Is Minimum Support Price the only answer to support farmers ?

The recent Minimum Support Price (MSP) declared by Government for year 2021-22 for paddy was fixed at Rs 1940 per quintal and for sesame it is an increase of Rs 452 per quintal, which is the highest absolute increase in MSP over the previous year. This remunerative price declaration has affirmed the Government’s desire for crop diversification and it appears, the increase in MSP, may not be arbitrarily stopped.

MSP is a form of market intervention to ensure that the producers do not suffer due to sharp fall in prices of their produce or do not have to undertake distress sale which is caused due to glut or excess production and this price is declared by the Government at the onset of sowing season. The CACP (Commission on Agricultural Cost and Prices) recommends the price of selected crops to the CCEA (Cabinet Committee on Economic Affairs) which is based on factors such as cost of crops, International price situation, trends in market price, demand and supply, effect on cost of living and other factors are taken into consideration while calculation MSP.

If the price of crop falls below the market price, the farmers can sell their crops at designated mandis at the mandated MSP. Declaration of MSP helps farmer undertake cropping decisions which will provide him with maximum economic benefit, it also sends a price signal to the market and merchants that the farmers may not sell their produce if the
price is lower than MSP. In reality, market prices for commodities are lower than MSP but at least it ensures that market price is not drastically lower than MSP. The procurement at MSP helps increase production which ensures food security, supplements farmers’ incomes by providing them with a safety net, and honors the commitment made by Government in case of National Food Security Act, 2013 which aims to cover vulnerable population. MSP also serves as a benchmark for agro-commodity market.

The declaration of MSP needs to be followed by procurement of these crops, but this does not always happen. The procurement happens in big towns and districts as Government cannot open procurement centers at every
areas. This leads to exclusion of farmers in remote and tribal places, who really need the increased price. The procurement also happens in few states. For example, the procurement of paddy mainly occurs in Punjab and Haryana even though there are many rice-producing states in our nation, thus widening the regional inequity. The increase in MSP has come at the cost of crop diversity and which has led to lesser production of pulses, edible oils, which has ultimately resulted in price rise in edible oils which is affecting the consumers’ ability to buy daily necessities.

As India has signed the Agreement on Agriculture (AoA) of WTO, India and other countries have to reduce the subsidies and support to the farmers. According to amber box of AoA, developing nations cannot give their subsidy more than 10% of agricultural output and developed countries have alleged that India gives more than 10% subsidy which is distorting the international trade and prices and making exports cheaper. Commerce and Industry Minister Shri Piyush Goyal has affirmed that India is not breaching the de-minimis level of 10% of agricultural output which was agreed in Peace clause of 2013 in WTO negotiations. But it may become difficult to maintain these limits if there is an increase in MSP. As per Dr. MS Swaminathan, this dilemma can be resolved by distinguishing ubsidies which would distort trade and subsidies which provide social protection against hunger and malnutrition.

The real solution to India’s agrarian problems such as farmer suicides and rural distress can be better solved by way of a conscious program to improve productivity and increased production by land consolidation, improving irrigation, and mechanization, use of agriculture-inputs, skilling labor, creation of storage facilities, flow of credit to farm sector and insurance would go a long way in minimizing pressure on MSP and augmenting agricultural growth.

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