23 August 2022 – The Hindu

Minimum Support Price

Meaning:

• The MSP for a crop is the price at which, in the event that the market price falls below it, the government is required to purchase that crop from farmers.
• MSPs set a floor for market pricing and guarantee farmers a set “minimum” wage in order to pay their cultivation costs (and a portion of their profit).

Objective:

• India will never run short of its staple food grains because to government incentives for the growing of specific crops.
• MSPs establish the baseline for farm pricing for both the crops that serve as substitutes as well as the commodities for which they are published.
• What if the market’s prices are too low?
• This sometimes occurs when there is a bumper crop that year or when the global price of a specific commodity is relatively low.
• Farmers in India, already among the poorest people in the nation, would find it difficult to make ends meet in such a situation.
• Aside from their own problems, if farmers stop producing due to low prices, it could potentially jeopardise the nation’s food security.
• The government issues MSPs each year as a strategy to foresee such a situation.

Supporting costs:

• The government sets minimum support prices for 23 crops throughout each planting season.

Crops protected:

• 7 varieties of cereal (paddy, wheat, maize, bajra, jowar, ragi and barley)
• Chana, arhar/tur, urad, moong, and masoor are 5 different varieties of pulses.
• 7 oilseeds (rapeseed-mustard, groundnut, soyabean, sunflower, sesamum, safflower, nigerseed).
• 4 commercial crops (cotton, sugarcane, copra, raw jute).

Who makes the decisions regarding the MSP, and how?

• The Union government makes the announcement of the MSPs, hence that decision belongs to the government.
• But the Commission on Agricultural Costs and Prices’ recommendations are what the government relies on most when making decisions (CACP).

The CACP considers the following aspects while making MSP recommendations:

• A commodity’s supply and demand.
• Its production costs.
• Trends in market prices (both domestic and international).
• parity between crops’ prices.
• Trade agreements between agriculture and other industries (that is, the ratio of prices of farm inputs and farm outputs).
• A profit margin over production costs of at least 50%.
• The most likely effects of an MSP on that product’s customers.

Costs of Production in Three Forms:

• For every crop, the CACP predicts three different types of production costs, both at state- and India-wide average levels.
• ‘A2’: Pays for all direct expenditures made by the farmer for things like seeds, fertiliser, pesticides, hired labour, leased land, fuel, irrigation, and so forth.
• A2 plus an imputed value for unpaid family labour is included in the phrase “A2+FL.”
• “C2”: It is a more comprehensive cost that, in addition to A2+FL, takes into account rentals, interest forgone on owned land, and fixed capital assets.
• When advising MSP, CACP takes into account both A2+FL and C2 expenses.

Relevance of MSP:

• Better price for their crops: Farmers will receive a better price for their crops thanks to the increase in the MSP, and procurement will also take place.
• Promotion of oilseed production: As farmers receive a guaranteed price for their products, they will be more inclined to plant oilseeds and move away from grain production.
• Over the past few years, the area used for oilseed production has been steadily increasing, and we anticipate that trend to continue.
• Crop Diversification: The MSP rises for pulses, oilseeds, and coarse cereals are slightly higher, which aids in the goal of crop diversification.
• Differential Farmer compensation and protection: It aids in the land use pattern’s crop diversification. It shields farmers against unreasonable price fluctuations brought on by price differences at the international level.
• MSP serves as a shock absorber, allowing for the handling of any abrupt drops in market prices for commodities.
• Correct the demand-supply mismatch The MSPs were realigned in favour of coarse grains, pulses, and oilseeds through deliberate efforts.
• To balance out the supply and demand, it encouraged farmers to plant these crops on greater plots of land and to use best farming methods and technologies.
• Increased emphasis on nutrient-rich crops is intended to encourage their production in regions where growing rice or wheat would have a negative impact on the groundwater table over the long run.
• Consumer demands: MSP makes sure that the agricultural production of the nation adapts to the shifting needs of its customers. Ex: To increase pulse sowing, the government increased the MSP for pulses.
• Food Crops: The MSP encourages the growth of one particular food crop that is in short supply.
• The MSP increases agricultural profitability, which in turn motivates farmers to spend more on inputs, technology, etc. in the forward chain.
• Atma-nirbhar Bharat: The government raised the support price of tur by Rs 300 to Rs 6,300 per quintal for the 2021–22 crop year from Rs 6,000 per quintal the previous year in an effort to improve the output of pulses and oilseeds and lessen the nation’s reliance on imports.

MSP-related difficulties:

• Farmers’ protest: On the outskirts of Delhi, farm unions have been demonstrating for more than six months in favour of legislation that would guarantee MSP to all farmers for all crops as well as the repeal of three divisive agricultural reform laws.
• MSP and Inflation: Inflation should be considered when declaring the MSP. But frequently, the price is not raised to that level. For instance, the MSP for maize this time has not even taken into account inflation and how it will benefit farmers! Inflation can also be caused by the MSPs’ repeated increases.
• High input expenses The small farmers’ meagre income has been squeezed and they have become indebted as a result of input costs growing faster than sales prices.
• Absence of Mechanism: There is no mechanism that ensures that each farmer will receive at least the MSP as the market floor price. Therefore, correct methods must be fixed for all future periods.
• Export Restrictions: Even after producing surplus grains, a significant amount of these grains spoil every year. This is because grain stocks with the FCI—which are significantly subsidised due to MSP—cannot be exported due to restrictions under WTO norms.
• Limited Knowledge: Farmers, particularly small and marginalised ones, are less informed of the date and time that MSPs are announced. They end up being excluded from the entire virtuous circle as a result.
• Economically Unsustainable: For the FCI, the cost of acquiring wheat and rice is significantly greater than the market price for the same products. As a result, the Union government will eventually have to shoulder the financial burden of the FCI, which could result in funds being diverted from being used to build infrastructure for agriculture.

Steps to Take:

• By ensuring a baseline price for their produce, the MSP protects farmers and aids in achieving food security and addressing shortages of essential foods.
• The Government and the Unions should amicably handle the farmer difficulties in light of the significance of MSP so that the benefits outweigh the harms.
• Ambitious projects like e-NAM, tripling farmer income by 2022, the price stabilisation fund, and the recommendations of the Swaminathan and Shanta Kumar committee must be implemented properly and rigorously.
• bolster the Farmers Producer Organization (FPO) in both the agricultural and non-agricultural sectors. On the one hand, it will provide farmers more negotiating leverage, and on the other, it will create a favourable environment for investments.