‘MSP for Farmers’
8th Oct, 2020
The recently enacted law that dismantles the monopoly of APMC (agricultural produce market committee) mandis, has raised concerns that farmers may no longer be assured MSP for their crop.
Let’s understand the basis of MSP, how is it fixed, and how binding is it?
- It was in the early 1960s when India was facing an enormous shortage of cereals that new agricultural policies were born marking the start of the Green Revolution.
- In 1964, the government set up the Food Corporation of India (FCI) to procure foodgrains from farmers at remunerative prices, and through the public distribution system distribute them to consumers and also maintain buffer stock for food security.
- In order to buy foodgrains, there had to be a policy on pricing.
- In 1965, an Agricultural Prices Commission was set up to advise on the pricing policy for agricultural commodities and its impact on the economy.
- It was then that the Price Support Policy of the Government came in, providing a foolproof solution to agricultural producers against a sharp fall in farm prices.
- The minimum guaranteed prices are fixed to set a floor below which market prices cannot fall. If no one else buys it, the government will buy the stock at this minimum guaranteed prices.
- This is what came to be known as the minimum support price or MSP.
- This policy took its final shape around 1974-76.
- The MSP serves as a long-term guarantee for investment decisions of producers. It came with an assurance that prices would not fall below a fixed level, even in case of a bumper crop.
- MSP was introduced to provide financial stability to the agricultural system and encourage production.
What is Minimum Support Price (MSP)?
- The Minimum Support Price (MSP) is only a government policy that is part of administrative decision-making. The government declares MSPs for crops, but there’s no law mandating their implementation.
- The Centre currently fixes MSPs for 23 farm commodities —
- 7 cereals (paddy, wheat, maize, bajra, jowar, ragi and barley)
- 5 pulses (chana, arhar/tur, urad, moong and masur)
- 7 oilseeds (rapeseed-mustard, groundnut, soyabean, sunflower, sesamum, safflower and nigerseed)
- 4 commercial crops (cotton, sugarcane, copra and raw jute) — based on the CACP’s recommendations.
Who announced MSP?
- The Cabinet Committee of Economic Affairs announces MSP based on the recommendations of the Commission for Agricultural Costs and Prices (CACP).
- The CACP takes into account demand and supply, the cost of production and price trends in the market among other things when fixing MSPs.
- The price is announced at the beginning of the sowing season.
Commission for Agricultural Costs & Prices (CACP)
- The Commission for Agricultural Costs & Prices (CACP) is an attached office of the Ministry of Agriculture and Farmers Welfare, Government of India.
- It came into existence in January 1965.
- Currently, the Commission comprises a Chairman, Member Secretary, one Member (Official) and two Members (Non-Official).
- The non-official members are representatives of the farming community and usually have an active association with the farming community.
- It can recommend MSPs, but the decision on fixing (or even not fixing) and enforcement rests finally with the government.
The next step in the process
- The Food Corporation of India and NAFED help the Centre procure select food crops with the help of the States.
- Procured farm products are kept in government warehouses and distributed through the Public Distribution System (PDS) and various food security programmes.
Public Distribution System (PDS)
- Public distribution system is a government-sponsored chain of shops entrusted with the work of distributing basic food and non-food commodities to the needy sections of the society at very cheap prices.
- Food Corporation of India manages the public distribution system.
Why MSP is important?
- Price volatility makes life difficult for farmers. Though prices of agri commodities may soar while in short supply, during years of bumper production, prices of the very same commodities plummet.
- MSPs ensure that farmers get a minimum price for their produce in adverse markets.
- MSPs have also been used as a tool by the Government to incentivise farmers to grow crops that are in short supply.
MSP and the new Law
- It is somewhat strange that the concept of minimum support price finds no mention in any law even if it has been around for decades.
- While the government does declare the MSP twice a year, there is no law making MSP mandatory.
- What this technically means is that the government, though it buys at MSP from farmers, is not obliged by law to do so.
- As a matter of fact, there is no law which says that MSP can be imposed on private traders as well.
- The CACP had asked earlier recommended legislation to iron out a concrete MSP law for farmers, but it was not accepted by the Centre.
The Farmers Bill
- The Farmers Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020 allows farmers to sell their produce outside APMC mandis to whoever, even the end customer, offers a higher price.
- The second one — The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020 — allows farmers to enter into a contract farming agreement the buyer for procurement of crops at pre-approved prices.
- The third bill is The Essential Commodities (Amendment) Bill which declassifies items like onions, cereals, pulses, potatoes, edible oilseeds and oils as essential items in normal circumstances.
The Farm Bills technically have nothing to do with MSP and since there is no existing legislative framework for MSP, it is difficult to see how MSP could have been worked into the Bills.