MSP hikes and farmers’ income

Context

Recently, the Centre announced the Minimum Support Price (MSP) for the year 2023 summer (kharif) season crops, hiking prices between 5-10% from last season, “to ensure remunerative prices to growers for their produce and to encourage crop diversification.”

What is Minimum Support Price (MSP)?

The MSP is the rate at which the government purchases crops from farmers, and is based on a calculation of at least one-and-a-half times the cost of production incurred by the farmers.
MSP is a “minimum price” for any crop that the government considers as remunerative for farmers and hence deserving of “support”.
Crops under MSP:
The 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.
The mandated crops include 14 crops of the kharif season, 6 rabi crops and 2 other commercial crops.

Process of procurement of food grains:

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.
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 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 (FCI) 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.

How MSP help Farmers?

The MSP attempts to strike a balance between the interest of growers and consumers.
The government’s price support policy attempts to provide a fair return to farmers while keeping in view the interest of consumers in a way that prices of food and other agricultural commodities are kept at a reasonable level.
Farming over the years, for the majority, especially small and marginal farmers, has not turned out to be remunerative.
A rise in their income could be the long-term answer to farmers’ financial distress.
To ensure this rise in income, the government should focus on setting up an effective system to provide assured purchase and returns to farmers for all major crops at the MSP, as is done in the case of wheat and rice or extend subsidies on input costs.