New Delhi: The farmers’ protests at the national capital against the three farm laws passed by the Narendra Modi government have entered the 12th day. Five rounds of talks between the farmers and the Centre have remained inconclusive, and farmer unions have called for a Bharat Bandh on 8 December before the sixth round of talks, scheduled to take place on 9 December.
At the centre of the protests are two issues — the fear that minimum support price (MSP) will not be enforced once private mandis come up; and the amendment of the Agricultural Produce Marketing Committee (APMC) Act. ThePrint takes a look at MSP and how it is determined.
What is MSP?
Minimum Support Price is a safety net given to the farmers to ensure guaranteed prices and assured markets. The MSP-based procurement system is aimed to save the crops from price fluctuations due to various unwarranted factors such as the monsoon, lack of market integration, information asymmetry and other elements of market imperfection plaguing Indian agriculture.
However, currently MSP does not have any legal backing. The three new farm laws also do not have any provision for MSP.
The prices of agricultural commodities often vary due to various factors. If a crop has seen good harvest season during a particular year, it may see a sharp fall in its prices. This will lead to farmers withdrawing from sowing the crop in the next year which will affect the supply. To counter this, MSP is fixed by the government which is supposed to encourage higher investments and production of crops.
The MSP is fixed twice a year on the recommendations of the Commission for Agricultural Costs and Prices (CACP), which is a statutory body and submits separate reports recommending prices for kharif and rabi seasons.
The CACP submits its recommendations to the government in the form of Price Policy Reports every year, separately for five groups of commodities namely kharif crops, rabi crops, sugarcane, raw jute and copra.
After considering the report and views of the state governments and also keeping in view the overall demand and supply situation in the country, the central government takes the final decision.
Currently, MSP for 23 crops is recommended by CACP, which comprise seven cereals (paddy, wheat, maize, sorghum, pearl millet, barley and ragi), five pulses (gram, tur, moong, urad, lentil), seven oilseeds (groundnut, rapeseed-mustard, soyabean, sesamum, sunflower, safflower, nigerseed), and four commercial crops (copra, sugarcane, cotton and raw jute).
The A2+FL formula
In response to a question in Lok Sabha in March, the Union Minister of Agriculture and Farmers Welfare Narendra Singh Tomar had revealed that the CACP considers both ‘A2+FL’ and ‘C2’ costs while recommending MSP.
A2 costs cover all paid-out expenses, both in cash and kind, incurred by farmers on seeds, fertilisers, chemicals, hired labour, fuel and irrigation, among others. A2+FL covers actual paid-out costs plus an imputed value of unpaid family labour.
The C2 costs account for the rentals and interest forgone on owned land and fixed capital assets respectively, on top of A2+FL.
The CACP reckons only A2+FL cost for return. However, C2 costs are used as a benchmark reference costs to see if the MSPs recommended by them cover these costs in some of the major producing states.
The MSP system was started in 1966-67 for wheat and was expanded further to include other essential food crops, which was then sold to the poor under subsidised rates under the public distribution system (PDS). In 1966, wheat’s MSP was Rs 54 per quintal. Currently, it is at Rs 1,975 per quintal.
How MSP has changed
In the last 10 years, the MSP growth rate for most of the crops has declined for both rabi and kharif. Amid the ongoing protests, the government recently increased MSP for six rabi crops.
With the latest announcement, MSP growth rates for wheat and paddy are reportedly at the lowest in the last decade, at 2.6 per cent and 2.9 per cent, respectively.
The limitation of MSP
According to the 2012-13 report of the National Sample Survey Office, less than 10 per cent farmers sell their produce at the MSP fixed by the government. An analysis of 10 crops sold in September this year shows that in 68 per cent of instances, crops were sold below the MSP.
The major problem with the MSP is lack of government machinery for procurement for all crops except wheat and rice, which the Food Corporation of India actively procures under the PDS.
As state governments procure the last mile grain, the farmers of states where the grain is procured completely by the government benefit more while those in states that procure less are often affected.
For example, in Punjab, more than 95 per cent of paddy growers benefit from MSP while in Uttar Pradesh, only 3.6 per cent of the farmers benefit.
The MSP-based procurement system is also dependent on middlemen, commission agents and APMC officials, which smaller farmers find difficult to get access to.