MINIMUM SUPPORT PRICE (MSP) – AGRICULTURE
News: Standing with the farmer
What's
in the news?
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Agricultural policy has to be
farmer-centric.
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A rational MSP is a better option than
loan waivers, and it should be made a legal right.
Go
back to basics:
What
is MSP?
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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.
Who
recommends MSP?
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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:
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7 types of cereals (paddy, wheat, maize,
bajra, jowar, ragi and barley)
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5 types of pulses (chana, arhar/tur, urad,
moong and masur)
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7 oilseeds (rapeseed-mustard, groundnut,
soyabean, sunflower, sesamum, safflower, niger seed),
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4 commercial crops (cotton, sugarcane,
copra, raw jute)
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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:
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the demand and supply of a commodity
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its cost of production
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the market price trends (both domestic and
international)
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inter-crop price parity
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the terms of trade between agriculture and
non-agriculture (that is, the ratio of prices of farm inputs and farm outputs)
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a minimum of 50 per cent as the margin
over the cost of production
●
the likely implications of an MSP on
consumers of that product.
What
are three kinds of production costs projected by CACP?
The CACP projects three
kinds of production cost for every crop, both at state and all-India average
levels.
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‘A2’:
Covers all paid-out costs directly incurred by the farmer in cash and kind on
seeds, fertilisers, pesticides, hired labour, leased-in land, fuel, irrigation,
etc.
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‘A2+FL’:
Includes A2 plus an imputed value of unpaid family labour.
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‘C2’:
Includes ‘A2+FL’ along with revenues forgone on owned land (rent) and fixed
capital assets (interest).
Significance
of MSP:
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Helps in counter the distress situation like drought and floods by providing
remunerative prices to farmers.
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It offers support to the farmer from excess fall in the crop prices.
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Helps in making curbs on food inflation by stable food prices and increasing
production, thereby leading to food security.
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It helps in transferring incomes to rural
areas and to counter farm level
inflation.
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Provided necessary economic transformation of the farmers, thereby paving way for
investment in farm infrastructure and equipment.
Limitations
of MSP:
1.
Distort the cropping pattern:
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As farmers go for crops with high MSP
rather than regional specific crop selection in accordance with climate and
local conditions.
2.
Ineffective procurement:
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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:
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The MSP-based procurement system is also
dependent on middlemen, commission agents and APMC officials, which smaller
farmers find difficult to get access to.
4.
Environmental degradation:
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It leads to non-scientific agricultural
practices causing natural degradation and affecting the local ecosystem.
Why
is there demand for legislation of MSP?
1.
Farmers receive less than MSP:
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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:
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Since MSPs have no statutory backing, they
cannot demand these as a matter of right.
3.
Limited procurement by the Government:
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The procurement is 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 legalisation of MSP?
1.
Statutory MSP is unsustainable:
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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.
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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:
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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:
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Higher procurement cost would mean
increase in prices of foodgrains, leading to inflation, which would eventually
affect the poor.
4.
Affects exports:
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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 the 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:
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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:
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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.
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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.
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It is an impetus to improve the agricultural infrastructure that should be provided
such as cold storage buildings, 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.
●
NITI
Aayog is working on alternative mechanisms such as the
Market Intervention Scheme (MIS), under which the state government procures
perishable commodities like vegetable items.
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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.
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Need to work on localised solutions such as some states like, Haryana
government launched Bhavantar Bharpai Yojana for vegetables, the government
pays the farmers the difference between model rate (the average prices in major
mandis) and the minimum support prices (MSPs).