Minimum Support Price - Daily Current Affair Article

Why in News:

Samyukt Kisan Morcha, the umbrella body of farmer unions that is leading the agitation, has written an open letter to the PM demanding a legal guarantee of remunerative Minimum Support Price(MSP).

What is Minimum Support Price (MSP):

MSP is a form of market intervention by the Central Government to insure agricultural producers against any sharp fall in farm prices —a guarantee price to save farmers from distress sale. The MSPs are announced at the beginning of the sowing season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP, 1985).

Objectives of MSP:

1. Remunerative price to Farmers

2. Food Security

3. Stable food prices

Crops under Minimum Support Price

Government announces MSPs for 23 mandated crops and fair and remunerative price (FRP) for sugarcane. The mandated crops (14 crops for 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

How is MSP fixed?

It is fixed by the centre based on the recommendations of the Commission for Agricultural Costs and Prices (CACP) which is a statutory body. CACP submits two separate reports for Kharif and Rabi seasons and based on these, centre fixes MSPs twice a year.

CACP considers the following three costs while recommending MSP-

  • A2 which covers all the cash and kind expenses of the farmers
  • A2+FL which takes into account the estimated value of the unpaid labour of family members
  • C2 which includes A2+FL along with the interests foregone.

Issues with MSP prompting the demand for legal backing

1. MSP skewed in favour of Wheat and Paddy

2. Promoting unsustainable farming practices

3. Politicization of MSP prices

4. No MSP for fruits, vegetables and fisheries and livestock products that together have a 45% share in the gross value of output of India’s agriculture, forestry and fishing sector.

CACP Recommendation in 2018:

CAPC has recommended that the Centre bring out a legislation which would give the 'right to sell at MSP' some legal teeth by giving farmers the right to sell their produce at those prices.

  • Often farmers of remote areas do not have sufficient access to APMCs (Agricultural Produce Market Committees) and their potential market is local haats where their produce is sold below MSP.
  • Strong procurement operations need to be expanded to neglected regions, particularly eastern and north-eastern regions.
  • Therefore, the CAPC wants the Centre to bring in a legislation conferring the “right to sell at MSP”, which will give legal backing to the exercise, ensure that crops are not purchased below fixed price and “instil confidence among farmers”.

How can MSP be made legally binding?

There are two ways it can be done.

  • The first is to force private buyers to pay it. In this case, no crop can be purchased below the MSP, which would also act as the floor price for bidding in mandi auctions. There’s already a precedent: In sugarcane, mills are required by law to pay growers the Centre’s “fair and remunerative price” – Uttar Pradesh and Haryana fix even higher “state advised prices” – within 14 days of supply. In no other crop is the compulsion to pay the government-announced MSP thrust on the private trade/industry
  • The second route is, of course, the government itself buying the entire crop that farmers offer at the MSP.

Way forward:

Extending MSP to all farm produce and guaranteeing it through law is hugely challenging, fiscally and otherwise. It also explains why economists increasingly are in favour of guaranteeing minimum “incomes” rather than “prices” to farmers. One way to achieve that is via direct cash transfers either on a flat per-acre (as in the Telangana government’s Rythu Bandhu scheme) or per-farm household (the Centre’s Pradhan Mantri Kisan Samman Nidhi) basis.

General Studies Paper 3
  • Indian Economy & its Issues