MINIMUM SUPPORT PRICE

Why in the news?

Recently, on the 78th anniversary of Independence, farmers organized protests around the country to put pressure on the central government to accede to their demands, which included a legal guarantee on MSP.

WHAT IS MSP?

In order to protect farmers from a sudden decline in farm prices, the government buys crops for them at a price known as the Minimum Support Price (MSP).

At the start of the sowing season, the government announces it based on the proposal of the Commission on Agricultural Costs and Prices (CACP).

HISTORY OF MSP:

The Minimum Support Price (MSP) was first implemented in India in the early 1960s, a time of food shortages and unstable agricultural output prices. The MSP policy was introduced in response to the need to guarantee farmers’ compensation and promote higher agricultural output. Here is a quick synopsis of MSP’s past:

1960s: Green Revolution Era: In the 1960s, during the Green Revolution, the idea of MSP was codified. Its goal was to encourage farmers to cultivate crop types with high yields by guaranteeing their prices. At a set MSP, the government started buying food grains straight from farmers.

1965 – Wheat Procurement: In 1965, the MSP policy was used to wheat for the first time. In order to increase food supplies and maintain price stability, the government paid farmers a guaranteed price for wheat.

1966 saw the establishment of the Agricultural Prices Commission (APC), which was subsequently renamed the Commission for Agricultural Costs & Prices (CACP). The Commission’s role was to recommend MSPs for different commodities by taking into account market trends, production costs, and demand-supply dynamics.

1970s: Crop Diversification: To guarantee income security and lessen reliance on imports, the MSP policy was expanded over time to include additional crops like rice, pulses, oilseeds, and cotton.

The 2000s: Expansion and Modifications: To ensure that farmers are compensated fairly for their labour, the MSP system was expanded to include new crops and consider production costs.

Reforms and Debates in Recent Years: Discussions concerning the MSP policy’s ability to alleviate farmer concerns, price volatility, and income inequality have come up recently. Proposals to alleviate regional imbalances through MSP revisions and mechanisms have gained traction.

2020s: MSP and Agricultural Reforms: With the implementation of new agricultural reforms, the topic of MSP became even more prominent. While some measures seek to give farmers alternatives to traditional procurement, discussions regarding the future of MSP and its effects on farmers linger.

 Committees on Minimum Support Price (MSP)

The goal of the 1965 establishment of the Agricultural Prices Commission (APC) was to suggest MSPs for agricultural commodities. Later on, the organization was renamed the Commission on Agricultural Costs and Prices (CACP). The CACP recommends MSPs for 23 different crops, including oilseeds, wheat, rice, pulses, and cotton.

Farmers’ National Commission (NCF): Under M.S. Swaminatha’s direction, the NCF was founded in 2004 with the goal of addressing farmer concerns and suggesting measures for their well-being. As MSP, the NCF suggested a minimum profit margin of 50% over the cost of production.

Shanta Kumar Committee: To examine the Food Corporation of India (FCI) and recommend changes, the Shanta Kumar Committee was established in 2014. The group suggested that farmers should get subsidies based on income rather than price.

How Do Farmers Gain from the Minimum Support Price?

a. Income Security: MSP insures farmers against market price volatility by guaranteeing a minimum price for their crops. This ensures a steady income.

1. Price Stability: MSP assists in keeping agricultural product prices stable, reducing sharp swings and guaranteeing reasonable costs for customers.
2. Encourages Production: By giving farmers a fair price for their produce, the Minimum Support Price encourages farmers to expand agricultural production.
3. Food Security: By encouraging farmers to grow basic crops, decreasing reliance on imports, and improving domestic food security, MSP fosters a stable food supply.

What Problems Does India’s Minimum Support Price (MSP) System Have?

1. Focus on Procurement: The primary goal of the current MSP regime is not to correlate with domestic market pricing, but to fulfill the objectives of the National Food Security Act (NFSA). It works less like an actual MSP and more like a procurement price.
2. The Presence of Paddy and Wheat: Farmers are discouraged from producing other crops and horticultural goods that have higher demand because of the disproportionate concentration on MSP for rice and wheat, which results in an overoutput of these commodities.
3. Poor Execution: As per the 2015 report by the Shanta Kumar Committee, the Minimum Support Price benefits a mere 6% of farmers. This indicates that 94% of farmers nationwide do not benefit from the MSP in the way that is intended.

NEED TO LEGALIZE MSP :

• Numerous problems related to the Minimum Support Price:

  Non-proportional increase: The pricing for the support services are not raised in line with the rise in production costs. According to rating agency CRISIL, there has been a decline in MSP growth between 2014 and 2017.

• Reach: Not all farmers and not all crops will benefit from this program. Due to ignorance, some farmers have not been able to take use of MSP’s advantages. There are numerous areas of the nation, such as the northeast, where the execution is inadequate.
• Excess Storage: The MSP’s lack of storage has led to massive stock piles in the warehouses. The stock now meets double the requirements under PDS, buffer stock, and other systems.
• Market distortion: When certain crops are given preference over others, the free market is distorted.
• Financial strain: Unrestricted purchases of wheat and paddy at MSPs are wholly unrelated to market rates and result in financial strain.
  Impact on agricultural exports: Increases in MSP have a negative impact on exports as well by lowering the competitiveness of Indian farm products, particularly when global market prices are lower.
• Ecological issue: MSP promotes non-scientific farming methods that overstress the soil and water to the point where the groundwater table declines and the soil becomes salinized.
• Crop diversity: MSP has an impact on India’s crop diversification. Cropping patterns are impacted by MSP since it encourages the cultivation of crops that are supported by the program and ensures returns.

The Way Ahead

Expand Agricultural Productivity: Prioritize investments in fisheries and animal husbandry, as well as in fruits and vegetables, as these are more nutrient-dense and may yield greater returns.

Promote Private Sector Involvement: Using a cluster strategy, the government should provide incentives for the private sector to create effective value chains for agriculture.

Real MSP Intervention: When market prices drop below a set threshold, the government should act as a true MSP. This is especially true when there is excess production, an oversupply, or a price collapse brought on by external forces.

Encourage Diverse crops: Incentives such as the Minimum Support Price can be used to encourage the production of essential crops for nutritional security, like edible oils, pulses, and coarse grains, all of which are imported into India.

Practice Question :

Consider the following statements regarding the Minimum Support Price(MSP):

1. MSP is announced by the Ministry of Agriculture & Farmers Welfare.
2. MSP is based on the recommendations of the Commission for Agricultural Costs and Prices.
3. The government sets MSP at 2.5 times the Cost of Production. Which of the statements given above is/are correct?
4. a) 1 and 2 only
5. b) 2 only
6. c) 1 and 3 only
7. d) 2 and 3 only

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