Minimum Support Price protects farmers from natural and market uncertainties that may lead to food producers incurring huge losses despite using the best available technology and practice. It acts as a safety mechanism for vulnerable farmers and is a good augury because of accruing beneficial reforms, pleads Nilakshi Joshi.
After many years, Minimum Support Price (MSP) is in the news again because of the months-long farmers’ protest in the country against three farm acts passed by the Parliament of India in 2020. It was in the 1960s when a young India was just learning to stand on its feet and facing the enormous challenge to feed its malnourished people that the concept of MSP was first introduced. This was when the country was witnessing an agricultural milestone – Green Revolution had started to provide food security and eliminate poverty from India.
Over the years, MSP has helped millions of farmers in India by protecting them from financial fluctuations. The MSP-based procurement system is aimed at saving crops from price fluctuations due to factors such as delayed monsoon, lack of market integration, information asymmetry and other elements of market imperfection.
The MSP sets a lower limit below which prices for agricultural commodities cannot drop. So, MSP protects farmers from natural and market uncertainties that may lead to food producers incurring huge losses despite using the best available technology and practice.
MSP began with the Green Revolution
During the Green Revolution, to encourage the farmers in Punjab to use the dwarf varieties of wheat and to boost production, the concept of MSP was first introduced. These varieties of wheat were ‘imported from International Centre for Maize and Wheat Research in Mexico and cross-bred in India,’ primarily at the Indian Agricultural Research Institute (IARI) in New Delhi.
At the time, the MSP was fixed at ₹ 54 per quintal of wheat with the aim of multiplying the new dwarf ‘miracle’ wheat varieties in India and to ensure that these varieties are extensively used by Indian farmers.
Also, some new rice varieties were introduced during that time. The policymakers realised they needed to ensure farmers grow food crops because wheat and rice are labour-intensive and do not generate lucrative prices. These new varieties were highly responsive to fertilisers but fell prey to plant insects and were destroyed. Owing to extremely limited fertiliser manufacturing capability at the time, India even spent hugely to export fertilisers from outside.
So, at a time when India was facing a severe deficit of cereal production, MSP became the centre-stage of the country’s agriculture revolution and a safety mechanism for vulnerable farmers. The revolution made India a food surplus nation from a food deficit nation.
Several crops covered under MSP
At present, 23 agricultural commodities are listed under the MSP by the central government. The green revolution belt i.e. Punjab, Haryana and Uttar Pradesh were some of the first zones to implement MSP. Established in 1965, the Commission for Agricultural Costs and Prices (CACP), attached to the Ministry of Agriculture and Farmers Welfare, Government of India is mandated ‘to recommend minimum support prices (MSPs) to incentivise the cultivators to adopt modern technology, and raise productivity and overall grain production in line with the emerging demand patterns in the country.’
As of now, CACP recommends MSPs of 23 commodities comprising seven cereals (paddy, wheat, maize, sorghum, pearl millet, barley and ragi), five pulses (gram, tur, moong, urad, lentil), seven oilseeds (groundnut, rapeseed-mustard, soyabean, sesamum, sunflower, safflower, nigerseed) and four commercial crops (copra, sugarcane, cotton and raw jute).
To increase agricultural production and productivity it’s essential to have an assurance of a ‘remunerative and stable price environment’ because the agriculture market is unstable and unpredictable.The government fixes MSP for major agricultural products after considering recommendations of the CACP. Rabi and Kharif are the two major cropping seasons in India. The government announces the MSP at the beginning of each cropping season that it decides after thoroughly studying the recommendations made by the CACP.
Determining correct MSP crucial
The CACP recommendations on MSP for a specific crop are based on pre-fixed formulae that include ‘the actual cost incurred, implicit family labour as well as the amount of fixed assets or rent paid by the farmers.’ The recommendations are submitted to the government in the form of Price Policy Reports every year, separately for the five groups of commodities – Kharif crops, Rabi crops, Sugarcane, Raw Jute and Copra.
The commission prepares a comprehensive questionnaire before sending it to all the state governments, organisations and ministries. Simultaneously, separate meetings are held with farmers from different states, state governments, organisations like FCI, NAFED, Cotton Corporation of India (CCI), Jute Corporation of India (JCI), trader’s organisations, processing organisations and key union ministries.
Additionally, CACP members visit states for closer understanding and assessment of farmers’ situation, status and constraints they face in increasing productivity or marketing their produce. After compiling data and information from all the steps above, the CACP prepares the report with recommendations and submits to the government. Then, the government circulates the recommendations to state government and concerned central ministries for their comments.
Upon receiving feedback, the Cabinet Committee on Economic Affairs (CCEA) of the central government finally sets the MSP for the crops in question. All of CACP reports are put out in public domain for the stakeholders to see the rationale behind the CACP recommendations.
Farmers’ future with MSP looks brighter
With the area under wheat cultivation at its largest, chances of India harvesting a record wheat production this year are very high. Despite the protests in Delhi by farmers from wheat-growing states of Punjab, Haryana and Uttar Pradesh, the new legislation aims to secure farmers further. The new farm laws allow farmers to sell their produce to anyone at any place across the country, enter into contract farming and sell without worrying about stock limits to traders. Farmers have been misguided by opposition parties and other anti-national elements that are spreading the narrative that the new farm laws would result in the closure of agricultural produce marketing committee (APMC) mandis and end of the minimum support price (MSP) schemes for the farmers.
The reforms are intended to help farmers by providing them more options to sell their produce. During a session in the Parliament in February 2021, Prime Minister Narendra Modi said the “MSP system will continue to exist and the government had no plans to dismantle it.”
India’s neighbours face MSP woes
India’s neighbours such as Nepal, Pakistan and Bangladesh have also embraced the concept of MSP over the years. Nepal, for example, introduced minimum support price in the country’s seventh five year plan for paddy and wheat. The initiative did not reap the results the government was expecting so it was removed later. In 2016, after suspending the MSP for nearly two decades, the government of Nepal started setting the MSP for paddy.
In 2019, the government had fixed MSP for paddy almost four months later and some farmers had already started to harvest their crops. Experts in Nepal feel that the government should invest in research and development in the sector and address issues such as infrastructure and technical capabilities in the agriculture sector too. MSP is considered a remedy for the country’s agricultural woes if implemented properly.
In Pakistan, demands of subsidy packages are being made for the betterment of the agriculture sector. The farmers form a formidable 65 per cent of the country’s workforce. In order to protect their interests, demands are being made to make MSPs for wheat, sugarcane, etc., more amenable to the farmers.