MSP Policy: A Tricky Tool In Agriculture Sector

In a surprising move, Prime Minister Narendra Modi announced that the three controversial farm laws would be repealed in the winter session of Parliament. Soon after that, Samyukt Kisan Morcha, an alliance of 40 farm unions, demanded that the minimum support price (MSP) for all agricultural produce should be made a legal entitlement of all farmers.

The farmer group said that this would make sure that every farmer was guaranteed at least the MSP for his entire crop. Ensured MSP sets a ground for market costs of farm produce and guarantees that all exchanges occur at MSP or more exorbitant costs. As of now, the MSP isn't intended to set a floor at market costs however forestalls any sharp falls.

"Farm Reforms are required to help ensure our production remains in sync with the consumption of the ever-changing Indian consumer. Currently, a lot of consumer demand is fulfilled by businesses importing similar products for economic or quality reasons thus leading to lesser demand for Indian grown products. This gap needs to be bridged by keeping the interest of farmers aligned," said Akshay D'Souza, Chief of Growth and Insights, Bizom, a retail intelligence platform. 

The farmers sell their excess produce in the open market. The market costs of practically each of the 25 crops qualified for MSP settle beneath the base cost for government acquisition. According to the Commission for Agricultural Costs and Prices (CACP) report, the all-India weighted average market price of wheat registered below the MSP in 3 of the last 5 rabi marketing seasons. 

"In a rising market, there are enough margins to go around to all stakeholders including farmers, crushers, consumer brands etc. A case in point is how the edible oil prices have been for the last 5-6 quarters. However, in a falling demand market, MSPs are a short term fix for the lack of temporary demand. It’s here that the various government bodies have been playing a very key role. However, over the longer term, you need market dynamics to determine pricing rather than an artificially priced MSP for helping farmers and manufacturers to realise the full potential of their produce," said D'Souza. 

In the last marketing season, the weighted normal market cost of wheat fell over 5 per cent underneath the MSP. Essentially, the normal market cost for paddy was additionally underneath the MSP during the last five marketing seasons.

The market costs are typically controlled by the interest and supply position for particular crops, yet they can be bested down when farmers don't know about the MSP of a yield and government acquisition offices don't work around their areas.

According to the data of the National Sample Survey in its July 2018- June 2019 round, the absence of awareness about MSP of yields was exceptionally high among farmers. The absence of awareness about the MSP of yields that see gigantic acquisitions was likewise high.

The report named 'Situation Assessment of Agricultural Households and Land and Livestock Holdings of Households in Rural India,' in 2019 revealed that over a third of the farmers who grew the cereal in Punjab was not aware of the MSP for the foodgrain. Talking about the Punjab farmers, who grew paddy, approximately half were not aware of the MSP of paddy

Meanwhile, the neighbouring state Haryana also witnessed the exact situation, where a similar proportion of farmers who grew wheat were not aware of the MSP of the crop. 

On the national level, the survey found out that the awareness about the MSP among farmers for the two food grains was low. Approximately 60 per cent of the farmers who produced paddy as a summer crop and 47 per cent as a winter crop were not aware of its MSP. Meanwhile, a total of 63 per cent of farmers who grew wheat were not aware of its MSP.

As per the survey, the awareness of other crops like pulses was very bad. Interestingly, the MSP for pulses was increased in order to encourage farmers to hike acreage for these protein-rich food items. However, a total of 70 per cent of farmers who produced pulses like masur (Red Lentil), chana (Split Chickpeas), etc. were not aware of the MSP of these food crops.

The MSP and government agencies need to help more farmers, government agencies need to fortify the procurement methods in different states and make ranchers mindful. 

"To ensure agriculture continues to prosper, we need to drive 3 keys: we need to enable wider market access for farmers to be able to realize the full value of their Agri product. Easier access to Agri produce and flexibility to drive superior quality for manufacturers. Globally competitive prices for local products can be driven by an increase in yield through the use of information and technology that is brought into agriculture," added D'Souza.