MSP isn’t a solution to farmers’ woes

A Amarender Reddy | Updated on December 23, 2020

Covering all 23 crops under MSP is a gigantic task, requiring huge budget allocations   -  THE HINDU

A better bet is the Price Deficiency Payment Scheme, as it is easy to execute and can cover all crops and farmers

The agitating farmers are mainly demanding guarantee of minimum support price (MSP), although the new farm laws are not related to MSP in any way and the government has time and gain said that procurement under MSP will continue.

With the opening up of trade outside APMC (Agricultural Produce Market Committee) markets, the formalisation of contract sales between farmers and private companies and the removal of stock limits for traders, farmers are apprehensive about continuation of MSP through public agencies.

Majority of the farmers’ grievances (46 per cent of all grievances) have been related to low crop prices even before the new farm laws were enacted, according to the Department of Administrative Reforms and Public Grievances (DARPG).

With the passing of the three new farm laws, Indian farmers are more exposed to free market forces. The laws will lead to increased competition among buyers for farmers’ produce, which will logically increase the prices. But farmers feari that a few corporates will monopolise the entire market operations, leading to weakening of both APMC markets and MSP, thus reducing the government’s capacity to procure at MSP. The farmers’ fears are exaggerated, although there is some truth in the possibility of an increase in price volatility.

The intent of the farm laws is to open more options to farmers to sell their produce at higher than APMC market prices. The entry of the private sector will see the development of local markets, cold chains and warehouses, and aggregation centres to directly buy from the farmers. This, in turn, will increase the prices of the produce and farmers’ incomes.

However, free market alone does not guarantee higher prices. There is a need for introducing insurance schemes to safeguard farmers against low prices. Although crop insurance schemes like Pradhan Mantri Fasal Bhima Yojana (PMFBY) is in operation, it covers only production risk with complete neglect of price risk.

Now, the only tool available with the government to guarantee price is procurement at MSP. To cover all 23 crops under MSP is a gigantic task, requiring huge budget allocations and support from State/local marketing boards to evolve economically and politically feasible solutions given that States’ capabilities are limited and varied. States like Punjab are historically in a better position to procure their major crops, paddy and wheat, while others like Bihar and Odisha have limited capabilities. Because of this, Punjab and Haryana farmers have received higher prices than their counterparts in States like Bihar for over several decades.

Highly discriminatory

In addition, except paddy and wheat, there is no proper procurement mechanism for the remaining 21 crops for which MSP is announced. Although under the decentralised procurement system, some States are procuring pulses and oilseeds, they cover less than 5 per cent of the production.

India cannot achieve the target of doubling farmers’ incomes just by procuring only paddy and wheat that too only in a handful of States. The current MSP policy is hugely discriminatory against rainfed farmers who grow pulses, oilseeds, fruits and vegetables, and who constitute more than 70 per cent of the 12 crore farm families in India. The biased policy is also contributing to the huge import of edible oils each year, costing the exchequer around ₹70,000 crore. Fruits and vegetable are entirely out of the MSP procurement policy.

To correct the policy bias in MSP operations, the Centre introduced PM-AASHA (Pradhan Mantri-Annadata Aay Sanrakshan Abhiyan) in 2018, as an effort to ensure MSP for all 23 crops. PM-AASHA has three sub-schemes — Price Support Scheme (PSS), Price Deficiency Payment Scheme (PDPS), and pilot of Private Procurement and Stockist Scheme (PPSS).

The PSS is actual procurement by government at MSP from the farmers during harvest period. This is nothing but the existing procurement operations for paddy and wheat. For only two commodities, the government is spending about ₹2 lakh crore every year on food subsidy. To expand it to all 23 crops is beyond the capacity of both Central and State governments both in terms of finances and also logistical arrangements.

Under PDPS, farmers are paid the difference between MSP and the modal price of the market, without actual procurement. It is the most efficient method, as it eliminates all logistic costs relating to procurement, storage and offloading. It is neutral to crops and geography. It can be operational for any crop anywhere even in the remotest parts of India. Under PPSS, the private players can procure farm produce at the State-mandated MSP during the notified period in select markets, for which they would be paid a service charge.

States are free to choose among three sub-schemes — PSS, PDPS and PPSS. However, the most suitable mechanism under open and free market scenario is PDPS as it doesn’t intervene in free market operations of market players. Historically, most of the agricultural commodity (except paddy and wheat) prices are determined by free play of market participants with negligible government intervention. Hence it is important that government policy should not intervene in an already perfectly working free market system.

All information available

The implementation of PDPS is easy and feasible across the country, as all the necessary information for direct transfer of price deficiency payment like identification of farmers, land records and bank accounts are collected under the already fully functional PM-KISAN scheme.

The modal price of all the APMC markets is available in AGMARKNET. The only additional information needed is the quantity sold by each farmer, which can be estimated based on acreage data collected by the State departments of agriculture at the beginning of the season or actual submission of sale receipts.

Even under ideal situations, the actual procurement at MSP cannot reach more than 20 per cent of farmers, hence cannot be a solution to raising farmers’ incomes. The actual procurement was less than 5 per cent of market arrivals for pulses and oilseeds and from 20-30 per cent farmers in the case of paddy and wheat in the 2019 crop season. Hence, in the long run, the only alternative is PDPS as its benefits can reach all the farmers.

The implementation of PDPS is not dependent on the capacity of the government to procure through APMCs or any other agency, hence farmers’ fear of neglecting the APMC markets under the new laws will be eased.

The writer is Principal Economist, ICAR-Central Research Institute for Dryland Agriculture, Hyderabad. Views are personal

Published on December 23, 2020

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