Demand for MSP: Need for a balancing act between farmers, traders and consumers

The open market is governed by traders who, in rural areas, double up as private money-lenders and intermediaries

ByGargi Parsai

Published Feb 16, 2024 | 11:00 AMUpdatedFeb 16, 2024 | 11:00 AM

The MSP system primarily covers a few crops, such as wheat, rice, and some others, leaving out many others sown in different regions. (South First)

The demand for a legally guaranteed minimum support price (MSP) for farm produce has been a long-standing one, highlighted recently by farmers’ protests.

Despite forming a committee to address the demand, little progress has been made, leading to scepticism among farmers.

The committee was formed after the government withdrew in December 2021 the three reforms-oriented farm laws that producers said were tilted towards the corporate sector and agribusinesses.

The Samyukta Kisan Morcha (SKM) farmers who had spearheaded the year-long sit-in around the capital city of Delhi to press their demands boycotted it.

Ahead of the Lok Sabha elections, the issue has now gained political overtones, with parties like the Congress promising guaranteed MSP, if elected.

Also read: Tight security in Delhi

MSP and safety net for farmers

The MSP system is crucial to providing income support to farmers by ensuring that they receive a minimum price for their crops. It acts as a safety net, ensuring that farmers get a certain income even when market prices fall below the MSP.

However, the system primarily covers a few crops, such as wheat, rice, and some others, leaving out many others sown in different regions. Wheat and rice are crucial for the government’s food security programme.

The lack of timely government procurement and the dominance of private traders often lead to farmers selling below the MSP, leaving them at a loss.

Also, there are differences over the methodology for fixing MSP, with farmers arguing for MS Swaminathan Committee recommended “C2 plus 50 percent” payout, wherein C2 is the cost of production, reflecting “paid out the cost of inputs, the imputed value of family labour plus the rental value of owned land and interest in fixed capital”.

The Commission for Agricultural Costs and Prices (CACP) calculated the “A2 plus FL” formula, which includes “paid-out cost plus imputed value of family labour”, and is seen as inadequate.

Let it be clear that even in the case of wheat and rice, it is only about an estimated one-third of the mandi arrivals that the government procures for its targeted Public Distribution System (TPDS) under the National Food Security Act, 2013. The rest are purchased by private players who call the shots, really.

Also read: MoS Agriculture Shobha Karandlaje calls farmers’ stir ‘politically motivated’

Trader and intermediary nexus

The open market is governed by traders who, in rural areas, double up as private money lenders and intermediaries. The average 85 percent of small and marginal farmers in the country cannot afford storage facilities or holding capacity for their harvest and need to sell quickly.

More often than not, government agencies do not open procurement centres in time to buy from farmers or open for a very brief period, forcing small farmers to sell to the local trader even at prices below the MSP. These problems are age-old, neglected, and at the root of farmers’ unrest.

The official MSP rate works as the benchmark for prevailing rates, which farmers want to be made mandatory even for private traders, agribusinesses, and food processors.

For instance, mustard has been harvested in Rajasthan this year, but the government agencies have yet to open shop. As a result, small farmers had to sell their crops to private players at ₹1,100 per quintal, below the official MSP rate. This loss has hurt farmers.

Also Read: Madhya Pradesh police abandon detained Karnataka farmers at state border

A balanced solution

The government intervenes in markets when prices fall. For instance, the Price Deficiency System allows farmers selling in APMC (Agriculture Produce Marketing Committees) mandis to avail a part of the price difference between MSP and the lesser rate. However, the scheme hasn’t taken off as expected because transactions outside the mandi are not covered.

The argument against guaranteed MSP is that it could distort the domestic market, impact international trade, lead to surpluses of certain crops requiring huge storage facilities, require large-scale investments, and could be inflationary.

It need not be so. Addressing the challenges of MSP implementation, procurement delays, and quality control can be achieved through better monitoring and transparency, leveraging India’s digital infrastructure.

The MSP issue requires a comprehensive approach to address the deep-rooted problems in the agricultural sector and strike a balance between the interests of farmers, private players, and consumers.

(The author, a Delhi-based senior journalist, writes on agriculture and food. Views are personal.)