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MSP Should Be Legally Guaranteed

Lakhs of farmers from all over India, lead by Punjab, Haryana and western Uttar Pradesh farmers, are protesting at various border points of Delhi since 24 November 2020 against the three laws -- the Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act, the Essential Commodities (Amendment) Act, and the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act. Farmers are demanding Minimum Support Price (MSP) should be legally guaranteed as act.

Enacted in September 2020, the government has presented these laws as major farm reforms aimed at increasing farmers' income, but the protesting farmers have raised concerns that these regulations would weaken the minimum support price and "mandi" (wholesale market) systems and leave them at the mercy of big corporations. There are over 7300 Mandi and over 16,000 local markets (haat) across India.

The government has maintained that these apprehensions are misplaced and has ruled out a repeal of the laws.

On January 12, the Supreme Court had stayed the implementation of the contentious new farm laws till further orders and constituted the four-member committee to make recommendations to resolve the impasse over them between the Centre and farmers' unions protesting at Delhi borders.

The members of the court-appointed committee were -- Bhupinder Singh Mann, National President of Bhartiya Kisan Union, All India Kisan Coordination Committee; Parmod Kumar Joshi, Director for South Asia, International Food Policy Research Institute; Ashok Gulati, agricultural economist and former chairman of the Commission for Agricultural Costs and Prices, and Anil Ghanwat, President of Shetkari Sanghatana. Later, Mann had recused himself from the court-appointed committee.

Minimum Support Price (MSP) is a form of market intervention by the Government of India to insure agricultural producers against any sharp fall in farm prices. The minimum support prices are announced by the Government of India at the beginning of the sowing season for ncertain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP). MSP is price fixed by Government of India to protect the producer - farmers - against excessive fall in price during bumper production years. The minimum support prices are a guarantee price for their produce from the Government. The major objectives are to support the farmers from distress sales and to procure food grains for public distribution. In case the market price for the commodity falls below the announced minimum price due to bumper production and glut in the market, government agencies purchase the entire quantity offered by the farmers at the announced minimum price.

MSP was first introduced in the year 1967. Then, it was called Statutory Minimum Price. Later it was renamed to MSP in the year 1970.

The Price Support Policy of the Government is directed at providing insurance to agricultural producers against any sharp fall in farm prices. The minimum guaranteed prices are fixed to set a floor below which market prices cannot fall. Till the mid 1970s, Government announced two types of administered prices : Minimum Support Prices (MSP) and Procurement Prices.

The MSPs served as the floor prices and were fixed by the Government in the nature of a long-term guarantee for investment decisions of producers, with the assurance that prices of their commodities would not be allowed to fall below the level fixed by the Government, even in the case of a bumper crop. Procurement prices were the prices of kharif and rabi cereals at which the grain was to be domestically procured by public agencies (like the FCI) for release through PDS. It was announced soon after harvest began. Normally procurement price was lower than the open market price and higher than the MSP. This policy of two official prices being announced continued with some variation upto 1973-74, in the case of paddy. In the case of wheat it was discontinued in 1969 and then revived in 1974-75 for one year only. Since there were too many demands for stepping up the MSP, in 1975-76, the present system was evolved in which only one set of prices was announced for paddy (and other kharif crops) and wheat being procured for buffer stock operations.

In formulating the recommendations in respect of the level of minimum support prices and other non-price measures, the Commission takes into account, apart from a comprehensive view of the entire structure of the economy of a particular commodity or group of commodities, the following factors:

  • Cost of production
  • Changes in input prices
  • Input-output price parity
  • Trends in market prices
  • Demand and supply
  • Inter-crop price parity
  • Effect on industrial cost structure
  • Effect on cost of living
  • Effect on general price level
  • International price situation
  • Parity between prices paid and prices received by the farmers.
  • Effect on issue prices and implications for subsidy

The Commission makes use of both micro-level data and aggregates at the level of district, state and the country. The information/data used by the Commission, inter-alia include the following:

  • Cost of cultivation per hectare and structure of costs in various regions of the country and changes there in;
  • Cost of production per quintal in various regions of the country and changes therein;
  • Prices of various inputs and changes therein;
  • Market prices of products and changes therein;
  • Prices of commodities sold by the farmers and of those purchased by them and changes therein;
  • Supply related information - area, yield and production, imports, exports and domestic availability and stocks with the Government/public agencies or industry;
  • Demand related information - total and per capita consumption, trends and capacity of the processing industry;
  • Prices in the international market and changes therein, demand and supply situation in the world market;
  • Prices of the derivatives of the farm products such as sugar, jaggery, jute goods, edible/non-edible oils and cotton yarn and changes therein;
  • Cost of processing of agricultural products and changes therein;
  • Cost of marketing - storage, transportation, processing, marketing services, taxes/fees and margins retained by market functionaries; and
  • Macro-economic variables such as general level of prices, consumer price indices and those reflecting monetary and fiscal factors.

The increase in MSP for Kharif Crops is in line with the Union Budget 2018-19 announcement of fixing the MSPs at a level of at least 1.5 times of the All-India weighted average Cost of Production (CoP), aiming at reasonably fair remuneration for the farmers. During the 2018-19 Union Budget the government announced that MSP would be kept at 1.5 times the cost of production (as per recommendations from the M S Swaminathan chaired National Commission for Farmers). The CACP has three formulas for calculating cost of production — A2, A2+FL and C2. A2 covers expenses like seeds and fertiliser. FL covers family labour. C2 includes A2+FL plus things like interest forgone on owned land and fixed capital assets.

The pricing of sugarcane is governed by the statutory provisions of the Sugarcane (Control) Order, 1966 issued under the Essential Commodities Act (ECA), 1955. Prior to 2009-10 sugar season, the Central Government was fixing the Statutory Minimum Price (SMP) of sugarcane and farmers were entitled to share profits of a sugar mill on 50:50 basis. As this sharing of profits remained virtually unimplemented, the Sugarcane (Control) Order, 1966 was amended in October, 2009 and the concept of SMP was replaced by the Fair and Remunerative Price (FRP) of sugarcane. A new clause ‘reasonable margins for growers of sugarcane on account of risk and profits’ was inserted as an additional factor for working out FRP and this was made effective from the 2009-10 sugar season. Accordingly, the CACP is required to pay due regard to the statutory factors listed in the Control Order, which are

  • the cost of production of sugarcane;
  • the return to the grower from alternative crops and the general trend of prices of agricultural commodities;
  • the availability of sugar to the consumers at a fair price;
  • the price of sugar;
  • the recovery rate of sugar from sugarcane;
  • the realization made from sale of by-products viz. molasses, bagasse and press mud or their imputed value (inserted in December, 2008) and;
  • reasonable margins for growers of sugarcane on account of risk and profits (inserted in October, 2009).

Government announces minimum support prices (MSPs) for 22 mandated crops and fair and remunerative price (FRP) for sugarcane. The mandated crops are 14 crops of the kharif season, 6 rabi crops and two other commercial crops. In addition, the MSPs of toria and de-husked coconut are fixed on the basis of the MSPs of rapeseed/mustard and copra, respectively. The list of crops are as follows.

  • Cereals (7) - paddy, wheat, barley, jowar, bajra, maize and ragi
  • Pulses (5) - gram, arhar/tur, moong, urad and lentil
  • Oilseeds (8) - groundnut, rapeseed/mustard, toria, soyabean, sunflower seed, sesamum, safflower seed and nigerseed
  • Raw cotton
  • Raw jute
  • Copra
  • De-husked coconut
  • Sugarcane (Fair and remunerative price)
  • Virginia flu cured (VFC) tobacco

As per Shanta Kumar committee report (2015), only 6 per cent farmers get MSP. The committee has recommended revisiting MSP policy. It says the government should focus on MSP of pulses and oilseed. This recommendation comes in the backdrop of skewed MSP policy, which concentrates only on wheat and rice. Rest of the 21 commodities, other than wheat and rice, get neglected.

As per ICRIER-OECD study on agricultural policies in India (2018), producer support estimate (PSE) for India was minus (-) 14 per cent of gross farm receipts, on an average, for the years 2000-01 to 2016-17. What this implies is that Indian farmers have been ‘implicitly taxed’ through restrictive marketing and trade policies that have an in-built consumer bias of controlling agri-prices. If one calculates the sums involved of this ‘implicit taxation’, it amounts to Rs. 2.65 trillion (lakh crore) per annum, at 2017-18 prices, for 2000-01 to 2016-17. Cumulatively, for 17 years, this comes to roughly Rs. 45 trillion at 2017-18 prices. No country in the world has taxed its farmers so heavily as India has done during this period. This is nothing short of plundering of the farmers’ incomes by Rs. 45 trillion!

Until India reforms its agri-marketing laws, and frees agri-markets, it is time to atone through a structured and stable income policy for farmers for at least the next five years. MSP should be legally guaranteed with constitutional status of Commission for Agricultural Costs and Prices (CACP).

Also Read:
Farm Bill 2020 - Farmer's Protest and the Economic Rationality
Agriculture: An Integral part of Indian Economy
Rural Economy: Challenges | Government Policies | Rural Development

1 comment:

  1. Totally agree with the view point mentioned in the article. Stable income policy should be guaranteed for the Indian farmers.

    ReplyDelete