MSP And Issues Related To It

What is MSP?

1. The government sets a price for farmers' crops known as the Minimum Support Price (MSP). It is the cost that the government incurs in order to obtain the crops from farmers.
2. In the event that the open market maintains a lower price for their crops, the MSP is a guarantee price that guarantees farmers a minimum profit from their harvest.

 

MSP calculation formula:

1. The CACP takes into account things like the cost of production, changes in the prices of inputs, trends in market prices, supply and demand, and a reasonable margin for farmers when calculating MSP.
2. For each crop, the CACP projects three different types of production costs at the state and all-India average levels. These three costs of production include:
3. A2: It covers everything the farmer has paid out in cash and in kind for things like seeds, fertilizers, pesticides, hired labor, leased land, fuel, irrigation, etc.
4. A2+FL: It includes A2 and an estimated value for family labor that is not paid.
5. C2: In addition to A2+FL, it includes rental and interest forfeited on owned land and fixed capital assets, making it a more comprehensive cost.

 

MSP-compliant procurement:

1. Along with State agencies, the Food Corporation of India is the primary procurement agency.
2. Under the price support program, FCI creates purchase centers for food grains.
3. Nevertheless, the State government selects these centers' locations with the intention of maximizing purchases.
4. The government announces fair and remunerative prices (FRP) for sugarcane and minimum support prices (MSPs) for 22 mandated crops. 14 kharif-season crops, six rabi crops, and two other commercial crops are required.
5. Additionally, the MSPs of toria and de-husked coconut, in addition to those of rapeseed/mustard and copra, are used to set the MSPs.

The following is a list of crops:

• Cereals (7) include paddy, wheat, barley, jowar, bajra, maize, and ragi
• Pulses (5) include gram, arhar/tur, moong, urad, and lentil
• Oilseeds (8) include groundnut, rapeseed/mustard, toria, soyabean, sunflower seed, sesamum, safflower seed, and nigerseed Raw cotton Raw jute Copra De-husked

 

Dual benefits of MSP

1. Procurement of food grains by government for PDS and buffer stock to promote food security and nutritional security in the country.
2. Preventing distress sale: by the farmers during the harvest period and thus acting as base price for all grain purchaser.

 

Significance of MSP

1. It shields farmers from any sudden drop in a commodity's market price.
2. At the beginning of the sowing season, MSP are announced to assist farmers in making informed choices regarding the crops they must plant.
3. Food security can be achieved using MSP. It safeguards farmers from crop failure and lower production risk.
4. MSP is used to encourage the production of particular food crops that are in short supply.
5. More MSP for farmers is needed due to the growing distress of farmers and the slow growth of farms. Farmers' purchasing power will improve as a result.
6. Farmers are encouraged to cultivate specific crops and increase production by MSP.
7. Guaranteed minimum prices for the crops, protecting them from market fluctuations.
8. It shields merchants from market imperfections and price swings.

 

Numerous MSP-related issues:

Production of crop:

1. The cultivation of crops is still unprofitable.
2. The prices paid for support do not rise at the same rate as the cost of production does.

Access is not equal for MSPs:

1. This plan has advantages, but not for all farmers or crops.
2. The implementation is too weak in many parts of the country, like the north-eastern part.

Problems related to procurement:

1. MSP accounts for nearly two-thirds of all cereal production, leaving only one-third for the open market.
2. Consequently, a farmer who chooses the MSP method must rely solely on the MSP and cannot profit from favorable market prices.

It prevents producers from making a profit.

1. Additionally, this has resulted in a shortage of crops on the open market, which has had a significant effect on consumption patterns.
2. It has shifted consumption toward non-cereal foods, which are more readily available on the open market, but production has not increased simultaneously, resulting in a production-demand imbalance for many producers who are located far from FCI procurement areas due to a lack of awareness about MSP.

 

Storage overage:

1. Stocks have piled up a lot in warehouses as a result of this kind of procurement without enough storage.
2. The stock now exceeds the requirements of the PDS, buffer stock, and other schemes.
    

 

WTO issues:

1. Numerous nations have challenged India's MSP scheme for numerous crops in the World Trade Organization.
2. The MSP on wheat, for instance, has been criticized by Australia, while the MSP on sugarcane and pulses has been criticized by the US and EU.
3. Their calculation method has been alleged to be extremely trade-distorting.
4. The country will face international criticism for violating the WTO's ten percent subsidy standard for farm production if the current process continues.

 

Diffusion of the market:

1. The free market is distorted by it.
2. Some crops are given preference over others.
3. Due to a lack of awareness, not all farmers have been able to reap the benefits of MSP.
4. Production is over-incentivized by higher MSP, resulting in a supply glut.
5. Increases in MSP also hurt exports because they make Indian farm products more competitive, especially when prices on international markets are lower.
6. Perishables are not covered by it.
7. Non-scientific agricultural practices resulting in soil and water stress to the point of degrading the ground water table and salinizing the soil are the results of the ecological problem MSP.
8. Competition is killed by government interference whenever it occurs. Agents who buy crops at lower prices and sell them at higher prices to make money are affected by this. This mostly affects the people who sell these farmer's products on the open market.

 

Various MSP committees:

Farmers' National Commission:

1. The National Commission on Farmers (NCF) was established on November 18, 2004, and Professor M.S. Swaminathan served as its chairman.
2. The Approach to the 11th Five-Year Plan proposes achieving the objective of "faster and more inclusive growth" through the recommendations in the reports.
3. The recommendations of the Swaminathan Committee to set minimum support prices (MSP) for crops at levels that are at least 50% higher than the weighted average cost of production were widely disseminated.

 

Ramesh Chandra Group:

1. It was established to investigate the MSP fixing methodological issues.
2. The Commission suggested that the family labor head should be considered a skilled worker when calculating production costs.
3. The working capital interest ought to be paid throughout the entire season.
4. Include post-harvest costs like cleaning, grading, drying, marketing, and transportation.
5. The committee suggested increasing cost 2 by 10% to account for risk premium and managerial fees.

 

Way forward

1. To increase farmer income, the government must investigate alternative models rather than relying solely on MSP.
2. An alternative mechanism is already being developed by NITI Aayog. The Market Intervention Scheme (MIS), which allows the state government to purchase perishable goods like vegetables, is an alternative to the MSP.
3. The government's procurement system must be simplified.
4. Economic Survey and NITI both recommend Price Deficiency Payment (PDP) as a solution to MSP.
5. For all types of crops, declare MSP.
6. easing the responsibilities of procurement agencies and reducing costs and losses from storage.
7. Instead, the inputs subsidy policy ought to have been developed with farmers' interests in mind.
8. Price deficit financing schemes (Bhavantar Bhugtan Yojana) have been implemented in some states, including Madhya Pradesh. In these programs, the government pays farmers the difference between the minimum support prices (MSPs) and the modal rate, which is the average price in major mandis. The plan seems like a better option, but it has problems with storage and liquidation.

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