After nearly two years, farmers from Punjab, Haryana, and Uttar Pradesh represented by over 200 unions, are marching towards Delhi to push for their demands, which include a legal guarantee for the minimum support price (MSP).

According to some estimates, MSP benefits less than seven per cent of farmers in the country. This aligns with other evidence indicating that officially procured crop output accounts for around 11 per cent of total crop output and seven per cent of total agricultural output. This underscores the challenge of ensuring fair prices for the remaining 90 per cent of produce, according to the NITI Aayog data.

MSP, a key government intervention in India’s agricultural sector, serves to protect farmers from sharp declines in farm prices. Announced at the beginning of the sowing season for certain crops, MSP is determined by the Commission for Agricultural Costs and Prices (CACP). 

Despite calls from farmer organizations for MSP to be legally guaranteed, the majority of agricultural households in India remain unaware of this concept. For most crops, the percentage of output sold under MSP varies widely, from 0 to 24.7 per cent, with sugarcane being an exception. Paddy and wheat-growing households are most familiar with MSP and tend to sell a significant portion of their output through this mechanism according to the NSS 77th round survey. The survey found that not even 50 per cent of households growing crops for sale are aware of procurement agencies.

MSP Intervention and Markets

NITI Aayog Working Paper by Ramesh Chand published in 2020 titled ‘New Farm Acts’ states that agricultural segments such as horticulture, milk and fishery –– where market intervention by the government is either nil or very little –– show four to ten per cent annual growth.

Compared to this, the growth rate in cereals––where MSP and other interventions are quite high––remained at 1.1 per cent after 2011–12. “This indicates that in recent times liberalized markets are more favourable to agricultural growth than government support and intervention in markets,” Chand added. 

The Supreme Court (SC) appointed committees on Farm Laws reported that the composition of the Gross Value of Output (GVO) in agriculture has transformed with livestock and fishery constituting around 40 per cent and horticulture accounting for 20 per cent in 2018-19.

Poultry, fishery, dairy and horticulture are growing around three to five times more than cereals. The Committee recommended that the MSP and procurement support policy, designed for cereals during the Green Revolution time, be revisited. The procurement of crops at a declared MSP can be the prerogative of the States as per their specific need.

The committee report shows that Punjab and Madhya Pradesh are among the top States which have received benefits of MSP.

The NITI Aayog paper mentions that government intervention through procurement-backed MSP is needed and justified in selected cases like staple foods for food security. However, expanding MSP through procurement to all crops involves hefty fiscal costs –– nearly one-third of MSP to back MSP through procurement.

Challenges in MSP

In 2018, the Maharashtra government passed an amendment to the Maharashtra Agriculture Produce Marketing Act, 1963, enabling penalties for traders buying farm commodities below the MSP. The amendment stipulated that trader in designated markets, regardless of licensing status, could be subject to imprisonment for up to one year, a fine of up to ₹50,000, or both, based on the seriousness of the violation. 

However, in response, traders boycotted markets, leading the state to retract the amendments. As open market prices were lower than the MSP levels declared by the State, traders refused to trade and there was a stalemate. 

The Lok Sabha Secretariat’s 2018 Reference Note highlighted the challenges in MSP, including low procurement of crops other than wheat and paddy, delays in MSP announcements, inadequate awareness among farmers about MSP, high transportation costs, and insufficient storage facilities.