A debate is on in agricultural circles, focusing on the institutionalisation of the Minimum Support Price (MSP) for 23 crops. The absence of a statutory foundation for MSP leaves farmers unable to assert these prices as an inherent right, prompting leaders in agricultural unions to intensify efforts. Their goal is to advocate for legislation that would confer mandatory status upon MSP, transforming it from an indicative price into a robust, legally enforceable guarantee.

Specifically, farmers’ unions are calling for a legal guarantee that aligns with the comprehensive cost of production (C2) plus an additional 50 per cent, denoted as C2+50 per cent. This proposed formula is seen as a more robust mechanism for determining MSP, ensuring that farmers receive compensation covering their production costs and providing a fair profit margin. Currently, MSP is determined based on the recommendations of the Commission for Agricultural Costs and Prices (CACP).

A strain on resources

Enshrining MSP in law may result in an aggravated fiscal burden for the Government, costing an additional ₹5 trillion, potentially straining government resources. A legal mandate might obligate the Government to meet MSP even in situations where market forces suggest a different pricing scenario.

In extensive, multi-stakeholder nations, navigating policy decisions is inherently complex, given the diverse interests and perspectives at play. The challenge lies in finding a middle ground that accommodates the varied needs of different stakeholders. In the context of agricultural policies, especially those related to MSP, separating this issue from public procurement must be the crucial initial step.

By separating the issue of MSP from public procurement, a more nuanced and adaptable approach can be established. MSP, fundamentally a price guarantee, can then be ensured by both the government and the market, allowing for a diversified set of mechanisms. This shift grants farmers greater discretion, enabling them to choose the most beneficial avenue for selling their produce, whether through government channels or in the open market. Farmers gain the autonomy to make market-driven decisions based on factors such as demand, pricing, and their individual circumstances. Simultaneously, it encourages the private sector and other market participants to play a more active role, fostering a competitive environment that can contribute to efficient resource allocation and improved market dynamics.

Crop diversification

When considering crop diversification in the context of MSP, it becomes crucial to weigh various factors such as food security, market demand, and processing potential. The selection of crops eligible for MSP should account for both the immediate needs of consumers and the long-term sustainability of agricultural practices. Aligning the eligible crops with market trends and consumer preferences ensures that farmers are not only producing what is needed but also have a reliable market for their produce.

Processing potential becomes another critical factor as it not only contributes to the growth of the food processing sector but also opens up avenues for farmers to engage in more lucrative ventures. Increasing budget allocations for this sector becomes imperative, as it supports farmers by creating additional income streams along with contributing to rural employment, infrastructure development, and the overall economic well-being of farming communities.

The overarching aim is to gradually reduce farmers’ dependence on government support by aligning their incentives with market forces, including food processors. By doing so, farmers become more attuned to market signals, promoting a sustainable and market-driven agriculture sector.

(The authors are Directors at the Farlense Group)