Directorate of Economics and Statistics, Department of Agriculture and Cooperation, Ministry of Agriculture and Farmers Welfare, Government of India, New Delhi
Punjab Agricultural University, Ludhiana,India
 Sponsored by
Directorate of Economics and Statistics, Department of Agriculture and Cooperation, Ministry of Agriculture and Farmers Welfare, Government of India, New Delhi
Research Content
Impact of Minimum Support Prices on Agricultural Economy in Punjab

          The study was undertaken with the focus on Minimum Support Price and its impact on various parameters of agricultural economy including growth parameters, distribution aspects, and decision making in allocation of resources, environmental effects and above all MSP as an effective instrument of the price policy. The study was mainly dependent upon the data collected from secondary sources at the state level and supported with the primary data. The price policy was more effective in case of paddy and wheat as compared to cotton in the Punjab State. Since 1990s, the gap between farm harvest price and MSP in case of paddy narrowed down considerably while for wheat, the farm harvest price was even lower than the MSP for some years. It was due to the reluctance shown by the Government to purchase large volumes of paddy and wheat arriving in different markets of the state due to lower storage capacity and already piled large stocks of food grains. The growth in MSP, wholesale price and farm harvest price for paddy, wheat and cotton was higher in period II (1985-86 to 1999-2000) as compared to period I (1970-71 to 1984-85). The farmers’ response regarding the awareness of MSP was the highest for wheat followed by paddy and cotton. The increase in MSP had induced the use of new technology and increase in output. Also, the impact of MSP in increasing the adoption of technology was found to be negatively associated with farm size. There was no regional disparity observed in procurement of rice, wheat and cotton in the State. All the markets in the state are regulated and no farmer has to travel more than five kilometers to sell the produce. The impact of MSP can be seen through the increased area and production of rice and wheat in the Punjab State since 1985-86. The total cropped area in the state increased at the significant growth rate of 0.66 per cent per annum. The use of nitrogenous fertilizers in the state increased with significant growth rate of 2.52 per cent per annum while phosphoric and potashic fertilizers showed negative growth. The price disadvantage (price actually got versus the prevailing market price) was inversely related with farm size particularly in case of paddy. The farmer's response regarding the adequacy of MSP was nil in case of cotton where as in case of paddy and wheat less than 10 per cent farmers were satisfied with the MSP. The influence of MSP on village market price and main market price was observed to be more in case of wheat followed by paddy and least in case of cotton. Due to the assured minimum support price and effective price policy for paddy and wheat in the state, area under these crops has increased over time. This was at the cost of decrease in area under maize, bajra, pulses and oilseeds for which though, the Government of India announces MSP but price policy for these crops in the state was ineffective due to non- procurement. Due to these constraints, the farmers of the state were reluctant to divert from paddy wheat cropping system. The farmers responded that decision of allocation of area under paddy, wheat and cotton was influenced by last year's price, non availability of the market infrastructure for other crops, easy availability of inputs and access to latest technical knowhow. The study suggested the need for effective planning for immediate disposal of the stocks with the Government before the harvesting of crop to reduce the storage costs and maintain quality. This can be made effective through more disposals of foodgrains through Public Distribution System (PDS) and enforcing an effective implementation of extensive food for work programme for rural infrastructure. The rationalization of issue price would also enhance the disposal through PDS. The farmers should also improve the quality of produce to attract the private trade for enhancing the exports of food grains. The effective MSP of rice and wheat increased the fertilizer consumption in Punjab state but the higher growth in use of nitrogenous fertilizer resulted into disturbance of the soil structure in the state. It further indicated the need to rethink about the subsidies being provided on the nitrates. The supply of free electricity to the Punjab farmers further worsened the problem of over exploitation of underground water resources in the State and it is difficult to persuade the farmers to shift from water intensive rice-wheat crop rotation. There is needed to make technological breakthrough along with efforts to formulate effective price policy for competing crops like pulses and oilseeds. The momentum of production for fruit and vegetable cultivation in the state cannot be sustained without effective improvements in marketing for these crops to overcome the problems faced by the farmers.