Many Loose Ends

Is MSP Inclusive?

I Satya Sundaram

The minimum support price (MSP) has been conceived as an incentive to farmers to raise productivity and production. Yet, Indian agriculture continues to suffer from low productivity, low procurement, crop imbalances, poor storage facilities, an unhelpful MSP and ever growing role of the middlemen. The tragedy is that the plight of farmers is worsening even when the food-grain output (312 million tonnes in 2021-22) is comfortable. There are suicides amongst farmers, though the rate is coming down. According to NSS data, in 2019, the average income of farm households stood a Rs 10, 218. Even those who own one hectare (2.5 acres) earn just Rs 224 per day. Average household debt is equivalent to 60 per cent of its annual income.

The rationale behind MSP operations is to provide guaranteed price and assured market to the farmers and protect them from the price fluctuations and market imperfections. This would encourage investment and also adoption of modern farming practices. The Commission for Agricultural Costs and Prices (CACP) is mandated to recommend MSP to incentivise the cultivators to adopt modern technology and raise productivity and over-all grain production.

CACP recommends MSPs of 23 commodities, which comprise of seven cereals (paddy, wheat, maize, sorghum, pearl millet, barley and ragi), five pulses (gram, tur, moong, urad, lentil), seven oilseeds (groundnut, rapeseed-mustard, soyabean, seasum, sunflower, safflower, nigerseed), and four commercial crops (copra, sugarcane, cotton and raw jute).

The officials from CACP also visit States for on-the-spot assessment of the various constraints that farmers face in marketing their produce, or even raising the productivity levels of their crops. Under the MSP operations, the Food Corporation of India (FCI) procures mostly rice and wheat from the farmers for ensuring supplies of grain under the National Food Security Act (NFSA) and keeping a buffer stock of grains. The National Agricultural Cooperative Marketing Federation (Nafed) procures mostly oilseeds and pulses, while Cotton Corporation of India procures cotton.

Experts say higher MSP alone cannot ensure higher production and productivity or crop diversification. Indeed, MSP is a deemed or unwritten options contract. The Government has an obligation to buy from farmers, if crop price falls below MSP, and farmer has no obligation to sell to the government, if price stays above MSP; farmers are free to sell in the open market.

Thus, MSP should be backed by a robust procurement system. Otherwise, it is doomed to fail, especially in the context of production centric approach. Procurement becomes all the more imperative in the event crop prices fall below MSP. In 2019-20, about 2,04,63,590 farmers benefited from MSP, while in 2020-21, about 2,10,07,563 secured the benefits.

Ever since the MSP was introduced in the late 1970s, it became the “floor” price -setter for rice and wheat. The National Commission on Farmers, headed by Prof M S Swaminathan, had recommended, in 2006, that MSPs must be at least 50 percent more than the cost of production.

On 8th June, 2022, the Centre raised MSP for paddy by Rs 100 a quintal for the kharif season of 2022-23. The rates for 14 crops have been increased in the range of 4 percent to 8 percent. This is similar to the increase in MSP in 2021-22 which was in the range of 1 percent to 7 percent.

In October 2022, the Centre hiked MSP of Wheat, other rabi crops by 2 to 9 percent. The Centre has fixed the MSP of wheat at Rs 2, 125 /quintal, a 5.5 percent increase over last year. Though the new MSP is higher than the average price received by farmers in the peak season the previous year, it is still lower than the current rates. The MSP will come into force from the rabi marketing season that begins on April 1, 2023. The Centre has admitted that prices remained higher than the MSP throughout the procurement, which led to the target being missed.

Among other rabi crops, the MSP for chana (gram) has seen the lowest increase (2 percent) to Rs 5,335/quintal whereas the highest rise (9 percent) to Rs 6,000 was seen in masur (lentil). Mustard MSP has also been fixed higher by 8 percent at Rs 5,450 and sunflower by 4 percent at Rs 5,650. Barley MSP has been raised by 6 percent to Rs 1,735.

In the Indian context, the MSP has serious limitations. The rise in MSP favours paddy, wheat and big farmers. A few States like Punjab, Haryana and Madhya Pradesh dominate on the procurement front, leaving other States like West Bengal in the lurch. During 2017-2020, Punjab accounted for 37 percent, Haryana 25 percent, Madhya Pradesh 21 percent and Uttar Pradesh 13 percent of the total wheat procurement. Similarly, Punjab accounted for 26 percent and Haryana 9 percent of the total paddy procurement. West Bengal, which is one of the top States in rice production, accounts for only 4 percent public paddy procurement.

There are 2,239 regulated markets and 4, 276 sub-market yards. All States and UTs are not on the e-NAM portal. Moreover, not all mandis are engaged in on-line trade. By June, 2021, only 14 percent of APMC (Agriculture Produce Marketing Committee) mandis and farmers joined the e-NAM.

The Shanta Kumar Committee report in 2015 estimated that only 6 percent of the farmers could sell their produce through government agencies. MSP and market price fluctuate constantly. Farmers say most of the time they have to sell their produce below MSP. Also, not all 23 crops get MSP support.

Between 1980 and 2000, the MSP of rice and wheat increased at a much faster rate than those of the “coarse” cereals like jowar, bajra and ragi. This led to the movement of the terms of trade in favour of the water-consuming cereals, thereby fuelling demand for water.

So far, the MSP formula has not taken into account the health and nutritional aspect of the issue. Irrespective of the season, the nutritional aspect needs to be figured into the MSP recommendations, and more nutritional crops should command higher support prices.

There is an urgent need to raise farmers’ income. The sectors allied to agriculture like animal husbandry, fisheries and poultry are doing well. Therefore, the stress should be on agriculture diversification. Of course, the share of non-farm sectors in rural areas is increasing. A diversified cropping pattern will help in mitigating the risks associated with agriculture.

Reducing cost of production is important. The stress should be on integrated farming system as it enhances productivity. Organic farming should be popularised and doubts about it should be dispelled.

The farm reforms Panel, appointed by the Supreme Court, has suggested that wheat, paddy procurement should be in tune with PDS requirements. The Panel has also suggested an Agriculture Marketing Council and “Farmers Courts” at the district level.

Instead of unduly depending on MSP, the focus should be shifted to diversification of agriculture to high-value crops, rise in productivity, increase in cropping intensity, higher procurement and scientific use of farm inputs, especially water.

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Vol 55, No. 49, Jun 4 - 10, 2023