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Minimum Support Price: What is it? Who benefits?

The prices are announced before every crop cycle, that is twice a year, during Rabi and Kharif crop season. Government guarantees an offtake price to the farmers on the harvest.

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With the ongoing farmers’ protests continuing for over two weeks at the Delhi border, MSP (Minimum Support Price) has become a buzzword in news and social media discussions. One wonders, what is MSP? Which segment of farmers is it affecting? What are the key issues? 

The MSP was introduced to incentivize farmers of Punjab and Haryana to grow wheat and rice and thereby assure them of remunerative returns. It worked very well in the 1970s and 80s, due to which we are now a surplus food grain country. Presently, India has 91million tonnes of food grain stored, which is 250% of the storage required for the country. 

The Minimum Support Price is fixed for major crops on the recommendation of the Commission for Agricultural Costs (CACP) and it is announced by Cabinet Committee on Economic Affairs (CCEA). MSP covers a myriad of costs, including sowing (A2) to labor (FL). The prices are announced before every crop cycle, that is twice a year, during Rabi and Kharif crop season. Government guarantees an offtake price to the farmers on the harvest.

Presently, there are 23 crops covered by MSP, namely:

  • Cereals (7) - paddy, wheat, barley, jowar, bajra, maize, and ragi
  • Pulses (5) - gram, arhar/tur, moong, urad, and lentil
  • Oilseeds (8) - groundnut, rapeseed/mustard, toria, soybean, sunflower seed, sesamum, safflower seed, and nigerseed
  • Raw cotton
  • Raw jute
  • Copra/ De-husked coconut
  • Sugarcane (Fair and remunerative price)
  • Virginia flu cured (VFC) tobacco

Given the significant impact of MSP on the prosperity of Punjab and Haryana farmers, it was expected that they could march towards Delhi to express their concerns. The extensive media coverage may lead one to believe that 100% of the farmers across the country are adversely impacted by the farm bills. However, this is far from the truth. Only 5% of farmers in India are reaping the benefit of MSP! These farmers come from areas that have historically benefitted from the green revolution of the 1980s, HYV (High Yielding Variety) seeds, and technological advancements. Understandably, they oppose any reforms that would upset their traditional ways of earning.

It is recognized that 95% of the farmers across the country are functioning outside the MSP system. This could be due to a plethora of factors, such as lack of awareness, inadequate farm size, reluctance to use MSP mandis, etc. The ones left out of MSP are the small and marginal farmers who constitute 86% of the farming workforce and own less than 2 hectares of land each. These are the farmers who do not get adequate returns on the investment they make, simply because they do not have surplus grains to sell or lack the infrastructure and resources needed for transportation. 

An unwitting impact of MSP is that the paddy and wheat procured in Punjab and Haryana are utilized by the central government under Food Security Act to provide the same to the poor of UP, Odisha, Bihar, etc at under 5 rupees per kg through Public Distribution System. Due to PDS schemes, the local farmers in these states are unable to get a good price for their produce. The taxpayer is funding the MSP and eventually the common man is bearing the burden to sustain this finically unviable system. 

There is a trust deficit between the government and farmers, who fear the procurement at MSP will be taken away brick by brick. The government must make efforts to win the goodwill of the agitating farming community. In times of Covid and locust attack, farmers need an extra cushion in the form of government support. While we have schemes such as National Mission on Sustainable Agriculture (NMSA), Paramparagat Krishi Vikas Yojana (PKVY), etc which are making a positive impact, we still have a long way to have an all-inclusive policy.

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minimum support prices agriculture farmers crops