MINIMUM
SUPPORT PRICE (MSP) – ECONOMY
News:
Farmers meet Agriculture Minister, demand fulfilment of promises
What's in the news?
● Thousands
of farmers assembled in Delhi for the ‘Kisan Mahapanchayat’ organized by the
Samyukt Kisan Morcha (SKM) to remind the Centre of its unfulfilled promises
before protestors dispersed in November 2021 after a 13-month-long agitation at
Delhi’s borders.
Key takeaways:
● The
major demands include a law to
guarantee MSP for all crops based on the recommendation of the Swaminathan
Commission; a new committee on MSP; immediate waiver of all loans of all
farmers; reduction in input prices; withdrawal of the Electricity (Amendment)
Bill, among others.
What is MSP?
● Minimum
support price (MSP) is a “minimum price” for any crop that the government
considers as remunerative for farmers and hence deserving of “support”.
● MSP
for a crop is the price at which the government is supposed to procure/buy that
crop from farmers if the market price falls below it.
Origin of MSP in India:
● MSP
was introduced in the mid-1960s when India was in food deficit.
● The
government was keen to boost domestic production through green revolution
technologies but realised farmers wouldn’t plant input-intensive high yielding
wheat or paddy varieties unless guaranteed a minimum price.
Who recommends MSP?
● Commission for
Agricultural Costs & Prices (CACP)
recommends MSPs for 22 mandated crops and fair and remunerative price (FRP) for
sugarcane.
○ CACP
is an attached office of the Ministry of Agriculture and Farmers Welfare. It is
an advisory body whose recommendations are not binding on the Government.
● The
Cabinet Committee on Economic Affairs
(CCEA) (chaired by PM) of the Union government takes a final decision on
the level of MSPs.
Crops covered under MSP:
● 7
types of cereals (paddy, wheat, maize, bajra, jowar, ragi and barley)
● 5
types of pulses (chana, arhar/tur, urad, moong and masur)
● 7
oilseeds (rapeseed-mustard, groundnut, soyabean, sunflower, sesamum, safflower,
nigerseed),
● 4
commercial crops (cotton, sugarcane, copra, raw jute)
● In
addition, the MSPs of toria and de-husked coconut are fixed on the basis of the
MSPs of rapeseed/mustard and copra, respectively.
Factors considered by CACP while recommending MSP:
While
recommending MSPs, the CACP looks at the following factors:
● Demand
and supply of a commodity
● Cost
of production
● Market
price trends (both domestic and international)
● Inter-crop
price parity
● Terms
of trade between agriculture and non-agriculture (that is, the ratio of prices
of farm inputs and farm outputs)
● Minimum
of 50 percent as the margin over the cost of production
● Likely
implications of an MSP on consumers of that product.
What are three kinds of production cost projected by
CACP?
The
CACP projects three kinds of production cost for every crop, both at state and
all-India average levels.
● ‘A2’:
Covers all paid-out costs directly incurred by the farmer in cash and kind on
seeds, fertilizers, pesticides, hired labour, leased-in land, fuel, irrigation,
etc.
● ‘A2+FL’:
Includes A2 plus an imputed value of unpaid family labour.
● ‘C2’:
Includes ‘A2+FL’ along with revenues forgone on owned land (rent) and fixed
capital assets (interest).
Significance of MSP:
● Helps
in counter the distress situation
like drought and floods by providing remunerative prices to farmers.
● It
offers support to the farmer from
excess fall in the crop prices.
● Helps
in making curbs on food inflation by
stable food prices and increasing production, thereby leading to food security.
● It
helps in transferring incomes to rural
areas and to counter farm level inflation.
● Provided
necessary economic transformation of the farmers, thereby paving way for invest in farm infrastructure and equipment’s.
Limitations of MSP:
1. Distort the cropping pattern
- as farmers go for crops with high MSP rather than regional specific crop
selection in accordance with climate and local conditions.
2. Ineffective procurement
- lack of government machinery for procurement for all crops except wheat and
rice, which the Food Corporation of India actively procures under the PDS.
3. Middle men
- The MSP-based procurement system is also dependent on middlemen, commission
agents and APMC officials, which smaller farmers find difficult to get access.
4. Environmental degradation
- leads to non-scientific agricultural practices causing natural degradation
and affecting local ecosystem.
Why there is demand for legislation of MSP?
1. Farmers receive less than MSP
- In most crops grown across much of India, the prices received by farmers,
especially during harvest time, are well below the officially-declared MSPs.
2. Not a right
- Since MSPs have no statutory backing, they cannot demand these as a matter of
right.
3. Limited procurement by the Govt
- the procurement confined to only about a third of wheat and rice crops (of
which half is bought in Punjab and Haryana alone), and 10%-20% of select pulses
and oilseeds. According to the Shanta Kumar Committee’s 2015 report, only 6% of
the farm households sell wheat and rice to the government at the MSP rates.
What are the challenges with the legalization of MSP?
1. Statutory MSP is unsustainable:
Any fixed pre-determined price will push away private traders whenever
production is more than demand, and there is a price slump in the market. This,
in turn, will lead to government
de-facto becoming the primary buyer of most farm produce for which MSP is
declared, which is unsustainable.
2. Disposal problems:
While cereals and pulses can be sold through the public distribution system,
disposal becomes complicated in the case of niger seed, sesamum or safflower.
3. Inflation:
Higher procurement cost would mean increase in prices of foodgrains, leading to
inflation, which would eventually affect the poor.
4. Affects exports:
It will also impact India’s farm exports, if the MSP is higher than the
prevailing rates in the international market. Farm exports account for 11% of
the total exports of commodities.
5. Burden for government:
It would lead to a huge burden on the exchequer, since the government would
have to procure all marketable surplus in the absence of private participation.
6. Demands from other sectors:
If the Centre makes a law to guarantee 100% procurement in all the 23 crops
where MSP is announced, farmers cultivating fruits and vegetables, spices, and
other crops will also make demand to do the same.
WAY FORWARD:
1.
Suggestion of the national commission of farmers (Dr M S Swaminathan committee) to fix the MSP at cost of production
+ 50% to provide better remunerative output for farmers.
2.
Need to create farmer awareness
about the benefits of crop diversification
so as to produce more pulses to ensure nutritional security and prevent
supply-side shocks.
3.
It is impetus to improve the agriculture
infrastructure should be provide such as cold storage building, warehouses
for perishable production, so in case of surplus production they will not be
wasted. eg. for instance, in this light a new pan India central sector scheme
called agriculture infrastructure fund is established to improve agriculture
infrastructure.
4.
NITI Aayog is working on alternative mechanism
such as the Market Intervention Scheme (MIS), under which the state government
procures perishable commodities like vegetable items.
5.
Other innovative measures such as
price deficiency payment to support the farmers in case the market price falls
below MSP need to be studied for providing alternatives to MSP.
6.
Need to work on localized solution
such as some states like, Haryana government launched Bhavantar Bharapai Yojaan
for vegetables, the government pays the farmers the difference between model
rate (the average prices in major mandis) and the minimum support prices
(MSPs).