Govt's decision to give more MSP to farmers may impact consumers: ITC

Consumers might have to bear a portion of Centre's proposed move to guarantee a Minimum Support Price (MSP), which would be 50 per cent more than the cost through higher prices in the fast moving consumer goods (FMCG) space, S Sivakumar, group head, Agri-business and IT of one of India's largest agribusiness player, ITC Ltd said.

He said while companies might absorb a part of the additional cost, once revised MSPs are in effect, they would also have to pass on some of the extra burden to the consumers.

"Higher farmers' income as a national priority is good and need of the hour but it will definitely mean higher consumer prices. And how much higher will those prices be will depend upon the market dynamics and how perfect they are," Sivakumar said.

Sivakumar who regularly advised government and others on range of policy issues related to agriculture and food sector said that the immediate consumer prices of wheat and pulses could be impacted and pushed up due to Centre's decision to provide an MSP which is 50 per cent more than the cost.

Finance Minister Arun Jaitley in his 2018-19 Budget Speech had announced that Centre would guarantee a MSP which would be 50 per cent more than the cost of production from the 2018 kharif season as a matter of principle and also set up a suitable mechanism to ensure that farmers get that MSP.

He later clarified that cost of production would be A2+FL (which includes family labour, but not imputed cost of land rent).

Farmers organisations have been demanding that the MSP be calculated taking C2 as cost and not A2+FL.

"We also need to look at the kind of mechanism that the government comes up with to ensure larger number of farmers get MSP because any open-ended procurement might distort the market," he said.

Madhya Pradesh's type experiment of deficiency price payment where farmers get a fixed payment when prices fall below MSP directly into their accounts is a 'good' attempt, but whether it can be replicated nationally remains to be seen, Sivakumar said.

He said the recent decision of Madhya Pradesh government to announce a bonus of Rs 200 per quintal for wheat over the Centre fixed MSP of Rs 1735 per quintal, won't impact ITC as it usually buys premium quality wheat from the state.

ITC is one of the biggest private sector wheat procurers in the country.

It annually buys around 2 million tonnes of the commodity from the country for its packaged business of which around 200,000-250,000 is from Madhya Pradesh alone. It generates around Rs 30 billion from its Aashirwad brand of packaged wheat flour.

He said that company also plans to expand its fresh fruits and vegetable portfolio under the 'Framland' brand and include six more green vegetables along with potatoes and apples.

"We are in the process of building a distribution and sourcing chain and as soon as that is developed we would expand our fresh veggies portfolio, also we source a lot of fruits and vegetables for the processed food segment some of which can be brought into the fresh bracket," Sivakumar said.

The company today launched two new products - fresh apples and dehydrated onions - under its Farmland and Master Chef brands.

Going ahead, the firm plans to have six products in next years with retail presence in across seven metro cities in India.

It is currently experimenting with fruits like mango and pomegranate and pulses like millet.