A Formal Guarantee for MSP will be a Significant Step Forward

When Prime Minister Narendra Modi announced the repeal of the three controversial farm laws on November 19, he also declared that the Union Government will appoint a committee to look into how the minimum support price (MSP) system might be made more effective. This happened after the longest ever peaceful farmers’ agitation continued for over…

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Abdul Bari Masoud

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When Prime Minister Narendra Modi announced the repeal of the three controversial farm laws on November 19, he also declared that the Union Government will appoint a committee to look into how the minimum support price (MSP) system might be made more effective. This happened after the longest ever peaceful farmers’ agitation continued for over 380 days on the borders of Delhi, where 715 farmers sacrificed their lives.

The enactment of MSP law has been a long standing demand of the farmers’ unions and a sticking point with the successive governments. And this demand has intensified since the Modi administration passed the three agri-laws last year, triggering the historic mass mobilisation of farmers.

The protesting farmers’ one of the key demands was that a law should be enacted on MSP to provide guarantee for all agricultural produce to every farmer.

The demand has gained momentum after Dr. M.S. Swaminathan submitted his report in 2006. In the fifth report of the National Commission on Farmers set up under his chairmanship, Swaminathan recommended that MSPs – which act as a floor price to avoid distress sales – should be “at least 50% more than the weighted average cost of production”. However, the National Policy for Farmers of 2007 did not include this recommendation.

The BJP’s key promise with respect to agriculture in its manifesto for 2019 was to double farmers’ income by 2022 but it remains only on paper. Though, the BJP government recently boosted the MSP for all Kharif and Rabi crops, as well as other commercial crops, for the 2018-19 seasons, with a return of at least 50% over cost of production but farmers unions called it a farce.



The MSP is the government’s minimum floor price for acquiring goods from farmers, and it is based on average production costs. It is a minimum price guarantee that protects farmers when they sell specific crops by providing a safety net or insurance. Government agencies purchase certain crops at a fixed price for farmers, and the MSP cannot be changed under any circumstances. As a result, the concept of MSP protects farmers in the country when crop prices fall dramatically. Wheat and rice are two of the most popular crops that the government buys from farmers at MSP.

A total of 22-23 crops are procured through the MSP scheme. Currently, the Union Government has declared MSP for 23 crops, including paddy, wheat, maize, sorghum, pearl millet, barley, ragi, gramme, tur, moong, urad, lentil, groundnut, rapeseed-mustard, soybean, sesamum, sunflower, safflower, niger seed, copra, sugarcane, cotton, and raw jute, based on recommendations from the Commission for Agricultural Costs & Prices (CACP). However, because there is no legal provision to execute the pricing, it is effectively maintained only for a few crops such as paddy, wheat, and soybean.


Who Determines MSP?

On certain crops, the MSP is determined by the Union Government, based on recommendations from the Commission for Agricultural Costs and Prices (CACP). The CACP is in charge of calculating the MSP, which is based on a formula derived from the National Commission on Farmers which was formed to resolve issues faced by farmers.



In short, the Government’s MSP-based procurement stems from the British rationing system implemented during World War II. In 1942, a food section was established. It was renamed the Ministry of Food after the country gained independence. India was experiencing severe food shortages at the time. India was aggressively attempting to build up its food stocks and prevent shortages when the Green Revolution began in the 1960s. In 1966-67, the MSP system was eventually implemented for wheat, and it was later expanded to include other critical food crops. The impoverished were then offered this at subsidised rates through the public distribution system.



It’s odd that the concept of MSP, which is critical for increasing farmers’ income, isn’t included in any law, despite the fact that it’s been present for decades. While the Government announces the MSP twice a year, there is no law requiring it. This technically means that, while the Government buys from farmers at MSP, it is not required to do so by law. In truth, there is no regulation stating that MSP cannot be enforced on private dealers as well. Before recommended legislation, the CACP had requested to create a solid MSP rule for farmers, but the Union Government turned it down.



Farmers were angry because none of the three farm laws mentioned MSP. They were having difficulty trusting the government, despite Prime Minister Narendra Modi and his government having publicly promised farmers that the MSP system will remain intact. These farm laws had little to do with MSP.

Farmers Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020 had allowed farmers to sell their produce outside of APMC mandis to whoever provides a higher price, including the end customer. The Farmers (Empowerment and Protection) Arrangement on Price Assurance and Farm Services Bill, 2020, allowed farmers to enter into a contract farming agreement with a buyer for the purchase of commodities at predetermined prices. The Essential Commodities (Amendment) Bill, which declassified onions, grains, pulses, potatoes, edible oilseeds, and oils as essential products in normal situations, was the third bill.



The Government benefited from the lack of a statute protecting MSP. Farmers have been given the freedom to sell their products to anyone, even private corporations, but they had requested a written guarantee from the Government on MSP, fearing that without one, corporations would exploit them.

According to them, the new laws did not require prices for sales to private parties to be linked to the MSP, which was a fundamental aspect determining the mandi structure. Farmers with modest landholdings would be subject to price exploitation by corporates or largescale purchases if they did not have this protection. It’s worth noting that 86% of the country’s farmers own less than 86% of the land.

Another reason why Indian farmers desire a better reform is the politics around MSP over the years. Despite the fact that they have some protection under the current system, just 6% of Indian farmers are able to sell their products at MSP. According to the Shanta Kumar Committee report from 2015, this is the case. Farmers are already being exploited by middlemen, according to critics of the farm acts, but introducing them to larger middlemen might exacerbate their abuse.

It is a bitter fact that the MSP framework has never benefited the bulk of Indian farmers. According to a report, successive UPA and NDA governments have been cautious to raise the minimum support price net for farm produce purchases during the last decade. MSP for all crops – Kharif and Rabi – has decreased on average over the last decade, according to MSP data. Farmers want the Government to ensure MSP when working with private actors since they have been suffering for decades owing to the lack of MSP law.

Studies conducted worldwide depict that only a share of 10% or below the value or the value added consumer products are paid back to the peasantry as crop price. For example, in Punjab farmers used to get only Rs 18 to 30 a kilo through middlemen for Basmati paddy. The Adani Group sells their Fortune brand of special basmati rice at Rs 208 a kilo. There are branded Basmati products sold in the range Rs 700 to Rs 2200 a kilo in the global market.

Similarly, coffee growers in Karnataka and Kerala sell their produce at Rs 120 to 130 a kilo while the Nestle group sells their instant coffee powder at an average Rs 3000 a kilo. It is noted that 2.5 kilo coffee beans are required for producing one kilo instant coffee powder.

Even after 73 years since Independence, 60% of land holders have only 5% of agricultural land, while 10% of land holders possess 55%.

Hannan Mollah, general secretary of All India Kisan Sabha, said the annulled three farm acts represented the interest of the corporate forces and there is need to bring laws to protect the interests of the peasantry. Speaking with Radiance, former MP Mollah said in the Farmers (Empowerment and Protection) Arrangement on Price Assurance and Farm Services Act, 2020 there was no mention of fixing the prices  at 50% above comprehensive cost of production or C2+50% as promised by the  BJP and Narendra Modi in 2014. In reality the Government has deregulated the markets and withdrawn its commitment to price support and procurement, he added.

For ensuring MSP@C2+50%, P Krishnaprasad suggested to enact a law to enforce the corporate sector to share the surplus they build up through value addition and marketing of agro-produce with the respective farmers. While referring to Kerala market intervention model based on cooperative sector, he told Radiance that when the Union Government declared MSP@ only Rs1868 per quintal for paddy without ensuring procurement, the Kerala government fixed the MSP at Rs 2850 per quintal with purchasing the entire produce with the support of cooperatives.



But pro-corporate lobby experts are of the view that MSP for all crops is fiscally unfeasible. In an article, Ashok Gulati, who was on the Supreme Court appointed farm panel, stated that “the legality of MSP means that no one is allowed to buy a crop below MSP. If this demand is accepted, it will not only mess up the economy but ultimately turn out to be anti-farmer. The reason is simple:  It ignores the basic logic. That price is largely decided by the overall demand and supply in the case of surplus, which usually happens at Harvest Time, prices fall to clear the market. If MSP is above that market clearing price, no one from the private sector will be willing to buy.”

Now the government has agreed to several pending demands of the protesting farmers and proposed a committee comprising representatives from the Union and state governments, farmer organisations, agricultural scientists, and economists.

Whatever the outcome, a formal guarantee for MSP will be a significant step forward in agricultural marketing and procurement.

To ensure that the government is keeping to its commitments made to the protesting farmers, and to chart out a future course of action, SKM will hold its next meeting in Delhi on January 15.