Minimum Support Price Hike

A week ago, the centre announced the Minimum Support Price (MSP) for the crops grown in the current year's late spring (kharif) season. Costs increased by 5-10% over the previous season. However, the farmers' outfits have expressed their discontentment, considering the increase to be meager and insufficient. This article aims to delve into the issue surrounding the MSP and shed light on the concerns raised by the farming community.

The Significance of Minimum Support Price (MSP)

The government's authority of India uses the Minimum Support Price (MSP), a crucial kind of market mediation, to safeguard rural producers against unexpected decreases in farm prices. Announced at the beginning of the sowing season, MSPs are recommended by the Commission for Agricultural Costs and Prices (CACP) under the Ministry of Agriculture and Farmers' Welfare. However, the recent MSP hike for summer crops has been met with dissatisfaction among farmers. Here are the key points about the significance of Minimum Support Price (MSP) :

Fair Prices for Farmers: MSP ensures that farmers receive a reasonable price for their crops, even if market prices are low. This protects farmers from incurring losses and ensures a decent livelihood for them.

Promoting Essential Crop Production: MSP encourages the cultivation of vital crops like food grains, pulses, and oilseeds. This helps in achieving food security and reducing dependence on imports.

Price Stability: MSP plays a crucial role in stabilizing agricultural prices. It provides farmers with a predictable income and protects consumers from sudden price fluctuations in the market.

Safety Net for Farmers: MSP acts as a safety net for farmers during challenging times, such as crop failures or market price crashes. It provides financial support and prevents distress, ensuring the stability of rural livelihoods.

Poverty Alleviation: MSP contributes to poverty reduction by ensuring that farmers have a steady income. It improves their socio-economic conditions and reduces the vulnerability of rural communities.

Rural Development: MSP promotes agricultural growth, which has a direct impact on rural development. It encourages investment in agriculture, enhances infrastructure, and stimulates overall economic growth in rural areas.

Food Security: MSP plays a crucial role in ensuring food security by incentivizing the production of essential crops. It reduces dependency on imports and maintains a stable supply of food for the nation.

Mitigating Farmer Distress: MSP acts as a vital measure to address farmer distress by providing them with a fair price for their produce. It helps in reducing farmer suicides and improving their overall well-being.

Government Support: MSP reflects the government's commitment to support farmers and agriculture. It strengthens the farmer-government relationship and instills confidence among farmers.

Policy Instrument for Agricultural Development: MSP is a key policy instrument that the government utilizes for agricultural development. It provides stability, encourages investment, and ensures the growth of the agricultural sector.

MSP Applicability and Crops Covered

The central government notifies the MSP for 23 crops each year, before the Kharif and Rabi seasons. The Commission on Agricultural Costs and Prices, a subsidiary institution of the Ministry of Agriculture and Farmers' Welfare, provided advice on which the MSP recommendations were based. Currently, the CACP recommends MSPs for a variety of crops, including cereals, pulses, oilseeds, and commercial crops.

The 23 commodities for which MSPs are recommended include:

Other grains include paddy, wheat, maize, sorghum, pearl millet, grain, and ragi.

The five pulses are gramme, tur, moong, urad, and lentil.

The seven oilseeds are groundnut, soybean, sesame, sunflower, safflower, and nigerseed.

Four commercial crops include copra, sugarcane, cotton, and crude jute.

The Process of Fixing MSP

The Centre announces the MSP for the mandated crops, but it is not legally guaranteed. The CACP, a statutory panel under the Ministry of Agriculture and Farmers' Welfare, plays a vital role in determining the MSP. The CACP takes various factors into account while fixing the MSP, including demand and supply, cost of production, market trends, a minimum 50% margin over the cost of production, and the potential implications of MSP on consumers.

The CACP calculates three types of costs:

A2, A2+FL, and C2. A2 represents the actual paid-out cost incurred by a farmer, A2+FL refers to the actual paid-out cost plus the imputed value of family labor, and C2 is the comprehensive cost, including the rental value of own land. The highest of these costs, C2, is the basis for the demands of protesting farmers who seek MSP based on this criterion.

Legal Guarantee and Farmers' Complaints

Currently, the MSP is not legally guaranteed, which has been a longstanding complaint among farmers. They have been demanding a legal status for the MSP, specifically referring to the Swaminathan Commission recommendation of C2+50%, which remains unfulfilled. The C2+50% formula takes into account the input cost of capital, rent on the land, and 50% of the weighted average cost of production.

Major Concerns with MSP

It is important to address these concerns while formulating and implementing the MSP policy in order to strike a balance between ensuring fair incomes for farmers and addressing issues related to food inflation and environmental sustainability.

1. Effectiveness in Ensuring Fair Prices: The MSP aims to provide farmers with a fair price for their crops, even when market prices are low. However, there is debate regarding its effectiveness. Some argue that the MSP is not sufficient to cover production costs, while others believe it is too high and creates market imbalances.

2. Impact on Food Inflation: MSP can contribute to higher food prices, which can affect the poor and vulnerable. Since the government purchases food at the MSP, even if market prices are lower, it can lead to increased costs for consumers, especially those who are economically disadvantaged.

3. Environmental Consequences: MSP may result in overproduction of particular crops, which can be harmful to the environment. Encouragements to increase the production of these crops may not be sustainable and may lead to problems including soil deterioration, water pollution, and deforestation.

4. Selective acquisition: The selective acquisition of crops at MSP is a serious problem brought up by farmers. Only a few crops, like as wheat, paddy, cotton, and some pulses, are now purchased at the MSP, while others are being bought at lower rates. Farmers are thus at the whim of market forces and private actors, resulting in inefficient MSP implementation.

5. Crop Diversification Challenge: The lack of MSP or assured purchase for all commodities makes crop diversification difficult. Encouraging farmers to plant a greater variety of crops is critical for sustainable agriculture and environmental preservation.

The Way Forward

Effective Implementation: MSP should be implemented in a way that ensures the government can purchase an adequate amount of produce at the MSP to meet the requirements of programs like the public distribution system. It should also be made easier for farmers to access the MSP without facing unnecessary delays or complications.

Enhancing Remuneration: To make MSP more beneficial for farmers, the MSP can be increased to a level closer to the actual cost of production. Additionally, providing additional incentives like subsidies or tax breaks to farmers who sell their produce at the MSP can further enhance their remuneration.

Crop Diversification: Currently, MSP mainly focuses on food grains. However, it is crucial to expand the MSP coverage to include other crops like pulses, oilseeds, fruits, and vegetables. This expansion would help reduce the reliance on imports for these commodities and improve the income opportunities for farmers growing these crops.

Efficient Procurement System: The existing procurement system often faces inefficiencies, resulting in delayed payments to farmers and wastage of produce. Improving the efficiency of the procurement system is essential to ensure prompt payments to farmers and minimize wastage..

Conclusion

The recent announcement of the Minimum Support Price (MSP) for summer crops has triggered discontentment among farmers due to the perceived meager hike. The concerns raised by the farming community highlight the need for comprehensive reforms in the MSP system, including legal guarantees, procurement of all crops at MSP, and support for crop diversification. By addressing these issues, the government can ensure a more equitable and sustainable agricultural ecosystem.

FAQs

Q1: Is the Minimum Support Price (MSP) legally guaranteed?

A: No, the MSP is not legally guaranteed. Farmers have been demanding a legal status for the MSP to ensure their protection.

Q2: How does the Commission for Agricultural Costs and Prices (CACP) decide the MSP?

A: The CACP considers various factors such as demand and supply, cost of production, market trends, and the implications of MSP on consumers while deciding the MSP.

Q3: Are all crops eligible for MSP?

A: The central government notifies MSP of 23 crops each year. These crops are recommended by the CACP based on their significance in agricultural production.

Q4: What are the major concerns with the current MSP system?

A: The major concerns include selective procurement of crops at MSP, leaving many crops at lower prices, and the lack of a guarantee or procurement for all crops.

Q5: How can the government improve the MSP system?

A: The government can establish an effective system to ensure the purchase of all major crops at MSP, similar to the current system for wheat and rice. Alternatively, subsidies on input costs could be extended to support farmers' incomes.