was 331 persons

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per square kilometre . The number of cultivators in the district was 3.93 lakhs and the total geographical area is 5 lakh hectares. Per capita district income at current prices of this district was Rs 7,619 in the year 1998-99. The average size of holding in the district is quite low due to higher productivity, commercial crop economy and consequently, the viability threshold as a lower size of holding. Table 1.2a : Population Characteristics of Mandya district Population Rural Urban 19.07 45.1 10.23 7.22 9.06 11.2 4.43 1.92 (In per cent) Area SC/ST 14.43 10.88 6.79 2.59 22.11 8.21 10.04 2.57

Taluk Mandya Pandavapura Srirangapatna % of district total to State total

Source: Census of India: Mandya District Census Handbook, 1996. Table 1.2b: Broad Agricultural Indicators of Mandya District Source of irrigation Taluk Mandya Pandavapura Srirangapatna % of district total to State total Note : The data is Canal Tank Well Tube Others Total 28.13 5.96 18.24 1.39 29.26 25.35 5.62 2.77 11.86 6.17 13.99 5.95 11.62 0.9 2.16 0.87 0.72 9.85 10.49 4.41 2.07 0.68 0.50 5.05 Area under Net Gross Area sown important crops sown Cropped more than area once Paddy Ragi Jowar area 17.32 13.85 38.76 17.22 17.61 19.28 4.91 12.18 18.52 9.18 8.55 5.83 13.16 5.67 14.97 8.17 9.09 13.06 6.28 9.03 0.21 2.51 2.57 2.93

based on 1995-96 figures and is the percentage of district total for talukas.

Table 1.2c: Agrarian Features of Mandya district Marginal Taluk No. Area No. Area Mandya 77.32 35.22 14.21 27.04 Pandavapura 70.22 34.00 18.20 31.10 Srirangaptna 69.83 32.36 17.95 29.64 % of district total to 12.79 10.18 4.07 3.89 State total Note : The data are based on 1990-91 figures Small Semi medium No. Area 6.89 25.21 10.06 24.34 10.59 26.63 2.27 2.21 Medium Large Area 1.54 1.15 1.33 0.38

(in per cent) Total No. 100.00 100.00 100.00 7.02 Area 100.00 100.00 100.00 2.76

No. Area No. 1.51 10.98 0.06 1.44 9.42 0.07 1.55 10.04 0.09 0.99 0.91 0.30

Source : Karnataka and Mandya at a Glance 1996-97.

1.6.2 Belgaum Belgaum is the northern border district of Karnataka falling partly in the assured rainfall track and semi-arid tracks of the central plateau. The district represents a typical rainfed region as well as presence of commercial agriculture in irrigated tracts. There are 10 talukas in Belgaum districts. Out of these we have selected three talukas for the

37

purpose of our study keeping in view the cropping pattern, level of commercialisation and crops under study. The selected talukas are Belgaum, Hukkeri and Gokak. The predominant crops in these talukas are Sorghum (Jowar), Paddy and Groundnut . This region clearly represents an agricultural economy in transition from food dominant crop economy to a commercial crop pattern. According to the 1991 census, the population of Belgaum district was about 36 lakhs and the density of population was 267 persons per square kilometre. Marginal and small farmers are predominant in the region and irrigation is available to about 25 per cent of the net sown area. Table 1.3a : Population Characteristics of Belgaum district (In per cent) Population Area Rural Urban Belgaum 19.07 45.08 14.43 Gokak 10.23 7.22 10.88 Hukkeri 9.06 11.16 6.79 % of district total 8.83 6.05 6.99 to State total Source: Census of India: Belgaum District Taluk SC/ST 22.11 8.21 10.04 5.28

Table 1.3b: Broad Agricultural Indicators of Belgaum district Taluk Source of irrigation Canal Tank Well Tube Others Total Area under important crops Padd Jowar Maize y 37.28 5.06 0.42 0.38 12.86 31.75 3.60 3.96 2.84 4.98 10.86 23.15 Net Gross Area sown sown Cropped more than area area once 9.08 27.02 6.83 6.75

Belgaum 0 10.45 6.25 6.21 0.55 2.78 7.29 7.49 Gokak 31.56 0 11.65 3.76 15.34 17.27 12.73 14.33 Hukkeri 3.77 17.48 5.79 1.28 5.29 4.66 7.42 7.35 % of district total 8.89 3.59 15.64 10.88 27.22 12.50 8.33 8.12 to State total Note : The data are based on 1991-92 figures and is the percentage of district total for talukas

Table 1.3c : Agrarian Features of Belgaum district Marginal Small No. Area No. Area Belgaum 49.99 16.98 28.59 23.54 Gokak 33.49 7.69 29.51 19.25 Hukkeri 50.76 14.56 24.71 22.68 % of district total 6.32 35.59 33.48 33.72 to State total Note : The data are based on 1990-91 figures. Taluk (in per cent) Semi medium Medium Large Total No. Area No. Area No. Area No. Area 14.36 25.79 6.18 24.20 0.88 9.49 100.00 100.00 22.59 27.88 12.39 31.63 2.02 13.56 100.00 100.00 16.37 28.32 7.29 26.45 0.87 7.99 100.00 100.00 40.37 34.87 29.26 29.07 25.85 26.95 35.38 33.65

Source : Karnataka and Belgaum at a Glance 1996-97.

38

1.6.3 Gulbarga Gulbarga is a rainfed district of north Karnataka with sorghum (jowar) dominated cropping system. There are 10 talukas in Gulbarga district and we have selected three talukas based on the growth pattern and domination of crops, namely, Chittapura, Jewargi and Sedam. Tur, Sorghum (Jowar) and Gram dominate the cropping pattern of these talukas. According to the 1991 census, the population of Gulbarga district was about 26 lakhs and the density of population was 159 persons per square kilometre. The number of cultivators in the district was about 3 lakhs.
Table 1.4a : Population Characteristics of Gulbarga district (in per cent) Taluk Population Area SC/ST Rural Urban Jewargi 11.23 9.57 0.00 7.00 Chittapur 10.88 10.6 16.48 13.54 Sedam 6.32 6.59 5.46 5.78 % of district total to 8.45 6.34 4.40 7.73 State total Source: Census of India: Gulbarga District Handbook, 1996.

Table 1.4b : Broad Agricultural Indicators of Gulbarga District Area under important Net Source of irrigation crops sown area Canal Tank Well Tube Others Total Jowar Gram Tur 0.00 0.00 15.5 4.11 3.39 2.03 5.39 6.94 0.00 9.10 2.60 0.56 7.91 4.75 6.80 1.19 1.35 11.50 10.40 0.64 9.85 14.8 1.63 6.10 8.27 7.05 17.98 21.79 12.98 13.20 16.87 10.11 12.95 6.37 52.96 10.76 Gross cropped area 13.05 9.23 6.48 10.60 (in per cent) Area sown more than once 12.27 45.36 7.10 9.63

Taluk

Jewargi 0.83 Chittapur 0.00 Sedam 0.00 11.56 % of district to State total Note : The data are

based on 1991-92 figures and is the percentage of district total for talukas.

Table 1.4c : Agrarian Features of Gulbarga districts Taluk Marginal No. Area 7.74 1.33 13.25 2.03 23.32 4.21 2.75 3.29 Small Semi medium Medium Large No. Area No. Area No. Area No. Area 28.58 11.82 34.32 25.96 23.34 38.47 6.02 22.42 28.97 12.29 30.79 24.34 20.75 35.60 6.24 25.73 29.55 14.66 25.65 24.14 17.11 34.77 4.37 22.23 8.30 8.58 10.99 11.22 12.83 13.11 16.33 15.58

Jewargi Chittapur Sedam % of district to State total Note : The data are based on 1991-92 figures.

(in per cent) Total No. Area 100.00 100.00 100.00 100.00 100.00 100.00 7.35 11.31

Source : Karnataka and Gulbarga at a Glance 1997-98.

39

1.7 Plan of the Study The focus of the study is to assess the effectiveness of price intervention scheme as an instrument of price policy. Keeping in view the main focus we have spread the study over five chapters. The next chapter deals with the effectiveness of price policy at the state level especially focussing on the historical view of price intervention scheme and the factors dictating success or failures of MSP. Analysis of price trends forms a part of this chapter. The administration of MSP is dealt in the following chapter. The process of administration at state level is analysed here. An attempt to locate the problems encountered while effectively administering the policy of MSP at the State level and micro-level perceptions about the impact have been incorporated in the fourth chapter, clearly bringing out the effectiveness of the policy at the micro-level. The last chapter incorporates the findings of the study. 1.8 Limitations

The policy of price intervention scheme was drafted in a totally different agrarian situation than that is prevailing today. Therefore, search for of its relevance in the present context (with a theme of liberalisation) makes it difficult, even at the hypothetical level. Even then the process of protecting farmers in the event of distress is essential. But, probably, the scale is too large and the questions are complex as also highly politicised to incorporate an effective analysis. Our analysis is limited to a few crops and these are the most important crops from the viewpoint of MSP in the State. The regions chosen represent three distinct agro-climatic zones of Karnataka, and with most active farm lobby, however, we do not arrogate to commit that our study has a broad coverage of the State.

40

CHAPTER II EFFECTIVENESS OF PRICE POLICY AT THE STATE LEVEL
2.1 Introduction Marketing of agricultural commodities under the state stipulated regulations began in Karnataka as early as 1927. Under the Bombay Cotton Market Act, the first regulated market was established at Belgaum and subsequent establishment of markets at Hubli and Gadag followed this. The other commodities were brought under the regulations subsequently under the Bombay Agricultural Produce and Marketing Act of 1939 covering a few districts of North Karnataka. The Hyderabad Agricultural Produce Market Act provided the basis for establishing regulated markets in Hyderabad Karnataka region. In south Karnataka, around the same time, the Madras Commercial Crops Act provided the ground for establishing regulated markets. The Mysore Agricultural Produce and Marketing Act governed the regulation of markets in the princely Mysore State. Thus, the multiplicity of acts, at various points of time, governed the agricultural marketing sector in Karnataka and therefore, the prevailing regional diversity in marketing is not any surprise. The intention behind enacting the regulations of markets was to provide a perfect market environment to the farmers but that was largely confined to commercial crops. It was also in tune with the agrarian structure existing at that time, when most of the farming activity was subsistence-oriented, there was a little marketable surplus generated and the markets were meant mainly for the commercial crops. After independence, the Department of Marketing was established in the State and all the regional agricultural market regulating Acts were merged and brought under one Act. The Act provided for establishment of sub-markets in the jurisdiction of the main market. The revised Karnataka Agricultural Produce and Marketing (Regulation) Act was enacted in 1966 with the twin objectives viz., i. providing market amenities in the market yard to eliminate the hardship to the farmers; and ii. to eliminate the exploitation of the farmers at the hands of the middlemen. Under this Act, a list of markets covering specified commodities were notified. The act also provided that once a market is designated for a particular commodity, covering a specified area, then the commodities produced in that area should be sold only in those markets, thereby restricting the movement of commodities. The act also provided for a democratic body called Agricultural Produce Market Committee to supervise the functions of marketing with the

41

help of the Secretary of the committee, who was to be appointed by the State Government. At the time of the reorganisation of the State, there were 54 regulated markets in the State. Now, the State has 140 main markets and 333 sub-markets with a turnover of Rs 6,500 crores (GoK 2001a). The density of the markets works out to 3.842 markets per lakh hectares of gross sown area and one market is required to serve an area of about 26 thousand hectares. This is certainly a stupendous task and can certainly impact the efficiency in operations. A few interesting observations about the marketing environment will not be out of place here. First, in the development of marketing regulation in India, Karnataka is no exception. It also began with the emphasis on commercial crops and other crops were included in the fold subsequently. Second, various marketing acts controlled the marketing of a few commodities and served only a restricted area. Thus, this process arrested the free movement of commodities across regions for over decades. Third, the regulated market act certainly regulated the process of marketing (restricted being free), but could not eliminate the imperfections induced by the middlemen. In fact, the act provided for licensing of this institution and making them full legal entities. Finally, the density of markets and coverage is quite inadequate to allow the other informal marketing channels to function freely (For a full discussion, see, Thippaiah and Deshpande 1999; and Acharya 2001). 2.2 Price Policy at the State Level The Constitution of India does not provide for declaring any agricultural price policy at state level. More than that, in a federal structure, it is not prudent to have such segregation in the interest of the economy. At the national level, we have a price policy statement issued in 1986 but, by and large, the price policy of the country is reflected through the annual reports of the Commission on Agricultural Costs and Prices. In the context of a State, we need to analytically view various enactments connected with marketing and the declaration of the Minimum Support Prices by the CACP, as building blocks for the price policy at the State level. Through this process, the views about price policy at the State level can be consolidated. As a part of the drill, the CACP discusses the price situation of various commodities with the representatives of the State government, and it can broadly be said

42

that the views held by various stakeholders at the State level get reflected in the prices declared by the CACP, as there are no prominent disagreements thus far. In some of the commercial crops, like sugarcane and cotton, the stakeholders at the State level are seen to be proactive in their suggestions about the price policy, as they have some degrees of freedom here. But these interventions have created more problems than solutions. It is only recently that some of the State governments established Agricultural Prices Commissions with a view to monitoring the price situation and provide support prices for the commodities not included in the list of CACP. The Agricultural Prices Commission has been established in Karnataka with a preamble focussing on the declaration of MSP for certain commodities. The preamble states: “It has been felt that the need for the

constitution of an independent, professional and technically qualified State Agricultural Price Commission. The Commission will recommend standard prices that can be sustained in the market and the support prices at which the State Government may intervene in the market” (GoK, 2001, see Annexure 2.1). However, while drawing the terms of reference for the Agricultural Prices Commission, the State Government thought it essential to include: recommending necessary measures for making an effective price policy, identifying and recommending measures for increasing export of agricultural commodities and examining the functioning of markets in the State. “ (a) to advise the State Government on the price policy of all agricultural commodities, which fall within the purview of the national Commission for Agricultural Costs and Prices, enabling the State Government to present its views on the fixation of the Minimum Support Prices for all the crops which are grown in the State; to recommend Minimum Support Prices for crops, which do not fall within the purview of the national Commission for Agricultural Costs and Prices ie., initially potato, onion, chillies, coconut and tomato and other crops that may be referred to it by the State Government from time to time; to recommend standard prices for all agricultural commodities that can be sustained in the market in the State; to recommend measures necessary to make the Price Policy effective, with special reference to augmentation of the institutional capability to undertake Minimum Support Price procurement operations like adequate number of procurement points, availability of quality inspectors, availability of sufficient storage space, releases of the procured food grains in the market, etc; to recommend measures for the export of agricultural produce from the State;
43

The terms of

reference given to the Agricultural Prices Commission are as follows (GoK 2001b)

(b)

(c) (d)

(e)

(f)

to examine, where necessary, the prevailing methods and cost of marketing of agricultural commodities in the State and suggest measures to reduce marketing costs and recommend fair margins for different stages of marketing; and to keep under review the prevailing price situation and to make appropriate recommendations within the framework of the Price Policy and advise the State Government on all issues relating to agricultural production and prices.”

(g)

The federal structure of the country does not provide for any separate price policy at the State level and more than that such separate policy initiatives are not conducive in the context of liberalisation. In view of the current economic trends, it is desirable to allow a free and fair movement of commodities across the country as well as monitor the price trends to protect the welfare of the producers. That will enhance the maturity process of the domestic market. In the current phase of economic development, the domestic market reforms should take priority over the other components of reform. On the background of the fact that the agricultural markets are not properly integrated and thus the price differentials exist even between two markets separated by a few hundred kms. The Agricultural Prices Commission at the State level takes the responsibility of a monitoring body. It has submitted a few reports on the state level market intervention schemes. It is also in the process of revisiting the methodology of cost of cultivation and plans to hold a discussion session on this aspect. One of the major lacunae in the implementation of an effective price policy at the state level is the non-availability of proper infrastructure. It has been clearly brought out in the studies conducted earlier that the infrastructure and the processes of marketing of agricultural commodities in Karnataka have severe problems (Deshpande, Dogra and Gajarajan 1993; Deshpande and Raju 1999; GoK 2000). The density and coverage of market has not changed much during the last two decades (see Fig. 2.1). The density of markets was about 3 markets per lakh hectares of Gross Cropped Area (GCA) (including sub-markets) and has gone up to 4 markets per lakh hectares of GCA. This certainly poses a severe bottleneck both in terms of its spread, access and effectiveness. Clustering of sellers and commodities severely inhibit natural functioning of the market process. As stated earlier, some of the markets specialise in terms of commodities transacted and such specialisation also inflicts an inherent neglect on other commodities.

44

We have taken seven commodities for the purpose of our analysis here namely: paddy, ragi, jowar, tur, groundnut, sunflower, and cotton. The major markets assigned to these commodities are indicated in Table 2.1 and these markets deal with the major share of the marketed surplus of these crops in the State. It comes out clearly from the Table that there are markets which deal with more than one commodity and that they cause pressure on the infrastructure (Table 2.1 – see also Annexure 2.2). More than that the geographical spread is also not very conducive for an efficient development of markets. In the final analysis, it becomes very clear that the infrastructure is inadequate and clogs the market places, thereby hindering free market activities. Figure 2.1 : Trends in the Density of Markets

4.50

4.00

3.50

3.00 No. of Markets per lakh ha.

2.50

2.00

1.50

1.00

0.50

0.00 1970 1980 Year 1990 2000 *

45

Table 2.1 : Major Markets by Commodities Crops Major Regulated Markets Paddy Davanagere Bhadravathi T. Narasipura Hospet Gangavathi Sindanur Ragi Bangalore Davanagere Tumkur Kadur Hassan Arasikere Jowar Gadag Haveri Bellary Bidar Basavakalyana Gulbarga Tur Sedam Bidar Gulbarga Chittapur Raichur Basavakalyana Groundnut Davanagere Challakere Bijapur Kottur Raichur Tumkur Sunflower Chitradurga Raichur Bagalkot Talikot Bellary Gulbarga Cotton Chitradurga Davanagere Shimoga Dharwad Bijapur Haveri Source : Karnataka State Marketing Department , Government of Karnataka, Bangalore

Harapanahalli Raichur Balki Bagalkote Raichur

2.3 Analysis of Agricultural Price Trends Time-series on agricultural prices in Karnataka are available from three sources. These include Farm Harvest Prices (a long-term time-series) collected from the selected villages and averaged over the districts; Wholesale Prices collected from the regulated market yards for specific commodities and published by the Directorate of Statistics. These two price series are usually taken for the purpose of analysis. The third source for the data on prices comes from the retailers which is not regularly published. When we look at the trends in agricultural prices, our intention is to compare between Minimum Support Prices and the other price trends so as to understand the impact of MSP on these prices. For the purpose of analysing trends in MSP, we have taken paddy, jowar, wheat, maize and ragi among cereals; tur and gram among pulses, and sunflower, cotton and groundnut among cash crops. These eight crops together cover more than 60 per cent of the cropped area of the state. The trends in Minimum Support Prices of the major crops have been presented in Figure 2.2 and the growth rates have been presented in Table 2.2. It can be seen from the trends that cotton, wheat and paddy show higher rates of growth in MSP. Interestingly, among these trends we find a distinct upward thrust in 1996-97 and 1997-98 as revealed in Figure 2.2. The relative changes across the crops also give an interesting picture. The figure roughly indicates increasing trends across crops but the rates of such changes are different across crops. A closer look shows that a few crops and especially coarse cereals have lower MSP increments over the years compared to wheat and paddy. This speaks of a clear and deliberate policy bias against these crops. In order to look at this more clearly we have taken the relative prices with respect to wheat and paddy as these two crops have larger coverage under MSP. In this comparison, pulses and oilseeds also seem to have been suffering from policy neglect.

46

Table 2.2 Growth Rates in MSP of Major Crops Sl No. Crops Growth Rates in MSP 1980-81 to 2001-2002 10.17 10.83 10.53 10.18 10.19 10.49 11.55 11.42 11.50 10.33 11.22

1 Paddy (F) 2 Wheat 3 Jowar 4 Ragi 5 Maize 6 Gram 7 Tur (Arhar) 8 Groundnut 9 Sugarcane 10 Sunflower seed 11 Cotton

Figure 2.2 MSP of Different Crops in Karnataka
2000 1800 1600 1400 Rs. per quintals 1200 1000 800 600 400 200 0
91 19 92 9 19 93 293 19 4 -9 9 19 95 495 19 6 -9 9 19 97 69 19 98 79 19 9 89 9 19 00 900 20 01

Year

G ra m G ro u n d n u t C

Tur S u n flo w e r s e e d

700

600

500

Rs. per quintals

400

300

200

100 0

19 91 -9 2

19 93 -9 4

19 92 -9 3

19 94 -9 5

19 95 -9 6

19 96 -9 7

19 97 -9 8

19 98 -9 9

19 99 -0 0

Y e a r

Pa ddy R a gi

W he a t M a iz e

20 00 -0 1

Jo w a r

47

The trends in relative MSP (as a ratio to wheat and paddy) clearly indicate a downward trend till 1996-97 or 1997-98 (see Figure 2.3). Beyond this point the relative prices have stayed more or less at the same position. Given the fact that input prices across crops remained same, the relative prices should have stayed at the same level or around that in this period. The declining trends clearly indicate that MSP as a policy tool favoured wheat and paddy against pulses, coarse cereals and oilseeds. The downward trends and the ratios clearly indicate a deliberate bias against pulses and coarse cereals compared to wheat and paddy. This observation comes out clearly fromTables2.3(a, b & c). A comparison between MSP and the market prices clarifies this point further. Such comparison helps us not only to analyse the relative behaviour of MSP but also its influence on price trends in the market. As a policy too, Minimum Support Prices are expected to be below the Wholesale Prices. But this does not seem to hold in the field. In the case of sunflower, groundnut, and jowar the Wholesale Prices have either coincided or went below the level of Minimum Support Prices (see Figure 2.4). The relationship between Minimum Support Prices and Farm Harvest Prices is shown in Figure 2.5 for a few commodities. Here also, we can see that the trends in Minimum Support Prices are a little different from the Farm Harvest Prices. An interesting point crops up from this figure, that is, the distance between market determined prices and the Minimum Support Prices has been very little and therefore probably the MSP is playing a role of base prices with which the market prices get closely identified. One tends to wonder if the MSP is providing a base level for fixing the market prices and whether the market prices are sticking more to MSP than responding to the market induced upper fluctuations? In other words, are the fluctuations upwards get minimised under the influence of Minimum Support Prices? If it is so, then, this is certainly not welfare augmenting for the producers.
Table 2.3a : Minimum Support Prices of Crops Relative to Wheat: Karnataka Year Paddy Jowar Ragi Maize 0.93 0.89 0.80 0.83 0.86 0.84 0.77 0.76 0.75 0.77 Gram 2.00 1.82 1.82 1.83 1.86 1.84 1.57 1.60 1.63 1.75 Tur (Arhar) 2.42 2.33 2.12 2.17 2.22 2.21 1.91 1.88 2.01 2.07 Groundnut 2.87 2.73 2.42 2.46 2.50 2.42 2.09 2.04 2.10 2.10 Sunflower seed 2.98 2.91 2.58 2.57 2.64 2.53 2.13 2.08 2.10 2.02 (Ratio) Cotton 3.41 3.18 2.95 3.14 3.47 3.37 3.04 3.03 3.05 2.97

1991-92 1.07 0.91 0.91 1992-93 1.02 0.87 0.87 1993-94 1.00 0.79 0.79 1994-95 1.03 0.80 0.80 1995-96 1.04 0.83 0.83 1996-97 1.04 0.82 0.82 1997-98 0.95 0.77 0.77 1998-99 0.92 0.76 0.76 1999-00 0.95 0.75 0.75 2000-01 0.93 0.77 0.77 Source: Based on the CACP data

48

Table 2.3b : Minimum Support Prices of Crops Relative to Paddy: Karnataka Year Wheat Jowar 0.94 0.98 1.00 0.97 0.96 0.96 1.06 1.09 1.06 1.07 in 2.3a 0.85 0.86 0.79 0.78 0.80 0.78 0.81 0.83 0.80 0.82 Ragi 0.85 0.86 0.79 0.78 0.80 0.78 0.81 0.83 0.80 0.82 Maize 0.88 0.88 0.80 0.81 0.83 0.81 0.81 0.83 0.80 0.82 Gram 1.88 1.79 1.82 1.78 1.79 1.77 1.66 1.73 1.72 1.88

1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 Source: As

(Ratio) Tur Groundnut Sunflower Cotton (Arhar) seed 2.27 2.69 2.79 3.20 2.29 2.68 2.86 3.13 2.12 2.42 2.58 2.95 2.11 2.39 2.50 3.06 2.13 2.40 2.53 3.33 2.13 2.33 2.43 3.24 2.02 2.20 2.25 3.21 2.04 2.21 2.26 3.29 2.13 2.22 2.22 3.22 2.22 2.26 2.17 3.19

Table 2.3c : Relative Farm Harvest Prices of Crops Relative to MSP: Karnataka (Ratio) Year 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 Source: As in 2.3a

Paddy 1.26 1.18 1.03 1.15 1.22 1.25 1.05 1.11 1.11 0.94

Ragi 1.15 1.20 1.00 1.06 1.31 1.22 0.97 0.98 1.07 0.86

Jowar 1.55 1.19 1.10 1.31 1.81 1.44 1.11 1.35 1.34 0.96

Tur 1.32 1.32 1.43 1.70 1.81 1.86 1.70 1.96 1.46 1.18

Groundnut 1.11 0.88 1.06 1.69 1.57 1.27 1.16 1.21 1.03 0.96

Figure 2.3 Minimum Support Prices of Crops Relative to Wheat

C o m m e r c ia l C r o p s 4 .0 0 3 .5 0 3 .0 0 2 .5 0

Ratio

2 .0 0 1 .5 0 1 .0 0 0 .5 0 0 .0 0

19 95 -9 6

19 99 -0 0

19 92 -9 3

19 96 -9 7

19 97 -9 8

19 94 -9 5

19 91 -9 2

19 93 -9 4

Y ear

G ro u n d n u t C o tto n

19 98 -9 9

S u n f lo w e r s e e d

49

20 00 -0 1

C om m ercial C rops 4.00 3.50 3.00 2.50

Ratio

2.00 1.50 1.00 0.50 0.00

92

95

98

96

99

93

19 91 -

94

19 94 -

97

19 97 -

00 19 99 -

19 93 -

Year

G roundnut C otton

S unflow erseed

C e r e a l
1 .2 0

1 .0 0

0 .8 0

Ratio

0 .6 0

0 .4 0

0 .2 0

0 .0 0

20 00 J o w a r M a iz e

19 92 -

19 95 -

19 96 -

19 98 -

98

92

93

94

95

96

97

99

00

97 -

94 -

92 -

93 -

95 -

91 -

96 -

98 -

19

19

19

19

19

19

Y e a r

19

P a d d y R a g i

50

19

20

19

00 -

99 -

01

01

Figure 2.4

Recent Trends in WSP and MSP : Karnataka

Tur
2000 1800 1600 1400 1200 1000 800 600 400 200 0 1997-98 1998-99 Year 1999-00 2000-01 50 0 Rs. per quintal 40 0 30 0 20 0 10 0 0 1 9 -9 97 8 1 9 -9 98 9 60 0

Ragi

1 9 -0 99 0 Y ar e

2 0 -0 00 1

WP S

MP S

WP S

MP S

Paddy 700 600 Rs. per quintal 500 400 300 200 100 0 1997-98 1998-99 Year 1999-00 W SP 2000-01 MSP

Sunf l owe r
1400 1200 Rs. per quintal 1000 800 600 400 200 0 1997-98 1998-99 Y ear 1999-00 2000-01

Sunflow er

Sunflow er

Groundnut
10 80 10 60 10 40 Rs. per quintal 10 20 80 0 60 0 40 0 20 0 0 1 9 -9 97 8 1 9 -9 98 9 Ya er 1 9 -0 99 0 WP S 2 0 -0 00 1 MP S 10 00
80 0 70 0 Rs. per quintal 60 0 50 0 40 0 30 0 20 0 10 0 0 1 9 -9 97 8

Jowar

1 9 -9 98 9 Ya er

1 9 -0 99 0

2 0 -0 00 1

Jo a wr

Jo a wr

51

Figure 2.5 : Relationship Between the MSP and FHP
Paddy 700

600

500 Rs. per Quintals

400

300

200

100

0 1 9 9 1 -9 2 1 9 9 2 -9 3 1 9 9 3 -9 4 1 9 9 4 -9 5 1 9 9 5 -9 6 1 9 9 6 -9 7 1 9 9 7 -9 8 M SP 1 9 9 8 -9 9 1 9 9 9 -0 0 FHP 2 0 0 0 -0 1 Year

G ro u n d n u t 1600

1400

1200

Rs. per quintals

1000

800

600

400

200

0 1 9 9 1 -9 2 1 9 9 2 -9 3 1 9 9 3 -9 4 1 9 9 4 -9 5 1 9 9 5 -9 6 1 9 9 6 -9 7 1 9 9 7 -9 8 1 9 9 8 -9 9 M S P 1 9 9 9 -0 0 2 0 0 0 -0 1 F H P Y ear

Jowar 600 500 Rs. per quintals 400 300 200 100 0 1 9 9 1 -9 2 1 9 9 2 -9 3 1 9 9 3 -9 4 1 9 9 4 -9 5 1 9 9 5 -9 6 1 9 9 6 -9 7 1 9 9 7 -9 8 1 9 9 8 -9 9 1 9 9 9 -0 0 2 0 0 0 -0 1 Year MSP FHP

52

Ragi 500 450 400 350 Rs. per quintals 300 250 200 150 100 50 0 1991-92 1 9 9 2 -9 3 1 9 9 3 -9 4 1 9 9 4 -9 5 199 5-96 19 96-97 19 97-98 19 98-99 M SP 1 999-00 2 000-01 FHP Y ear

Tur
2000 1800 1600 1400 Rs. per quintals 1200 1000 800 600 400 200 0 1 9 9 1-92 1 9 9 2 -9 3 1 9 9 3 -9 4 1 9 9 4 -9 5 1 9 9 5 -9 6 1 9 9 6 -9 7 1 9 9 7 -9 8 1 9 9 8-99 M SP 1 9 9 9 -0 0 2 0 0 0 -0 1 FHP Year

53

We have compared the prices of major crops in Karnataka prevailing in different markets in order to understand the market integration and prove a point that different prices exist at the same time across markets separated by a few hundred kilometres (Table 2.4) . This comparison provides us a support to the hypothesis that the prices fluctuate violently even across markets during the same month indicating little price integration across markets. In other words, while in one market the prices may touch all the time lowest and within a distance of a few hundred kms and in the same month, the prices are three to four times higher in other markets. This clearly shows that market integration is one of the major problems faced by the farmers in agricultural markets. There are several instances when the difference is twice or more than that and the distance between the two markets is less than 150 kms. Such lack of price integration is more prominent in groundnut, cotton and sunflower (see Table 2.4).
Table 2.4 Minimum and Maximum Prices for Major Crops in Karnataka Jowar 1997-98 Market Dharwad Gulbarga Gadag 1998-99 Davanagere Hosdurga Sirguppa 1999-00 Bellary Kottur Sindanur Basavakalyan Ranebennur Bagalkot 2000-01 Bagalkot Bellary Gulbarga Tur 1997-98 Market Gulbarga 1999-00 Basavakalyan 2000-01 Bellary (Rs. Per quintal) Maximum Minimum Month Price Market Month August 500 Bidar August January 810 Dharwad January September 627 Raichur September July October March April June March May October September September June April 950 Bidar 500 Basavakalyan 700 Ranebennur 612 Basavakalyan 650 Bellary 620 Haveri 826 Gangavathi 700 Somvarpet 778 Sindanur 778 Basavakalyan 662 Jamakandi 900 Bangalore July October March April June March May October September September June April Price 250 90 308 250 200 300 261 300 370 300 420 360 250 180 600

Maximum Minimum Month Price Market Month October 1,935 Bidar October April December 2,200 Raichur 1,850 Chittapur April December

Price 900 988 900 Contd…

54

Groundnut 1997-98 Market Davanagere Hubli Bagalkot Chitradurga Savanur 1998-99 Soundatti Yalburga Raichur Ramadurga Chitradurga Koppal Laxmeswar 1999-00 Tumkur Koppal Kottur Yadgiri Mysore Sira Mahalingapura Rona Hubli Shorapur Mundargi 2000-2001 Kollegal Madhugiri Bijapur Chikkaballapur Bellary Dharwad Sunflower 1997-98 Market Chitradurga Challakere 1998-99 Davanagere Mundargi Raichur 1999-00 Chitradurga Raichur 2000-2001 Arsikere Challakere Gadag Mundargi

Maximum Month April December July May October April August February June November October September April August December February January July June March November October September December January June November October September Maximum Month December April June October November July April October April November December

Minimum Price Market 1,459 Yalburga 1,651 Koppal 1,421 Turuvekere 1,621 Chitradurga 1,321 Dharwad 1,509 Soundatti 1,830 Mysore 1,989 Yadagiri 1,650 Kollegal 2,009 Bellary 2,026 Hubli 1,751 Dharwad 1,500 Hubli 1,535 Mysore 1,702 Sira 1,492 Rona 1,300 Mahalingapura 1,600 Bagalkot 1,300 Ramdurga 1,443 Hiriyur 2,020 Yadgiri 1,552 Shorapur 1,553 Challakere 1,300 Hubli 1,300 Davanagere 1,800 Bijapur 1,400 Gundlupet 1,545 Bangalore 1,219 Gadag Minimum Price Market 1,472 Rona 1,300 Bijapur 2672 Kadur 1,972 Mundargi 1,828 Bagalkot 1,629 Raichur 1,395 Bellary 1,200 Raichur 1,300 Talikot 1,311 Chitradurga 1,269 Arsikere

Month April December July May October April August February June November October September April August December February January July June March November October September December January June November October September

Price 850 900 880 501 401 715 960 803 900 621 501 739 501 700 1,000 436 600 501 750 780 560 521 701 479 575 300 450 400 519

Month December April June October November July April October April November December

Price 601 1,000 900 800 621 603 698 620 900 600 800

55

Cotton 1997-98 Market Bijapur Chitradurga Davanagere Gokak Jamakandi Shimoga 1998-99 Chitradurga Haveri Nanjanagud Ranebennur Shimoga Soundatti 1999-2000 Bagalkot Bellary Bijapur Shimoga Raichur Ranebennur Sindhanur Yellapur 2000-01 Bailahongal Chitradurga Jamakandi Nanjangudu Yellapur Paddy 1997-98 Market Davanagere Hospet Koppal Sindhanur T.Narasipur 1998-99 Bellary Gagavathi Hangal Manvi Raichur Sindhanur Sirguppa Maximum Month September March December October August January July December August September January November August October September January May February April December December January June October November Maximum Month September July April October May October September November June December February March Minimum Price Market 2,300 Davanagere 3,150 Bailahongal 3,038 Raichur 2,340 Shimoga 2,270 Haveri 3,333 Jamakhandi 3,269 Haveri 5,258 Bailahongal 2,000 Annigeri 3,020 Naragund 2,850 Haliyala 2,640 Kottur 1,875 Bagalkot 2,230 Gundlupet 2,750 Hubli 3,030 Yellapur 2,559 Arasikere 3,069 Raichur 1,990 Chitradurga 3,289 Laxmeswar 4,069 Nanjangudu 3,781 Laxmeswar 2,375 Haveri 2,575 Bagalkot 4,029 Gokak Minimum Price Market 800 Davanagere 970 Shimoga 733 Sagar 840 Hospet 600 Sindhanur 910 Nanjangud 934 Saklespura 650 Sindhanur 480 Honnali 834 Bellary 1,300 Gonokoppal 1,050 Koppal Month September March December October August January July December August September January November August October February January December February April December December January June October November Price 507 1,001 300 1,036 1,462 1,500 655 710 1,200 1,400 1,409 689 1,651 1,550 707 2,409 1,680 1,262 950 950 1,450 1,009 701 1,001 1,069

Month September July April October May October September November June December February March

Price 400 400 490 470 300 400 350 400 400 300 350 291 ..contd

56

1999-00 Bellary September 770 Shikaripur Davanagere June 900 Gonikoppal Gagavathi May 1,073 Tarikere Gonikoppal April 650 Tumkur Maddur December 710 Gagavathi Mandya February 1,100 Davanagere Nanjangud January 720 Challakere Sagar July 760 Koppal Sindhanur November 1,065 Mandya Sirguppa October 1,050 Saklespura 2000-01 Bhadravathi October 710 Challakere Davanagere August 705 Sindhanur Manvi June 953 Raichur Raichur November 854 Honnali Sindhanur April 957 Koppal Ragi 1997-98 Maximum Minimum Market Month Price Market Arsikere April 370 Bangalore Bangalore May 540 Hassan 1998-99 Davanagere July 480 Chintamani 2000-01 Bangalore May 740 Nagamangala Hosdurga December 450 Channagiri Source: Basic data from the Directorate of Economics Bangalore.

September June May April December February January July November October October August June November April

450 450 475 420 573 525 480 373 450 425 410 500 400 400 400

Month April May July

Price 370 280 250

May 300 December 250 and Statistics, Govt. of Karnataka,

The very emergence of MSP was to protect the consumers as well as the farmers, when the market prices (represented by Farm Harvest Prices or Wholesale Prices) fell below the base provided by MSP. In Table 2.5 we have compared the Farm harvest Prices, the Wholesale Prices and the Minimum Support Prices during the nineties. Interestingly there are quite a few instances where the MSP is greater than the average Farm Harvest Prices. Similarly, there are equal number of instances wherein the This Minimum Support Price is greater than the Wholesale Price of the commodity.

indicates the failure of the price intervention mechanism operated through MSP during these years and thus probably failed to protect the farmers with the policy instrument.

57

Table 2.5 : Comparison of FHP, WSP and MSP over the years 1997-98 to 2000-01 Commodities Paddy Groundnut Jowar Sunflower Ragi Tur Cotton MSP>FHP 2000-01 2000-01 1999-00 1997-98, 1998-99, 2000-01 MSP>WSP 2000-01 2000-01 1999-00 1997-98 FHP>WSP 1998-99, 1999-00, 2000-01 2000-01 1997-98 1997-98, 1998-99 2000-01

Source: Directorate of Economics & Statistics, Bangalore. Note: 1. Based on average FHP and MSP at the state level 2. FHP – Farm Harvest Price, WSP – Wholesale Price

The correlation between Farm Harvest Prices and Minimum Support Prices indicates the effectiveness of Minimum Support Prices to be associated with market prices. It serves as an indicator of MSP leading the trends in the market prices of the commodities. We find that the correlation between Farm Harvest Prices (FHP) and the Minimum Support Prices is highest in the case of paddy, whereas the correlations are lower in the case of other cereals and pulses. The weak relationship of MSP with FHP in some commodities raises a question about the role of MSP as an incentive price in the case of these crops. Unfortunately, these are the crops grown by the resource poor farmers and largely dominate in the crop pattern of a resource poor region. Then the uneasy question crops up if MSP is only serving as a tool to protect resourceful farmers and commercial crops alone?
Table 2.6 : Correlation between FHP and MSP

Crops Paddy Jowar Ragi Tur Groundnut

Lagged MSP and FHP (1991-1999) 0.90 0.68 0.78 0.71 0.48

58

2.4 MSP as an Incentive Price The price policy adopted during the sixties provided the instrument of Minimum Support Prices not only as a guard against the lower side fluctuations in prices but also as an incentive to grow a particular crop and maneuver the cropping pattern. This is achieved by ensuring a steady increase in the MSP price level over the years. It was designed to provide assurance to the farmers about the expected prices during the next season. In other words, MSP as an instrument of price policy provided a rational basis for price expectations to the farmers. We worked out a simple time-series one variable regression equation to find out the area response to lagged Minimum Support Prices. The underlying hypothesis is that the MSP prevailing in a previous year, influences the area allocation decision during the current year under the crop concerned. Since this is a time-series context it was necessary to eliminate the trend effect by introducing ‘t’ for time variable. The specification of the equation is as follows:

Yt = α + β1 MSP t-1 + β 2 tt + ε
Where Yt = Area at time t (In an alternative formulation we have taken wholesale prices and farm harvest prices as dependant variables in place of Yt

MSP t-1 = Lagged minimum support price at t-1 year tt = Proxy for time trend = Stochastic error term = Constant = Regression coefficients

ε α β1 & β2

Table 2.7a : Regression Results with Area as Dependent Variable Crop Paddy Constant MSPt-1 Time Adjusted R Square 0.22

1,576.4* -1.59 61.48 (5.21) (0.99) (1.19) Jowar 2,042.84* 1.365 -79.88 0.62 (3.62) (0.38) (0.89) Ragi 1,200.15* -0.789 3.101 0.25 (3.28) (0.34) (0.054) Tur 1,591.38* -2.65* 157.97* 0.504 (4.17) (3.11) (3.17) Groundnut 1,298.77** 0.0517 -26.28 0.31 (2.05) (0.046) (0.42) Note: * Indicates statistical significance at 5% level; ** Indicates statistical significance at 10% level; and figures in the parentheses are t values.

59

Table 2.7b : Regression Results with Whole-Sale Price as Dependent Variable Constant -109.16 (-0.54) Jowar -117.35 (0.21) Ragi -275.85 (0.48) Tur 19160.95 (1.44) Groundnut 341.83 (1.11) Note: Figures in the parentheses are t values. Paddy Crop MSPt-1 1.4 (1.79) 1.38 (0.52) 2.58 (0.95) -33.53 (1.49) -9.42 (0.99) Time 12.19 (0.52) 36.47 (0.56) -29.31 (0.43) 2060.25 (1.81) 550.64 (1.23) Adjusted R Square 0.97 0.82 0.47 0.79 0.54

Table 2.7c : Regression Results with Farm Harvest Prices as Dependent Variable Crop Constant MSPt-1 Time Adjusted R Square Paddy 191.44 1.25 -6.31 0.93 (0.71) (1.62) (0.25) Jowar 20.05 1.85 -8.51 0.58 (0.12) (0.68) (1.24) Ragi -78.21 0.323 13.93 0.63 (1.02) (0.22) (0.38) Tur -1027.69 3.58 -71.64 0.84 (0.57) (1.024) (0.37) Groundnut -3945.51 7.67** -339.65 0.44 (1.72) (2.12) (1.79) Note: ** Indicates statistical significance at 10% level and figures in the parentheses are t values.

The results of the above exercise have been presented in Tables 2.7 (a, b and c) for the selected crops and with alternative formulations. It is surprising that the regression coefficients pertaining to MSP are all statistically not significant even at 20 per cent level except for tur, (Table 2.7a) and groundnut (Table 2.7c). It is clear that MSP does not help in deciding the area allocation under the crop during the next season. But there are subtle differences between crops. The area decisions in the case of major crops and inferior cereals do not seem to depend on MSP. The relative economics seem to work more strongly against inferior cereals. The negative coefficient for tur indicates the area under tur going down as MSP increases, which in itself is a perplexing result. But MSP is acting positively on area under groundnut, whereas relative MSP of groundnut in relation to paddy seem to discourage area allocation. However, degrees of freedom are not sufficient to conclude about the role of MSP as incentive prices. The lagged relationship with area as well as production does not indicate the role of MSP as an incentive price and therefore, it seems only to serve as a psychological support in the case of price collapse and not as an instrument of price incentive as envisaged. The graphs in Figure 2.6 indicate no relationship between the production trends and MSP (Lagged or otherwise). Even here too we do not get any support for MSP as an incentive price.

60

Figure 2.6: Relationship between MSP and Production
Tur 1200 1000 800 600 400 200 0 1 9 9 1-9 2 1 9 92 -93 19 9 3 -9 4 1 9 9 4-9 5 1 9 95 -96 Y ear M SP Production 19 9 6 -9 7 1 9 97 -9 8 1 99 8 -99 19 9 9 -0 0

Prod. '000 tonnes & MSP, Rs. per quintal

Ragi 450 400 350 300 250 200 150 100 50 0 1991-92 1992-93 1993-94 1994-95 1995-96 Year MSP Production 1996-97 1997-98 1998-99 1999-00

Prod. '0000 tonnes & MSP, Rs. per quintal

Groundnut 1400 1200 1000 800 600 400 200 0 1991-92 1992-93 1993-94 1994-95 1995-96 Year MSP Production 1996-97 1997-98 1998-99 1999-00

Prod. '0000 tonnes & MSP, Rs. per quintal

61

Jowar
450 400 s & MSP, Rs. per quintal Prod. in '0000 tonne 350 300 250 200 150 100 50 0 1991-92 1992-93 1993-94 1994-95 1995-96 Y ear 1 9 9 6 -9 7 1 9 9 7 -9 8 M SP 1 9 9 8 -9 9 1 9 9 9 -0 0 P r o d u c ti o n

Relationship between Yield of Paddy and MSP

MSP: Rs/quintal and Yield kg/Ha

1600 1400 1200 1000 800 600 400 200 0

19 91 -9 2

19 93 -9 4

19 94 -9 5

19 95 -9 6

19 96 -9 7

19 92 -9 3

19 97 -9 8

19 98 -9 9
P a d d y Y ie ld

Y ear

The very foundation of price policy is to support decision-making in area allocation and provide incentive for adopting new technology but that seems to have not been working in the field. It is very clear that MSP does not provoke any area or input decisions, rather it seems that the time trend alone dictated the decision environment. Our analysis indicates that wheat and paddy got the best out of the price policy (through MSP) but unintentionally this worked as an externality to discourage coarse cereals and pulses. Therefore, it will not be wrong if we consider this as a strong policy bias against a few crops. Incidentally, these are the crops grown in agriculturally backward region of the State and mostly by resource poor farmers. 2.5 Impact on Input Use One of the important objectives of the price intervention scheme is to enhance adoption of technology by providing a wedge against the fluctuations in expected prices.

62

19 99 -2 00 0
Paddy M SP

When farmers are assured of price level in advance of the next harvest, they feel secure to use proper mix of inputs and technology which requires a little more investment. Essentially, the farmers will not be `investment-shy’ in the context of such assurance and they become cautious risk takers. They probably give consideration to the MSP drill and therefore, the declaration of MSP should be before the sowing season for the concerned crop. The experience of last three decades tells us that this happens more as an exception than practice and treating MSP either as incentive price or analysing its impact on input use may only serve as a theoretical discussion. The trends in input use vis-à-vis Minimum Support Prices have been analysed here to track the impact of MSP on input trends. The trends presented in Figure 2.7 show that the input use in the state grows similarly as that of MSP. But can we call this as cause and effect relationship? We hasten to add that this relationship may just be due to time trend rather than a deterministic relationship. Moreover, we have used here average MSP and average Farm Harvest Prices, which serve only as proxies for the trends and do not tell the price effect on an individual crop. The equation explaining detrended input use series with detrended MSP failed to turn out with any statistically significant coefficients. With this evidence one tends to conclude that MSP hardly has any influence on area allocation or input use.

Figure 2.7: Relationship Between average FHP and MSP with Fertilizer Consumption

FHP :Value & Fertilizer quantity

1400.00 1200.00 1000.00 800.00 600.00 400.00 200.00 0.00 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 Year Average FHP Fertilizer consumption ('000 tonnes)

63

Relationship between the Average MSP and Fertilizer Consumption
1400 MSP : Value & Fertilizer quantity 1200 1000 800 600 400 200 0 1991-92 1992-93 1993-94 1994-95 1995-96 Year 1996-97 1997-98 1998-99 1999-00

Average MSP

Fertilizer consumption ('000 tonnes)

Yt = α + β1 MSP t-1 + β 2 tt + ε
Where Yt = Fertilizer consumption t; MSP t-1 = Lagged Minimum Support Price at (t-1) year tt = Proxy for time trend = Stochastic error term = Constant = Regression coefficients

ε α β1 & β2 Table 2.8 :

Regression Results with Fertilizer Consumption as Dependent Variable Crop Constant MSPt-1 Time Adjusted R Square Fertilizer 1,297.79 -1.99 133.52 0.54 Consumption (1.26) (0.55) (0.86) Note: Coefficients are not statistically significant even at 20 per cent and figures in the parenthesis are t values

Another way of looking at the impact of MSP on input use is through the relationship between MSP and yield of crops per hectare. In this case the yield of crop stands as an end result of the application of new technology which essentially includes inputs. The trends have been presented in Figure 2.8 and we find that no strong relationship between yield per hectare and MSP could be discerned from these figures. We are now confronted with the evidence that holds us back from concluding that MSP provides incentives for adoption of the new technology and supports the risk-taking attitude of the farmers during the nineties. But we also keep in view the fact that during

64

the early seventies, MSP did play this role effectively. But, by the nineties even the trends in technological innovation in agricultural sector had slowed down and therefore, it will not be prudent to conclude hurriedly about the technology-inducing role of MSP. This needs to be checked only with the help of the farm level data.
Figures 2.8: Relation between MSP and Yield - Kg per Hectare of Tur

R e l ati o n s h i p B e twe e n M S P a n d Yi e l d of T u r
MSP Rs per quintal and Yield 1200 1000 kg per hectare 800 600 400 200 0 1 9 9 1 -9 2 1 9 9 2 -9 3 1 9 9 3 -9 4 1 9 9 4 -9 5 1 9 9 5 -9 6 Y ear M SP T ur Y ie ld T ur 1 9 9 6 -9 7 1 9 9 7 -9 8 1 9 9 8 -9 9 1 9 9 9 -0 0

R e la t io n b e t w e e n M S P a n d Y ie ld - K g p e r H e c t a r e o f G r o u n d n u t
MSP Rs per quintal and Yiled kg per 1400 1200 1000 hectare 800 600 400 200 0 1 9 9 1 -9 2 1 9 9 2 -9 3 1 9 9 3 -9 4 1 9 9 4 -9 5 1 9 9 5 -9 6 Y ear M S P G -n u t Y ie ld G -n u t 1 9 9 6 -9 7 1 9 9 7 -9 8 1 9 9 8 -9 9 1 9 9 9 -0 0

R ela tio nship b etw een M S P a n d Y ield o f J o w ar

1000 900 800 700 600 500 400 300 200 100 0 1 99 1 -9 2 19 9 2 -9 3 1 9 9 3 -9 4 1 9 9 4 -9 5 1 9 9 5-9 6 Y ear M SP Jow ar Y ield Jow ar 1 9 96 -97 1 99 7 -9 8 1 9 9 8 -9 9 1 9 9 9 -0 0

Yield kg per hetare and MSP Rs.

per quintal

65

Relationship between MSP and Yield of Ragi MSP Rs per quintal and Yield kg per hectare 2000 1500 1000 500 0 1991-92 1992-93 1993-94 1994-95 1995-96 Year MSP Ragi Yield Ragi 1996-97 1997-98 1998-99 1999-00

2.6: Regional Variation in Prices Regional variation in prices is one of the important issues in the price policy. Prices vary not only across the states but also across districts within a state and across markets. We have seen earlier that during the same month the prices of the same commodity, in one market can be three to five times of the prices prevailing in the other market, and these markets are not distanced by more than a few hundred kms. We have presented here in Tables 2.9 and 2.10 the variations in Farm Harvest Prices for the period 1990-91 to 2000-01. We have used Farm Harvest Prices here as these are the only price series that provide time-series data for a longer period. The Coefficient of Variation is as high as 50 per cent and as low as less than 10 per cent across regions and commodities. Variations across the districts are quite interesting and we find that the high variability group of districts mostly belong to central and south Karnataka. We have also categorised the districts falling in high price variability and low price variability groups across individual crops. It is found that generally the districts having larger area under the crop depicts high price variability. But that is not a strict rule of behaviour, there are districts with significant importance of a crop and still show low price variability. Thus regional variations in prices seem to be dictated equally by factors other than supply alone.

66

Figure 2.9 : Regional Variation in Prices over Different Crops (1997-98 to 2000-01)

Tur
Paddy

Average prices

600.00 Average prices 500.00 400.00 300.00 200.00 100.00 0.00 Bangalore Mysore Belgaum Gulbarga Divisions

2 0.0 00 0 1 0.0 50 0 1 0.0 00 0 50 0 0.0 0.0 0 B angalore M ysore B elgau m G lbarga u D ivision s

Groundnut 1220.00 1200.00 1180.00 1160.00 1140.00 1120.00 1100.00 1080.00 1060.00 Bangalore Mysore Divisions Belgaum G ulbarga
600.00 Average Prices 500.00 400.00 300.00 200.00 100.00 0.00 Bangalore

Ragi

Average prices

Mysore

Belgaum

Gulbarga

Divisions

Jowar
1000.00 Average prices 800.00 600.00 400.00 200.00 0.00 Bangalore Mysore Belgaum Gulbarga Divisions

67

Table 2.9 : District-wise Coefficient of Variation of Farm Harvest Prices in Agricultural Commodities over the Period of 1990-91 to 2000-01 : Karnataka Paddy District Bangalore (U) Kodagu Bidar Belgaum D, Kannada Chitradurga Gulbarga Mandya Jowar District Raichur Mandya Bellary Bijapur Dharwad Chitradurga Gulbarga Bangalore (R) Ragi District Kolar Tumkur Chikmagalore Bangalore (U) Bellary Chitradurga Mysore Bangalore (R) Tur District Mandya Belgaum Chitradurga Dharwad Bellary Mysore Shimoga Gulbarga Groundnut District Bagalkot Bangalore (U) Bangalore (R) Chikmagalur Tumkur Shimoga Mysore Mandya Sunflower District Chamarajnagar Chikmagalur Raichur Mysore Bellary Bidar Bagalkot Bijapur Gulbarga Chitradurga Belgaum Haveri Koppal Bangalore (R) Bangalore (U) D, Kannada Davanagere Dharwad Gadag Hassan Kodagu Kolar Mandya Shimoga Tumkur U. Kannada Udupi Cotton District Raichur Haveri Dharwad D, Kannada Belgaum Gulbarga Shimoga Mysore Chitradurga Bellary Chamarajnagar Bijapur Bagalkot Bangalore (R) Bangalore (U) Bidar Chikmagalore Davanagere Gadag Hassan Kodagu Kolar Koppal Mandya Tumkur U. Kannada Udupi

CV 34.61 32.43 31.95 31.61 29.55 29.21 27.80 26.89

CV 54.72 50.59 40.95 39.53 39.38 36.20 30.38 25.98

CV 41.55 29.82 28.20 25.82 25.10 23.19 22.55 20.72

CV 85.08 41.66 37.76 34.63 33.18 31.64 29.14 28.32

CV 38.16 33.07 24.78 23.33 22.48 19.42 17.29 15.27 13.89 13.88 12.65 12.58 12.32 11.96 11.69 11.07 9.75 4.84 3.37 2.65 1.65 0.00 0.00 0.00 0.00 0.00 0.00

CV 18.72 15.99 15.22 14.45 9.46 9.24 8.13 7.63 6.21 6.08 6.06 1.59 1.34 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

CV 56.56 36.67 33.44 24.49 21.34 19.32 16.86 15.32 11.46 6.35 4.41 2.88 2.39 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

U. Kannada 26.74 Mysore 23.47 Hassan 19.78 Bijapur Shimoga 26.17 Shimoga 22.81 Mandya 19.53 Raichur Dharwad 26.10 Chikmagalur 22.61 Dharwad 13.97 Bidar Raichur 24.93 Bidar 19.06 Shimoga 12.86 Chamarajnagar Mysore 24.24 Belgaum 17.28 D, Kannada 12.47 Bagalkot Tumkur 23.04 Hassan 14.69 Belgaum 9.92 Koppal Hassan 22.87 Tumkur 11.54 Haveri 2.93 Bangalore (R) Chikmagalore 22.47 Chamarajnagar 9.24 Bagalkot 0.00 Bangalore (U) Bangalore (R) 21.95 D, Kannada 7.85 Bidar 0.00 Chikmagalore Kolar 17.63 Bangalore (U) 0.00 Bijapur 0.00 D, Kannada Haveri 13.18 Bagalkot 0.00 Chamarajnagar 0.00 Davanagere Udupi 4.41 Davanagere 0.00 Davanagere 0.00 Gadag Davanagere 3.08 Gadag 0.00 Gadag 0.00 Hassan Koppal 1.28 Haveri 0.00 Gulbarga 0.00 Haveri Bagalkot 0.00 Kodagu 0.00 Kodagu 0.00 Kodagu Bellary 0.00 Kolar 0.00 Koppal 0.00 Kolar Bijapur 0.00 Koppal 0.00 Raichur 0.00 Tumkur Chamarajnagar 0.00 U. Kannada 0.00 U. Kannada 0.00 U. Kannada Gadag 0.00 Udupi 0.00 Udupi 0.00 Udupi Note : 1996-97 to 2000-01 data have been used to compute CV for Sunflower and Cotton

27.26 Dharwad 24.28 Chitradurga 23.84 Raichur 12.26 Bidar 2.44 Gulbarga 1.57 Bijapur 0.00 Bellary 0.00 Belgaum 0.00 Kolar 0.00 U. Kannada 0.00 D, Kannada 0.00 Koppal 0.00 Chamarajnagar 0.00 Davanagere 0.00 Gadag 0.00 Hassan 0.00 Haveri 0.00 Kodagu 0.00 Udupi

Source : Prices Distribution, Directorate of Economics and Statistics, Bangalore, Government of Karnataka

68

Table 2.10:

District-wise Coefficient of Variation of Farm Harvest Prices in Agricultural Commodities over the Period of 1990-91 to 2000-01 : Karnataka

Paddy Jowar Ragi High Price Variability Low Price Variability High Price Variability Low Price Variability High Price Variability Low Price Variability Bangalore (U) 34.61Raichur 24.93Raichur 54.72Mysore 23.47Kolar 41.55Chitradurga 23.19 Kodagu 32.43Mysore 24.24Mandya 50.59Shimoga 22.81Tumkur 29.82Mysore 22.55 Bidar 31.95Tumkur 23.04Bellary 40.95Chikmagalur 22.61Chikmagalur 28.20Bangalore (R) 20.72 Belgaum 31.61Hassan 22.87Bijapur 39.53Bidar 19.06Bangalore (U) 25.82Hassan 19.78 D, Kannada 29.55Chikmagalur 22.47Dharwad 39.38Belgaum 17.28Bellary 25.10Mandya 19.53 Chitradurga 29.21Bangalore (R) 21.95Chitradurga 36.20Hassan 14.69 Dharwad 13.97 Gulbarga 27.80Kolar 17.63Gulbarga 30.38Tumkur 11.54 Shimoga 12.86 Mandya 26.89Haveri 13.18Bangalore (R) 25.98 D, Kannada 12.47 U. Kannada 26.74 Shimoga 26.17 Dharwad 26.10 Tur Groundnut Cotton High Price Variability Low Price Variability High Price Variability Low Price Variability High Price Variability Low Price Variability Mandya 85.08Raichur 24.28Bagalkote 38.16Bangalore (R) 24.78Raichur 56.56 D, Kannada 24.49 Belgaum 41.66Bidar 23.84Bangalore (U) 33.07Chikmagalur 23.33Haveri 36.67 Belgaum 21.34 Chitradurga 37.76Chamarajnagara 12.26 Tumkur 22.48Dharwad 33.44 Gulbarga 19.32 Dharwad 34.63 Shimoga 19.42 Shimoga 16.86 Bellary 33.18 Mysore 17.29 Mysore 15.32 Mysore 31.64 Mandya 15.27 Chitradurga 11.46 Shimoga 29.14 Dharwad 13.89 Gulbarga 28.32 Chitradurga 13.88 Bijapur 27.26 Raichur 12.65 Bidar 12.58 Sunflower Gulbarga 12.32 High Price Variability Low Price Variability Bijapur 11.96 Nil Chamarajnagara 18.72 Bellary 11.69 Chikmagalur 15.99 Belgaum 11.07 Raichur 15.22 Mysore 14.45 Note : 1. 1996-97 to 2000-01 data have been used to compute CV for Sunflower and Cotton 2. Less than 10 per cent of coefficient of variation is neglected Source : Prices distribution, Directorate of Economics and Statistics, Bangalore, Government of Karnataka

69

Seasonal variation in prices is another important problem confronted while formulating the price policy. In order to analyse the seasonal variations we have taken the major markets dealing with the commodities. Our objective in this analysis is two folds, namely, to find out the peak and slack season in respect of each of the commodity and also to locate if at least the major markets behave in a similar seasonal pattern. We can see from the figure (Figure 2.10) that the major markets have more or less similar seasonal behaviour of prices but one cannot say that the seasonal behaviour in one market is an exact replica of another.

Figure 2.10 : Seasonal Index of Different Commodities in the Major Markets

S ea so n a l In d ex o f P a d d y A rr iv a ls in m a jo r m a r kets 3 0 0 .0 0 2 5 0 .0 0 Seasnal index 2 0 0 .0 0 1 5 0 .0 0 1 0 0 .0 0 5 0 .0 0 0 .0 0 Jan u ary M arch M ay B ellary A rriva ls M o n thJu ly S ep tem b er S irgu p p a A rriva ls N ov em b er G a n g ava th i A rriva ls

T . N a ra sip u r A rriva ls

S e a s o n a l In de x o f Ra g i a rri va l s i n m a jo r m a rk e ts 2 5 0 .0 0 Seasonal index 2 0 0 .0 0 1 5 0 .0 0 1 0 0 .0 0 5 0 .0 0 0 .0 0 Jan uary M arch M ay M o n t hJuly T um k ur Arriv als Sep t em ber No v em ber

Dav an agere Arriv als

Hassan Arriv als

70

Seasonal Index of Groundnut Arrivals in major markets 450.00 400.00 350.00 300.00 250.00 200.00 150.00 100.00 50.00 0.00 r pr il be r y ch ry ay y e r m be br ua r Ja n te m M ct ov e em be D ec st Ju n ug u A M ob e ua ar Ju l r

Seasnal index

Fe

A

Se p

O

Month Chitradurga Arrivals Challakere Arrivals Kottur Arrivals Yalburga Arrivals

Table 2.11 : Commodity-wise Peak and Slack Months in the Regulated Markets Commodity Arrivals Prices Peak Slack Peak Slack Month Month Month Month Paddy December February June January Ragi April November October May Jowar December March June January Groundnut June March July February Cotton December June December July Tur January October April October Sunflower October June October December We have located the peak and slack months in terms of prices across commodities and major markets (Table 2.11). It is certainly a difficult judgement, as even the major markets do not behave similarly. But this exercise if undertaken across markets in the State can provide a clue for providing an alert system for procurement agencies across markets in the State. 2.7 Factors Dictating Failure or Success of MSP Minimum Support Prices as in instrument of the price policy has recorded an initial success but in the changed economic scenario, it is necessary to reconsider this instrument. As a policy tool, MSP has served the purpose during the seventies and eighties to procure, build buffer stocks, provide base price for the farmers and induce adoption of the new technology. In the early years of the Green Revolution phase, MSP and Procurement or Levy Prices had this connotation and policy agenda. During those years creation of incentives for adoption of new technology and providing food security were the most important aspects of the price policy. Similarly, procurement for sustaining the Public Distribution System was essential and this was

71

N

to be achieved through market interventions. The role of MSP as incentive to adopt technology during those years comes out very clearly in the writing of Prof. Dantwala, who was one of the chief architects of our price policy. He stated that, “Though no rigid formula has been accepted to determine the levels of floor prices, the criterion followed is that progressive farmers should find these levels adequate to encourage enterprise and investment to augment production

through the adoption of improved technology with all its risk and uncertainty (emphasis added)”
(Dantwala 1996: 213, originally published in 1967). In the present context the factors influencing the effectiveness of MSP assume more importance. Among the factors that dictate the effectiveness of MSP the most important are: i. Process of implementation of the policy, ii. Dependence on the State for intervention so that the markets function effectively and freely in long run, iii. Weeding out the information asymmetry prevailing in the agricultural markets and providing farmers with the required information at proper time, iv. Monitoring the prices without intervention and assess the situation in the place of suo motto intervention. v. Long term policy steps to replace the present ad hoc arrangements. Over the last three decades significant changes have taken place in the context of price policy. The field of price policy has changed from incentive prices to remunerative prices and now the issues need to be posed in a totally different perspective. The process of liberalisation adopted during nineties therefore gives a new connotation to the price policy. Apart from being an instrument for creating incentive, it is also expected to play a much wider role of fully interacting with the market forces. Farmers are already expressing concern about the `remunerative aspect of MSP’, but the concern rather points an accusing finger towards failure of the market mechanism to provide economically viable prices to them. In the wake of larger stocks, now the price policy has to be handled carefully. After an experience of a quarter of century, in the implementation of the market intervention scheme Prof Dantwala wrote again during early nineties recognising the changing role of MSP and interventions. He wrote that: “Likewise, intervention has to be selective. Its need must be clearly established and its

effectiveness should be constantly under review (emphasis added). The real problem is not simply to establish the legitimacy of intervention, but that of ensuring its effective and judicious implementation.” (Dantwala 1996:292, originally published in 1993). Aptly he suggested to take note of changing circumstances and have a constant review of the interventions. He also emphasises the implementation process which requires a close scrutiny in the changing circumstances. We can only appreciate his vision even in the wee years of liberalisation.

72

2.8 Towards a Sustainable Policy The context of price policy has undergone a sea change during the last four decades. In the present process of liberalisation and opening up of the international trade, we require to think afresh about the context of the policy. Even beyond this, it has come into bold relief that the price intervention scheme has not been effectively implemented and thus failing in ensuring the objectives it has framed to serve. The price policy has been asymmetric in terms of crops as well as regions and thus, can inflict inequality even through a well intended intervention. The externality inflicted by the deliberate policy bias on coarse cereals and pulses sector as well as on the regions growing these crops can be seen in their growth rates and income foregone in the process. In this context, Krishnaji wrote that “In the case of coarse cereals, however, judging by the price criterion, the implementation of the price policy has not been very successful (Krishnaji 1991: 189). It is well known that a segment of the farmers’ lobby has a greater influence on the price policy and at the macro-level it favours a few crops and regions. This, in turn, affects the aggregate welfare. Similarly, input markets too have little influence of the behaviour of MSP. In product market, the expectation of support prices provides ripe situation to the intermediaries to achieve greater advantage. The implementation process itself provides time-lag between the declaration of the intention to procure under MSP and the actual procurement. This gives enough room for the traders to step in and buy the commodities from the farmers to sell it under market intervention scheme to the State Government. This clearly defeats the purpose of the scheme. Politicians of all groups would like to be in good books of the farmers by lauding the MSP and arguing for higher MSP but little realising that the whole process fails the farmers. It is necessary therefore, that prudent steps are taken in order to clearly focus the price policy on ensuring that the weak and marginal farmers/crops do not suffer in the process through distress sale or deliberate policy bias. A long term clear policy perspective is required for this purpose where all the grey areas in the price policy need to be attended to.

73

Annexure 2.1
PROCEEDINGS OF THE GOVERNMENT OF KARNATAKA Sub: - Constitution of Karnataka State Agriculture Price Commission – reg. Read: - Note No. CM:AS.772/2001 dt. 25.4.2001 from Additional Secretary to Chief Minister, Government of Karnataka. ____ PREAMBLE : It has been felt the need for the constitution of an independent, professional and technically qualified State Agricultural Price Commission. The Commission will recommend standard prices that can be sustained in the market and the support prices at which the State Government may intervene in the market. Keeping this in view, it has been decided to constitute a three member Karnataka State Agricultural Price Commission under the Chairmanship of Dr. S.Bisaliah, Former Vice-Chancellor, U.A.S., Bangalore and hence, this order. GOVERNMENT ORDER NO. AHO 204 AMS 2001, BANGALORE: DATED:15.6.2001 The Government are pleased to accord sanction for the constitution of a three member – “Karnataka State Agricultural Price Commission” with the following composition. 1) Dr. S.Bisalaiah, Former Vice-Chancellor U.A.S., Bangalore. 2) Dr. Praful Chandra, Shimoga. 3) Sri. Narayana Rao, Senior Advocate, Yadagir Town, Gulbarga District.

Chairman Member

Member

The terms of reference of the Karnataka State Agricultural Price Commission is indicated in ANNEXURE 2.1.1. A working group consisting of the following officers is also hereby constituted to assist the Commission in discharging its functions efficiently and expeditiously. a) Principal Secretary to Government, Food, Civil Supplies & Consumer Affairs Dept. Government of Karnataka. b) Secretary to Government (Horticulture) Agriculture & Horticulture Department. c) d) e) f) Commissioner for Agriculture, Bangalore. Director of Horticulture, Bangalore. Director of Agril. Marketing, Bangalore. Head, Department of Agril. Economics, U.A.S., Bangalore. 2 -

….2)

74

The Additional Director of Agriculture (Development) Department of Agriculture shall function as the Ex-Officio Secretary of the Agricultural Price Commission with immediate effect and until further orders. The members of the Commission shall be paid honorarium and allowance on par with the Members of Karnataka State Agriculture Commission. The Commissioner for Agriculture shall provide all secretarial & logistical assistance required by the Commission and shall also meet all the expenses of the Commission from out of over-all funds earmarked under the Budget Head of account “2401-00-800-1-08 (Plan)” Committee’s and Consultancies. This order shall come into force with immediate effect and until further orders.

By order & In the Name of Governor of Karnataka Sd/( P. Krishna Murthy) Under Secretary to Government Agriculture & Horticulture Department To: 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) 12) 13) 14) 15) 16) The Accountant General, Bangalore All the Members of the Commission Principal Secretary to Chief Minister/Addl. Secretary to Chief Minister All P.S. to Ministers/State Ministers Chief Secretary, Government of Karnataka All Addl. Chief Secretaries/Addl. Chief Secretary & Ex-Officio Development Commissioner All Principal Secretaries and Secretaries to State Government Commissioner of Agriculture, Bangalore. Director, Horticulture, Bangalore. Director, Agril. Marketing, Bangalore. Vice-Chancellor, U.A.S., Bangalore/Dharwad. Head, Department of Agrl. Economics, U.A.S., Bangalore. Addl. Director of Agriculture (Development), Commissionerate of Agriculture, Bangalore. Addl. Director of Agriculture (SLU) and Ex-Officio Secretary, State Agriculture Commission, Bangalore. All Under Secretaries/Section Officers, A & H Dept. Guard Field / Extra copies

Copy For Information 1) Secretary (A&C), Govt. of India, Ministry of Agriculture, Dept. of Agril. & Co-operation, Krishi Bhavan, New Delhi. 2) Member Secretary, Commissioner for Agriculture Costs & Prices, Government of India, Krishi Bhavan, New Delhi.

75

ANNEXURE 2.1.1 TERMS OF REFERENCE S OF THE COMMISSION

(a) To advise the State Government on the price policy of all agricultural commodities, which fall within the purview of the National Commission for Agricultural Costs and Prices, enabling the State Government to present its views on the fixation of the Minimum Support Prices for all the crops which are grown in the State; (b) To recommend Minimum Support Prices for crops, which do not fall within the purview of the National Commission for Agricultural Costs and Prices, ie., initially potato, onion, chillies, coconut and tomato and other crops that may be referred to it by the State Government from time to time; (c) To recommend standard prices for all agricultural commodities that can be sustained in the market in the State; (d) To recommend measures necessary to make the Price Policy effective, with special reference to augmentation of the institutional capability to undertake Minimum Support Price procurement operations like adequate number of procurement points, availability of quality inspectors, availability of sufficient storage space, releases of the procured food grains in the market, etc; (e) To recommend measures for the export of agricultural produce from the State; (f) To examine, where necessary, the prevailing methods and cost of marketing of agricultural commodities in the State and suggest measures to reduce marketing costs and recommend fair margins for different stages of marketing; and (g) To keep under review the prevailing price situation and to make appropriate recommendations within the framework of the Price Policy and advise the State Government on all issues relating to agricultural production and prices.”

By order & In the Name of Governor of Karnataka Sd/( P. Krishna Murthy) Under Secretary to Government Agriculture & Horticulture Department

76

Appendix Table 2.1 : Number of Agricultural Regulated Markets in India as on 1998

State

Andhra Pradesh Assam Bihar Gujarat Haryana Himachal Pradesh Karnataka Madhya Pradesh Maharashtra Orissa Punjab Rajasthan Tamil Nadu Tripura Uttar Pradesh West Bengal Total

Regulated Markets Principal Sub-market market 284 557 16 19 122 706 165 104 8 137 296 260 57 143 124 270 21 263 44 2,328 232 177 27 332 311 587 87 527 273 382 496 4,734

Total 841 35 828 397 281 35 469 607 847 144 670 397 270 21 645 540 7,062

Note : The Total figures refer to all India total markets. Some states have been neglected in the above table Source : Indian Agriculture in Brief, 27th edition

77

Appendix Table 2.2 : Farm Harvest Prices in Agricultural Commodities in Karnataka
Paddy District 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 (Rs.per Quintal) 1996-97 1997-98 1998-99 1999-00 2000-01

Bangalore (R) Bangalore (U) Bagalkot Belgaum Bellary Bidar Bijapur Chamarajnagar Chikmagalore Chitradurga D, Kannada Davanagere Dharwad Gadag Gulbarga Hassan Haveri Kodagu Kolar Koppal Mandya Mysore Raichur Shimoga Tumkur U. Kannada Udupi Jowar Bangalore (R) Bangalore (U) Bagalkot Belgaum Bellary Bidar Bijapur Chamarajnagar Chikmagalore Chitradurga D, Kannada Davanagere Dharwad Gadag Gulbarga Hassan Haveri Kodagu Kolar Koppal Mandya Mysore Raichur Shimoga Tumkur U. Kannada Udupi

258 258 277 209 250 235 239 249 253 231 221 256 249 223 231 246 255 272 213 235 208 240 210 280 220 208 201 205 200 245 -

330 330 240

353 329 301 337 329 368 318 298 345 301 -

333 366 302 331 354 331 364 358 364 326 322 354 333 253 -

382 366 439 437 488 397 401 430 431 -

495

587 381

348

310 333 325 281 304 349 295

456 478 457 406 474 421

352 457 451 469 426 424 455

326 352 311 329 305 297 314 334 374 268 328 266 283 342 -

344 328 329 319 376 337

507 433 462 454 456 413 618 451 -

499 524 415 487 464 521 462 466 622 485 429 506 497 488 418 499 356 356 680 534 666 549 410 386 -

428 530 397 472 467 480 481 398 434 490 500 447 473 474 472 393 361 604 396 537 483 413 299 398 -

476 569 610 522 637 514 483 589 513 549 354 555 582 464 539 495 520 442 494 744 436 383 803 577 437 960 438 -

557 650 526 609 621 609 551 556 565 604 539 670 560 540 523 597 554 642 562 631 481 430 466 800 850 604 434 840 500 -

463 487 576 538 496 487 462 593 583 543 294 487 501 485 473 658 474 529 528 398 325 501 422 365 365 417 499 347 605 436 -

244 263 300 326 200

438 281 225 238 285 251 262 248 339 -

438 456 313 521 422

375 296 276

342 451 639 333 437 -

629 544

322 283 358

665 382 513

78

Ragi District 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01

Bangalore (R) Bangalore (U) Bagalkot Belgaum Bellary Bidar Bijapur Chamarajnagar Chikmagalore Chitradurga D, Kannada Davanagere Dharwad Gadag Gulbarga Hassan Haveri Kodagu Kolar Koppal Mandya Mysore Raichur Shimoga Tumkur U. Kannada Udupi Tur Bangalore (R) Bangalore (U) Bagalkot Belgaum Bellary Bidar Bijapur Chamarajnagar Chikmagalore Chitradurga D, Kannada Davanagere Dharwad Gadag Gulbarga Hassan Haveri Kodagu Kolar Koppal Mandya Mysore Raichur Shimoga Tumkur U. Kannada Udupi

233 213 266 215 191 190 233 198 191 620 845 901 791 1,215 671 932 707 823 1032 1032 -

242 226 285 241

330 337 315 298 282 -

290 334 330 263 250 1,024 828 962 911 731 844 1,102 871 966 878 -

281 321 334 -

393 466

225 269

302 298 314 275 235 328 295

358 352 434 421 371 1,787 1,902 1,608 1,385 1,828 2,842 1,310 1,507 1,405 -

228 220 273 272 235 215 -

286

225 332 314 282 807 820 970 896 653 624 1,037 896 744 -

401 458 360 400 392 390 375 368 1,550 1,438 1,324 1,381 1,626 1,344 1,378 1,698 -

377 396 373 313 293 396 357 358 1,288 1,620 1,619 1,547 1,845 1,214 1,695 -

418 410 415 283 406 413 376 1,877 1,831 1,841 979 1,333 1,971 1,522 1,601 -

450 438 395 345 421 443 501 1,152 1.610 1,619 1,,213 1,498 1,545 1,665 1,138 1,573 1,230 -

391 413 345 435 360 371 331 342 331 464 406 1,113 1,219 1,352 1,273 1,259 2,073 1,472 1,113 1,825 1,447 -

742 946 1,091 881 1,565 709 729 732 804 651 -

1,024 1,303 1,167 1,186 1,367 1,169 986 1,219 -

79

Groundnut District

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97 1997-98 1998-99 1999-00 2000-01

Bangalore (R) Bangalore (U) Bagalkot Belgaum Bellary Bidar Bijapur Chamarajnagar Chikmagalore Chitradurga D, Kannada Davanagere Dharwad Gadag Gulbarga Hassan Haveri Kodagu Kolar Koppal Mandya Mysore Raichur Shimoga Tumkur U. Kannada Udupi Sunflower Bangalore (R) Bangalore (U) Bagalkot Belgaum Bellary Bidar Bijapur Chamarajnagar Chikmagalore Chitradurga D, Kannada Davanagere Dharwad Gadag Gulbarga Hassan Haveri Kodagu Kolar Koppal Mandya Mysore Raichur Shimoga Tumkur U. Kannada Udupi

721 586 837 914 895 1,001 545 963 866 844 1,007 847 656 911 625 960 972 879 964 1,018 984 931 940 767 907 -

650 721 974 962 1,156 1,067 751 1088 1,069 953 994 1,068 726 1,002 744 1,025 815 848 902 840 846 -

731 710 878 875 971 912 946 812 801 893 626 838 808 867 956 825 876 874 -

778 618 995 971 952 985 823 741

753 561 835 1,110 1,042 1,166 1,264 1,041 981 1,121 972 1,028 1,119 1,091 767 1,080 903 1,141 1,233 1,098 1,189 1,076 1,222 1,084 1,146 -

890 560 1,020 1,162 1,247 1,097 1,129 1,133 1,033 1,089 1,048 872 1,139 928 1,186 1,035 1,117 1,124 1,080 1,043 1,193 1,109 1,194 1,026 -

854 959 971 970 963 700 899

920 1,038 1,140 1,192 1,149 1,143 1,230 1,184 1,151 1,397 1,008 1,082 970 1,285 1,054 1,219 1,198 1,142 1,184 1,138 1,056 1,201 1,143 -

1,259 1,150 1,113 1,131 1,037 1,207 1,185 1,195 1,170 1,130 944 929 1,134 941 1,116 1,175 1,016 1,030 1,116 1,120 1,092 1,281 1,050 -

1,294 1,282 1,227 1,300 1,411 1,259 1,305 1,194 1,275 980 906 1,166 1,099 1,310 1,231 1,060 1,333 1,136 1,032 1,240 1,298 -

1,094 1,175 1,123 1,217 1,038 115 848 1,041 1,175 1,246 1,237 968 1,050 876 1,041 1,381 1,133 1,122 1,046 1,015 1,021 1,132 967 1,232 1,101 1,021 ,1,,031 1,110 882 992 1,045 847 -

952 925 1,099 1,182 1,295 1,192 868 1,172 1,023 1,096 1,186 1,293 839 1,247 1,106 1,000 1,081 977 957 1,131 1,262 834 1,023 1,146 912 902 1,011 921 1050 -

846 861 873 772

903 852 1,082 910 918 841 985 922 830 -

Source : Prices of distribution, Directorate of Economics and Statistics, Bangalore, Government of Karnataka

80

Appendix Table 2.3 : Minimum Support Prices of Agricultural Commodities (1980-81 to 2001-02) (Rs. per Quintal) Crops Paddy (F) Wheat Jowar Ragi Maize Bajra Gram Tur (Arhar) Moong Urad Groundnut Soyabean Black Soyabean Yellow Rapeseed/Mustard Safflower Copra Miling Copra BaE Tobacco (Black soil grade)Rs/kg Tobacco (Light soil L2) Sugarcane Sunflower seed Cotton 1980 1985- 1988- 1989- 1990- 1991- 1992- 1993- 1994- 1995- 1996- 1997- 1998- 1999- 2000- 200186 89 90 91 92 93 94 95 96 97 98 99 00 01 02 -81 170 195 215 240 280 330 360 375 395 445 470 520 540 130 162 183 215 225 250 330 350 360 380 475 510 550 580 610 105 130 145 165 180 205 240 260 280 300 310 360 390 415 445 560 105 130 145 165 180 205 240 260 280 300 310 360 390 415 445 485 105 130 145 165 180 210 245 265 290 310 320 360 390 415 445 485 105 130 145 165 180 210 245 265 290 310 320 360 390 415 445 485 260 325 421 450 500 600 640 670 700 740 815 895 1,015 190 300 360 425 480 545 640 700 760 800 840 900 960 1,105 1,220 1,320 200 300 360 425 480 545 640 700 760 800 840 900 960 1,105 1,220 1,320 200 300 360 425 480 545 640 700 760 800 840 900 960 1,105 1,220 1,320 205 350 430 500 580 645 750 800 860 900 920 980 1,040 1,155 1,220 1,340 183 250 275 325 350 395 475 525 570 600 620 670 705 755 775 785 198 275 320 370 400 445 525 530 650 680 700 750 795 845 865 885 400 460 575 600 670 760 810 830 860 890 1,000 1,060 1,165 1,170 1,185 400 440 550 575 640 720 760 780 800 830 910 990 1,100 1,500 1,600 1,700 2,150 2,350 2,500 2,600 2,700 2,900 3,100 3,250 3,300 1850 2350 2375 2725 2725 2925 3125 3325 3500 3550 7.75 11.15 11.75 12.5 13.25 14.75 16 18 18.5 19 19 20.5 22.5 25 8.25 13 183 304 12 16.5 335 480 12.8 19.5 450 550 13.5 22 530 630 14.25 23 600 685 16 26 670 767.5 17.5 31 800 875 20 34.5 850 975 21 39 900 1,100 21.5 42.5 950 1,250 22 45.9 960 1,280 23.5 48.45 1,000 1,430 25.5 52.7 1,060 1,545 27 56.1 1,155 1,675 1,170 1,725 1,185 1,775

Source: Department of Agriculture, Government of Karnataka, Bangalore.

58

59

Appendix Table 2.4: Growth Rates in Prices in Karnataka from 1990-91 to 2000-01 Crops Paddy Ragi Jowar Tur Groundnut Sunflower Cotton WSP 10.65 7.85 13.21 3.13 -2.11 -3.24 2.95 FHP 6.96 6.08 6.52 9.13 5.99 -2.54 6.72 MSP 10.65 8.61 8.61 8.24 6.56 5.62 9.48

Note : 1. WSP – Whole Sale Price, FHP – Farm Harvest Prices, MSP – Minimum Support Price 2. WSP data are from 1993-94 to 2000-01 Source: Directorate of Economics & Statistics, Govt of Karnataka and Agricultural Prices Commission Department of Agriculture, Govt. of Karnataka Appendix Table 2.5 : Procurement of Various Commodities by All the Agencies under the Minimum Support Price Scheme in Karnataka – 1996-97 to 2001-02 (In tonnes) 1998-99 100,442 578.56 351.8 1999-2000 1,11,710 966.9 373.4 17,680.48 963.43 2000-01 2,28,643 1,147.75 385,309.1 15,741.6 4,514.68 1,700.5 609.18 2,436.32 22,824.91 748.23 2001-02 1,37,178 110.425 17,782.97 77,598.39 125.24 68.153 6,451.976 3,308.362 35,979.36 696.98 -

Sl. Commodity 1996-97 1997-98 No. 1 Rice 82,730 91,874 2 Paddy 3 Maize 4 Ragi 5 Bajra 6 Tur 457.9 7 Bengalgram 8 Greengram 9 Blackgram 10 Groundnut 11 Safflower 12 Sunflower 13 Soyabean 14 Ball Copra 15 Milling Copra 16 Onion 17 Potato 18 Dry Chillies 19 Garlic 20 Oil palm fruits Source: Same as in Appendix Table 2.4

64

Appendix Table 2.6 : Procurement of Various Commodities by All the Agencies Under the Market Intervention Scheme (MIS) in Karnataka – 1996-97 to 2001-02 (In tonnes) Sl. Commodity 1996-97 1997-98 No. 1 Rice 2 Paddy 3 Maize 4 Ragi 5 Bajra 6 Tur 7 Bengalgram 8 Greengram 9 Blackgram 10 Groundnut 11 Safflower 12 Sunflower 13 Soyabean 14 Ball Copra 15 Milling Copra 16 Onion 721.4 17 Potato 18 Dry Chillies 190.11 19 Garlic 20 Oil palm fruits - Source: Same as in Appendix Table 2.4 Appendix Table 2.7 1998-99 4,285.67 1999-2000 17,680.48 963.43 136.38 437.2 2000-01 610.0 2,568.45 748.23 4,719.94 2,790 11,799.50 4,141.91 2001-02 2,489.72

Sl. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Commodity Rice Paddy Maize Ragi Bajra Tur Bengalgram Greengram Blackgram Groundnut Safflower Sunflower Soyabean Ball Copra Milling Copra Onion Potato Dry Chillies Garlic Oil palm fruits

: Total Procurement of Various Commodities by All the Agencies under Different Price Support Scheme in Karnataka – 1996-97 to 2001-02 (In tonnes) 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 82,730 1,228.64 3,769.58 91,874 457.9 795.36 6,743.6 190.11 1,00,442 578.56 351.8 795.36 4,285.67 1,11,710 966.9 373.4 18,441.5 35,360.96 1,926.86 136.38 437.2 2,28,643 1,147.75 385,309.1 15,741.6 4,514.68 1,700.5 23,994.53 5,004.77 45,649.82 1,496.46 4,719.94 2,790 11,799.50 4,141.91 1,37,178 110.425 18,077.09 77,598.39 1,365.24 68.153 1,205.73 758.207 13,878.4006 3,308.362 3,326.0 35,979.36 696.98 23.8 2,489.72

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Source: Same as in Appendix Table 2.4 Appendix Table 2.8: Procurement of Various Commodities by All the Agencies under Different Price Support Schemes during 1996-97 in Karnataka (in m. tonnes) Commodity M.S.P. M.I.S. Commercial Total Rice 82,730 82,730 Paddy Maize Ragi Bajra Tur Bengalgram Greengram Blackgram Groundnut Safflower Sunflower Soyabean Ball Copra Milling Copra Onion 721.4 507.24 1,228.64 Potato 3,769.58 3,769.58 Dry Chillies Garlic Oil palm fruits Source: Same as in Appendix Table 2.4

Appendix Table 2.9: Procurement of Various Commodities by All the Agencies under Different Price Support Schemes During 1997-98 in Karnataka (in m. tonnes) Commodity M.S.P. M.I.S. Commercial Total Rice 91,874 91,874 Paddy Maize Ragi Bajra Tur 457.9 457.9 Bengalgram Greengram Blackgram Groundnut Safflower Sunflower 795.36 795.36 Soyabean Ball Copra Milling Copra Onion Potato 6,743.6 6,743.6 Dry Chillies 190.11 190.11 Garlic Oil palm fruits Source: Same as in Appendix Table 2.4

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Appendix Table 2.10: Procurement of Various Commodities by All the Agencies under Different Price Support Schemes During 1998-99 in Karnataka (in m. tonnes) Commodity M.S.P. M.I.S. Commercial Total Rice 1,00,442 1,00,442 Paddy Maize 578.56 578.56 Ragi Bajra Tur 351.8 351.8 Bengalgram Greengram Blackgram Groundnut Safflower Sunflower 795.36 795.36 Soyabean Ball Copra Milling Copra Onion Potato 4,285.67 4,285.67 Dry Chillies Garlic Oil palm fruits Source: Same as in Appendix Table 2.4 Appendix Table 2.11: Procurement of Various Commodities by All the Agencies under Different Price Support Schemes During 1999-2000 in Karnataka (in m. tonnes) Commodity M.S.P. M.I.S. Commercial Total Rice 1,11,710 1,11,710 Paddy Maize 966.9 966.9 Ragi Bajra Tur 373.4 373.4 Bengalgram Greengram Blackgram Groundnut 18,441.5 18,441.5 Safflower Sunflower 17,680.48 17,680.48 35,360.96 Soyabean 963.43 963.43 1,926.86 Ball Copra Milling Copra 136.38 136.38 Onion Potato Dry Chillies Garlic Oil palm fruits 437.2 437.2 Source: Same as in Appendix Table 2.4

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Appendix Table 2.12: Procurement of Various Commodities by All the Agencies under Different Price Support Schemes During 2000-01 in Karnataka Commodity M.S.P. Rice 2,28,643 Paddy 1,147.75 Maize 3,85,309.1 Ragi 15,741.6 Bajra 4,514.68 Tur 1,700.5 Bengalgram Greengram Blackgram Groundnut 609.18 Safflower 2,436.12 Sunflower 22,824.91 Soyabean 748.23 Ball Copra Milling Copra Onion Potato Dry Chillies Garlic Oil palm fruits Source: Same as in Appendix Table 2.4 M.I.S. 610.0 2,568.45 748.23 47,19.94 2790 11,799.50 4,141.91 Commercial 22775.35 22,824.91 (in m. tonnes) Total 2,28,643 1,147.75 3,85,309.1 15,741.6 4,514.68 1,700.5 23,994.53 5,004.77 45,649.82 1,496.46 47,19.94 2790 11,799.50 4,141.91

-

Appendix Table 2.13: Procurement of Various Commodities by All the Agencies under Different Price Support Schemes During 2001-02 in Karnataka (in m. tonnes) Commodity M.S.P. M.I.S. Commercial Total Rice 1,37,178 -` 1,37,178 Paddy 110.425 110.425 Maize 17,782.97 294.12 18,077.09 Ragi 77,598.39 77,598.39 Bajra Tur 125.24 1,240.0 1,365.24 Bengalgram 68.153 68.1530 Greengram 1,205.73 1,205.73 Blackgram 758.207 758.207 Groundnut 6,451.976 7,426.43 13,878.4006 Safflower 3,308.362 3,308.362 Sunflower 3,326.0 3,326.0 Soyabean Ball Copra 35,979.36 35,979.36 Milling Copra 696.98 696.98 Onion Potato Dry Chillies Garlic 23.8 23.8 Oil palm fruits 2,489.72 2,489.72 Source: Same as in Appendix Table 2.4

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CHAPTER III ADMINISTRATION OF MSP SCHEME AT THE STATE LEVEL
3.1 Introduction The price intervention scheme began with a series of objectives and culminated into a price support scheme with the changes that occurred in the agricultural sector. Some of the objectives envisaged direct influence on the parameters of the economy whereas, the others were to be achieved indirectly through intervening variables. The price intervention scheme envisaged influencing the crop pattern, correcting the imbalances across crops, providing floor level support prices and creating price intently to the producer. All these objectives toned in the price policy declared over the years under the CACP reports. It can be assumed that a certain level of efficiency in the implementation of the scheme must have been achieved. However, there are hardly any studies looking into the efficiency of the system operating at the ground level. These are neither initiated by the CACP nor taken up by academic fraternity independently. Therefore, there's hardly any literature on the effectiveness of Minimum Support Price scheme across states in the country. It is always assumed that the scheme has been operating perfectly across the countryside and thus providing the required support for the farmers across the length and breadth of the country. This assumption probably stems out of the experience of the implementation of the scheme in Punjab and Haryana only. Further, there were not severe aberrations in the process of implementation or at least these were not felt strongly. Therefore, aberrations if any never came to the discussion table. The scheme continued unabatedly without much change in its implementation process. We are making an attempt here to look into the operations of the Minimum Support Price scheme in the state of Karnataka. Our views emerged from the field visits made to various agencies, Regulated Market Yards, Karnataka State Agricultural Commission and discussions with the farm leaders. 3.2 Agricultural Growth and MSP Agriculture sector in Karnataka has been characterised by intermittent phases of growth and stagnation. It is a matter of deep concern as this sector relates directly to the overall growth performance of the state economy. Efforts, both at policy and at

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implementation levels are being made to overcome the constraints and encourage growth boosters. The constraints mainly relate to proper price incentive structure, imperfections in the product and factor market, existing infrastructure facilities, forward and backward linkages, and allied supportive activities. Besides these, current liberalization process has led to the emergence into prominence the role of market and domestic market related policies. If on the policy front proper corrections are incorporated to deal with the market induced imperfections and correct price signals are created in the economy, it will help the state economy to get onto a new path of development. Karnataka State has a typical composition having large share of its area under severe climatic constraints with a highly diversified agricultural sector. It could not make strong forays in the industrial development except in the regions surrounding the cities of South Karnataka. The fact that the state has the largest share of droughtprone areas of the country and higher than the country's share of poor did not deter the state from achieving better rates of reduction in poverty ratio. The high density of low value and high-risk crops typifies the State agriculture. On the contrary and at the same time, the state has entered in a big way in the high-tech agriculture, only next to a few other states in the country. Therefore, the price incentive structure becomes an important component of agricultural policy in the State. The crop economy of the State has a few typical characteristics. It has a predominantly cereal dominant crop pattern with coarse grains having the largest share of area under them. These crops generally have low yield rates and lower prices and thus commercial crops are reported to support the agricultural economy. The growth pattern depends upon the performance of monsoon and the availability of water. The area under total cereals in the state stood at 45 per cent (1999-00), down by 11 per cent from 56 per cent in 1955-58. The decline is mainly owing to reduction in area under jowar and bajra. Incidentally, these two crops are among the lowest priced crops under MSP. The area under paddy increased by 3 per cent, from 8.7 to 11.6 per cent between 1955-58 and 1990-93 and stabilized around that level after that. The area under maize increased from about 0.1 per cent in 1955-58 to 2.5 per cent of the gross cropped area in 1990-93 and further to 4.31 per cent. Though there is a decline in the proportion of area under cereals, paddy, jowar, bajra, maize and wheat continue to be the dominant cereal and millet crops in the State (Table 3.1).

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Table 3.1 Changes in Cropping Pattern

(Area as per cent to GCA)

Crops 1955-58 1979-82 1990-93 1997-00 Rice 8.68 10.41 10.86 11.60 Wheat 2.91 3.17 1.80 2.16 Jowar 25.45 19.04 17.76 15.61 Bajra 5.11 5.67 2.98 3.04 Ragi 8.64 10.15 8.71 7.95 Maize 0.10 1.40 2.50 4.31 Total Cereals 56.46 53.28 44.97 45.31 Gram 1.55 1.32 1.90 -Tur 2.80 3.31 3.60 3.74 Total Pulses 12.64 14.19 13.59 14.62 Groundnut 8.80 7.74 10.53 9.95 Sesamum -1.02 1.09 -Safflower -1.48 1.35 -Sunflower -1.00 10.22 -Total Oil Seeds 12.08 12.56 24.39 19.56 Cotton 10.21 9.31 4.88 4.83 Sugarcane 0.52 1.50 2.32 2.71 Chillies 1.03 1.40 1.36 -Tobacco 0.39 0.44 0.47 0.64 Coconut 0.86 1.59 2.02 Arecanut 0.29 0.50 0.55 Banana -0.35 0.27 Citrus -0.28 0.19 Mango -0.42 0.45 Coffee 0.61 1.03 1.19 Mulberry -1.07 1.29 Others 16.27 13.47 9.51 (Total GCA in Lakh (104.3) (110.3) (121.9) (120.02) ha) Source: Directorate of Economics and Statistics, Govt of Karnataka, Bangalore.

Cereals in general dominate the cropping pattern of the state. Rice is the major cereal crop in the Coastal and Malnad districts whereas, jowar and ragi are important staple food grains in northern and southern districts of Karnataka respectively. Area under pulses has remained more or less unchanged (around 14 per cent) during the last four decades. However, the introduction of technology mission for oilseeds and favourable price regime helped in the expansion of area under oilseeds. The area under oilseeds in the State, which was around 12 per cent till late 70s, increased to 24.4 per cent after 1980s but went down to 19.6 per cent. The gains in the oilseeds area during eighties were at the cost of cotton. The area under groundnut and sunflower in the state shared about 4.6 and 1 per cent of the total area under

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respective crops in the country. Cotton is an important cash crop of the State. The area under cotton declined from 10 per cent to 5 per cent and much of the decline came after 1980-81. The area under other cash crops such as sugarcane, coconut, arecanut, etc., has increased over the years (See Table 3.2). Table 3.2 Compound Annual Growth Rates of Area under the Crops from the Years 1955-58 to 1999-2000 Crops Rice Wheat Jowar Bajra Ragi Maize Total Cereals Gram Tur Total pulses Groundnut Sesamum Safflower Sunflower Total oil seeds Cotton Sugarcane Chillies Tobacco Coconut Arecanut Banana Citrus Mango Coffee Mulberry Others Total GCA Compound Annual Growth Rate 0.96 -0.35 -0.77 -0.84 0.13 9.06 -0.18 0.95 0.96 0.64 0.59 1.20 0.06 18.91 1.39 -1.34 4.06 1.15 1.42 2.69 2.12 -1.13 -2.03 1.21 2.19 2.07 -1.00 0.31

Source: Based on the data collected from Directorate of Economics and Statistics, Govt. of Karnataka, Bangalore.

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At the macro-level, cash crops shared relatively larger irrigated area when compared with food grains across the farm sizes and social groups. The proportion of irrigated area under cereals was relatively higher on small farms when compared to large farms and the opposite was true in the case of oilseeds. One can visualise three broad trends in the area allocation across crops. Firstly, it is found that the area under cereals and millets is decreasing over the years and this area is largely transferred to commercial crops. Secondly, large share of resources (in terms of irrigation and inputs) is allocated to irrigated high value crops and thus, the yield rates of irrigated crops are comparable to the national averages. Lastly, in northern Karnataka and in the rainfed portions of southern Maidan the crop pattern is largely diversified whereas the coastal Karnataka and irrigated regions seem to prefer mono cropping. Production trends of important crops have been analysed here with the help of compound rates of growth for production and productivity for the period 1955-56 to 1993-94 and separately for 1990 to 2000. It is observed that the production of cereals in the State has grown at 2.13 per cent per annum during the period 1955-56 and 1993-94. The entire growth has been contributed by the yield as area under cereals in the State decelerated during this period. The expansion in area under cereals during 1955-56 through 1967-68 resulted in significant growth in cereal production in the State (Tables 3.3 and 3.4). The cereal production in the State increased marginally (by 0.0116 per cent per annum) between 1980-81 and 1990-91 and this miniscule growth was due to lower levels of production during the late 1980s. Concerned with this, the State government appointed an Expert Committee (under the Chairmanship of Sri T R Satish Chandran) to probe into the factors responsible for stagnation in agricultural production. However, there was a recovery during 1992-93 and an analysis of production data for 1980-81 through 1993-94 indicated a growth rate of around 1.78 per cent. It is essential to underscore that the growth in production during this period came mainly through yield improvements. But the deceleration was again visible during the nineties. growth. The role of price incentives is certainly important in this structure of

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Table 3.3 Average Cropping Pattern Across the districts in Karnataka (Based on the Average from 1989-90 to 1991-92) ( Area as per cent to GCA) Districts Paddy Ragi Jowar Tur Groundn Sugarcan Total ut e Bangalore 6.82 48.66 0.00 2.09 4.96 0.39 62.93 Belgaum 5.96 0.34 24.69 1.34 9.81 9.40 51.55 Bellary 5.79 4.78 23.84 2.47 10.83 1.18 48.89 Bidar 4.55 0.00 27.30 9.85 2.45 4.87 49.03 Bijapur 0.12 0.00 34.79 2.26 8.23 2.13 47.53 Chikmagalur 16.26 17.95 5.90 0.35 2.15 0.59 43.21 Chitradurga 7.25 15.49 10.48 1.67 20.65 1.04 56.59 Dakshina 50.95 0.00 0.00 0.00 1.00 1.24 53.19 Kannada Dharwad 6.67 0.86 19.25 1.49 11.72 0.46 40.45 Gulbarga 1.42 0.01 27.63 19.66 10.16 0.41 59.29 Hassan 12.90 34.86 2.22 0.93 1.09 0.84 52.84 Kodagu 30.04 0.80 0.00 0.00 0.06 0.01 30.91 Kolar 11.26 27.23 1.62 2.23 24.21 1.04 67.59 Mandya 23.04 29.67 1.94 0.79 3.80 9.73 68.96 Mysore 14.17 17.56 11.97 1.37 4.92 2.09 52.07 Raichur 9.72 0.00 28.25 3.87 12.19 0.20 54.23 Shimoga 44.63 8.97 6.55 0.50 5.23 4.82 70.70 Tumkur 5.63 30.49 1.63 1.54 29.76 0.38 69.42 Uttara Kannada 65.83 0.21 0.34 0.16 4.49 1.56 72.59 Karnataka 10.00 9.07 18.20 4.00 10.38 2.14 53.79
Source: Computed from the data collected from the Directorate of Economics and Statistics, Govt. of Karnataka, Bangalore.

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Table 3.4 District-wise CGR of Production under Principal Crops from 1990-91 to 1998-99 Paddy Ragi Jowar Tur High Growth Low Growth High Growth Low Growth High Growth Low Growth High Growth Low Growth 14.42 Kolar 1.55 1.50 Mandya 10.76 Belgaum 1.08 Uttara Kannada 11.31 Gulbarga 1.83 Dakshina Dakshina Kannada 21.69 Uttara Kannada Kannada 13.11 Kolar -0.09 Mysore 6.55 Chitradurga 1.01 Dakshina Kannada 8.75 Chitradurga 0.93 Gulbarga 14.15 Chikmagalur 0.94 Chitradurga 9.61 Kodagu -0.37 Chikmagalur 4.88 Bidar 0.00 Bijapur 5.06 Belgaum -0.78 Uttara Kannada 4.74 Bidar -3.11 Raichur 9.26 Bidar -8.69 Bangalore 3.23 Bijapur 0.00 Bidar 3.82 Chikmagalur -1.97 Tumkur 3.76 Chitradurga -4.44 Bellary 8.99 Dharwad -12.30 Hassan 2.80 Raichur 0.00 -2.63 -5.42 Tumkur Raichur Bangalore 8.31 Bijapur -13.00 Tumkur 2.64 Dakshina Kannada -0.66 -3.56 -5.65 Mysore Hassan Mandya 8.20 2.56 Bellary -5.25 -3.73 -5.66 Gulbarga Kolar Bellary Belgaum 7.10 -6.44 -5.50 -7.67 Hassan Dharwad Mandya Mysore 4.34 -8.42 -6.93 -7.84 Mandya Uttara Kannada Mysore Hassan 3.53 -10.47 -7.00 -8.44 Shimoga Shimoga Dharwad Raichur 3.12 -16.12 -12.31 -10.06 Bangalore Kodagu Tumkur Bijapur 2.68 -18.47 -17.30 -12.93 Belgaum Gulbarga Shimoga Bellary 2.41 -16.03 Chikmagalur Shimoga Groundnut Sugarcane High Growth Low Growth High Growth Low Growth 9.31 Bellary 1.73 Bijapur 14.64 Hassan 1.11 Mysore 6.01 Bangalore -0.99 Dharwad 12.09 Bidar 0.56 Hassan 4.65 Belgaum -2.39 Mysore 7.65 Raichur -0.64 Dakshina Kannada 4.31 Kolar -3.11 Gulbarga 7.55 Uttara Kannada -0.79 Chikmagalur 4.31 Uttara Kannada -3.25 Belgaum 6.90 Chikmagalur -1.51 Chitradurga 4.18 Bijapur -6.46 Chitradurga 3.60 Bangalore -2.20 Dharwad 2.56 Bidar -7.25 Bellary 2.10 Mandya -3.00 Gulbarga 2.32 Raichur -7.35 -4.15 Tumkur Shimoga -8.90 -4.22 Mandya Tumkur -10.48 -7.15 Shimoga Kolar -40.09 Kodagu Dakshina Kannada -12.24 -23.92 Kodagu

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Table 3.5 District-wise CGR of Area under Principal Crops from 1990-91 to 1998-99 Paddy Ragi Jowar High Growth Low Growth Low Growth High Growth Low Growth Chitradurga 8.65 U Kannada 0.58 Mandya 0.98 Uttara Kannada 2.10 Bijapur 0.61 Bellary 5.41 Shimoga 0.36 Tumkur 0.72 Bidar 0.28 Raichur 5.37 Belgaum 0.24 Kolar 0.16 Gulbarga 0.23 Mysore 4.85 Chikmagalur -0.58 Mysore 0.15 Dharwad -2.26 Hassan 3.62 Dakshina Kannada -1.32 Chikmagalur -0.15 Chitradurga -2.75 Tumkur 2.30 Kodagu -1.84 Bangalore -0.92 Raichur -3.10 Mandya 1.98 Gulbarga -2.05 Hassan -0.98 Belgaum -3.11 Dharwad 1.25 Bangalore -2.56 Chitradurga -2.63 Chikmagalur -6.61 Kolar -5.09 Belgaum -5.57 Bellary -8.51 Bidar -10.95 Bellary -10.21 Mysore -9.23 Bijapur -17.38 Dharwad -10.78 Mandya -9.35 Shimoga -11.27 Hassan -11.59 Uttara Kannada -13.49 Tumkur -12.29 Kodagu -17.39 Shimoga -18.43 Gulbarga -23.36 Groundnut Sugarcane High Growth Low Growth High Growth Low Growth Mysore 2.94 Chitradurga 0.64 Bijapur 7.89 Bellary 0.11 Bellary 2.48 Chikmagalur 0.49 Dharwad 6.85 Bidar -0.13 Hassan 2.07 Dharwad 0.46 Mysore 6.65 Hassan -0.15 Dakshina Kannada 0.31 Chitradurga 5.48 Uttara Kannada -1.69 Gulbarga -0.68 Gulbarga 3.80 Chikmagalur -2.32 Bangalore -1.13 Belgaum 3.13 Bangalore -2.91 Kolar -2.05 Mandya -3.79 Bijapur -2.54 Kolar -4.82 Belgaum -2.92 Raichur -5.58 Tumkur -2.94 Shimoga -6.58 Raichur -3.11 Dakshina Kannada -6.68 Uttara Kannada -5.39 Tumkur -7.32 Mandya -6.61 Kodagu #### Shimoga -11.13 Bidar -11.57 Kodagu -39.56

Tur High Growth Tumkur Kolar Bidar Uttara Kannada Chikmagalur Mysore 6.33 3.30 2.77 2.20 2.08 1.44 Low Growth Gulbarga 0.23 Chitradurga -0.09 Mandya -1.84 Hassan -1.93 Raichur -2.85 Belgaum -3.79 Dharwad -4.67 Bangalore -5.29 Bijapur -6.58 Bellary -6.77 Shimoga -8.42

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Table 3.6 Area, Production and Yield of Principal Crops: Karnataka Area : '000 hectares, Production : '000 tonnes, Yield : kg per hectare Year Rice Jowar Area Production Yield Area Production Yield 1990-91 1,173 2,415 2,059 2,155 1,353 628 1991-92 1,269 2,826 2,227 2,086 1,707 818 1992-93 1,317 3,069 2,331 2,306 1,926 835 1993-94 1,374 3,183 2,317 2,086 1,895 909 1994-95 1,296 3,168 2,445 2,165 1,638 756 1995-96 1,265 3,024 2,390 1,976 1,718 869 1996-97 1,359 3,212 2,364 1,999 1,898 950 1997-98 1,353 3,213 2,374 1,897 1,254 661 1998-99 1,426 3,605 2,529 1,845 1,670 905 1999-2000 1,344 3,380 2,515 1,876 1,658 884 Growth Rate 1.29 3.04 1.72 -1.98 -0.25 1.77 Year Ragi Tur (Arhar) Area Production Yield Area Production Yield 1990-91 1,054 1,043 989 463 175 379 1991-92 1,066 1,444 1,354 503 173 345 1992-93 1,038 1,536 1,479 450 86 192 1993-94 1,029 1,567 1,523 361 155 430 1994-95 944 1,353 1,433 302 119 395 1995-96 1,020 1,618 1,587 424 202 476 1996-97 1,035 1,495 1,444 445 229 514 1997-98 939 1,283 1,367 422 99 234 1998-99 1,027 1,805 1,759 473 216 456 1999-2000 850 1,392 1,638 478 289 605 Growth Rate -1.57 2.02 3.65 0.30 5.27 4.89 Year Groundnut Area Production Yield 1990-91 1,212 828 683 1991-92 1,332 1,110 833 1992-93 1,276 1,142 895 1993-94 1,243 1,199 964 1994-95 1,200 946 788 1995-96 1,192 1,139 955 1996-97 1,285 1,147 893 1997-98 1,040 714 687 1998-99 1,230 1,229 999 1999-2000 1,095 916 837 Growth Rate -1.44 -0.41 1.06 Source: Commission on Agricultural Costs and Prices Report, 2001-02, Government of India, New Delhi.

Table 3.7 Compound Growth Rates in Crop Economy: 1955-56 to 1993-94 (Per cent per Annum) Crops Rice Wheat Jowar Bajra Ragi Maize Total cereals Gram Tur Total pulses Groundnut Total oil seeds Cotton Sugarcane Area 0.60 -0.63 -0.84 -0.47 0.44 10.76 -0.30 1.02 1.42 0.83 0.65 2.18 -1.60 4.40 Production 2.21 2.73 1.26 2.19 2.17 15.52 2.13 1.80 1.94 1.79 1.55 2.74 2.39 4.87 Productivity 1.60 3.38 2.12 2.67 1.72 4.76 2.43 0.77 0.52 0.95 0.90 0.54 4.06 0.45

Source:: Deshpande and Raju (2001), Bangalore: ADRT Unit, Institute for Social and Economic Change.

The growth performance till 1993 marks a clear path of growth but during nineties the growth in the crop economy slowed down. This can be seen from table 3.4.

Table 3.8 Growth Rates in Crop Economy: 1990-91 to 2000=01 (Per cent per annum) Crops Rice Ragi Jowar Bajra Maize Wheat Minor millets Total cereals Tur Total pulses Total foodgrains Groundnut Total oilseeds Sugarcane Cotton Tobacco Area 1.29 -1.57 -1.98 -1.40 7.75 3.98 -6.68 0.14 0.30 3.92 1.02 -1.44 -3.81 -0.7 -3.01 5.74 Production. 3.04 2.02 -0.25 -9.18 6.86 4.78 -5.43 -0.03 5.27 -1.11 -0.12 -0.41 -9.56 1.49 -3.42 4.75 Productivity 1.72 3.65 1.77 -7.89 -0.83 0.77 1.35 -0.17 4.89 -4.84 -1.12 1.06 -5.98 2.21 -0.42 -0.93

Source: Based on the data collected from the Directorate of Statistics, Government of Karnataka.

The growth performance clearly indicates the slow growth of crops and crop groups. The performance is influenced by technology, prices, marketability and relative crop economy. Among these factors the role of prices and not income, which is quite crucial (Deshpande 1996). While explaining the performance of slow growth crops, the role of relative prices as well as administered prices becomes crucial and significant. Even among these two variables, the administered prices reflect the policy direction and a well thought over policy to influence the decision criteria. Therefore, the analysis of the role of administered prices becomes pivotal to understand the growing imbalances. 3.3 Relevance of MSP for Major Crops of the State Minimum Support Price scheme is in operation in the State right from the starting of the scheme. The crops covered include paddy, wheat, jowar, ragi, maize, gram, tur, groundnut, sugarcane, sunflower and cotton. These crops are covered under MSP and have been included in the scheme for the last 25 years. The growth rates in MSP over the period 1991-92 to 2000-2001 have been presented in Table 3.9. As it can be seen from the Table, the growth is higher in the commercial sector as against the food crop sector. Paddy is an exception. But the procurement of paddy is not done in the State. Even in the case of other major crops, the State procurement as a ratio of the total production is quite low.
Table 3.9: Annual Compound Growth Rates (CGR) in MSP: 1991-2001
Crop CGR Paddy 10.65 Wheat 5.98 Jowar 8.61 Ragi 8.61 Maize 8.24 Gram 8.46 Tur 8.24 Ground nut 6.56 Sugar cane 11.29 Sunflo wer 5.62 9.48 Cotton

Note: Based on the data of MSP

The relevance of MSP to the farm sector can be viewed from three different angles. First, the declaration of MSP should be at the time when the farmer has to take a decision about the crop. It is stipulated that the Minimum Support Prices be declared well before the sowing season. This is not difficult as the cost data used for computations and arriving at MSP is of the previous years. However, even after more than two decades of exercise the MSP is not declared before decision-making about the sowing. This year the MSP has declared by the end of September when the crops was ready for harvest. Table 3.10 gives the date of declaration of MSP from 1984-85 onwards.

Table 3.10 Announcement of MSP by the Government Year Season Crops Date of Date of Date of Submission of Declaration of Declaration of CACP report MSP MSP for Tobacco July 1984 & September 1984 23.02.1987 03.02.1988 09.08.1990 24.07.1992 27.09.1985 & 11.11.1985 29.08.1986 & 25.09.1986 27.08.1987 04.05.1988 06.11.1990 25.08.1992 03..031987 30.03.1988 -

1984-85

Kharif

Foodgrains, oilseeds & cotton

1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93

Kharif Kharif Kharif Kharif

Foodgrains, oilseeds & cotton Foodgrains, oilseeds & cotton Paddy, pulses, Paddy, pulses, Kharif coarse cereals, oilseeds & raw cotton Kharif coarse cereals, oilseeds & raw cotton NA

Rabi Rabi NA Wheat, barley, gram, rapeseed/mustard and sunflower Kharif foodgrains, oilseeds & cotton Kharif foodgrains, oilseeds & cotton oilseeds & oilseeds & oilseeds & oilseeds &

1993-94 1993-94 1994-95 1995-96 1996-97

Rabi Kharif Kharif

29.07.1993 19.03.1993 31.03.1994 11.04.1996 27.04.1997 07.04.1998 05.04.1999

07.10.1993 22.07.1993 09.04.1994 02.08.1996 30.06.1997 10.08.1998 20.07.1999

17.08.1993 22.06.1994 28.08.1996 12.08.1997 04.09.1998 13.09.1999

Kharif foodgrains, cotton 1997-98 Kharif Kharif foodgrains, cotton 1998-99 Kharif Kharif foodgrains, cotton 1999-00 Kharif Kharif foodgrains, cotton Source : Commission of Agricultural Cost

Kharif

and Price Reports form 1984-85 to 1999-00

We can see that there is a considerable gap in the submission of CACP report and the declaration of MSP. In addition to the fact that in most of the years MSP has been declared well after sowing was completed and the farmer was committed to the crop. Second, MSP needs to provide the floor level price for the crops under consideration. The main objective of MSP is that it should provide such a floor at the time when prices crash below the promised level. Here, it is not only the declaration of MSP but its implementation process also gets involved. Third, the relevance of MSP emerges in the form of extension of participation of the farmers in the scheme and their

exposure to it. The participation certainly depends upon the prices going below the MSP; however, the very fact that the farmers are aware or unaware of the scheme gives clear clue about their participation. We shall look into this aspect from the point of view of the present administrative structure here. The micro-level process will be taken up in the next chapter.

3.4 Implementation Process of MSP 3.4.1 The Process Implementation of MSP in the State of Karnataka had been quite a oblique task. During the harvest season the arrivals in the market start increasing which is an obvious and well-anticipated phenomena. But as the regulated markets work on only a stipulated day in the week, the clustering of the arrivals in the regulated market takes place more by design. When the arrivals increase in the market it is natural that the prices offered by the traders collapse in the wake of huge arrivals. Many times the prices go well below the MSP, and the procedure requires that the APMC reports this to the District authorities. After receiving such information the District authorities call a meeting of the departments involved in the process of procurement and a decision about procurement is taken. This decision is conveyed to the authorities at the State level in order to get clearance and release of funds. After such clearance and release of funds procurement centres are opened. An order from the Government is issued for the purpose of procurement (see Annexure 3.1). The procurement agencies also have to identify the State level procurement network. Food Corporation of India has good network whereas NAFED depends on other agencies for its procurement. Thus, it is very clear that the time-gap between prices falling below the Minimum Support Prices and the starting of procurement is at least two weeks and by this time the farmers would have sold the crop in the regulated market yard*. 3.4.2 Institutions Involved There are various institutions involved in the process of implementation of MSP at the State level. The involvement of these institutions makes the functioning more complex than easy. These institutions include Karnataka Food and Civil Supply Corporation, Karnataka State Co-operative Marketing Federation, Karnataka Oil Seed Growers Federation and the National Agricultural Co-operatives Marketing Federation
*

It is understood that the State Government has recently taken steps to open procurement centres in the APMC yards. We do not have any experience of this institutional arrangement.

(NAFED). The procurement of foodgrains is entirely the responsibility of the Food and Civil Supplies Corporation at the State level. below a brief description of their activities. 3.4.2.1 National Agricultural Co-operative Marketing Federation of India This is an apex institution dealing with co-operative marketing in the country and it came into existence on 2nd October 1985. NAFED was established to play an effective role in the marketing of the agricultural produce within and outside the country in the fast changing business environment. NAFED involves itself in the following activities :• • • • • Providing market support to farmers through its commercial purchase. Acting as the Central Nodal-Agency of the Government of India for undertaking purchases of oilseeds and pulses under the Price Support Scheme. Acting as one of the agencies of the Government of India for making purchases under market intervention scheme. Acting as a channelising agency of the Government of India for select commodities. Assisting farmers to source various agricultural inputs. NAFED undertakes its operations through two agencies namely, Taluka Agricultural Produce Cooperatives (TAPC) and Agricultural Produce Marketing Committee (APMC). The regional office of NAFED is in Chennai and its head office is in New Delhi. NAFED decides about the procurement mainly on the basis of the budget available: The regional office and the branch offices will get the information from the State Marketing Boards whenever prices slide down below MSP. It is only at the behest of the State Marketing Board, NAFED begins its intervention in the market and starts procurement. Main APMCs send the information of arrival and prices of the commodity to NAFED every day. But it does not act suo motto. NAFED procures groundnut, soyabean, safflower, sunflower and sesamum, gram, tur, black gram and copra. Information about the price situation takes about one week to reach from regional or branch office to the Head office. It is only then the Head Office makes available the required funds to the regional office and thus NAFED can enter into the market and start procuring. Oilseed growers’ Federation deals with oilseeds whereas NAFED has the responsibility of procuring other commodities. We give

NAFED has the following Charges
Service charges Sale charges Handling charges Market Cess 2% 2% Rs 95/MT 0.8%

The market intervention operations of NAFED have been earning sufficient profits for the organisation. In the year 2000, the profits of NAFED were Rs 1.99 crores and in the following year it touched Rs 4.93 crores. This clearly indicates the profitability of its market intervention operations and thus it is clear that on the one hand, even though the interventions are beneficial for the procurement agency it does not meet the farmers expectations, on the other. It does not meet the farmers’ expectation either about the procurement at the right time or at the right price. NAFED has a reserve fund named as Price Fluctuation Fund. This Fund was Rs 12.51 crores in 1999 and Rs 11.31 crores in the following year. It is clear that the agency has the needed fund and the infrastructure for the market intervention operations and even then the farmers are not the ultimate beneficiaries. Our interview with the NAFED Manager revealed that if given free hand the agency could easily increase its profits and effectively intervene market at the proper time. In the context of liberalisation, it is quite prudent to allow free hand to agencies like NAFED to undertake purchases through market interventions. We have presented in Table 3.11 the procurement effected by NAFED in the recent years and it can be observed that there is a significant presence of the organisation in the market. Table 3.11 on procurement operations by NAFED points towards three pertinent observations. First, there is hardly any consistency in the MIS operations of NAFED. Therefore, their presence or purchase operations is neither effective in reducing the price risk, nor reduce the variations. Thus, the operations do not even assure the farmers against impending price risk. Second, the intervention is so diminutive compared with the marketed surplus that this could hardly make any dent on the market and prices. This is interesting on the background of the fact that NAFED makes good profit. Third, the operations of NAFED are confined only to a few crops leaving a large number of crops out of its ambit. This policy was well suited when there was scarcity in the agricultural production and supply bottlenecks were significant irritants. But now in the changed circumstances it is expected that such institutional intervention be used to achieve positive and long lasting results.

Table 3.11 Procurement of Agricultural Commodities by NAFED Commodity Year Support Qty Value Major States of Price Rs. Procured Rs. In Procurement P.Qtl (FAQ) MTs lakhs Potato 1997-98 125-130/350 4,697 159.27 Uttar Pradesh Karnataka Onion 1990-91 (MIS 90) 1991-92 (MIS-91) 1990-91 1990-91 1991-92 Eggs (Qty. in LAC Nos.) 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1999-00 1990-91 1990-91 1991-92 1992-93 1993-94 Wet Ginger Caster seed 70 70K/75R 300 1,100 2,50B 300A. 300B 350A. 65/100 65/100 65/100 75/100 75/100 82/100 110/100 100 220 250B 300A. 325A. 350A. 61,984 4,500 60 1,256 416 102 (38.20) (20.16) (26.99) (91.02) (28.21) (34.82) (141.43) (85.89) 46 6,585 2,989 1,703 3,133 433.94 33.31 1.98 138.14 10.88 3.22 15.28 13.11 17.94 61.63 37.61 32.96 137.51 86.95 10.01 181.71 86.81 46.88 49.49 0.06 137.47 549.98 495.25 806.64 29.48 19.01 45.88 Gujarat Maharashtra Karnataka Gujarat Haryana Punjab Haryana Hyderabad/Del Andhra Pradesh Andhra Pradesh Andhra Pradesh Andhra Pradesh Andhra Pradesh, Punjab Andhra Pradesh, Punjab Andhra Pradesh Haryana Rajasthan, Punjab, Haryana, Himachal Pradesh Punjab, Haryana Punjab, Haryana Himachal Pradesh, Haryana, Uttar Pradesh Kerala Gujarat Gujarat Kerala Andhra Pradesh Andhra Pradesh Andhra Pradesh Rajasthan

Isabgol Grapes

Mushroom Kinoo/Malta

1991-92 300A 21 1990-91 550 2,500 1991-92 550 9.999 Black Pepper 1993-94 3,300 1,491 Chillies 1993-94 1,500 5,000 1996-97 2,200 126 1997-98 2,250 8,123 Coriander 1998-99 1,250 378 Source: NAFED – Annual Reports for Various Years.

Table 3.12 presents the objectives of NAFED and the operations undertaken by the agency to meet these objectives. On the face of it, one can be satisfied that NAFED, effectively satisfies most of the objectives. However, our interviews with the officers of NAFED, indicate that they would like to intensify their presence in the market. This not only help increase competition in the market but also enhances market functioning and protect the producers against fluctuations.

Table 3.12: National Agricultural Co-Operative Marketing Federation (NAFED) Sl. No. 1 2 Objectives Providing market support to the farmers through its commercial purchase Acting as the Central Nodal Agency of the Government of India for undertaking purchases of oilseeds and pulses under the price support Scheme. Acting as the agency of the Government of India for making purchases under market intervention scheme. Acting as the canalizing agency of the Government of India for select commodities. Assisting farmers to source various agricultural inputs. NAFED appoints the agent for the purchase and delivery of the commodity. NAFED signs the agreement with the agents. NAFED supplies properly stitched and standard weighted gunny bags to the agents NAFED officers/representatives shall oversee the operations. Operations Undertaken to Meet the Objectives Procurement and commercial purchase operations are undertaken Oilseeds purchase scheme operates effectively. Acts as an agency of the GOI, for market intervention but cannot effectively undertake this due to long and extended procedure. Cannot help the farmers in distress. Effectively acts as channelising agency Sporadic instances Agents are appointed and the purchase and delivery operations undertaken. This has been developed effectively. Most of the NAFED operations are carried out with the help of agents -do-do-

3

4 5 6 7 8 9

3.4.2.2 Karnataka Food and Civil Supply Corporation (KSFCSC) The Karnataka State Food and Civil Supplies Corporation handles procurement, storage and distribution operations of essential commodities on behalf of the Food Corporation of India and the State of Karnataka. The KSFCSC handles procurement of foodgrains and the storage. It also receives foodgrains for distribution from the Food Corporation of India. Till 1981-82, KSFCSC used to procure paddy and process it into rice for the purpose of public distribution, but now paddy is not procured. Rice is taken as levy from rice mills. KSFCSC acts as a sub-agent of FCI for the purpose of procurement and the procurement takes at all the stages. The APMC reports about the fall in price to the Deputy Director of Food and Civil Supplies, who, in turn, appraises the Deputy Commissioner of the district about the situation. The Deputy Commissioner calls a meeting of the Task Force and only after the Task Force clears that the procurement operation should take place only after it is reported to the State Authorities for necessary permission and funds. The procurement points are opened only after the State level authorities direct the procurement. This entire exercise takes at least two

weeks, and till then the farmer cannot wait in the market yard. Recently, the Government of Karnataka has taken a decision to open permanent procurement centres in the APMC yards. KSFCSC makes significant profits in the procurement and distribution operations. The profits recorded in 1996-97 was Rs 5 crores and it went down to Rs 1.76 crores in 1998-99. The recent procurement of food commodities are indicated below: Commodities Procured by FCI: 2001 Maize Ragi Bajra Paddy 361,000 tonnes 15,000 tonnes 4,500 1,100 tonnes tonnes

Recently FCI procured directly 132,000 tonnes of Maize for Rs. 445/q and KFCSC sold that at Rs 405/q and incurring a loss of Rs. 40 per tonne. However, it was pointed out in a recent study by the Directorate of Agriculture that the procurement was largely from the traders despite the restriction that procurement will not be made in the absence of Land Records (Pahni or ROR) of the farmer. This happened due to three factors. First, there was a sufficiently long time-gap between the price collapse of maize and opening of the procurement centres. Second, the farmers who had brought their produce for sale could not wait that long to sell their produce. They preferred to sell the produce immediately and receive the cash. Third, traders were ready to purchase the produce at lower than the MSP, and effected such purchases. Traders also obtained a copy of the ROR to produce at the procurement centre for the purpose of procurement at MSP. In the entire process, the traders could make profit. The KSFCSC undertakes procurement and the stocks are handed over to the FCI. FCI holds these stocks in the godowns and the state has a good capacity for stocking the grains. KSFCSC undertakes the distribution of rice, wheat, sugar and kerosene to the BPL and APL under the PDS scheme. The PDS rates are almost closer to open market rates and therefore, BPL households usually buy at the fair price shops. In a taluka, 65% of PDS allocation is managed by the KFCSC and another 35 per cent is met from the co-operative societies. The State has godowns to store about 3.40 lakh metric tonnes of grains. This is neither sufficient nor well spread in the State (see Table 3.13).

Table 3.13 Total Number of Godowns owned, Hired, Govt. and Private. : 2000-01

(Capacity in MTs)
Owned by KFCSC Districts Bagalkote Bangalore Belgaum Bellary Bidar Bijapur Chamarajanagar Chikmagalur Chitradurga D Kannada Davanagere Dharwad Gadag Gulbarga Hassan Haveri Kodagu Kolar Koppal Mandya Mysore Raichur Shimoga Tumkur U Kannada Total Numbers Capacity 0 7 0 0 2 1 1 0 0 0 0 0 0 3 0 0 0 0 0 0 0 0 2 0 1 17 0 7,500 0 0 800 300 300 0 0 0 0 0 0 900 0 0 0 0 0 0 0 0 10000 0 800 20,600 TAPCMS Godowns Private Godowns Total Godowns hired hired Numbers Capacity Numbers Capacity Numbers Capacity Numbers Total Capacity 1,750 0 0 4 1,000 3 750 7 2 500 2 900 6 2,500 17 11,400 3,400 5 3,150 0 0 1 250 6 3,650 1 1,000 7 2,650 0 0 8 3,400 1 350 2 1,650 1 600 6 1,600 2 800 1 300 1 200 5 900 0 0 1 300 1 300 3 1,750 2 800 1 600 2 350 5 1,260 2 460 2 800 0 0 4 1,200 0 0 4 1,200 0 0 4 2,570 1 440 6 2,130 0 0 7 1,550 1 500 4 1,050 0 0 5 2,020 0 0 5 1,420 2 600 7 6,600 4 3,400 3 2,100 1 200 11 3,440 0 0 8 3,040 1 400 9 1,740 1 600 2 540 2 600 5 580 0 0 1 300 1 280 2 3,450 2 900 6 2,300 1 250 9 2,900 1 500 3 2,400 0 0 4 3,000 1 2,000 0 0 3 1,000 4 3,480 0 0 3 780 5 2,700 8 4,150 4 3,650 2 500 0 0 6 1 400 6 1,600 1 300 10 12,300 6,000 2 2,000 3 900 4 3,100 9 2,650 1 1,000 2 850 0 0 4 34 22,450 78 29,310 36 14,380 165 86,740 Govt. Godowns

Source: Office of the Karnataka Food and Civil Supplies Corporation, Bangalore.
3.4.2.2 Karnataka State Co-operative Marketing Federation (KSCMF) KSCMF is an institution financed by the State govt for the purpose of market intervention. It is administered as a co-operative society and involves in procurement operations. KSCMF gets the requests for procurement of commodities from APMC or directly from the farmers. It is only then that KSCMF enters the market for procurement. It also undertakes the market disposal of the procured commodities and thus intervenes as seller as well as purchaser. Theoretically, KSCMF should make a significant dent on the market operations and help in correcting price and market distortions. But in practice this does not seem to happen for various reasons. KSCMF is

financially self sufficient having 32 branches and well established network with APMCs in the State. But this is not effectively used. The marketing federation usually procures commercial crops like cotton, maize and tur and other pulses. These form nearly 10-15% of the total commodities procured. The preference for commercial crops is due to the fact that these have longer shelf life and the proportion of wastage is quite low. Apart from that it was told that KSCMF’s procurement is demand-oriented and their presence in the market is not obligatory. KSCMF had procured huge quantities of cotton a few years back and in the process incurred losses to the tune of Rs 5 crores. Experience suggests that marketing federation should pre-plan their market intervention every year. The target fund provided for procurement every year is approximately 250 crores and this should be utilised to achieve the best results.
Table 3.14 Karnataka State Co-Operative Marketing Federation (KSCMF) Sl. No. 1 Objectives KSCMF purchases fertilizer and pesticides from the industry and provides that to the farmers at reasonable prices. Meeting the Objectives Usually this is the main function undertaken by the KSCMF. Fertilizers and pesticides are provided through Farmers’ Co-operative Society but their supply does not meet the total demand. Therefore, farmers have to buy that from the open market. The construction and maintenance of cold storages are the activities undertaken, but the capacity utilisation is quite low. Therefore, these activities are not financially viable. --Procurement operations are not immediately undertaken after the prices collapse. There is no set mechanism for this operation. This needs to be evolved. Godowns are maintained but a good number of them are rented out. APMCs and KSCMF have very close ties and good working relationship Activity is undertaken This does not happen due to the lengthy procedure involved. KSCMF has sporadically participated in market intervention operations This activity is undertaken but it has little significance in meeting the overall demand.

2

KSCMF maintains cold storages in different areas for farmers service. KSCMF undertakes construction of cold storage at the necessary places. KSCMF is required to procure/purchase agriculture produce under Minimum Support Prices. KSCMF is required to maintain godowns for the storage of procured quantity. KSCMF is required to maintain good relationship with APMC. KSCMF takes loans from different Banks to distribute fertilizer to the farmers in advance in the season. The main objective of KSCMF is to give good price for farmer’s agricultural products, if the market price goes down. If the seeds are not available in the sowing season then the KSCMF will provide the seeds to the farmers.

3 4

5 6 7 8 9

3.4.2.3 Karnataka Oil Seed Growers Federation (KOF) Karnataka Oil Seed Growers Federation (KOF) is a sub-agency for procurement on behalf of NAFED. KOF is authorised to procure oilseeds in the state through the APMCs or directly from the farmers. The procurement is usually done through the Oil seed Growers Co-operative Societies in different parts of the State. The network of these societies has been widespread and even then the market intervention on behalf of the KOF has been not so effective. KOF has developed good infrastructure and has 350 Oilseed Growers Co-operative Societies all over the State which are situated in the villages (14 major oil seed growing districts). Every season KOF signs an agreement with the NAFED, and after that the funds are given by NAFED to procure the commodities. There is a strict quality control by NAFED and therefore the procurement operation has to be carried out with due care. Transport charges, gunny bags and labour charges are paid by KOF and reimbursed by NAFED. Three regional unions (situated in Hospet, Raichur and Hubli) control the Oilseed Growers Co-operatives in the State. In the recent, KOF has procured substantial quantity of oilseeds from the open market as indicated in Table 3.15. Table 3.15 Procurement of Oilseeds by KOF (Quantity in tonnes) Commodity Groundnut Sunflower Safflower Soybean 1999-2000 17,680 963 2000-01 609 23,000 2,440 740 2001-02 40,000 10,650 -

Source: NAFED office, Bangalore. The analysis of the institutions involved in the market intervention operations indicate five important issues. First, the multiplicity of the institutions complicates the MIS operations and therefore, it cannot be effective. Second, there is a considerable lag in the felt need about the operations and actual starting of the procurement. The lapse of time between these two makes the intervention ineffective. Third, the institutions are highly bureaucratic and therefore, involve long procedures before entering into the market. Four, they are certainly make profits out of their operations but are rarely Last, the infrastructure provided to these allowed to have freedom of intervention.

agencies is not adequate, but these institutions have been over-staffed both for the operations as well as infrastructure.

3.5 Policy Measures
Minimum Support Prices have been in operation as a price support scheme for over a quarter of a century and it is time to look back at the effectiveness of this scheme. This will require examining if the present operations of MSP are meeting the objectives with which the scheme began. The first question that crops up here is the need for intervention especially to correct the market distortions and making the market more competitive. The present institutional structure in the market itself is imperfect and that provides further scope for the process to fail. The APMCs and other market intervention agencies perform their functions in a way that the farmer and the primary producer rarely benefit. Therefore, if the intervention itself is withdrawn and replaced with proper institutional framework, probably the gain will be on the farmers’ side. Such scheme requires the market institutions to intervene selectively but timely when the market prices fall below the declared MSP. However, timely intervention in the agricultural markets, at least in Karnataka, seems to be not taking place. The lag between the collapse of prices and procurement is about two weeks and such lag helps the traders and middlemen to buy from the market at a price lower than the MSP and sell it at the procurement centre at the MSP, in the process earn good profits. This had happened in the case of maize procurement in Karnataka recently. As timely intervention is the core element of the scheme it is necessary to ensure this through proper policy measures. In order to ensure timely intervention the Karnataka Government has opened procurement centres at all the APMCs and a special fund is created for this purpose. There are a number of institutions which are active in the process of implementation of MSP. But these do not function with full information of the horizontal operations of the others. They work independently. Working in isolation does not make the policy effective, therefore, it is required that these institutions work in close coordination with each other. This will require the apex bodies to effect such collaboration. Functioning of the markets and their interface with the market intervening institutions is one of the problematic areas. APMCs have infrastructural difficulties in

their functioning and this provides enough room for the inefficiencies to creep in. Under the domestic market reforms probably we may have to take up the reforming of the APMCs functioning on priority. The probable areas that need reform are i. infrastructure and proper use of infrastructure, ii. process of grading and removing the inefficiencies in that, iii. process of auction and the probable nexus between traders, and iv. reducing the dependence of the farmers on traders and breaking the interlocking of the credit and product market. In addition to these the monitoring of the prices and a proper information system is required in all the APMCs. Thus reforms at the APMC level should take priority over other factors.

Annexure 3.1 GOVERNMENT OF KARNATAKA ORDER Sub: Procurement of food grains through Minimum Support Prices fixed by Government of India.

Ref :

1. 2.

Government of India letter number 06.01.2000 FES, ES Date : 01.09.2000. Government order number , FCS 24 RPR 98 (P) 11 Date : 03.11.1998.

Preamble : According to the circular form Govt. of India. Dated 01.09.2000 MSP for Kharif crops for the year 2000-01 are fixed. As mentioned in the state Govt.(2) order, Task Force committee are set up at state and district level for procuring food grains through MSP. Government will take all the adequate steps through MSP for food grains: cotton, Oil seeds, Cereals and pulses are procuring through Karnataka Food and Civil Supply Corporation, Cotton Corporation of India (CCI), Karnataka cooperative Oil seed growers Federation (KOF), National Agricultural Co-operative Market Federation (NAFED) and Karnataka State Co-operative marketing federation are working as sub agency under FCI and NAFED. If market prices of food grains : cotton, oil seeds and cereals are less than the minimum support prices then the above federations (FCI/NAFED) are interfere in to the market and order to the sub agencies to procure food grains from the farmers as usual in the every year. So, Examine the proposal and ordered as, Government order no. FCS 13 RPR 2000 Bangalore Date: 04.10.2000 As stated the above region the Government of India has fixed MSP for below mentioned food grains. In the market, if market pries are less than the MSP for below mentioned crops & corresponding price then FCI order to sub agencies to procure. Sl.no. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Crops Paddy ( common) Paddy (Grade A.) Maize (FAQ) Jowar Bajra Ragi Tur (Arhar) Green gram Urad Groundnut Soyabean (Black) Soyabean (Yellow) Sesamum (FAQ) Sunflower Niger seed (FAQ) Cotton (F414,H777 & J34) Cotton H4 MSP Rs./quintal 510.00 540.00 445.00 445.00 445.00 445.00 1200.00 1200.00 1200.00 1220.00 770.00 865.00 1300.00 1170.00 1025.00 1625.00 1825.00 .

2. Government order no. FCS 24 RPR 98 section (2) dated : 03.11.1998 is set up the state level and district level task force committee and is also continued to 200001 kharif market season and ordered as the program should conducted under MSP. 3. As above stated if the prices of crops are below MSP then the below mentioned federations are interfere in the market and procure the crops from the farmers. Corporation : Sub agencies of federations are set up as Nodal agencies Sl.no. 1 Crops details Paddy (common) Paddy (Grade A.) Jowar, Bajra, Ragi And Maize Nodal agencies Sub agencies FCI KFCSCLB FCI 1. KFCSCLB 2. MARKFED (Karnataka State Cooperative Market Federation). Karnataka State Cooperative Market Federation.

2

Pulses Tur, Green Gram Urad Oil Seeds Groundnut Soyabean (Black) Soyabean (Yellow) Sesamum Sunflower Niger seed Cotton Cotton F-414 H-777 J-34

NAFED

3

NAFED

Karnataka State Cooperative oil seed growers federation (KOF) Cotton Corporation of India. (Hubli & Raichur).

4

FCI

3.

Based on the opinion of Farmers for above mentioned crops for MSP is sold to the mentioned institutions

Appendix Table 3.1 State-wise Procurement of Rice, Wheat and Foodgrains ( In Thousand tonnes) Total Foodgrains 2000 1997 1998 1999 2000 0 4540 4017 5440 6050 0 1 0 0 0 0 8 14 0 21 0 13 7 0 0 4498 3208 3963 4798 5858 0 72 107 104 186 0 0 0 0 0 0 462 703 498 951 9424 11590 10856 14687 16024 350 802 1443 1214 1330 0 38 18 22 114 539 326 670 666 564 0 1131 834 794 1205 1545 1236 3470 2322 2902 0 143 205 196 263 0 13 13 14 18 16357 23587 26338 30773 35486

Rice Wheat 1997 1998 1999 2000 1997 1998 1999 Andhra Pradesh 4538 4017 5440 6033 0 0 0 Assam 1 0 0 0 0 0 0 Bihar 8 14 0 21 0 0 0 Gujarat 0 0 0 0 0 2 0 Haryana 918 805 928 1360 2290 3158 3870 Karnataka 72 107 104 135 0 0 0 Kerala 0 0 0 0 0 0 0 Orissa 462 703 498 951 0 0 0 Punjab 5629 4710 6856 6600 5961 6146 7831 Madya Pradesh 692 910 672 964 107 530 542 Maharashtra 34 16 22 47 0 0 0 Rajasthan 6 4 30 5 320 666 636 Tamilnadu 1131 834 794 1205 0 0 0 Uttar Pradesh 618 1329 1061 1357 618 2141 1261 West Bengal 143 205 196 263 0 0 0 Chandigarh 11 13 14 18 2 0 0 All India 14267 13676 16630 18989 9298 12652 14143 Note : All are Provisional Figures except 1997

State

Source :Bulletin on Food Statistics (1998 - 2000), Directorate of Economics and Statistics, Ministry of Agriculture, Government of India.

Appendix Table 3.2 : State-wise Public Distribution of Rice, Wheat and Foodgrains ( In Thousand tonnes) Rice Wheat Total Foodgrains 1998 1999 2000 1997 1998 1999 2000 1997 1998 1999 2000 2123 2441 22621 162 143 161 173 2378 2266 2602 2794 568 562 405 263 232 341 163 751 800 903 568 248 244 206 721 722 786 697 742 970 1030 903 2 1 0 7 5 2 4 10 7 3 4 248 220 188 669 456 529 730 886 704 749 918 14 17 14 210 117 297 205 241 131 314 219 980 933 1005 309 348 410 431 1301 1328 1343 1436 1701 1375 681 390 473 352 224 2094 2174 1727 905 378 407 418 464 404 348 388 889 782 755 806 842 935 668 1017 1097 1370 894 1769 1939 2305 1562 660 746 1075 300 426 263 228 938 1086 1009 1303 22 12 2 1017 17 46 28 1018 39 58 30 44 94 8 811 545 365 838 821 589 459 846 1358 1711 1491 201 259 361 280 1717 1617 2072 1771 539 566 107 1256 1176 1156 485 1728 1715 1722 592 344 381 389 900 1021 915 768 1450 1365 1296 1157 11584 12223 9987 9829 8653 8700 7337 21464 20237 20923 17324

State Andhra Pradesh Assam Bihar Chandigarh Gujarat Haryana Karnataka Kerala Madya Pradesh Maharashtra Orissa Punjab Rajasthan Tamilnadu Uttar Pradesh West Bengal All India 1997 2216 448 132 3 217 31 992 1704 425 752 638 1 10 1516 472 550 11635

Note: Same as above Source: Same as above

Appendix Table 3.3 : State-wise Difference Between the Procurement and Distribution of Rice, Wheat and Foodgrains ( In Thousand tonnes)

State 1997 Andhra Pradesh 2322 Assam -447 Bihar -124 Gujarat -217 Haryana 887 Karnataka -920 Kerala -1704 Orissa -176 Punjab 5628 Madya Pradesh 267 Maharashtra -718 Rajasthan -4 Tamilnadu -385 Uttar Pradesh 146 West Bengal -407 Chandigarh 8 All India 2632 Note: Same as above Source: Same as above

Rice Wheat Total Foodgrains 1998 1999 2000 1997 1998 1999 2000 1997 1998 1999 2000 1894 2999 -16588 -162 -143 -161 -173 2162 1751 2838 3256 -568 -562 -405 -263 -232 -341 -163 -750 -800 -903 -568 -234 -244 -185 -721 -722 -786 -697 -734 -956 -1030 -882 -248 -220 -188 -669 -454 -529 -730 -873 -697 -749 -918 791 911 1346 2080 3041 3573 4293 2967 3832 4484 5639 -873 -829 -870 -309 -348 -410 -431 -1229 -1221 -1239 -1250 -1701 -1375 -681 -390 -473 -352 -224 -2094 -2174 -1727 -905 43 -248 -124 -300 -426 -263 -228 -476 -383 -511 -352 4688 6844 6598 4944 6129 7785 9396 10572 10817 14629 15994 532 265 546 -357 126 194 -38 -87 661 459 524 -826 -913 -621 -1017 -1097 -1370 -894 -1731 -1921 -2283 -1448 -40 -64 -3 -491 121 271 -299 -495 81 207 -282 -524 -917 -286 -201 -259 -361 -280 -586 -783 -1278 -566 790 495 1250 -638 965 105 1060 -492 1755 600 2310 -139 -185 -126 -900 -1021 -915 -768 -1307 -1160 -1100 -894 11 13 18 -5 -5 -2 -4 3 6 11 14 2092 4407 9002 -531 3999 5443 9020 2123 6101 9850 18162

Annexure 3.2 State-wise Procurement and Public Distribution of Rice, Wheat and Foodgrains in 1997 and 2000

State-wise Procurement and Public Distribution of Rice in 1997
6000

5000

Quantity in Thausand Tonnes

4000

3000

Procurement Distribution

2000

1000

0
Bi ha r Ch an di ga rh M ah ar as ht ra ar na ta ka W es tB en ga l ss am Ra ja sth an O ris sa tta rP ra de M sh ad ya Pr ad es h Pr ad es h ar ya na iln ad u er al a Pu nj ab uj ar a t

K

G

A

Ta m

H

States

State-wise Procurement and Public Distribution of Rice in 2000

25000

20000 Quantity in thausand tonnes

15000 P ro c u re m e n t D is trib u tio n 10000

5000

0
As sa m G uj ar at Ke R rala aj as th C an ha nd ig ar h ah Bih ar ar as ht ra Ka rn at W es aka tB en ga l M ad O ya ris Pr s a ad es h Ta m i U tta lna r P du ra de sh An H dh ar ra ya Pr na ad es h Pu nj ab

M

S ta te s

A

nd hr a

K

U

Quantity in thousand tonns

An dh ra

Quantity in Thousand tonnes
An dh ra

10000

1000

2000

3000

4000

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6000

7000

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9000

0

1000

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Pr ad es h As sa m

Bi ha r

G uj ar at Ka rn at ak a

Ke ra la O ris sa

State- wise Procurement and Public distribution of Wheat in 1997

State- wise Procurement and Public distribution of Wheat in 1997

State-wise Procurement and Public Distribution of Wheat in 2000

States

States

M ah ar as ht ra Ta m iln ad W u es tB en ga C l ha nd M ig ad ar h ya Pr ad es h R aj as th U an tta rP ra de sh H ar ya na Pu nj ab

Pr ad es As h sa m Bi ha G r u Ka jar at rn at ak Ke a ra la M Or a h is ar sa a Ta sht m r W iln a es ad tB u C en M ha ga ad nd l ya iga Pr rh a R des aj h U tta ast r P ha ra n de H sh ar ya n Pu a nj ab

Distribution

Procurement

Distribution

Procurement

Quantity in thounsand tonnes
10000 12000 14000 2000 4000 6000 8000 0

Quantity in thaousand tonnes

10000
Ke

12000

14000

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18000

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0
States

As s ra la As sa m

State-wise Procurement and Public Distribution of Total Foodgrains in 2000

State-wise Procurement and Public Distribution of Total Foodgrains in 1997

States

a G m uj ar a Ke t C ra ha nd la ig ar h M Bi ah ha ar as r Ka htr a r W na es tak tB a e R nga aj as l th an O Ta riss M ad mil a ya na d U P ra u tta de rP s ra h de An H sh dh ar ra y a Pr na ad es Pu h nj ab
Bi ha r G uj C ha ara t n M dig ar ah h ar as ht Ka ra r W nat ak es tB a en ga R l aj as th an M ad O ya ris Pr sa ad Ta esh U miln tta r P adu ra de sh An H dh ar ra yan Pr a ad es h Pu nj ab

Distribution

Procurem ent

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Procurement

All India Procurement and Public Distribution of Rice, Wheat and Total Foodgrains

40000

35000

30000 Quantity in thounsand tonns

25000

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15000

10000

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0 R-1997 R-1998 R-1999 R-2000 W-1997 W-1998 W-1999 Commodity and Year R-Rice, W-Wheat and FG-Foodgrains W-2000 FG-1997 FG-1998 FG-1999 FG-2000 Procurement Distribution

CHAPTER IV

ANALYSIS OF IMPACT OF MSP AT THE STATE LEVEL
4.1 Introduction The analysis of the impact of MSP at the State and District level indicates that the policy has not been widespread as expected in the basic design. Therefore, it will be interesting to get at the question of effectiveness of the policy at the micro-level. In order to understand the effectiveness of the policy at the micro-level we have conducted widespread field survey in three districts of Karnataka. The districts were chosen with a focus on the purpose of our analysis. As a first step, we selected a district that had a predominant commercial crop pattern and higher density of market participation by the farmers. It was ensured that the district also had a larger share of marketable surplus. This clearly gave us a region that was active in the process of commercialisation and therefore expected to have more number of beneficiaries of the MSP scheme. Keeping these requirements in view we selected Mandya district, which is called the Punjab of Karnataka. This represents a region in the State growing a major non-food crop and having commercial crop-oriented economy. Second, we needed a district with moderate to high growth rates in the food crop economy and predominantly growing the crops included under MSP. We selected Belgaum district as a representative of this situation. Belgaum has food crops dominated crop economy and it is characterised with moderate to high growth in agricultural sector. Third, we selected a slow growing and fragile ecoregion predominantly growing food crops covered under MSP. Gulbarga district typically represents such a region in the State growing mainly food crops and having slow growth in its crop economy. Gulbarga also happens to be one among the most backward districts of the State. In this chapter, we intend to look into the changes in the cropping pattern. These changes cannot be attributed to MSP/Prices alone but reflect a combined effect of many such factors. This is reflected through the data on cropping pattern before a decade and the present cropping pattern. Theoretically, it may be argued that the memory lapses may act as constraint to recall a situation decade back but it did not prove difficult during our fieldwork. We also intend to analyse the impact on the use of

inputs and land and other resources besides adoption of socially desirable cropping pattern. Facilitating the adoption of new technology is one of the important functions of the MSP policy. Therefore, adoption of improved technology and their relative contribution in increasing the production and productivity of the specified crops becomes an essential accompaniment of the price policy, and thus examining adoption of technology was taken as an important aspect for the purpose of our analysis. 4.2 Land Use and Crop Pattern Initially we provide here a brief background of the sample households across the districts. Tables 4.1 and 4.2 present the distribution of the sample across size classes of holding and by social groups and employment status. Two observations based on these tables are pertinent here. We have a larger concentration of the sample in the size class of holding above 4 hectares, as the marketable surplus is located in this group of farmers. Second, the sample has only a few households having economic support from other than farming. Therefore, the impact of price comes out very clearly. Table 4.1 : Distribution of Selected Households by Ownership Size Size Class up to 1 ha. 1 to 2 ha. 2 to 4 ha. above 4 ha. All Households Mandya 2.00 6.00 50.00 42.00 100.00 Belgaum 6.00 24.00 46.00 24.00 100.00 Gulbarga 0.00 2.00 8.00 90.00 100.00 (Per cent) Total 2.67 10.67 34.67 52.00 100.00

Table 4.2 : Distribution of Selected Households by Social and Employment Groups (Per cent)

Caste Belgaum Gulbarga Scheduled Caste 8.00 4.00 26.00 Scheduled Tribe 0.00 4.00 0.00 Other Backward Classes 92.00 74.00 Total 100.00 100.00 100.00 Employment Status of the Members of the Household Cultivation 90.09 61.36 49.76 Agricultural labour 7.21 37.12 32.37 Service 0.90 0.76 0.97 Others 1.80 0.76 16.91 Total 100.00 100.00 100.00

Total 12.67 1.33 86.00 100.00 63.11 27.56 0.89 8.44 100.00

Table 4.3 Cropping Pattern of the Selected Households Crops

(Per cent to total cropped area) Gulbarga Belgaum Mandya BT NOW BT NOW BT NOW Paddy 0.00 0.00 28.57 34.93 31.98 30.88 Ragi 0.00 0.00 0.00 0.00 8.56 7.88 Jowar 43.85 31.58 41.67 38.36 0.00 0.00 Tur 39.47 54.04 0.00 0.00 0.00 0.00 Gram 16.68 14.38 0.00 0.00 0.00 0.00 Groundnut 0.00 0.00 29.76 26.71 0.00 0.00 Sugarcane 0.00 0.00 0.00 0.00 59.46 61.24 GCA (in Ha) 536 590 68 59 180 193 % (100.00) (100.00) (100.00) (100.00) (100.00) (100.00) Note: The last row gives the Gross Cropped Area (GCA) in each district in hectares BT – Before ten years Table 4.4 Land Use Pattern (Land in hectares) Items Net cropped Area Rented in land Total Irrigated area Area cropped more than once Area irrigated more than once Fallow land Cropping intensity(%) Irrigation intensity(%) Per cent of Irrigation to Net cropped area Note : BT-Before ten Years Gulbarga BT Present 731.28 603.40 0.00 40.06 3.24 11.33 300.69 211.25 3.24 11.33 21.45 19.83 141.12 135.01 200.00 200.00 0.44 1.88 Belgaum BT Present 159.45 156.62 0.00 1.01 52.21 55.44 61.51 45.73 36.02 42.09 2.43 2.83 138.58 129.20 169.00 175.90 32.74 35.40 Mandya BT Present 213.7 216.5 0.8 4.7 198.7 208.0 51.0 55.8 78.1 91.1 6.1 7.3 123.86 125.79 139.3 143.8 92.99 96.07

Land use statistics indicates that the cropped area has declined in Belgaum and Gulbarga districts whereas it has increased marginally in Mandya (see Figure 4.1). This is in tune with the present land use trends at the macro-level. The area under irrigation is however, increasing in all the three districts and therefore, the irrigation associated cost also increase. But the disturbing trend is the declining cropping and irrigation intensity in the districts of Gulbarga and Belgaum. The cropping intensity in Mandya district has increased marginally and this is an expected trend in any irrigated region. It is observed that the cropping intensity as well as area irrigated more than once as proportion to the net sown area is higher in Mandya district than that in Gulbarga and Belgaum districts. But area cropped more than once as per cent of NCA is higher in Belgaum and Gulbarga than in Mandya. This emerges sharply on the background of the fact that Mandya district has higher proportion of area under irrigation.

Figure 4.1a Land Use Statistics: Mandya

3 0 0 .0

2 5 0 .0

2 0 0 .0 Land in Hectares

1 5 0 .0

BT NOW

1 0 0 .0

5 0 .0

0 .0 R e n te d in la n d F a llo w la n d A re a c ro p p e d m o re th a n o n c e A re a irrig a te d m o re th a n o n c e Ite m s To ta l Irrig a te d a re a N e t c ro p p e d A re a GCA

Figure 4.1b Land Use Statistics: Belgaum

250.00

200.00

Land in Hectares

150.00 BT NOW 100.00

50.00

0.00 Rented in land Fallow land Area irrigated m ore than once Area cropped m ore than once Items Total Irrigated area Net cropped Area GCA

Figure 4.1c Land Use Statistics: Gulbarga

1 2 0 0 .0 0

1 0 0 0 .0 0

8 0 0 .0 0 Land in Hectares

6 0 0 .0 0

BT NOW

4 0 0 .0 0

2 0 0 .0 0

0 .0 0 To ta l Irrig a te d a re a A re a irrig a te d m o re th a n o n c e F a llo w la n d R e n te d in la n d Ite m s A re a c ro p p e d m o re th a n o n c e N e t c ro p p e d A re a GCA

Figure 4.2a Present Cropping Pattern : Mandya

R agi 8%

Paddy 31%

S u g a rc a n e 61%

Figure 4.2b

Cropping Pattern Before Ten Years: Mandya

Ragi 9%

Paddy 32%

Sugarcane 59%

Figure 4.3a

Present Cropping Pattern Belgaum

G ro u n d n u t 27%

Jow ar 38%

P addy 35%

Figure 4.3b

Cropping Pattern Before Ten Years: Belgaum

Paddy 29%

Jo wa r 41%

G roundnut 30%

Figure 4.4a

Present Cropping Pattern : Gulbarga

G ra m 14%

Tur 54% Jo w a r 32%

Figure 4.4b

Cropping Pattern Before Ten Years: Gulbarga

Gram 17%

Jow ar 44%

Tur 39%

4.3 Impact of MSP on Area Allocation Decisions Price support scheme as an instrument of price policy was intended to create incentives for developing a particular cropping pattern. While writing initially about the incentives and disincentives in the context of price policy during the formation years of the Agricultural Prices Commission Prof. Dantwala wrote that the prices of agricultural commodities should serve as a strong incentive to adopt technology, it should provide impetus for growing food grains and help directing the cropping pattern in a desired direction (Dantwala 1967). The policy statements in the form of Plan Documents, Economic Surveys and Budget speeches have repeatedly emphasised the importance of relative prices across crops and the price incentives to create a desired crop pattern. One can argue that it is the net revenue effect that really provokes the decisions on cropping pattern than prices alone but still the impact of relative prices cannot be undermined. Therefore, more than the prices of the commodity the relative prices and net income together play a decisive role (Deshpande and Chandrashekhar 1982). In this context, it is worth testing the hypothesis that relative price and net income impacts the changes in cropping pattern.

Table 4.5a:

Factors Explaining the Fluctuations in Area under the Crop: Micro-Level Analysis - Mandya Crop Constant Cost of Market Expected Net Price Relative R Square Cultivation Distance Price Income Price Paddy 1.56 0.001*** 0.005 -0.001 0.001*** -0.001 0.02 0.84 (0.64) (7.17) (0.28) (-0.88) (5.11) (0.42) (0.12) 3.59 0.007 0.001 0.001*** -0.005 0.01 0.66 (1.02) (0.28) (0.89) (8.70) (0.82) (0.81) 1.06 0.001*** 0.007 -0.001 -0.001 -0.19 0.75 (0.35) (10.94) (0.33) (0.91) (-0.11) (0.89) 5.06 -0.02 0.002 -0.006 -0.21 0.07 (0.88) (0.42) (1.62) (0.59) (0.51) Ragi 1.16 0.001** 0.02 -0.001 0.001** -0.006 3.21 0.83 (0.88) (4.65) (0.94) (0.61) (2.51) (1.59) (1.58) 2.16 0.002 -0.003 0.00* -0.004 3.68 0.61 (1.12) (0.06) (1.68) (2.16) (0.74) (1.22) 2.16 0.001** 0.01 -0.002 -0.01** 6.29** 0.77 (1.50) (4.42) (0.36) (1.38) (3.11) (3.41) 3.54 -0.01 -0.005** -0.01* 7.72** 0.45 (1.77) (0.43) (2.66) (2.07) (2.98) Sugarcane 1.07 0.001*** 0.003 0.001 0.001*** -0.002 0.96 (0.38) (9.30) (0.15) (1.21) (8.97) (0.86) -2.60 -0.02 0.001 0.001*** 0.001 0.88 (0.54) (0.63) (0.96) (17.37) (0.38) 3.61 0.001*** 0.01 0.001 -0.006 0.89 (0.77) (17.85) (0.35) (1.26) (1.22) -4.83 -0.08 0.008 0.002 0.09 (0.37) (0.91) (1.95) (0.18) Note: *, ** and *** Statistically Significant at 10%, 5% and 1% level, respectively. Figures in the parentheses are t values Table 4.5b: Factors Explaining the Fluctuations in Area under the Crop: Micro-Level Analysis - Belgaum Crop Constant Cost of Market Expected Net Price Relative R Square Cultivation Distance Price Income Price Groundnut 3.21 0.001** -0.02 0.001 0.001 -0.002 -0.47* 0.51 (1.25) (2.86) (1.69) (0.41) (0.48) (1.03) (2.26) 3.27 -0.05 0.001 0.001 -0.001 -0.52* 0.27 (1.07) (0.87) (0.02) (1.28) (0.40) (2.11) 3.42 0.001** -0.02 0.001 -0.002 -0.46* 0.50 (1.38) (3.27) (1.77) (0.39) (1.11) (2.27) 3.99 -0.01 -0.001 -0.001 -0.49 0.20 (1.32) (0.87) (0.01) (0.45) (1.97) Jowar -0.44 0.001** 0.01 0.002 0.001 -0.001 0.68 0.74 (-0.58) (4.17) (1.14) (1.21) (0.76) (0.85) (0.97) 0.71 0.07* 0.007 0.001** -0.002 0.17 0.52 (0.78) (2.01) (0.75) (2.87) (1.16) (0.19) -0.68 0.001** 0.01 0.002 -0.001 0.88 0.73 (1.06) (5.63) (0.02) (1.94) (1.21) (1.37) -0.12 0.02 0.005** 0.005** 1.06 0.35 (0.12) (1.68) (2.79) (2.86) (1.08) Paddy -0.11 0.001* -0.09 0.001 0.001** 0.001 -1.01 0.75 (0.05) (2.07) (1.76) (0.87) (2.84) (0.57) (1.28) -0.96 -0.05 0.003 0.001** 0.001 -1.66* 0.67 (0.42) (0.87) (1.56) (3.03) (0.45) (2.07) 0.47 0.001* -0.13 0.001 0.001 -0.73 0.59 (0.18) (2.25) (1.87) (0.62) (0.69) (0.76) -0.57 -0.06 0.003 0.001 -1.56 0.45 (0.20) (0.93) (1.36) (0.58) (1.56) Note: Same as in the case of Mandya

Table 4.5c: Crop Gram

Factors Explaining the Fluctuations in Area under the Crop: Micro-Level Analysis - Gulbarga Cost of Market Expected Net Price Relative R Square Cultivation Distance Price Income Price 19.07 0.001 -0.01 -0.01 0.001*** -0.01 4.10 0.73 (1.74) (0.53) (0.13) (1.51) (5.13) (0.89) (0.43) 20.99* -0.001 -0.01* 0.001*** -0.01 3.96** 0.72 (2.07) (0.012) (2.03) (5.91) (0.92) (0.39) -4.47 0.001 0.06 0.001 -0.003 14.31 0.25 (0.27) (1.68) (0.33) (0.12) (0.19) (0.96) 0.98 0.14 -0.003 -0.0018 14.26 0.11 (0.05) (0.81) (0.55) (0.13) (0.91) 4.08* 0.001*** -0.02 0.001 0.001*** -0.01 -1.36 0.96 (2.23) (6.42) (0.51) (0.16) (15.92) (1.45) (0.26) 7.59** -0.03 0.004 0.001*** -0.01 -3.66 0.92 (3.14) (0.98) (1.37) (21.38) (1.98) (0.49) -4.58 0.001*** 0.05 -0.004 0.006 1.57 0.70 (1.01) (9.91) (0.07) (0.76) (0.74) (0.11) 1.18 -0.04 0.009 0.001 -6.82 0.03 (0.14) (0.29) (0.09) (0.07) (0.28) 7.65 0.001*** -0.03 0.005 0.001*** -0.01** -0.80 0.93 (0.98) (12.31) (0.74) (1.19) (12.22) (4.45) (0.96) 26.49 0.04 -0.007 0.001*** -0.005 0.16 0.63 (1.65) (0.45) (0.79) (8.75) (0.95) (0.09) 5.97 0.001*** -0.007 0.006 -0.009 -0.25 0.67 (0.36) (8.83) (0.07) (0.65) (1.81) (0.14) 35.54 0.15 -0.01 0.001 1.66 0.08 (1.35) (0.86) (0.93) (0.21) (0.58) as in the case of Mandya

Constant

Jowar

Tur

Note: Same

We have attempted the factors explaining the fluctuations in area under the crop by using regression equation involving the following variables: 1. Cost of Cultivation of the concerned crop (CC) 2. Distance from the market (DM) 3. The expected price by the farmer as indicated in the interview (EP) 4. Net income of the household from the crop (NI) 5. Price received for the crop (Pr) 6. Relative price of the crop in relation to the computing crop (RP) Variables as defined above β 1 to β 6 are regression co-efficients and ε is the stochastic error term The specification of the equation is as follows: Area under the Crop = a + β 1 CC + β 2 MD + β 3 EP + β 4 NI + β 5 Pr + β6 RP + ε The equations were separately estimated for Mandya, Belgaum and Gulbarga districts. The results have been presented in Tables.4.5 (a, b and c). It comes out very

clearly from the tables that the net income and cost of cultivation certainly matters in the decision-making process of area allocation. Similarly, the relative prices also emerged significantly influencing the area allocation. However, the expected prices and distance from the market did not have any influence on area allocation. This is quite a surprising result especially in the context of expected price. Probably the farmers did not form their expectations properly or probably their expressions were not rational. 4.4 Impact of MSP on Adoption of Technology The price intervention scheme started in the mid-sixties, had two major policy thrusts. First, to keep the prices of food commodities in an affordable range for the consumers in the wake of prevailing shortages of food commodities. Thus, procurement and levy policy was taken to support the public distribution system. Second, during the initial years of the introduction of technological change in agriculture, it was necessary to create price incentives for the farmers to adopt new technology and take up the crops that were the vanguards of technology. Thus, inducing to adopt improved farming practices has been one of the important expectations from the price policy. The policy thrust was altered during the early eighties due to changed situations. During this period, following farmers’ agitations, covering the cost of cultivation of the farmer (including an allowance for management of the farm) became one of the main objectives of the price policy. Thus, the incentive for adopting new technology became a secondary objective. We tried to locate the price responsiveness for the adoption of technology by the farmers in the three districts for the selected crops. We have taken (a) Sugarcane (Mandya); (b) Jowar (Belgaum); (c) Paddy (Belgaum); (d) Jowar (Gulbarga) and (e) Tur (Red Gram) (Gulbarga) for the purpose of viewing the adoption of technology. The results have been presented in Tables 4.6 (a to e). We have resorted to a comparison in the parameters of adoption of technology between now and a decade before. Five observations emerge quite sharply from the Tables. First, there is a perceptible difference in the adoption of technology during the last decade but all of that cannot be attributed to price policy alone. It is more related to the optimisation of gross production than response to prices. Second, significant change was observed in the crop varieties across crops. In the case of all the crops the farmers have shifted to new varieties. The differences in taking to new varieties between the small farmers and others are also quite visible. The farmers in the holding size of more than 2 hectares adopted new varieties instantly and chose wide range of varieties compared to their peers. This can be a proxy indicator of the influence of price factor on the adoption of

the new technology. Third, the use of fertilisers and pesticides increase, and this might be due to the lumpiness of technology. By lumpiness we mean the adoption of one component of new technology makes it compulsory to include the other components in a pre-decided ratio. Fourth, the trends in the farming practices are not discernible from the data during the last decade. The farming practices more or less remained the same. Lastly, though there are changes in the adoption of technology these are dissimilar across the components of the technology. We also tried a few regression equations to locate the influence of MSP (represented by dummy indicating awareness of MSP) on adoption of new technology but these equations could not yield any interpretable results.
Table 4.6 a: Adoption of Improved Farming Practices - Mandya (Sugarcane) (Per cent of total respondents) Before 10 Years All up to 2 ha. Other All 74.00 75.00 26.09 30.00 10.00 25.00 71.74 68.00 2.17 2.00 14.00 8.00 8.00 10.00 2.00 90.00 2.00 22.00 30.00 20.00 12.00 16.00 80.00 12.00 50.00 22.00 56.00 22.00 96.00 4.00 100.00 25.00 25.00 50.00 50.00 6.00 0.00 4.00 4.00 95.65 2.17 19.57 15.22 4.35 10.87 4.35 2.17 8.70 6.52 17.39 19.57 8.70 44.00 6.00 62.00 24.00 88.00 10.00 18.00 16.00 4.00 10.00 4.00 2.00 10.00 6.00 20.00 22.00 8.00 50.00 6.00 66.00 28.00

Mandya : Sugarcane Present Level Items up to 2 ha. Other Type of seed variety 62175 100.00 71.74 419 10.87 119 8371 15.22 Method of plough Tractor+Bullock 8.70 Tiller 8.70 Tiller+Tractor 10.87 Bullock+Tractor+Tiller 2.17 Increase in manure use 100.00 89.13 Before sowing 2.17 Fertilizer 10:26:26 100.00 15.22 Potash+Urea Increased 32.61 17:17:17 21.74 Salt Amonium sulphate 17:17:17+Urea+DAP 13.04 17:17:17+10:26:26+Urea 17.39 Potash+Amonium sulphate Pesticides used 100.00 78.26 Method of harvesting 13.04 Threshing Factory 100.00 45.65 Gaggary Local Transport Tractor 22.00 Cart 8.00 48.00 Lorry 22.00 Market places Factory (Mandya) 8.00 88.00 Local 4.00

Table 4.6 b:

Adoption of Improved Farming Practices-Belgaum (Jowar) (Per cent of total respondents) Before 10 Years up to 2 ha. Other All 26.67 6.67 26.67 20.00 6.67 26.67 20.00 6.67 6.67 26.67 6.67 0.00 13.33 6.67 28.57 8.57 20.00 40.00 48.57 34.29 2.86 2.86 2.86 20.00 17.14 42.86 8.57 11.43 5.71 5.71 8.57 8.57 28.00 6.00 16.00 36.00 40.00 26.00 2.00 2.00 2.00 22.00 18.00 2.00 32.00 14.00 10.00 4.00 8.00 8.00 6.00

Belgaum : Jowar Present Level Items up to 2 ha. Other Type of seed variety Local 5.71 Mico 2.86 Pioneer 34.29 Jowar 0.00 M-35-1 26.67 11.43 HB 2.86 CH5 6.67 Method of plough Tractor 22.86 Sowing implement 26.67 40.00 Increase in manure use 20.00 40.00 Fertilizer Urea 6.67 34.29 Potash+Amonium 2.86 sulphate Pesticides used 13.33 8.57 Method of harvesting Hand material 2.86 Machine 2.86 Traditional 26.67 20.00 Threshing Machine 26.67 17.14 Traditional Transport Cart 6.67 45.71 Truck 26.67 8.57 Market places Sankeshwara 13.33 37.14 Hukkeri 2.86 Gokak 13.33 11.43 Local 6.67 Nellogi -

All 4.00 2.00 24.00 0.00 16.00 2.00 2.00 16.00 36.00 34.00 26.00 2.00 10.00 2.00 2.00 22.00 20.00 34.00 14.00 30.00 2.00 12.00 2.00 -

Table 4.6c: Adoption of Improved Farming Practices-Belgaum (Paddy) (Per cent of total respondents) Before 10 Years up to 2 Other All ha. 40.00 13.33 6.67 6.67 66.67 6.67 60.00 33.33 6.67 13.33 33.33 26.67 13.33 46.67 20.00 13.33 6.67 17.14 5.71 2.86 25.71 2.86 25.71 8.57 2.86 14.29 5.71 8.57 20.00 8.57 22.86 2.86 24.00 8.00 2.00 2.00 2.00 38.00 4.00 36.00 16.00 2.00 2.00 4.00 20.00 12.00 10.00 28.00 12.00 20.00 4.00

Belgaum : Paddy Items Type of seed variety ya Indon Basumathi Manila Indrani HB IR 8 Maduri Method of plough Tractor Bullock Tractor+Bullock Sowing implement Increase in manure use Fertilizer Increased 17:17:17+Urea+DAP 17:17:17+10:26:26+Urea Potash+Amonium sulphate Pesticide used Method of harvesting Traditional Drying/ Threshing Machine Traditional Transport Tractor Cart Truck Market places Belgaum Local

Present Level up to 2 Other All ha. 26.67 20.00 6.67 13.33 6.67 53.33 6.67 6.67 26.67 33.33 33.33 6.67 13.33 33.33 40.00 6.67 13.33 26.67 26.67 6.67 8.57 5.71 2.86 2.86 5.71 2.86 8.57 17.14 2.86 17.14 14.29 8.57 2.86 5.71 14.29 11.43 2.86 8.57 14.29 5.71 28.57 14.00 10.00 4.00 2.00 8.00 2.00 8.00 28.00 2.00 4.00 20.00 20.00 16.00 2.00 2.00 8.00 20.00 20.00 4.00 10.00 18.00 12.00 22.00 -

Table 4.6d: Adoption of Improved Farming Practices-Gulbarga(Jowar) (Per cent of total respondents) Before 10 Years up to 2 ha. Other All 12.24 12.00 12.24 4.08 10.20 2.04 12.00 4.00 10.00 2.00

Gulbarga : Jowar Present Level Items up to 2 ha. Other Type of seed variety Local M-35-1 12.24 Method of plough 4.08 Tractor Increase in manure use 6.12 Fertilizer Increased 8.16 DAP+20:20 4.08 Pesticides 10.20 Used Method of threshing 12.24 Machine Transport Cart 2.04 Tractor 6.12 Lorry 2.04 Truck 2.04 Market places Local Jewargi 4.08 Gulbarga 8.16 Sedam 2.04

All

12.00 4.00 6.00 8.00 4.00 10.00 12.00

2.00 6.00 2.00 2.00 4.00 8.00 2.00

-

10.20 2.04 10.20 2.04

10.00 2.00 10.00 2.00

Table 4.6e: Adoption of Improved Farming Practices-Gulbarga (Tur) (Per cent Gulbarga : Tur Type of seed variety Maruthi 100.00 63.27 64.00 G.S-1 8.16 8.00 Local 12.24 12.00 100.00 M8863 2.04 2.00 Redtur H.B 2.04 2.00 Method of plough Tractor 10.20 10.00 Tractor+Bullock 4.08 4.00 Increase in manure use 44.90 44.00 100.00 Before sowing 2.04 2.00 Fertilizer Increased 100.00 83.67 84.00 DAP+20:20 2.04 2.00 Pesticides used 100.00 77.55 78.00 100.00 Method of threshing Machine Bullocks Transport Cart Tractor Lorry Truck Market places Local Jewargi Gulbarga Sedam APMC Source: Based on Survey data 100.00 8.16 24.49 46.94 6.12 2.04 8.00 26.00 46.00 6.00 2.00 100.00 100.00 14.29 40.82 28.57 4.08 16.00 40.00 28.00 4.00 100.00 81.63 80.00 -

of total respondents) 6.12 44.90 34.69 2.04 0.00 2.04 36.73 46.94 46.94 2.04 67.35 4.08 6.12 73.47 10.20 2.04 2.04 48.98 8.16 10.20 10.20 2.04 6.00 44.00 40.00 2.00 0.00 2.00 38.00 46.00 46.00 2.00 68.00 4.00 6.00 74.00 10.00 2.00 2.00 48.00 10.00 10.00 10.00 2.00

4.5 Cost of Cultivation The cost of cultivation is one of the important determinants of the Minimum Support Prices. The data on cost of cultivation was collected from the countrywide survey on cost accounting method for the selected crops for the purpose of declaring MSP. The methodology of the cost of cultivation surveys was developed after interactions over years with farmers and academicians. Therefore, the methodology has been perfected through practice and corrections. But the problem crops up in the implementation of the scheme in terms of collection of data. Farm leaders challenge some of these data and at times it was also difficult to believe if these were crosschecked in the field. Despite the fact that the cost of cultivation data were collected through cost accounting methodology, the field situations seemed to be quite different. It will therefore, be necessary to collect a sub-sample independently to test the veracity of these data.

We collected cost of cultivation data by recall method from the selected farmers. The results have been presented in Tables 4.7 (a, b, and c). It can be seen from the Tables that farmers’ incurred highest cost on the purchased inputs. Among these it was fertilisers that constituted the major share of the cost. The composition of the cost differed across the crops and regions but broadly the purchased inputs dominated the total cost. Similarly, insecticides and pesticides also consumed substantial cash inputs. In most of the cases average prices received by the farmers were well below the MSP and the relationship between the cost of cultivation and MSP also did not seem to hold across crops and districts. Out of the nine cases we found that in 6 cases the average price received by the farmers was much less than the MSP, and there were at least two instances that the per quintal cost was also lower than both average prices received and the MSP. Another interesting observation emerging from the Table was that hired human labour component was more than family labour. That made need for cash resources more intensive.
Table 4.7a: Cost of Cultivation : Mandya

(Rs per hectare) Cost Items Ragi Paddy Sugarcane Human labour Hired 1,608.18 2,158.27 2,087.12 Family 504.26 411.00 304.32 Total 2,112.44 2,569.28 2,391.44 Bullock labour Hired 856.05 1,871.71 1,458.35 Owned 2,120.95 1,742.63 1,744.93 Total 2,977.00 3,614.33 3,203.28 Machine labour Hired 76.66 185.88 114.63 Owned 383.30 185.88 106.99 Total 459.97 371.76 221.62 Seeds value 126.32 1,062.53 7,310.44 Cost of seed treatment 0.00 82.61 6.37 Total 126.32 1,145.14 7,316.80 Fertilizer and manure used Manure's Owned 4,876.49 3,597.12 6,190.03 Purchased 489.78 1,259.85 2,190.71 Fertilisers value 3,973.59 4,940.28 14,666.30 Total 9,339.86 9,797.26 23,047.04 Insecticide 78.79 1,014.68 773.71 Irrig/Electricity charges 175.47 605.66 673.94 Any other cost incurred 475.30 1,226.29 1,440.10 Grand total 15,745.14 20,344.40 39,067.93 Yield (in quintals) 33.67 77.27 230.91 MSP (Rs. per quintal) 415 520 561 Price received (Rs. per quintal0 408 518 696 Cost (Rs.) per quintal 467.63 263.29 169.19* Note: *In the case of Sugarcane, the cost is per tonne Source: Based on Field data

Table 4.7b Cost of Cultivation : Belgaum (Rs per hectare) Groundnut 342.96 200.06 543.02 410.84 1,670.16 2,081.00 166.72 0.00 166.72 1,124.16 6.85 2,590.08 297.71 2,116.72 5,004.52 449.54 0.00 735.35 10,111.15 14.13 1155 1276 715.58

Cost Items Human labour Hired Family Total Bullock labour Hired Owned Total Machine labour Hired Owned Total Seeds value Cost of seed treatment Fertilizer and manure used Manure owned Purchased Fertiliser value Total Insecticide Irrig/Electricity charges Any other cost incurred Grand total Yield (in quintals) MSP (Rs. per quintal) Price received (Rs. per quintal) Cost (Rs) per quintal

Paddy 469.61 228.31 697.91 153.13 2,373.55 2,526.68 167.05 0.00 167.05 1,027.84 0.00

Jowar

240.00 240.00 480.00 101.00 1,772.00 1,873.00 99.00 0.00 99.00 441.19 0.00

4,547.57 2,538.39 754.06 213.40 4,788.87 1,473.61 10,090.50 4,225.41 162.41 195.88 20.88 0.00 580.98 916.52 15,274.26 8,231.00 67.83 29.30 520 415 585 525 225.18 280.92

Table 4.7c Cost of Cultivation : Gulbarga Cost Items Human labour Hired Family Total Bullock labour Hired Owned Total Machine labour Hired Owned Total Seeds value Cost of seed treatment Total Fertilizer and manure used Manure's Owned Purchased Fertilisers value Total Insecticide Irrig/Electricity charges Any other cost incurred Grand total Yield (in quintals) MSP (Rs per quintal) Price received (Rs per quintal) Cost (Rs) per quintal Gram 276.75 89.37 366.12 165.91 907.21 1,073.12 4.71 17.65 22.36 750.42 25.89 776.31 179.44 235.33 811.43 1,226.20 2,715.75 0.00 547.15 6,727.00 11.11 1015 1125 605.49 Tur

(Rs per hectare) Jowar 302.23 106.01 408.25 180.68 1,286.78 1,467.46 64.83 10.63 75.46 97.14 5.85 102.99 795.77 179.35 777.01 1,752.12 390.58 0.00 468.96 4,665.81 11.80 415 466 395.41

253.02 88.30 341.32 94.99 901.18 996.17 100.39 0.00 100.39 212.55 26.25 238.80 691.46 159.14 851.40 1,702.00 3,572.49 0.00 659.23 7,610.41 11.32 1105 1633 672.30

4.6

Disposal and Income It is clear from the above analysis that in the household economy with an

average family size of five members it was difficult to sustain on farming as a profession. At the same time it is also true that rural households did not survive on farming alone. Farming was one of the multiple activities that they undertook and many times it was more due to economic compulsions. This happened either due to the culture of the profession or due to difficulties in meeting the ends or both. The allied activities included livestock rearing, sale of bi-products, vegetables and sale of fodder. We have presented in Table 4.8 the crop economy of the major crop in an average household in the selected region. Even when we consider all the income earning avenues including labour in the household the aggregate income was not very respectable. Table 4.9 includes the crop-wise distribution of total production and disposal in the market. The proportion of marketable surplus ranged between 33 per cent to 100 per cent. A quick observation from the table corroborates our view that the

crop economy alone was difficult to provide substantial economic base and especially in the regions like Gulbarga.
Table 4.8 : Production and Gross Value of Production : Per Household (Quantity in Qtl./hh. , Income in per cent.) Belgaum Jowar Quantity Income Main Product 14.08 23.06 Bi-Product 10.12 12.92 Green grass 0.96 1.25 Other fodder 2.76 3.80 Fuel wWood 7.36 6.32 Vegetables 0.56 1.52 Milk & milk product 901.40 21.81 (liters/hh) Dung cake (qtls/hh) 43.90 29.33 Gross value 100.00 (34.30) Items Gulbarga Jowar Quantity Income 44.34 59.00 18.14 7.16 0.00 0.00 6.86 2.94 13.66 8.86 1.44 2.21 557.90 7.32 32.88 12.50 100.00 (63.35) Mandya Paddy Quantity Income 98.20 52.63 15.38 6.72 1.00 0.55 14.42 6.34 62.56 5.33 1.12 0.71 2140.88 20.40 32.26 7.33 100.00 (108.61)

Note :Figures are in the paranthesis in the last row are Total income - Rs. in '000s/HH Table 4.9 : Total Production and Disposal (Quantity in quintals) Components Belgaum Jowar Gulbarga Tur Mandya Paddy 77.27 11.08 23.91 1.55 4.14 66.48 0.40 33.66 8.50 7.86 0.14 0.90 2.21 0.01

Total production Main product (per Ha.) 29.30 11.32 Bi-product (per Ha.) 8.43 1.43 Average consumption at Home 5.34 1.89 Average retained for seed 0.00 0.89 Average feed 0.00 0.00 Sold at market Average quantity 7.94 69.52 Average value (Rs. in lakh) 0.04 1.08 Total production Groundnut Jowar Ragi Main product (per Ha.) 14.13 11.80 Bi-product (per Ha.) 3.29 4.53 Average consumption at Home 0.55 13.05 Average retained for seed 0.37 0.83 Average feed 0.00 0.40 Sold at market Average quantity 3.54 30.14 Average value (Rs. in lakh) 0.05 0.22 Total production Paddy Main product (per Ha.) 67.83 Bi-product (per Ha.) 13.23 Average consumption at home 9.81 Average retained for seed 0.53 Average feed 0.00 Sold at market Average quantity 17.66 Average Value (Rs. In lakh) 0.11 Note : Here, the average is the same as per household

Gram Sugarcane 11.11 230.91 0.00 281 0.83 0.00 1.11 15.08 0.00 0.74 16.94 0.21 267.74 2.15

4.7 Determinants of Prices Received by the Farmers Relative prices across crops play a significant role in area and resource allocation decisions. This has been established in various studies (Batra 1978; Deshpande 1996). We have seen in the earlier chapter that relative MSP favoured superior cereals against coarse cereals and pulses. The relative prices were worked out for the crops covered under MSP with wheat and paddy. The inherent hypothesis was that when the input prices across crops had not changed and the composition of inputs also stayed the same, the relative MSP should bear similar ratios over the years (in the absence of any deliberate policy bias), at least during eighties. But our computations shows a definite and consistent policy bias (either purposive or a random) in favour of wheat and paddy. We also looked into the relative price trends in market prices of these crops revealed by the Farm Harvest Prices Series. Surprisingly, the behaviour of market prices did not reflect a strong leaning in favour of wheat and paddy but MSP did, bringing the policy bias in bold relief. Notwithstanding this, we investigated into the determinants of the prices received by the farmers. It was difficult to incorporate relative prices in the analysis covering cross-section of farmers, but we tried to explain the prices received by them through various factors. In order to trace the determinants of prices we worked out a multiple regression equation of the following specification: Pr Where: a Ac Irr CC Ed D ε • • • = = = = = = = Constant and β 1 to β 7 – regression coefficients Area under the concerned crop in hectare Per cent of Irrigated area under the crop Cost of cultivation per hectare Educational level of the HH (Number of years of schooling) Production of the crop/alternatively MS = Marketable surplus Distance from the market Stochastic error term (proxies for market = a + β 1 Ac + β 2 Irr + β 3 CC β 4 Ed + β 5 Prod + β 6 MS + β 7 D + ε

Prod =

The relationship involved tracking the hypothesis related to: Impact of marketable surplus/production/area participation) on the price received by the farmers

Impact of irrigation (resource status) on the price received by the farmers Impact of level of education (information base) on the price received by the farmers

• •

Impact of cost of cultivation (quality of produce and intensity of efforts) on the price received by the farmers Impact of distance from the market (infrastructure) on the price received by the farmers

The results have been presented in Table 4.10(a). It can be seen from the Table that except per cent of irrigation and education level of the household, none of the variables had any significant impact on the prices received across crops. Incidentally, the results which emerged with statistically non-significant coefficients revealed more interesting findings. The area under the crop and total production or marketable surplus indicated non-significant co-efficients, thereby indicating limited role of economic status or intensity of market participation, indicated by area, production or marketable surplus. Similarly, distance of the market did not seem to influence the price received. Most important and revealing finding was that the cost of cultivation (efforts put by the farmer in cultivating the crop, represented in monetary terms) seemed to have no influence on prices received. In other words, the prices received by the farmers were decided by extraneous factors and not by many of those theoretical determinants emerging out of the literature.
Table 4.10 : Factors explaining the Prices Received by the farmers : Regressions for Mandya, Belgaum and Gulbarga Crops Constant Area Per cent of Household Production Distance Adjusted Irrigation Education from the R Square Market Sugarcane 823.38*** 0.89 -22.67 0.01 0.74 -0.012 (65.65) (1.16) (1.81) (0.08) (0.72) Ragi 480.82*** -48.51 24.82 1.62 6.24 0.019 (10.07) (1.33) (0.87) (1.25) (0.88) Paddy 625.06*** 9.97 1.50** -62.48 -1.22 1.21 0.270 (8.46) (0.87) (2.82) (0.95) (1.62) (0.20) Tur 1693.18*** 1.99 159.39* 0.182 -2.217 0.031 (19.05) (0.27) (2.19) (0.11) (0.77) Crop Sugarcane Ragi Paddy Tur Constant 815.09*** (22.73) 459.61*** (13.79) 589.23** (5.70) 1720.49*** (13.17) Cost of Cultivation 0.00002 (0.23) 0.0005 (0.22) 0.0012 (0.29) -0.001 (0.66) Yield Adjusted R Square 0.0002 -0.040 (0.24) 0.02 -0.024 (1.07) 0.003 -0.112 (0.19) -0.09 -0.031 (0.39)

Crop Sugarcane Ragi Paddy Tur

Constant 822.99*** (64.38) 492.31*** (9.37) 736.48*** (7.47) 1713.29*** (18.59)

Household Education -22.83 (1.82) 34.89 (1.27) -144.62 (1.86) 142.32 (1.92)

Area 12.24 (0.20) -86.39 (-0.96) 20.93 (1.01) 41.93 (0.73)

Cost of Cultivation -0.0006 (0.18) 0.008 (0.84) -0.007 (1.16) -0.018 (0.76)

Distance Adjusted R from the Square market 0.74 -0.012 (0.72) 2.02 -0.025 (0.28) -5.26 0.004 (-0.87) -2.462 0.043 (0.86)

Crop Sugarcane Ragi Paddy Tur

Constant 828.01*** (72.16) 471.20*** (18.71) 678.46*** (8.56) 1698.79*** (27.43)

Household Cost of Education Cultivation -20.73 -0.0005 (1.69) (0.16) 10.63 0.006 (0.47) (0.77) -123.99 -0.008 (1.63) (1.18) 148.60* -0.02 (2.06) (0.88)

Area 11.04 (0.18) -82.67 (1.25) 28.00 (1.29) 51.57 (0.92)

Marketed Adjusted R Surplus Square -0.08 -0.023 (0.15) 4.36** 0.38 (3.44) -0.14 -0.045 (0.11) -40.18 0.089 (1.75)

Crop

Constant 823.35*** (58.17) 498.25*** (9.40) 654.53*** (6.68) 1714.15*** (19.34)

Household Education -22.85 (1.78) 31.42 (1.14) -131.50 (1.83) 142.868 (1.89)

Per cent of Irrigation 0.96* (2.23) -

Area 11.97 (0.19) -87.06 (0.97) 23.37 (1.10) 42.109 (0.73)

Sugarcane Ragi Paddy Tur

Cost of Consumption Distance Adjusted R Cultivation by the from the Square Household market -0.0006 0.80 0.72 -0.122 (0.17) (0.04) (0.65) 0.008 26.71 1.42 -0.030 (0.78) (0.96) (0.19) -0.007 -39.79 -0.29 0.170 (1.09) (0.86) (0.045) -0.018 -8.907 -2.521 0.022 (0.75) (0.11) (0.86)

Crop Sugarcane Ragi Paddy Tur

Constant 824.01*** (59.56) 482.69*** (9.77) 615.24*** (7.29) 1693.88*** (18.75)

Household Education -22.73 (1.77) 26.05 (0.88) -60.19 (0.87) 159.47* (2.17)

Per cent of Irrigation 1.52* (2.74) -

Area .59 (0.09) -43.88 (1.08) 11.01** (0.88) -1.68 (0.20)

Consumption Distance Production Adjusted by the from the R Square Household market 1.76 0.69 0.02 -0.127 (0.09) (0.62) (0.13) 10.99 5.45 1.29 -0.033 (0.30) (0.70) (0.74) -12.28 1.95 -1.16 0.219 (0.27) (0.28) (1.45) -6.61 -2.24 0.135 0.009 (0.08) (0.76) (0.07)

Note : 1. Per cent of Irrigated area for Sugarcane and Ragi is constant. They will be deleted from the analysis 2. Figures in the Parenthesis are t-Values. 3. Sugarcane and Ragi are taken from Mandya, Paddy is taken from Belgaum and Tur is taken from Gulbarga. 4. *, ** and *** Represent Statistical Significance at 10%, 5% and 1% level, respectively.

4.8 MSP Process at the Micro-Level 4.8.1 Awareness and Participation in the Process More than the declaration of MSP, its implementation is an important aspect. We have discussed the process of implementation earlier and found that it was quite cumbersome to implement the policy avoiding crucial time-lag in the present system. This time lag alone alienated the farmer from the policy. In the process many of those for whom the policy had been formulated were not aware of the basic structure of such policy. The food grain economy of the country has undergone a substantial change during the last four decades. It was in the early eighties, following the farmers’ agitation that the price policy took a new shape in terms of providing price support to the farmers as a shield against market fluctuations. In this context, it is required to understand whether the farmers were at least aware of the policy that was supposed to shield them. Keeping this in view we investigated from among our sample about the awareness of the MSP. The results have been presented in Table 4.11. It was only in Mandya district that about half of the sample farmers showed awareness about the MSP. In Belgaum and Gulbarga districts less than 15 per cent of the farmers were aware of the scheme. Despite the lower awareness, we also tried to ascertain the kind of impact that MSP made, as perceived by the farmers. The perceptions of the respondents were obtained after explaining to them the concept of MSP as they were unaware of it as well as the operations. Our data indicates that MSP was unlikely to impact the prices in peak season, and if at all the impact was feasible it would result in bringing the market price closer to MSP. Table 4.11 Aware of Minimum Support Price (Per cent of total respondents) Mandya Aware of Minimum Support Price Belgaum Aware of Minimum Support Price Gulbarga Aware of Minimum Support Price Sugarcane 58.00 Paddy 8.00 Jowar 12.00 Paddy 54.00 Jowar 18.00 Tur 12.00 Ragi 42.00 Groundnut 12.00 Gram 2.00

4.8.2 Market Access Access to market has a different connotations at the micro-level. It is not only the physical access to market, determined usually by the distance to the market place or density of the markets, but the ease with which the farmers are able to sell their products in the market and sell at the prevailing price. We looked into these aspects of market access here .The average distance indicating physical access is about seven kms, and that is fairly reasonable in the context of Karnataka. The second aspect of access is the distance between the prevailing prices and the prices received by the farmers. It can be seen from Tables 4.12 (a, b, c) that largely the farmers received lower price than those prevailed in the market during their participation. This happened due two reasons, namely; i. Commission to the middleman and, ii. The loss (or low price) due to grading (quality assessed by the purchaser). This was more intensive in Belgaum and Gulbarga districts than in Mandya. The reasons are obvious and that Mandya district had higher market participation than the other two regions as well as better information base. Moreover, farmers of Mandya district were well aware of the market conditions.

Table 4.12a: Market Access and Prices Expected & Received by the Farmers

Items

Sugarcane Up to 1 1 to 2 ha. 2 to 4 Above 4 ha. ha. ha. 6.67 9.19 6.08

All 7.72

up to 1 1 to 2 ha. ha. 7.00 6.67

Paddy 2 to 4 above ha. 4 ha. 9.19 6.08

All 7.72

up to 1 ha. 7.00

1 to 2 ha. 6.67 340.00 420.00 500.00 -

Ragi 2 to 4 ha. 9.19

above 4 ha. 6.08

All 7.72

Mandya Avg. Distance(km.) 7.00 Average expected price in the market Prevailing Prices 880.00 Price accessed 825.00 Expected price 1000.0 Pandavapura Avg.Distance Average expected price in the market Prevailing prices Price accessed Expected price -

880.00 879.06 811.50 853.84 600.00 576.67 600.63 581.25 843.33 819.69 885.42 696.72 503.00 476.67 535.00 560.00 1058.33 1062.50 1220.83 1119.53 700.00 716.67 762.50 770.83 3.17 2.44 2.81 3.17 2.44 848.89 880.00 864.44 816.11 816.67 816.39 - 1127.78 1027.78 1077.78 - 583.33 583.33 - 560.56 566.67 - 755.56 738.89

591.09 500.00 518.67 426.00 759.38 495.00 2.81 583.33 563.61 747.22 -

258.75 500.00 399.69 289.00 500.00 408.75 303.13 550.00 462.03 -

Note: Based on the averages of the respective groups

Table 4.12b:

Market Access and Awareness of its Conditions Items All 5.33 up to 1 ha. 1 to 2 ha. Paddy 2 to 4 above ha. 4 ha. All up to 1 ha. Groundnut 1 to 2 2 to 4 above 4 ha. ha. ha. 5.00 4.25 7.40 All 5.43

Jowar up to 1 1 to 2 2 to 4 above ha. ha. ha. 4 ha. Sankeswara Avrg. Distance(km.) 4.00 5.00 4.25 7.40 Average expected price in the market Prevailing prices Price accessed Expected price Nippani Avg. Distance (km.) Average expected price in the market Prevailing prices Price accessed Expected price Gokak Avg. Distance (km.) Average expected price in the market Prevailing prices Price accessed Expected price Hukkeri Avg. Distance(km) Average expected price in the market Prevailing prices Price accessed Expected price Belgaum Avg. Distance (km) Average expected price in the market Prevailing prices Price accessed Expected price

500.00 700.00 481.25 440.00 530.31 500.00 1000.00 500.00 460.00 615.00 800.00 1200.00 730.13 780.00 877.53 25 25 25 - 450.00 - 450.00 - 750.00 27 - 350.00 400.00 - 350.00 400.00 - 500.00 625.00 28.8 31 29.42

- 1300.00 1075.00 1100.00 1100.00 - 1300.00 1050.00 1100.00 1085.71 - 2000.00 1325.00 1380.00 1392.86 25 25 25 - 1500.00 - 1100.00 - 1500.00 27 - 1400.00 1450.00 - 1400.00 1250.00 - 2000.00 1750.00 31 29.857

- 350.00 320.00 330.00 333.33 - 700.00 430.00 410.00 513.33 - 800.00 540.00 620.00 653.33 7 7 - 400.00 400.00 - 300.00 300.00 - 500.00 500.00 42.5 42.5

9.5

8.88

8.5

0

8.75

- 1300.00 - 1300.00 - 1750.00 8.88

- 830.00 1065.00 - 940.00 1120.00 - 1060.00 1405.00 7 7 - 1200.00 1200.00 - 1200.00 1200.00 - 1600.00 1600.00 8.5 8.67 - 1270.00 - 1276.25 - 1675.00

- 325.00 - 525.00 - 550.00

- 325.00 675.00 668.75 610.00 - 525.00 645.00 618.13 548.00 - 550.00 900.00 900.00 800.00

- 640.00 - 585.75 - 850.00

- 1300.00 1240.00 - 1312.50 1240.00 - 1750.00 1600.00

Table 4.12c:

Market Access and Awareness of its Conditions Items 1 to 2 ha. Tur 2 to 4 ha. above 4 ha. 15.5 1,550.00 1,650.00 2,000.00 35.0 All 17.67 1,566.67 1,633.33 2,000.00 37.88 Jowar 1 to 2 ha. 2 to 4 ha. above 4 ha. 22 450.00 500.00 1,000.00 15.5 225.00 450.00 500.00 35 All 17.67 300.00 466.67 666.67 37.88 Gram above 4 All ha. 19 1,125.00 1,125.00 38 19 1,125.00 1,125.00 38

Jewargi Distance(km.) 22 Average expected price in the market Prevailing prices 1,600.00 Price accessed 1,600.00 Expected price 2,000.00 Gulbarga Distance (Km) Average expected price in the market Prevailing price Price accessed Expected price Sedam Distance (Km) Average expected price in the market Prevailing price Price accessed Expected price -

1,500.00 2,000.00 2,500.00 16.0 1,550.00 1,250.00 2,000.00

1,522.00 1,596.80 1,984.00 12.3 1,500.00 1,525.00 2,000.00

1,521.15 1,612.31 2,003.85 13.00 1,510.00 1,470.00 2,000.00

-

550.00 600.00 900.00 16 450.00 800.00 1,000.00

474.00 696.00 988.00 12.25 500.00 725.00 1,000.00

512.00 648.00 944.00 13.00 490.00 740.00 1,000.00

1,108.00 890.00 1,420.00 12.25 750.00 600.00 875.00

1,108.00 890.00 1,420.00 12.25 750.00 600.00 875.00

4.8.3: Decision-Making Expected price is an important factor in farm decision-making. All Nerlovian and modified Nerlovian studies have considered expected price but in all these studies lagged price is taken as a proxy for expected price. Probably with a strong assumption that the earlier years’ price is the best expectation of the farmer. A cold blooded approach indeed. At the micro-level, however, one can get the expected price of the farmers and these are not certainly the last season’s prices. Given the prior declaration, Minimum Support Prices provide a better alternative for expected prices. Decisionmaking at the farm level also involves the use of inputs, their choice, timeliness and quantum of inputs. Among all the inputs, area allocation for the crop takes priority. MSP also hinges on the decision-making about the use of a crop variety in the production process. Similarly, it also impacts the process of cultivation represented by cultivation practices, application of inputs and marketing of the product. We have presented the results for the three different regions in Tables 4.13 (a, b, c) wherein the proportions of farm households linking such decisions have been presented. It should be borne in mind that the entire exercise here is a kind of simulation as most of the farmers are not aware of MSP. Our investigators explained the present MSP system to the farmers and asked their responses in case the system worked effectively. The results present a picture of mixed type, even then we get a view that MSP will matter in decision-making and especially in the decision about choice of variety and area allocation. It is necessary to clarify at this juncture the questions posed by the interviewer, especially keeping in view of the respondents’ unawareness of MSP operation. Therefore, these responses should be taken cautiously. Figures 4.5 (a, b and c) show the per cent of farmers basing their various decision on the increase or decrease in the MSP, provided the scheme is implemented effectively. The results of Mandya and Belgaum are bit similar, but Gulbarga depicts a different behaviour. It can be observed that use of cash inputs, adoption of new technology and wage payments to the labourers seem to get a positive influence of MSP. Gulbarga sample also shows the influence on time for marketing (chance of selling at the convenience of the producer).

Figure 4.5a:

Relate the Following Decisions to the Declaration of MSP : Mandya

W age rate to Hired labour increased

Increased use of cash input

Use of new Tec hnology Decision

A ny other investm ent

Change in m arketing place

M arketing tim e increased

0.00

10.00

20.00

30.00

40.00

50.00 Per cent

60.00

70.00

80.00

90.00

100.00

Figure 4.5b:

Relate the Following Decisions to the Declaration of MSP : Belgaum

Increased use of cash input

U se of new Technology

W age rate to Hired labour increased Decision

A ny other investm ent

C hange in m arketing place

M arketing tim e increased

0.00

20.00

40.00

60.00 P er cent

80.00

100.00

120.00

Figure 4.5c:

Relate the Following Decisions to the Declaration of MSP : Gulbarga

M arketing tim e increased

Increased use of cash input

Use of new Tec hnology Decision W age rate to Hired labour increased Change in m arketing place

A ny other investm ent

0.00

10.00

20.00

30.00

40.00

50.00 Per cent

60.00

70.00

80.00

90.00

100.00

Table 4.13a: Relate the Following Decision to the Declaration of MSP Mandya (per cent of total respondents)

Decision Increase in the use of cash input due to the increase in MSP Increase in wage rate to hired labour due to increase in MSP Use of new Technology due to increase in MSP Increase in the market time due to increase in MSP Change in the market place due to increase in MSP In other investments due to increase in MSP
Note:

1 to 2 ha. 66.67 100.00 33.33 0.00 33.33 33.33

2 to 4 ha. Above 4 ha. 96.00 96.00 96.00 4.00 32.00 64.00 95.24 95.24 85.71 19.05 28.57 57.14

All 92.00 94.00 86.00 10.00 30.00 58.00

The proportion of respondents who responded `yes’ to the question to total number of respondents.

Table 4.13b: Relate the Following Decision to the Declaration of MSP Belgaum ( % to total respondents)

Decision Increase in the use of cash input due to increase in MSP Increase in the wage rate to hired labour due to increase in MSP Use of new Technology due to increase in MSP Increase in the market time due to increase in MSP Change in the market place due to increase in MSP In other investments due to increase in MSP
Note: As in table 4.13(a)

up to 1 ha. 100.00 66.67

1 to 2 ha. 100.00 100.00

2 to 4 above 4 ha. All ha. 100.00 100.00 100.00 86.96 91.67 90.00

100.00 33.33 33.33 66.67

100.00 16.67 33.33 58.33

86.96 26.09 47.83 43.48

100.00 75.00 25.00 66.67

94.00 36.00 38.00 54.00

Table 4.13c: Relate the Following Decision to the Declaration of MSP Gulbarga (percent to total respondents)

Decision Increase in the use of cash input due to increase in MSP Increase in the wage rate to hired labour due to increase in MSP Use of new technology due to increase in MSP Increase in the market time due to increase in MSP Change in the market place due to increase in MSP In other investments due to increase in MSP
Note: As in table 4.13(a)

2 to 4 ha. 100.00 100.00 100.00 100.00 100.00 50.00

Above 4 ha. 95.56 93.33 93.33 95.56 48.89 26.67

All 94.00 92.00 92.00 94.00 52.00 28.00

We repeat that the responses about decision-making obtained here are more like a simulation exercise conducted at the village level. But even with the limitation of such an exercise, we can still say that if the MSP intervention is proper and if the farmers are made fully aware of it the instrument will help in dealing positively with the decision environment. The exercise was also repeated in a group of farmers to understand how far they based various decisions on expected price (given MSP as expected price and under the assumption that MSP will cover the cost of cultivation and include respectable allowance for managing the farm). The results have been presented in Table 4.14. We can see from the table that MSP played a vital role in the process of decision-making, given the caveats listed by the farmers. These caveats include a remunerative MSP, declared before sowing season, administrative mechanism set in place and above all, involving minimum transaction cost.

Table 4.14 Farmers’ Responses to the Impact of MSP on Farm Decision-Making Decision making Field Mandya Belgaum Area allocationdecisions AF PA Input application PA AF Fertilisers AF AF Pesticides PA RA Irrigation NI RA Other cash AF AF Cultivation practices PA RA Wages paid to hired NI AF labour/ Use of hired labour Marketing (place, time, AF PA and price negotiations) Note: AF - Almost fully, PA - Partially, RA – Rarely, NI - No Impact

Gulbarga PA AF PA NI NI AF NI RA RA

In Tables 4.15 (a, b, c) we have presented the actual decisions taken by the farmers in the real production environment. The decisions about varieties adopted, the method of cultivation and credit as well as investment decisions could be seen here. But these were not exclusively in response to the price environment and depended on a host of other factors. Largely, the contours of decisions were revealed by the actual decisions and we found that the farm households with strong resource base had a hesitation in going either for an innovative technology or method of cultivation.

Table 4.15a: Production Environment of the Respondents: Mandya (Per cent of total respondents) Cereals : Paddy up to 1 ha. 1 to 2 ha. 2 to 4 above 4 All ha. ha. Production decision 38.00 61.00 49.00 50.00 Type of variety Sisila 4.00 4.76 4.00 Mandyavijay 33.33 12.00 9.52 12.00 BR 44.00 52.38 44.00 Sonamasuri 9.52 4.00 Jaya 33.33 32.00 19.05 26.00 I.R.64 4.76 2.00 Gowri cross 4.00 2.00 I.R.20 33.33 2.00 Credit / Investment 33.33 28.00 28.57 28.00 Cultivation of crops Bullock 100.00 88.00 100.00 94.00 Tiller 4.76 2.00 Bullock + Tractor 12.00 23.81 16.00 Bullock+Tractor+Tiller 4.76 2.00 Market place Local 100.00 92.00 90.48 90.00 Mandya 4.76 2.00 Rice mill 4.00 4.76 4.00 Sugarcane up to 1 ha. 1 to 2 ha. 2 to 4 above 4 All ha. ha. Type of variety Local 100.00 100.00 88.00 76.19 84.00 C.O-8371 8.00 19.05 12.00 C.O-419 4.00 4.76 4.00 Credit / Investment 100.00 66.67 80.00 71.43 76.00 Cultivation of crops Bullock 100.00 100.00 84.00 61.90 76.00 Tractor 4.00 4.76 4.00 Bullock + Tractor 12.00 28.57 18.00 Market place Mandya : Factory 100.00 100.00 76.00 90.48 84.00 Sankeshwara 24.00 9.52 16.00 Cereals : Ragi up to 1 ha. 1 to 2 ha. 2 to 4 above 4 All ha. ha. Production decision 14.29 6.00 Type of variety Indap9.52 4.00 9 HR-911 9.52 4.00 Credit / Investment 4.76 2.00 (Average) Cultivation of crops Bullock 4.76 2.00 Tractor 4.76 2.00 Bullock + Tractor Market place Local 4.00 9.52 6.00

Table 4.15b: Production Environment of the Respondents : Belgaum (Per cent of total respondents) Cereals : Jowar up to 1 1 to 2 2 to 4 above 4 All ha. ha. ha. ha. Production decision 33.33 25.00 39.13 75.00 44.00 Type of variety Mico 25.00 6.00 Pioneer 21.74 33.33 18.00 M-35 33.33 16.67 39.13 8.33 26.00 HB 4.35 8.33 4.00 CH-5 8.33 2.00 Credit / Investment 33.33 25.00 8.70 41.67 22.00 Cultivation of crops Bullock 33.33 25.00 39.13 50.00 38.00 Tractor 16.67 4.00 Bullock + Tractor 16.67 4.00 Market places Sankeswara 33.33 8.33 34.78 41.67 30.00 Nippani 16.67 4.00 Gokak 16.67 4.35 25.00 12.00 Cereals : Paddy up to 1 1 to 2 2 to 4 above 4 All ha. ha. ha. ha. Production decision 33.33 58.33 43.48 36.00 Type of variety Jaya 25.00 17.39 14.00 HB 8.70 4.00 Intan 16.67 8.70 8.00 Manila 8.33 4.35 4.00 Indrani 8.33 4.35 4.00 Basumathi 33.33 2.00 Credit / Investment 8.33 8.70 6.00 Cultivation of crops Bullock 33.33 58.33 34.78 32.00 Tractor 8.70 4.00 Market places Belgaum 33.33 58.33 43.48 36.00 Oil Seeds : Groundnut up to 1 1 to 2 2 to 4 above 4 All ha. ha. ha. ha. Production decision 16.00 78.00 86.00 Type of variety Anigeri 4.35 8.33 4.00 Cultivation of crops Bullock 8.33 2.00 Tractor+Bullock 4.35 2.00 Market place Sankeswara 4.35 8.33 4.00

Table 4.15c: Production Environment of the Respondents: Gulbarga (Per cent of total respondents) Cereals : Jowar 2 to 4 ha. above 4 All ha. Production decision 75.00 91.11 88.00 Type of variety M-35 50.00 77.78 74.00 Maruthi 0.00 2.22 2.00 Mugatui 0.00 2.22 2.00 Local 0.00 8.89 8.00 White 0.00 2.22 2.00 M8863 0.00 2.22 2.00 HB 0.00 2.22 2.00 Credit / Investment 0.00 22.22 20.00 Cultivation of crops Bullock 75.00 75.56 74.00 Tractor 0.00 6.67 6.00 Tiller 0.00 8.89 8.00 Market places Local 25.00 13.33 14.00 Jewargi 0.00 20.00 18.00 Gulbarga 25.00 51.11 48.00 Sedam 25.00 6.67 8.00 Cereals : Tur 1 to 2 ha. 2 to 4 ha. above 4 All ha. Production decision 100.00 25.00 8.89 90.00 Type of variety M-35 100.00 25.00 0.00 4.00 C.O-8371 0.00 0.00 8.89 48.00 C.O-419 0.00 0.00 0.00 20.00 Credit / Investment (Average) 0.00 0.00 4.44 68.00 Cultivation of crops Bullock 100.00 25.00 8.89 76.00 Tractor 0.00 0.00 0.00 6.00 Bullock + Tractor 0.00 0.00 0.00 8.00 Market places Local 0.00 0.00 0.00 6.00 Jewargi 100.00 25.00 2.22 24.00 Gulbarga 0.00 0.00 2.22 54.00 Sedam 0.00 0.00 2.22 6.00

In the Tables 4.16 (a, b, and c) we tried to consolidate the picture on factors influencing the area allocation under a crop as observed in the field. The data used earlier (Tables 4.15 (a, b, and c)) indicate the actual micro-level decision-making process of the farmers but here we are trying to isolate the variables that influenced area allocation decision. Prices certainly may have a significant influence on area decisions. But availability of technology also plays an important role. In the context of commercial agriculture the response of the expected price can be clearly seen, whereas, in the backward regions the farmers’ response is still slow. Their perception about expected price itself may be quite inadequate to respond to such stimuli. We also viewed the process of decision-making from another angle, namely, the factors considered while taking area allocation decisions. The decision-making process at the micro-level is easy to understand but difficult to comprehend. It is certain that prices play an important role in the farmers’ decision calculus, but the non-price factors also have significant presence in the process. Our exercise suggests that the non-price factors are equally important in crop decisions. Table 4.16a: The Factors are Featured in Respondents Decision in Area Allocation for the Crops : Mandya (Per cent of total respondents) Factors Promoting Increase in Area Items Sugarcane Paddy Ragi Last year's price Last 3 years’ average price Price fluctuations Prices of other competing crops Subsistence or to be used in the house Non availability of the market infrastructure Cheating in the market Minimum support price Availability of the inputs Availability of the technology know-how Any other 60.00 6.00 26.00 50.00 0.00 4.00 0.00 32.00 26.00 42.00 4.00 38.00 0.00 12.00 36.00 74.00 0.00 0.00 8.00 12.00 32.00 6.00 2.00 0.00 2.00 2.00 30.00 2.00 0.00 0.00 0.00 0.00 0.00

Table 4.16b: The Factors are Featured in Respondents’ Decision in Area Allocation for the Crops : Belgaum Items Last year's price Last 3 years average price Price fluctuations Prices of other competing crops Subsistence or to be used in the house Non availability of the market infrastructure Cheating in the market Minimum support price Availability of the inputs Availability of the technology knowhow Any other (Per cent of total respondents) Factors Promoting Increase in Area Jowar Paddy Groundnut 46.00 2.00 16.00 10.00 52.00 2.00 0.00 24.00 0.00 4.00 2.00 24.00 6.00 0.00 16.00 38.00 0.00 0.00 0.00 4.00 4.00 0.00 22.00 20.00 12.00 32.00 14.00 6.00 2.00 8.00 4.00 8.00 2.00

Table 4.16c: The Factors are Featured in Respondents’ Allocation for the Crops : Gulbarga Items Last year's price Last 3 years average price Price fluctuations Prices of other competing crops Subsistence or to be used in the house Non availability of the market infrastructure Cheating in the market Minimum support price Availability of the inputs Availability of the technology knowhow Any other

Decision in Area

(Per cent of total respondents) Factors Promoting Increase in Area Jowar Tur Gram 46.00 24.00 0.00 20.00 78.00 0.00 0.00 2.00 8.00 24.00 0.00 72.00 36.00 20.00 80.00 4.00 4.00 2.00 2.00 24.00 48.00 0.00 26.00 30.00 10.00 32.00 4.00 2.00 0.00 0.00 16.00 12.00 0.00

4.9 Resume

The analysis of price incentives at the micro-level have received least attention in the literature on supply response. The price response studies of Nerlovian genus assume the price expectation of the farmers, with one year lag, by introducing an element of stagnancy in the process of decision-making. At the micro-level, however, the process operates quite differently. Price certainly continues to play a significant role in the decision-making process but it is unfortunately not the Minimum Support Price. A very high proportion of farmers are neither aware of the MSP nor the administrative process and when explained they recognised its role as a price policy instrument. But they did not forget to put caveats for its effective and efficient utilisation. The experience of the last decade suggests that cropping pattern, crop varieties and adoption of technology are largely dictated by the trends in market prices. The Cost of Cultivation (that serves a fulcrum for arriving at MSP) suggests that farmers actually spend higher than they recover through MSP or the market. In addition to this, the market imperfection continues to dog those who manage to take some marketable surplus to the market and a majority of them are unanimously of the view that their price expectations are never met in the market. Many of them have to sell the products well below the MSP which is also borne by the secondary data. As stated above, price as an instrument in decision-making keeps its prominent position albeit theoretically. When explained about the MSP, the farmers did recognise its importance as a decisionmaking tool and an instrument to augment farmers’ welfare. But unfortunately, it is not being implemented effectively.

CHAPTER V CONCLUSIONS AND POLICY IMPLICATIONS
5.1 Introduction Most of the reviews of the Price Policy have touched only the theoretical aspects of the policy and surprisingly, the empirical studies have not upheld the theoretical scaffoldings firmly. In the entire process, ground realities pertaining to the intended impact of the Price Policy were relegated to the backyard or were taken for granted. The emergence of the Price Policy came in the context of institutionalising the agricultural price monitoring mechanism under the recommendations of Jha Committee Report. These were framed under the heavy shadow of food insecurity as well as These efforts had helped The situations have distribution mechanism prevailing during those years.

significantly during the three decades, but significant changes have taken place in the policy parameters of agricultural economy during the nineties. changed from incentive prices to remunerative prices and now the issues need to be posed in a totally different perspective. After an experience of a quarter of century, in the implementation of the market intervention scheme, Prof. Dantwala (an architect of the price policy) wrote again during the early nineties urging to recognise the changing role of MSP and market interventions. The process of liberalisation adopted during the nineties has put the price policy under new connotations. In the wake of this process and opening up of the international trade, we are required to think afresh about the context of the policy. Apart from being an instrument for creating incentives, it is now expected to play a much wider role of fully interacting with the market forces and facilitating the integration of domestic market with the world market. It needs to be ensured that in this change there should not be any welfare loss to the stakeholders. Farmers are already expressing deep concern about the `remunerative aspect of MSP’, but this rather points an accusing finger towards the frequent failure of the market mechanism to provide economically viable prices to them. In the wake of larger stocks, now the price policy has to be handled carefully. Even beyond this, it has come into bold relief that the price intervention scheme hitherto has not been very effectively implemented and thus, could

not fully stand by the objectives it has framed to serve. The price policy has been asymmetric in terms of crops as well as regions and thus can inflict inequality even through a well intended intervention scheme. Such externalities inflicted by a deliberate policy bias on coarse cereals and pulses sector as well as on the regions growing these crops can be seen in their growth rates and income foregone in the process. Therefore, a fresh look at the price intervention scheme is most imminent. This study was undertaken specifically to analyse the effectiveness of Minimum Support Prices (MSP) as a tool of Agricultural Price Policy at the State level across the selected states in the country. The context of price policy has changed substantially over the years and so also the direction and effectiveness of price policy as a tool to influence the agricultural economy. This has provoked many social scientists to ask for a fresh look at MSP as an instrument for interacting with the important parameters of the agricultural economy. Among the major objectives of the Price Policy (as reflected from the 1986 policy statement), the incentives to adopt new technology, rational utilisation of land and other resources, the effect of prices on the cost of living, agricultural wages as well as wages in the other sectors of the economy, have together assumed greater importance. In the wake of liberalisation, MSP assumes an additional and a significant role in the form of state intervention in the agricultural product markets as well as a component of the safetynet measures under WTO. This will also have a strong linkage to the factor markets. In the present situation, two important aspects deserve attention, viz., (i) insulating the farm producers against the unwarranted fluctuations in prices, provoked by the international price variations, and (ii) creation of an incentive price structure for the farm producers in order to direct the allocation of resources towards growth/export oriented crops. The focus has to change towards creating value addition for the cultivators. Therefore, it becomes necessary to review the implementation process and effectiveness of MSP as an instrument on this background. It has been noted in the recent past that the growth pattern is changing in favour of certain crops due to various reasons. At times, questions are raised about the suitability of area allocated to such crops and the aggregate welfare implications of this changing crop constellations. This has an implicit provocation to check the hypothesis relating to the producer's response to MSP through market prices and infrastructure. Similarly, the trends in the gross capital formation in the recent past are also disturbing

especially in the regions where technological change has not made its initial impact. Therefore, in the present context it becomes necessary to see the effectiveness of MSP as a tool to encourage adoption of technology. Understanding capital formation as well as to ascertain and document the producers’ responses to this scheme of price intervention at the micro-level becomes necessary in the process. The assessment of the effectiveness of the MSP scheme includes its role as an instrument of price policy as well as an effective tool given the present administrative mechanism. It has to be viewed both in terms of its impact at the macro-level as well as functional ease and at the micro-level about its felt impact. The question of its relevance and operation incidentally becomes an integral part of the analysis. possible alternatives. The present study has been undertaken with a focus on the effectiveness of the Minimum Support Prices in its impact on various parameters of the agricultural economy. These include growth parameters, distribution aspects, decision-making in allocation of resources, environmental effects and above all as an operational instrument of the price policy. The specific objectives of the study were as follows: 5.2 Objectives 10. To analyse the effectiveness of the price policy in Karnataka in the context of the objectives set forth by the Commission on Agricultural Costs and Prices, viz; (g) impact on market prices in terms of reduction in seasonal and cyclical fluctuations and influencing market prices; (h) to examine the degree of incentives provided to the producers for increasing investment, use of technology for raising growth in output; (i) to examine the impact on use of inputs and land and water resources besides adoption of socially desirable cropping pattern; (j) to identify regional variations in the degree of implementation of price policy; (k) to identify factors responsible for success or failure of MSP with special focus on rural infrastructure and optimal use of natural resources; and (l) to suggest policy measures to enhance effectiveness of agricultural price policy under different situations. 11. To document the impact of Minimum Support Prices on agricultural growth and distribution parameters in the State based on the secondary data. 12. To analyse the overall relevance and effectiveness of MSP in the case of Paddy, Ragi, Jowar, Tur and Sugarcane in Karnataka. These questions, however, will not fetch monosyllable answers and one needs to go in depth to locate other policy tools as

13. To analyse the process of implementation of Minimum Support Prices and allied measures at state level specifically: (c) Evaluating the system of implementation (d) Factors responsible for the success or failure of MSP with special focus on rural infrastructure. 14. To suggest policy measures in order to enhance the effectiveness of MSP. 15. To assess the impact of MSP on adoption of improved technology and their relative contribution in increasing the production and productivity of the specified crops. 16. To examine the impact of MSP on the income of the farmers and investment in agriculture by them. 17. To study whether the MSP has created inter-crop distortion in their pricing, production and desired production pattern of rainfed crops. 18. Impact on the sustainability of the trends emerging in the cropping pattern especially crop rotation. We have also attempted here to analyse the very existence of MSP as a tool of price policy in the context of its effectiveness. The study is expected to highlight the factors responsible for the success of MSP as a tool of price policy as well as the parameters responsible for its failure. 5.3 Methodology The effectiveness is viewed from five distinct angles, viz., cropping MSP. pattern, (i) impact on the

fluctuations in prices, (ii) role of MSP as an incentive price, (iii) its impact on (iv) distribution parameters, and (v) operational effectiveness of The study also incorporates the analysis of the administrative process in the

implementation of MSP. In such an exercise, we have taken help from secondary as well as primary data sources at the State level. For the purpose of secondary data a good number of indicators were collected at State and district levels and for the primary data three districts were selected with the following characteristics: (i) A district with strong trends in commercialisation of agriculture and having high growth rates coupled with concentration of cash crops. We selected Mandya district for this purpose. (ii) A district which largely depends on the food economy and grows food crops with an accelerated rate of growth. Such district provides ground for looking into hypothesis that Minimum Support Prices have influenced the farmers growing food crops. We have

chosen Belgaum to represent this. relatively lower rate of growth.

(iii) The third district was chosen from a typical

rainfed region of the state with predominance of low value low-density crops with a We have chosen Gulbarga district representing this situation. The crops chosen were sugarcane, paddy and ragi for Mandya district; jowar, paddy, groundnut for Belgaum district and Jowar, Tur and Gram for Gulbarga district. 5.4 Analysis of MSP in the Context of Karnataka Marketing of agricultural commodities under State stipulated regulations began in Karnataka from 1927 and through various regional acts covering marketing of agricultural products it came under the purview of Karnataka Agricultural Produce and Marketing (Regulation) Act. The Act provided good scope for establishing a democratic marketing body. The regulation of marketing in Karnataka began with a focus on Movement restrictions and market specialisations effected commercial crops and under the situation marked by scarcity in the supply of agricultural commodities. concentration of commodities in a few markets. Above all, the density of markets was too thin and could not effectively eliminate the role of middlemen. Marketing infrastructure is another important component of effective price policy. The availability of this infrastructure directly reflects on a successful market operating mechanism in terms of prices. It has been pointed out that market density in Karnataka has been increasing over the last three decades. cropped area by 2001. It has gone up from 1.6 markets per lakh hectare of gross cropped area in 1970 to about 4 markets per lakh hectares of gross But still it is not sufficient to ease the functioning and effectiveness of market as an institution. The insufficiency of market infrastructure has been an important aspect for the success or failure of the price mechanism. Karnataka State has a typical composition having large share of its area under severe climatic constraints with a highly diversified agricultural sector. The state has the largest share of drought-prone areas of the country and higher than the country's share of poor but that did not deter the state from achieving better rates of reduction in poverty ratio. The high density of low value and high-risk crops typifies the State agriculture. The crop economy of the state has a few typical characteristics. It has a predominantly cereal dominant crop pattern with coarse grains having largest share of area under them. These crops generally have low yield rates and lower prices and thus commercial crops are resorted to support the agricultural economy. The growth pattern

depends upon the performance of monsoon and the availability of water.

On the

contrary and at the same time, the state has entered in a big way in high-tech agriculture, only next to a few states in the country. Therefore, the price incentive structure becomes an important component of agricultural policy in the State. The effectiveness of Price Policy at the State level involves the availability of market infrastructure at the State level and the initiative taken by the state governments in creating institutional structure for monitoring agricultural prices. Commission. In the case of Karnataka, the State government has recently constituted the Agricultural Price The Government of Karnataka in its order establishing the Price Commission states that the Commission on Agricultural Prices is constituted to recommend standard prices, those could be sustained in the market, and support prices at which the state government should intervene in the agricultural market. Therefore, at the institutional level the State government has taken a bold step towards formalising a price monitoring system and thereby it has given a fillip to organising a Price Policy at the State level. This institutional initiative will go a long way in establishing the price policy at the State level. We have analysed the trends in agricultural prices in the State during the last decade. The trends have been analysed from two perspectives, viz., market prices and in the relative perspective of market prices with the administered prices. The trends in MSP across crops indicate a growth of about 10 per cent per annum but there are variations across crops and regions. The relative neglect of jowar, ragi, maize and groundnut compared to wheat and paddy comes out very clearly especially when we look at the relative prices of these crops in relation to administered prices of paddy and wheat. Similarly, the market imperfection and fragile market integration comes out from the analysis wherein, it is pointed out that the price differences prevail 2-3 times in the markets separated by about 150 kms and at times even less than that for the same crop in the same month. Similarly, it is also pointed out that the farm harvest prices and wholesale prices do not bear a strong lead or lag relationship with the Minimum Support Prices. Further, it is located that MSP does not bear any consistent and statistically significant relationship with either the wholesale prices or farm harvest prices. This is indicative of the fact that MSP fails to influence trends in the market prices or even act as a guide price. In fact, it is bringing out that for a few years MSP was higher than farm harvest prices and the wholesale prices. The failure of market prices to keep pace

with administered prices thus comes out very clearly. Therefore, the role of MSP as guiding price seems to be minimal. Minimum Support Price also does not seem to work as an incentive price dictating the area under major crops in the State as well as at the micro-level. In other words, the cropping pattern largely gets influenced by the market prices than the MSP. Similarly, the input use structure also has little influence on the administered prices. The yield response functions in terms of prices with yield of crops do not bear any statistically significant relationship with the lagged prices of the commodity. In other words, the administered price fails to act either as an incentive in directing the cropping pattern or as an incentive to increase the input intensity. This trend is specifically clear during the last decade. commodities in the State. proper market strategy. The regional and seasonal variations in prices have been This information can be effectively utilised in order to plan The role of MSP in reducing the seasonal and regional observed and we have located the peak and slack months across markets and

fluctuations is absolutely absent. These fluctuations still continue to dominate the field. Effectiveness as analysed from the perspective of market infrastructure and influence of administered prices on the price trends does not yield the commonly acceptable results. Our analysis clearly suggests that MSP has ceased to act as an incentive to influence the area allocation under a crop and it also ceases to show any significant impact on the input use structure. This behaviour is very clear during nineties. Implementation of MSP in the State of Karnataka has been quite a oblique task. During the harvest season the arrivals in the market start increasing which is an obvious and well-anticipated phenomena. But as the regulated markets work on only a stipulated day in the week, the clustering of the arrivals in the regulated market takes place more by design than by chance. When the arrivals increase in the market it is natural that the prices offered by the traders are quite low in the wake of huge arrivals. Many times the prices go well below the MSP, and the procedure requires that the APMC reports this to the District authorities. After receiving such information the District authorities call a meeting of the `Task Force’ including the departments involved in the process of procurement and a decision about procurement is taken. This decision is conveyed to the authorities at state level in order to get clearance and release of funds. After such clearance and release of funds, procurement centres are opened. An order from the Government is issued for the purpose of procurement. The procurement agencies also

have to identify state level procurement network.

Food Corporation of India has a

proper network whereas, NAFED depends on other agencies for its procurement. Thus, it is very clear that the time gap between prices falling below the Minimum Support Prices and the starting of procurement is at least two weeks and by this time the farmers would have sold the crop in the regulated market yard*.

Administration of Minimum Support Prices is an important step in our analysis. We have analysed the administrative mechanism in terms of the institutions as well as the process of implementation. The administration of MSP goes through quite a few institutions and therefore, creates complex situations. This also prohibits ease in the process of implementation and introduces a significant lag between the price collapse and the purchase operations. The scheme assumes quick intervention so that welfare loss is minimum. However, timely intervention seem to be not taking place and the lag between the collapse of prices and procurement is about 2-3 weeks. Such lag provides sufficient time for the traders to purchase from the farmers at lower price and sell it to the state at MSP, making significant profits in the process. Therefore, reforms in the agricultural marketing process should feature prominently in the next steps of reform. It has come out clearly that MSP does not help in deciding the area allocation under the crops during the next season. But there are subtle differences between the crops. The area decisions in the case of major crops and inferior cereals do not seem The to depend on MSP. The relative prices seem to work against inferior cereals. in itself is a perplexing result and undermines the role of MSP.

negative coefficient for tur indicates area under tur going down as MSP increases, which But MSP is acting positively on area under groundnut, whereas relative MSP of groundnut in relation to paddy may probably discourage such area allocation. However, degrees of freedom are not sufficient to conclude about the role of MSP as an incentive price at the macro-level during nineties. The lagged relationship with area as well as production does not indicate the role of MSP as an incentive price and therefore, it seems only to serve as a psychological support in the case of price collapse and not as an instrument of price incentive as envisaged.

*

It is understood that the State Government has recently taken steps to open procurement centres in the APMC yards. We do not have any experience of this institutional arrangement.

The very foundation of price policy is to support decision-making in area allocation and provide incentive for adopting new technology but that seem to have not been working in the field. It is very clear that MSP does not provoke any area or input decisions, rather it seems that the time trend alone dictates the decision environment. Our analysis indicates that wheat and paddy got the best out of the price policy (through MSP) but unintentionally this worked as an inflictor of negative externality to discourage coarse cereals and pulses. Therefore, it is not wrong if we consider this as a strong policy bias against a few crops. Incidentally, these are the crops grown in agriculturally backward region of the State and mostly by the resource poor farmers. One of the important objectives of the price intervention scheme is to enhance adoption of technology by providing a wedge against the fluctuations in expected prices. When farmers are assured about price level before the next harvest, they feel secure to use proper mix of inputs and technology which requires a little more investment. Essentially the farmers are not `investment-shy’ in the context of such assurance and they become cautious risk takers. They probably give consideration to the current MSP exercise and therefore, the declaration of MSP should be before the sowing season for the concerned crop. The experience of last three decades tells us that this happens more as an exception than practice. Treating MSP either as an incentive price or analysing its impact on input use may only serve as a ground for theoretical discussion, it has no relevance on the ground. With this evidence in hand one tends to conclude that MSP hardly has any influence on area allocation or input use at the micro-level. In the present context, the factors influencing the effectiveness of MSP assume more importance. Among the factors that dictate the effectiveness of MSP the most important are: i. Process of implementation of the policy, ii. Undue dependence on the State for intervention so that the markets function effectively and freely in long run, iii. Weeding out the information asymmetry prevailing in the agricultural markets and providing farmers with the required information at proper time, iv. Monitoring the prices without intervention and assess the situation in the place of suo motto intervention, and v. Long term policy steps to replace the present ad hoc arrangements. The process of implementation favours a few crops against another group of crops. This is ensured by a few interest groups. It is well known that a segment of the farmers’ lobby has a greater influence on the price policy and at the macro-level it

favours a few crops and regions. This, in turn, affects the aggregate welfare. Similarly, input markets too have little influence of the behaviour of MSP. In product market, the expectation about support prices provide ripe situation to the intermediaries to achieve greater advantage. The implementation process itself provides time-lag between declaration of the intention to procure under MSP and the actual procurement. This gives enough room for the traders to step in and buy the commodities from the farmers to sell it under market intervention scheme to the State Government. This clearly defeats the purpose of the scheme. Politicians of all groups would like to be in good books of the farmers by lauding the MSP and arguing for higher MSP but little realising that the whole process fails the farmers. It is necessary therefore, that prudent steps are taken in order to clearly focus the price policy on ensuring that the weak and marginal farmers/crops do not suffer in the process through distress sale or deliberate policy bias. A long-term clear policy statement is therefore, required for weeding out the grey areas in the price policy need to be attended to. In the history of last three decades, it has come out boldly that the process of implementation has a significant dependence on State bureaucracy. This undermines its relevance as an instrument of the Price Policy. The relevance of MSP to the farm sector can be viewed from three different angles. First, the declaration of MSP should be at the time when the farmer has to take a decision about the crop. It is stipulated that the Minimum Support Prices be declared well before the sowing season. This is not difficult as the cost data used for computations and arriving at MSP is of the previous years. However, even after more than two decades of exercise the MSP is not declared before the decision-making about sowing. This year (2001) the MSP was declared at the end of September when the crops were ready for harvest. We located a considerable gap in the submission of CACP report and the declaration of MSP. In addition to the fact that in most of the years MSP is declared well after sowing is completed and farmer is committed to the crop. Second, MSP needs to provide the floor level price for the crops under consideration. The main objective of MSP is that it should provide such floor at the time when prices crash below the promised level. Here it is not only the declaration of MSP but its implementation which becomes crucial. Third, the relevance of MSP emerges in the form of extension of participation of the farmers’ in the scheme and their exposure to the scheme. The participation certainly depends upon the prices going below the MSP; however, the very fact that the farmers are aware or unaware of the scheme gives a clear clue about their participation.

Minimum Support Prices have been in operation as a price support scheme for over a quarter of century and it is time to look back at the effectiveness of this scheme. This requires an examination of the present operations of MSP and to see if they are meeting the objectives with which the scheme began. The first question that comes up here is the need for intervention especially to correct the market distortions and making the market more competitive. The present institutional structure in the market itself is imperfect and that provides further scope for the process to fail. The APMCs and other market intervention agencies perform their functions in such a way that the farmers and the primary producer rarely benefit out of the process. If the intervention is streamlined and supported with proper institutional framework, probably the gain will be on the farmers’ side. Such scheme requires the market institutions to intervene selectively but timely when the market prices fall below the declared MSP. However, timely intervention in the agricultural markets, at least in Karnataka, seems to be not taking place. In order to ensure timely intervention the Karnataka Government has opened procurement centres at all the APMCs and a special fund is created for this purpose. 5.5 Conspectus We have looked at the effectiveness of Minimum Support Prices with a focus on its fulfilling of objectives set forth by the price policy declared in 1986. The following paragraphs give a succinct view of the findings from our macro-level and field data analysis of the objectives set for the study. Karnataka. i) ii) The impact of the MSP on market prices (FHP or WHP) in terms of reducing the seasonal and cyclical fluctuations during nineties has been quite negligible. MSP could not act as an incentive price since more often it is declared well after the sowing season. Moreover, the mechanism of implementing MSP does not fully allow it to perform the role of an incentive price. iii) It also does not help in adoption of technology as the declarations come well after the sowing of the crop is undertaken. The determinants of the adoption of technology work be located in the market prices and market behaviour. iv) In the present context, the MSP has not influenced the structure as well as quantum of inputs since many of the farmers are not even aware of MSP. Our results pertain to the State of

v) vi)

MSP does not influence the regional variations in the prices and these continue to dog the market of agricultural commodities. Among the factors that dictate the effectiveness of MSP, the following assume significant importance: (a) Process of implementation of the scheme. (b) Undue dependence on the state machinery every time for the purpose of initiating the procurement. (c) Information asymmetry prevailing in agricultural market thereby causing severe market imperfections. (d) Absence of state level mechanism for monitoring agricultural prices to initiate suo motto intervention.

vii)

MSP, if implemented properly, can effectively play the expected roles: to act as incentive price, crop pattern and input intensity navigator, risk abater and technology promoter. Our simulation exercise suggests that if the process of MSP is overhauled probably its envisaged role can be witnessed.

viii) ix)

The relevance of MSP in the case of Karnataka proves to be extremely marginal and its influence could be seen only on the Paddy and Sugarcane growers. MSP reveals only theoretical impact on agricultural growth and distribution parameters. However, the implementation of the scheme is such that it prevents to empirically assess any such impact.

x)

The process of implementation of MSP requires a thorough overhauling and it needs to be made market as well as farmer friendly. We have suggested some of the measures to enhance the effectiveness of MSP.

xi)

The questions regarding the micro-level impact of MSP on adoption of technology, investment in agriculture, inter-crop price parity, impact on cropping pattern and sustainability of cropping pattern have been analysed and it was found that as the scheme is not perfectly implemented to influence these parameters at micro level. for these lacunae. Therefore, it will not have any such impact. Probably, an overhauled scheme and the process of implementation will make up

5.6 Feasible Policy Options The objectives of the price policy were formulated in three different phases. Among these the first phase was a typical food scarcity phase with major focus on

making food grains available to the consumers. The second phase started with the recommendations of S R Sen Committee report (GOI, 1980) and revisiting the methodology of computing cost of production. The first formal price policy declaration came in the form of the Price Policy document of 1986 and that provided a long list of objectives to the Price Policy. Subsequently, the focus was divided between farmers and consumers. Price Policy assumed political overtones and among the positive gains buffer stock as well as distribution became quite satisfactory. The decade of nineties witnessed several changes in the agricultural sector as well as in the agricultural policy. On the background of these changes it is felt that the primary objectives of the price policy need to be: (i) to protect the agricultural producers from the sharp fall in prices (providing insurance; (ii) to encourage a definite cropping pattern in the context of overall growth imperatives; and (iii) to ensure the participation of primary producer in international market as well as to protect the farmers’ interest against the price fluctuations due to world price/market situations. Therefore, the change in the focus of price policy is quite imperative. The Agricultural Policy document of 2000 goes on in a similar vein and it is stated That “the Central Government will continue to discharge its responsibility to ensure remunerative (emphasis added) prices for agricultural produce through announcement of Minimum Support Prices Policy for major agricultural commodities (GOI 2000:14). The document also reflects on several aspects which require the changes in the approach to Price Policy. It is therefore, required that the contours of Price Policy be reviewed carefully. The concept of `remunerative prices’ has entered first time in the policy vocabulary. This should be made clear emphatically since it will have deeper significance for the farmers and the agricultural economy. Minimum Support Prices as a tool of Price Policy covers a large number of crops across the length and breadth of the country. Over years, CACP has added quite a few crops to this list, probably not reviewing the list of the crops over years. In the process, the inter-crop price parity got vitiated and policy became instrumental to such process of deliberate policy neglect. Discouraging certain crops and crop-groups also inflicted inequality across regions and farmer groups. Largely, the crops which received raw deal in terms of relative prices were the ones grown by resource poor farmers and in slow growth regions. This experience requires a selective Price Policy with a clear focus on the outcome. We suggest that the MSP should be selectively applied for crops and in the regions specified based on three criteria namely – growth pattern, competitiveness and trade response.

Administration of Minimum Support Prices has been quite a circuitous task in most of the States in the country. No wonder we have a large number of instances in which market prices rule below MSP and even average Farm Harvest Prices are also below MSP. The peak arrivals in regulated markets are naturally clustered during harvesting season and added to that the regulated markets function on pre-decided days in the week. These two together result in clustering of the arrivals in the market on a particular day and consequently push the producers in a dis-advantaged situation. When the arrivals increase, it is natural that the prices collapse. After getting this information a meeting of the Task Force is conducted under the Chairmanship of District Commissioner involving all the concerned institutions in the process of procurement. The decision for procurement is taken and location of the centres for procurement are decided. The whole procedure takes more than two weeks to complete, despite the present days communication facilities. But by this time, farmers are compelled by the circumstances to sell the products to the middlemen/traders at the prices dictated. It is necessary to simplify the procedure and have permanent procurement centres at the APMC yards, with funds to procure at a time when prices collapse below MSP. One such step has been taken by the Govt of Karnataka, but the experience needs to be reviewed. There are a number of institutions involved in the procurement process and there is hardly any coordination between them. For an effective policy, it is necessary to have a single agency coordinating the whole procedure without any time lag involved. It is suggested that FCI should handle food commodities as is done now and NAFED may be made responsible for the other non-food commodities and international trade. The rest of the bureaucratic structure causing distance between procurement agencies and the farmer should be done away. The process of determination of Minimum Support Price has undergone several debates and reviewed during the last three decades. But even then it has not been widely accepted by the farmers and a certain group of academicians. During the last two years, two workshops were conducted by the CACP to thrash out the methodology problems. But yet we have to get a comprehensive policy statement based on these deliberations. There are hardly any attempts to check the authenticity of the data collected under cost of cultivation schemes, which is often challenged by the farmers. CACP arrives at MSP after long deliberations and based on the cost of production data collected from the countrywide centers. Notwithstanding the quality of these data, it is necessary to keep cost C2 in view while fixing MSP. Unfortunately, the recommended

MSP by CACP is changed while it is declared by the Central Government, mostly based on the political interventions and to score some political mileage. Such changes are effected quite often, rather as a rule than exceptions. Moreover, these changes in MSP are not substantiated by any rational arguments, ridiculing the so called `scientific process’ of CACP in arriving at the MSP. Therefore, it is required that deliberation with the interested Cabinet Ministers and farm leaders are undertaken by the CACP well before declaration of MSP. Another way of achieving this is to make CACP a statutory body of the Government. It is mandated that MSP should be announced before sowing of the crops in every season. But this is done rarely. We located that the MSP is rarely announced before the sowing season. MSP announced after the sowing season loses its reference as a price policy tool. Therefore, it is necessary to announce the MSP before sowing season. During the sixties and early seventies the price policy focussed on protecting the consumers and procuring buffer stocks required for supplying the Public Distribution System. The prices were to be kept at an affordable range for the consumers and that formed the fulcrum of the policy. Providing remunerative prices to the farm produce came as an important change after 1979 and precisely in post 1986 period. We located a distinct shift in the trends of MSP at that point and the second break was visible at 1996-97. The second change was more in response to the process of liberalisation and with an eye on international markets and prices. This change though noted subtly in their reports by the CACP, nothing specific has been done to support the producers willing to participate in the exports of agricultural produce. Agencies like NAFED, also have a significant presence in international trade but have not been geared through policy to undertake such initiatives. Therefore, it is necessary that institutions like NAFED or specially constituted Commodity Boards (like Tur Board of Karnataka) also intervene the market with the prices declared well in advance for the purpose of trade. Price and market monitoring mechanism at the State level is the most urgent requirement. A few sporadic experiments are available in the country but there is hardly any policy support for such initiatives. These mechanisms should cater for providing information on domestic/ international prices, technical advise in marketing, interface with specific Commodity Boards and market intervening agencies. In the absence of such market reforms it will be difficult to transfer the benefits of liberalisation to the most deserving sections among farmers.

5.7 •

Specific Steps Needed There should be a thorough review of the methodology of arriving at MSP, discussed with farm leaders and academicians. Such review should be taken periodically and should be transparent in nature.

•

Sample checks of the data collected under Cost of Cultivation scheme by independent agencies are extremely necessary. mandatory for each of the State. This process should be made

•

MSP, if declared before the sowing season, can become an effective tool of Price Policy. Similarly, the gap between the recommended price by the CACP and the MSP declared by Government of India should be rationally explained.

•

The procurement mechanism needs some streamlining and the State governments should be encouraged to setup their own Agricultural Prices Commissions. similar lines as has been done in Karnataka. Such Commissions will help to monitor the prices and the procedure of intervention on the

•

Inter-crop price parity can be utilised to encourage or discourage a particular cropping pattern. Probably during nineties little attention is paid to this aspect. Therefore, coarse cereals suffered a relative neglect at the policy threshold. This policy should be used by encouraging growth-oriented crops.

•

Price Policy now needs to keep in view the crops having international trade potential. Two aspects have to be kept in view to encourage agricultural trade. First, to monitor and maneuver the Price Policy between domestic prices and international prices and second to encourage the cropping pattern in favour of the export-oriented crops.

•

MSP policy has not reached the farmers except in the regions with predominantly commercial agriculture. This is both due to the present process of implementation and declaration of MSP. To overcome this lacuna the information of MSP should reach the farmers through the well oiled extension agencies.

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