Editorial. Farmers’ demands on MSP will not serve their interests

There are two broad truths that underlie the farmers’ agitation this time as well as the one that took place in 2020-21. First, they point to a crisis of incomes in agriculture of varying degrees across regions (the NSS’ 77^th Round on ‘Situational Assessment of Agricultural Households’ bears this out) — even if one presumes that the agitating wheat and paddy farmers of Punjab and Haryana are better off than the rest. Second, the demands of the agitators — basically, a ‘legally guaranteed minimum support price’ at a much higher level — do not at all address the income problems in Green Revolution areas or in the rest of the country.

It is not clear what the protestors mean by a legal guarantee for MSP, beyond the assurance that only an Act of Parliament can repeal it. If it is supposed to be a guarantee that all the output of the 23 crops will be purchased at MSP, that is patently absurd. For wheat and paddy, a de facto guarantee to procure all the produce within a stipulated period after harvest is already in force. With the Centre now committed to supply free rice and wheat to 81.35 crore people for five years, the procurement of wheat and rice will be robust. In order words, there is an implicit quantity guarantee — which really means that asking for a price guarantee (a higher price based on comprehensive cost, or C2, plus 50 per cent) as well is unreasonable. The MSP for these two crops is expected to rise anyway to ensure extra output. It is also important to separate wheat and paddy from the other 21 crops which are under MSP, but in practice are governed almost wholly by market forces. Price support could make sense in pulses and oilseeds where self-sufficiency is a national priority — but in the form of price stabilisation rather than a procurement guarantee.

The income concerns of Green Revolution farmers have different roots. Their bane is the high input, low productivity agriculture trap (the yield in Green Revolution areas such as Punjab and Haryana has dropped over decades, with the soil nutrients having been depleted with intensive inputs), which is best addressed by changes in cropping pattern and methods of cultivation. As agriculture economist Ashok Gulati has argued, the subsidies on power and fertilizer (₹2.78-lakh crore, all-India) should be collapsed into an income and investment support package that is linked to a shift to high value, export-oriented crops in Punjab, while inputs are provided at market prices to prevent misuse of water, fertilizer and power.

A viable price support mechanism for farmers is to revive futures, so that sowing decisions are based on future rather than last year’s prices. To this end, the e-NAM, warehouse infrastructure and forward delivery contracts need to be a focus area. Farmer Producer Organisations can act as participants and aggregators. The mistakes of the past in going this route can be easily avoided. Hedging price risks in agri commodities is better done through financial market instruments rather than through government support.

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