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MSP: A brief analysis 2021

The farmers’ protests which have been taking place since last December 2020, have given rise to a lot of questions, MSP being one of the key factors. To understand better, it is important to know what exactly is MSP, what is its history, how is it implanted and how effective is this implementation. 

The term MSP stands for Minimum Support Price and as the name suggests, it is a support price to the farmers. In other words, it gives some sort of insurance or guarantee to the farmers, and there is market intervention by the Government of India. The government tries to make sure that the farmers get a fair price for their crop and nothing below that. Therefore, the Minimum support price acts as a subsidy as well. The definition of MSP is the guaranteed price for the produce from the government, against excessive fall in market prices. The MSP is fixed on the recommendations of the Commission for Agricultural Costs and Prices (CACP). 

Minimum Support Price - MSP - HISTORY - CACP - objectives - food grains for public distribution - Restructuring of Food Corporation of India (FCI), headed by Shanta Kumar - National Commission of farmers can also fix the MSP at cost of production - buffer stock
Minimum Support Price – MSP – HISTORY – CACP – objectives – food grains for public distribution – Restructuring of Food Corporation of India (FCI), headed by Shanta Kumar – National Commission of farmers can also fix the MSP at cost of production – buffer stock

As of the present time, the centre has fixed MSP’s for twenty three farm commodities – 

  • Seven cereals, that are paddy, wheat, maize, bajra, jowar, ragi and barley. 
  • Seven oil seeds are groundnut, soya bean, sunflower, rapeseed-mustard, safflower, sesame and niger seed. 
  • Five pulses that are, chana, arhar/tur, urad, moong and masur. 
  • Three commercial crops that are cotton, raw jute and copra. 

HISTORY OF THE MINIMUM SUPPORT PRICE (MSP) 

The history of the MSP dates back to the 1960’s, when there was severe shortage of food in India. There were a series of reforms which were undertaken to boost agricultural production and to modernise the farming practices. These included the land reforms, structural changes in the agricultural administrative arrangements, agricultural extension schemes and the initiation of price support policies including the introduction of the Minimum Support Price for the manor agricultural produces. 

As recommended by the Commission on Agricultural Costs and Prices (CACP) the Minimum Support Price (MSP) is determined based on the following factors, the cost of production, overall demand and supply, the domestic and international prices, the inter-crop price parity and the terms of trade between agriculture and non-agricultural sector. 

Apart from the Minimum Support Price, there is a procurement price which is the price at which the government buys from the farmer. This price is mostly announced after the harvest and is higher than the MSP. The government also builds up stock of agricultural commodities and releases these stocks when the prices are rising. This is done so as to help in the times of emergencies like droughts, crop failures, floods and crop damages. The public distribution system is used to supply buffer stock to the weaker sections through fair price shops. The Food Corporation of India is the sole repository of the food grains reserved for the public distribution. 

Another less known price mechanism is the issue price, which is the price at which the government supplies produce to the fair price shops and the ration depots. The major difference between the the MSP and the Issue price is that the former acts as a subsidy. 

The objectives of for the fixation of the Minimum Support Price are many fold

  • To support the farmers from distress sales. 
  • For creating a floor price for the same crop produce and to make sure every farmer gets a fair price. 
  • To procure food grains for public distribution. 
  • Lastly, for giving an indirect incentive and motivating the farmers to grow the crops. 

In a recent report, it has been pointed out that only about 6% of the Indian farmers benefit from the Minimum Support Price(MSP). The high level committee on Restructuring of Food Corporation of India (FCI), headed by Shanta Kumar. It’s report was submitted in January 2015, had noted that only 5.21 million of the country’s total estimated 90.20 million agricultural households in 2012-2013 had sold paddy and wheat to any government procurement agency. This report was based on the analysis of the National Sample Survey Office’s (NSSO). This panel in its report looked only at paddy and wheat procurement by FCI. 

The Food Ministry’s data shows that 11.06 million paddy and 4.06 million wheat farmers benefited from MSP procurement in 2019-2020. Even after eliminating double – counting, as the farmers of Punjab and Haryana cultivate both the crops, the data would add up to 13-13.5 million, which crosses the figures suggested by the panel headed by Shanta Kumar. 

The farmers are indeed benefited from the MSP, as the executing MSP or the assured price system covered more than 25 million farmers across all crops, including the pulses and oil seeds. Depending on this denominator, the 2015-16 Agriculture Census put the total number of operational holdings at 146.45 million. 

Conclusion

Image resMinimum Support Price - MSP - HISTORY - CACP - objectives - food grains for public distribution - Restructuring of Food Corporation of India (FCI), headed by Shanta Kumar - National Commission of farmers can also fix the MSP at cost of production - buffer stockult for MSP

The MSP’s also pose certain challenges, which are mainly that these MSP’s have an unequal access, there are major procurement problems and the variation in the cropping patterns. There is also a certain problem with the degradation of the natural agricultural components and the issue of surplus storage also creeps in. The possible solutions for the same could be some improvement and structural changes in the agricultural infrastructure. The suggestion of the National Commission of farmers can also fix the MSP at cost of production. 

Minimum Support Price – MSP – HISTORY – CACP – objectives – food grains for public distribution – Restructuring of Food Corporation of India (FCI), headed by Shanta Kumar – National Commission of farmers can also fix the MSP at cost of production – buffer stock Minimum Support Price – MSP – HISTORY – CACP – objectives – food grains for public distribution – Restructuring of Food Corporation of India (FCI), headed by Shanta Kumar – National Commission of farmers can also fix the MSP at cost of production – buffer stock

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