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As farmers continue to agitate over the issue of minimum support price (MSP), let us try to unpack the issues involved. There are two issues here: the level of MSP, and the amount procured at that price. The second lies at the heart of the problem.
The MSP is presently offered for 23 crops. Historically, the MSPs are determined based on factors such as cost of cultivation, input prices, supply and demand of crops, the price level in world markets, among other parameters.
The MSPs were fixed based on cost A2+FL formula till 2018. While the cost C2 includes all the expenses incurred for crop cultivation, the A2 covers only the cost that the farmer spends out of his pocket for cultivation. That is, the cost A2+FL (family labour) does not take into account the fixed investment made on farm machinery/irrigation infrastructures, the interest on loans, etc. Therefore, the gap between C2 and A2+FL cost now comes to 30-40 per cent for most mandated crops.
Farmers in most States could not harvest any profit from crop husbandry due to A2+FL pricing formula. They have been demanding MSPs that cover the full cost of production. In the meantime, MS Swaminathan headed Farmers Commission (2006) recommended that MSPs for crops should be fixed at 50 per cent over and above the cost of production.
The Centre made a historic announcement in its Budget 2018-19 that the MSPs will be fixed at least one and half times the cost of production. However, even after the unprecedented rise in MSPs since then, farmers allege that the income from crop cultivation is inadequate. This is because of poor procurement of crops.
Skewed procurement
Procurement of crops has been poor over the years except for paddy and wheat. Even in paddy and wheat where impressive procurement has taken place since the early 1970s, not all States/farmers have benefited from such procurement.
In 2021-22, about 22 per cent of paddy and 31 per cent of wheat were procured from Punjab alone. That is, about 53 per cent of money spent on account of procurement of paddy and wheat has gone to Punjab alone. Can this skewed procurement help other States’ farmers?
In 2021-22, Punjab’s share in India’s paddy production was only 9.89 per cent, but its share in the procurement was 21.79 per cent. West Bengal accounted for 12.87 per cent of India’s paddy production, but its share in the procurement was only 4.17 per cent. Similarly, Tamil Nadu accounted for 6.19 per cent of paddy production, but its share was only 3.26 per cent of the procurement.
This means that the paddy-growing farmers in most States may have sold their crops below the MSP to private traders. This is also reinforced by the data of the Situation Assessment Survey (SAS) of farmers in 2018-19 which underlined that only about 17 per cent of farmer households sold paddy to procurement agencies. If we settle the issue of procurement of crops linking it with its production in each State, most issues concerning MSP will go away.
Middleman factor
The issue of ‘legalising MSP’ arises mainly because of the continuous exploitation of middlemen and private traders in the market. Often farmers do not get even 70 per cent of MSP for their produce from the private traders.
The data published by CACP shows that the market prices rule below the MSP for most mandated crops most of the time. Therefore, the government should bring an Act disallowing private traders/agencies to buy any crop below the MSP.
As per the SAS data of 2018-19, the percentage of farmer households who sold their crops to procurement agency is only around 5 per cent in most crops (17 per cent for paddy). With this low procurement, how can the farmers avail MSP? If arrangements are made to procure 20-25 per cent of the production of all mandated crops, it will increase the market prices, benefiting all farmers.
The writer is former full-time Member (Official), Commission for Agricultural Costs and Prices, New Delhi. Views expressed are personal
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