Contradictions between farm laws and the MSP system

This article has been created based on the Indian Express article “Misunderstanding the MSP”  

Synopsis- Mere amendments to farm laws will not solve the MSP issue, as the MSP system may not be able to face the private system of farm laws.

Syllabus– GS Paper III (Issues related to direct and indirect farm subsidies and minimum support prices)

Introduction- Recent negotiations between the farmers’ organisations and the Centre are stuck on the issue of MSP and repeal of farm laws. Although the government offered an amendment to address flaws in the three farming laws.  But the farmers demanding, laws themselves need to be repealed.

Understanding the aspects related to the MSP system  

  • MSP Package: MSP alone is not remunerative for farmers. Remuneration is facilitated by a combination of 1.MSP, 2. Public Procurement System (PPS) and 3. Strict time-bound purchase of output brought to the PPS (By APMC, mandi yards). 
      • If any one of the above factors is missing from the combination, farmers will not be able to get the intended benefits.  
      • For example; Gaurang Sahay of the TISS, Mumbai reported that in MP, the absence of timely purchase of vegetables led to farmers feeding cauliflower and aubergine to their animals. i.e., one missing aspect from the combination.
  • Availability of package: The government system of announcing and implementing MSPs is inadequate.
      • MSP is announced for 23 crops but PPS and timely public procurement, are provided mainly for two crops, wheat and rice
      • For other 21 crops, the full package is not available and the market price falls way below MSP. 
      • It is the reason behind the demand for MSP continuation by Wheat and Rice farmers.
  • Definition of MSP is another contested issue– Farmers’ organisations are insisting on the Swaminathan Committee formula of C2+50 percent, also announced by BJP government in its 2014 election manifesto, but not yet implemented.   
      • The MSP announced by the government is based on the A2+Fl+50 percent formula, which, unlike the C2+50 percent formula, does not cover all the costs of farming.
      • This led to Farmers’ lack of trust in the government regarding its “assurance” on MSP.
Components of MSP Calculation:

  1. A2: the actual expenses paid by farmers in cash and kind for seeds, fertilisers, pesticides, paid labour, irrigation, etc.
  2. A2+FL: the A2 cost along with an adjustment for the costs of unpaid family labour (given traditional Indian farming practices involve families).
  3. C2: A2+FL along with all other production costs, including loans, rentals, cost of land and other fixed capital assets, i.e. a comprehensive cost of production.

How has the significance of MSP/PPS system changed over time?

At the launch of the Green Revolution, MSP and PPS were designed to

      • incentivize farmers to produce cereals — mainly wheat and rice —and  
      • achieve food self-sufficiency, which was met by the early Seventies.

At present, the purpose of MSP, PPS/APMC are:

      • To maintain food self-sufficiency because crop diseases and extreme weather conditions can lead to food shortages. 
      • To ensure a reasonable, assured income to the farmers.

The 2nd purpose of ensuring reasonable income to farmers becomes crucial as 86 per cent of India’s farming households are either marginal (cultivating less than one hectare of land) or small (cultivating between one hectare and two hectares of land).

The above fact has been totally ignored by many pro-farm bill experts and even the Shanta Kumar Committee in its 2015 report by suggesting the dismantlement of FCI public procurement.

Can MSP system co-exist with the Private market system?

Government argument of Coexistence of MSP/APMC with big agribusiness-controlled private markets doesn’t look promising, due to the following factors.

  1. Firstly, Contract with the private trader, once entered into by a farmer, he will not be legally allowed to use the APMC mandi system for a better price than that contracted with the trader.
  2. Secondly, Dispute Resolution Mechanism doesn’t favor farmers. In case a farmer tries to use the other avenues providing better remuneration, private entities will take the non-compliant farmer to court.
  3. Third, Farmers will not be able to win a legal battle due to the structural inequities of legal resources and social-cultural capital under the dispute resolution mechanism.
  4. Fourth, Lack of choice for farmers– The proposed dispute resolution mechanism increases the choice of the trader to trade i.e. can trade with n number of farmers but not of the farmers i.e. can enter into agreement with a single trader.
  5. Fifth, genesis of Centre-State conflict- As central law will prevail in the private markets, while state laws in the APMC mandis., it will create conditions for perpetual Centre-state conflicts.

How to improve MSP system in India?  

NITI aayog in its report provided with the following recommendations to improve the MSP system in India:

  • Awareness among the farmers needs to be increased and the information disseminated at the lowest level so that the knowledge would increase the bargaining power of the farmers.
  • Prompt payment: The delay in payment needs to be corrected and immediate payment should be ensured. For sustainability of farming prompt payment at remunerative rates should be made.
  • Timing of MSP announcement: MSP should be announced well in advance of the sowing season so as to enable the farmers to plan their cropping.
  • Transport and storage: More god owns should be set up and maintained properly for better storage and reduction of wastage. Transport facility (say, in the form of providing two wheelers) for Purchase Officers may be considered to help them effectively discharge their work.
  • Updated criterion for fixing MSP: The criteria for fixing MSP should be current data and based on more meaningful criteria rather than C3.
  • The small and marginal farmers can be provided with Procurement Centres in the village itself to avoid transportation costs.

MSP has been very helpful in keeping agriculture in our country alive and we have been able to become self-sufficient in food grains due to it. It becomes crucial for government to provide some solid assurance to farmers that it won’t be allowed to die down.


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