Opinion Why Punjab’s farmers are unlikely to diversify their produce despite MSP guarantee
Prioritising crops like millets, pulses, and oilseeds through aggressive MSP increases can bolster both nutritional security and climatic resilience
Future hikes should align with a broader vision for the country's agricultural production. Prioritising crops like millets, pulses, and oilseeds through aggressive MSP increases can bolster both nutritional security and climatic resilience.
More than one month has passed since Punjab’s farmers began their protests on February 13, 2024. The primary demand revolves around securing a legal guarantee for Minimum Support Price (MSP) on 23 crops. Despite anticipated hurdles in implementing such legislation, if farmers were assured MSP for all crops, would they be willing to decrease their cultivation of water-intensive non-basmati rice? Our analysis suggests otherwise. Income considerations continue to favour rice. We delve into this further, but first, a brief context.
Punjab spans 5 million hectares, with 82 per cent as its net sown area. The gross cropped area (GCA) is about 7.8 million hectares, and over 91 per cent of the sown area sees multiple crops. Forest cover is 5 per cent, while 11 per cent is barren or unsuitable for cultivation. Fallow land has doubled in the last 12 years, now at 95,000 hectares. Wheat covers 45 per cent of GCA, while rice occupies 40 per cent. The top eight crops are rice, wheat, maize, cotton, fodder crops, sugarcane, potato, and mustard. Rice cultivation has increased from 2.7 mn ha in 2008-09 to 3.1 mn ha in 2021-22, despite advice to reduce it for environmental and financial reasons.
The Government of India’s Minimum Support Price (MSP) is viewed as a means to promote crop diversification. Protesting farmers advocate for MSP application to all 23 crops, suggesting that maintaining mandi prices above MSP would incentivise cultivation of a broader range of crops. However, can MSP effectively drive this diversification in Punjab?
Combining Punjab’s crop yield data from the Directorate of Economics and Statistics with MSP data from the Commission for Agricultural Costs and Prices, we estimate the potential earnings per hectare if farmers received MSP. For example, with a yield of 6.7 tons per hectare, paddy sold at MSP would yield approximately Rs 1,47,108 per hectare per season. Wheat would fetch around Rs 1,04,605. The corresponding figures for other crops are: Maize Rs 82,367 per hectare, gram Rs 65,987, mustard Rs 90,005, mung Rs 79,589, bajra Rs 16,350, sunflower Rs 1,20,666 and sugarcane Rs 31 lakh.
With almost full irrigation coverage and a cropping intensity nearing 200 per cent, Punjab farmers typically grow at least two crops per hectare annually. We’ve devised various crop combinations commonly practised by Punjab’s farmers throughout the year. Apart from sugarcane, which remains the most profitable crop, combinations involving paddy usually yield the highest returns. A combination of paddy and wheat typically earns around Rs 2.5 lakhs per hectare annually. A combination of maize and wheat would yield about Rs 1,86,971. Adding maize as a spring or third crop, alongside paddy and wheat, yields among the highest returns of Rs 3,34,080.
Combinations involving mung as a third crop also generate favourable returns, ranging from Rs 2,16,831 (cotton, wheat and mung) to Rs 3,31,302 (paddy, wheat and mung). Although sunflower combinations are lucrative, they fall short of the profitability of rice and wheat combinations unless combined with a third crop.
It emerges that even with MSP assurance on all 23 crops, replacing paddy with another kharif crop would lead to revenue loss for Punjab farmers under current circumstances. Hence, there’s little incentive for farmers to switch from paddy to another crop, unless they transition to sugarcane, which poses its own environmental and administrative challenges.
Additionally, many of the mentioned crops yield useful by-products such as hay or tuddi (used as cattle feed) from wheat, stubble from rice, and fodder or silage from maize, among others. Although these by-products hold value for farmers, they haven’t been factored into the analysis due to data limitations. Nonetheless, they would have implications in estimating the opportunity costs of shifting away or in favour of them.
So, what is the solution? First, focus on crop yield. Current efforts to promote diversification towards non-paddy crops hinge largely on MSP, tied to market dynamics. Yet, a substantial 30-40 per cent increase in crop yields could transform this landscape and make non-paddy crop combinations profitable too. Thus, the primary suggestion is for Punjab and the nation to prioritise enhancing crop yields. Punjab notably lags in crop yields, especially in maize and bajra.
Second, provide gap funding. Despite MSP, Punjab farmers looking to diversify crops may incur losses. Thus, without compensatory aid, their inclination towards diversification remains doubtful. Offering incentives or bonuses beyond MSP, including a water-saving premium, could bridge income gaps. Ideally, this support could be jointly provided by state and central governments for up to five years or until desired yield levels are reached.
Third, focus on livestock. Dependence on crops for livelihood should not be the sole focus for Punjab farmers. Allied activities such as poultry, inland fishing, and dairy farming should be promoted to encourage diversification away from non-basmati paddy cultivation.
Fourth, strategise MSP boosts. Future hikes should align with a broader vision for the country’s agricultural production. Prioritising crops like millets, pulses, and oilseeds through aggressive MSP increases can bolster both nutritional security and climatic resilience.
Saini is an Agricultural Economist and Founder of Arcus Policy Research and Nanda Kumar is former Agriculture Secretary, Government of India
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