Context:
Farmers from Punjab, Haryana, and Uttar Pradesh are en route to Delhi in the ‘Delhi Chalo’ protest, advocating for legal assurances for the Minimum Support Price (MSP).
Relevance:
GS III: Indian Economy
Dimensions of the Article:
- Key Demands of Farmers
- Challenges with the Legalization of MSP
- Concerns of Farmers Related to WTO and FTAs
- Current State of MSP and Farmers’ Demands
- What is Minimum Support Price (MSP)?
Key Demands of Farmers:
MSP Legal Guarantee:
- Law ensuring Minimum Support Price (MSP) for all crops.
- Determination of crop prices based on the Dr M S Swaminathan Commission’s report.
Swaminathan Commission’s Recommendations:
- MSP to be at least 50% more than the weighted average cost of production (C2+ 50% formula).
- Inclusion of imputed cost of capital and rent on land (C2) to provide farmers with 50% returns.
- Imputed cost accounts for the opportunity cost of resources like land, labour, and capital.
Additional Demands:
- Full debt waiver for farmers and labourers.
- Implementation of the Land Acquisition Act of 2013, with written consent from farmers and compensation at four times the collector rate.
- Punishment for perpetrators of the October 2021 Lakhimpur Kheri killings.
- India’s withdrawal from the World Trade Organization (WTO) and freezing of all free trade agreements (FTAs).
- Pensions for farmers and farm labourers.
- Compensation for farmers who died during the Delhi protest in 2020, with job offers for family members.
- Scrapping of the Electricity Amendment Bill 2020.
- Increase in MGNREGA employment to 200 days per year, daily wage of Rs 700, and linking the scheme with farming.
- Strict penalties on companies producing fake seeds, pesticides, fertilisers, and improvements in seed quality.
- Establishment of a national commission for spices such as chilli and turmeric.
- Ensure the rights of indigenous peoples over water, forests, and land.
Government’s Response:
Post Farm Laws Repeal:
- Repeal of three farm laws in November 2021.
- Formation of a committee on MSP to discuss, promote zero-budget natural farming, and decide cropping patterns (July 2022).
Recent Meeting Commitments:
- Recent meeting commitments include the creation of a new committee with representatives from agriculture, rural, and animal husbandry ministries.
- Addressing farmers’ demands for MSP for all crops.
- Assurance of regular meetings and adherence to a specified timeframe.
Challenges with the Legalization of MSP:
- Overproduction Concerns:
- Mandating government procurement at MSP may lead to overproduction, causing resource wastage and storage challenges.
- Cropping Pattern Distortions:
- Risk of distorting cropping patterns as farmers prioritize MSP-supported crops, impacting biodiversity and soil health.
- Storage and Resource Issues:
- Government may face challenges in storing and selling large quantities of procured produce.
- Disparities Among Farmers:
- Potential disparities between farmers growing supported crops and those cultivating unsupported ones.
- Farmers of unsupported crops may face disadvantages in market access and government support.
- Resistance from Private Traders:
- Legal assurance of MSP may face resistance from private traders who benefit from lower prices during peak harvest times.
- Financial Strain on Government:
- Government could experience financial strain due to the obligation to procure all crops at MSP.
- Possibility of payment arrears and fiscal challenges.
- Societal Implications:
- Distorted cropping patterns and excessive procurement may have broader societal implications.
- Impact on food security, environmental sustainability, and overall economic stability.
Concerns of Farmers Related to WTO and FTAs:
- Increased Competition and Price Undercut:
- Farmers worry that FTAs and WTO regulations may bring in cheaper agricultural imports, undercutting domestic prices and harming local producers.
- Favoritism Towards Large-scale Agribusinesses:
- Perception that these agreements favor multinational corporations and large-scale agribusinesses over small and medium-sized farmers.
- Influx of Subsidized Imports:
- Concerns about the influx of subsidized agricultural products from other countries, flooding the domestic market and depressing prices for local crops.
- Impact on Competitiveness and Livelihoods:
- Difficulty for Indian farmers to compete and sustain their livelihoods in the face of increased competition and lower prices.
- Regulatory Burden on Traditional Farming:
- International trade agreements impose regulations or standards on agricultural practices, perceived as burdensome or incompatible with traditional farming methods.
- Pesticide Use, GMOs, and Environmental Standards:
- Regulations related to pesticide use, genetically modified organisms (GMOs), or environmental standards are seen as challenging for Indian farmers.
- Withdrawal for Sovereignty and Control:
- Some farmers see withdrawal from WTO and freezing of free trade agreements as a means to regain sovereignty and control over India’s agricultural policies.
- Limiting Government Policy Flexibility:
- Farmers argue that such agreements limit the government’s ability to implement policies prioritizing small-scale farmers and ensuring food security.
Current State of MSP and Farmers’ Demands:
MSP for Wheat (Rabi Marketing Season 2024-25):
- Government-set MSP: Rs 2,275 per quintal.
- Farmers’ demand: C2 plus 50% as per Dr M S Swaminathan Commission’s report.
MSP Calculation Methodology:
- Commission for Agricultural Costs & Prices (CACP) recommends MSP based on the A2+FL formula, considering only paid-out costs and imputed value of family labour.
- Contrasts with C2 formula, which includes additional factors like rental value of owned land and interest on fixed capital.
Return Over Cost of Production for Wheat (Punjab):
- Cost of production (C2) for wheat in Punjab: Rs 1,503 per quintal.
- MSP: Rs 2,275 per quintal.
- Farmers receive Rs 772 per quintal more than the cost of production, indicating a return of 51.36% over C2.
Return Over Cost of Production for Paddy (Punjab):
- Return for Punjab farmers over C2 for paddy: 49%.
- Return over A2+FL for paddy: 152%.
Discrepancy in MSP Calculation and Farmer Demands:
- Farmers demand MSP based on C2 plus 50%, while the government calculates MSP using the A2+FL formula, potentially resulting in lower returns for farmers.
Concerns Regarding MSP Formulas:
- Differences in MSP calculation methodologies lead to concerns about the adequacy of returns for farmers and the need for aligning MSP with C2 plus 50%.
What is Minimum Support Price (MSP)?
- Minimum Support Price is the price at which government purchases crops from the farmers, whatever may be the price for the crops.
- MSPs have no statutory backing — a farmer cannot demand MSP as a matter of right.
- Commission for Agricultural Costs & Prices (CACP) in the Ministry of Agriculture recommends MSPs for 23 crops.
- CACP consider various factors while recommending the MSP for a commodity like cost of cultivation, supply and demand situation for the commodity; market price trends (domestic and global) and parity vis-à-vis other crops etc.
- MSP seeks to:
- Assured Value: To give guaranteed prices and assured market to the farmers and save them from the price fluctuations (National or International).
- Improving Productivity: By encouraging higher investment and adoption of modern technologies in agricultural activities.
- Consumer Interest: To safeguard the interests of consumers by making available supplies at reasonable prices.
While recommending MSPs, the CACP looks at the following factors:
- the demand and supply of a commodity;
- its cost of production;
- the market price trends (both domestic and international);
- inter-crop price parity;
- the terms of trade between agriculture and non-agriculture (that is, the ratio of prices of farm inputs and farm outputs);
- a minimum of 50 per cent as the margin over the cost of production; and
- the likely implications of an MSP on consumers of that product.
Crops covered
Crops covered by MSPs include:
- 7 types of cereals (paddy, wheat, maize, bajra, jowar, ragi and barley),
- 5 types of pulses (chana, arhar/tur, urad, moong and masur),
- 7 oilseeds (rapeseed-mustard, groundnut, soyabean, sunflower, sesamum, safflower, nigerseed),
- 4 commercial crops (cotton, sugarcane, copra, raw jute)
Why is there a need for MSP?
- The MSP is a minimum price guarantee that acts as a safety net or insurance for farmers when they sell particular crops.
- The guaranteed price and assured market are expected to encourage higher investment and in adoption of modern technologies in agricultural activities.
- With globalization resulting in freer trade in agricultural commodities, it is very important to protect farmers from the unwarranted fluctuation in prices.
What are the issues related to MSP?
- Low accessibility and awareness of the MSP regime: A survey highlighted that, 81% of the cultivators were aware of MSP fixed by the Government for different crops and out of them only 10% knew about MSP before the sowing season.
- Arrears in payments: More than 50% of the farmers receive their payments of MSP after one week.
- Poor marketing arrangements: Almost 67% of the farmers sell their produce at MSP rate through their own arrangement and 21% through brokers.
- According to NITI Aayog report on MSP, 21% of the farmers of the sample States expressed their satisfaction about MSP declared by the Government whereas 79% expressed their dissatisfaction due to various reasons. Although, majority of the farmers of the sample States were dissatisfied on MSP rates, still 94% of them desired that the MSP rates should be continued.
-Source: Indian Express
