Published: Published Date – 12:34 AM, Thu – 19 May 22
By Seela Subba Rao
The Center in June 2021 approved an increase in Minimum Support Price (MSP) for all mandated kharif crops for the marketing season 2021-22. The highest absolute increase in MSP over the previous year was recommended for sesamum (Rs 452 per quintal) followed by tur and urad Rs 300 per quintal each. For groundnut and niger seed, it was at Rs 275 and Rs 235 per quintal respectively.
Many concerted efforts have been made over the last few years to realign MSPs in favor of oilseeds, pulses and coarse cereals to encourage farmers to shift to larger areas under these crops and adopt the best technologies and farm practices. As of now, the Commission for Agricultural Costs & Prices (CACP) recommends MSPs for 23 commodities, accounting for hardly a third of the total value of India’s agricultural output. In reality, however, the implementation of MSP has been effective in just four crops — paddy wheat, cotton and sugarcane.
Issues with MSP
The MSP framework is fraught with the following issues:
• Procurement of the produce has resulted in huge stocks which are nearly double the requirement for maintaining buffer stock, public distribution system and other government schemes. As a result, the government is not in a position to decide the quantity it wants to purchase. Hence, the government is bound to purchase whatever quality of grains/pulses offered by farmers resulting into ‘open ended procurement’.
• Another challenge is the dependence of farmers on middlemen and commission agents to sell their produce. Red-tapism in the Agriculture Produce Marketing Committee makes it difficult for farmers to access mandis and hence they have to depend on the market to sell their produce.
• Certain crops are preferred by farmers because of better MSP. This results in the exploitation of groundwater resources, and degradation of soil.
• With the introduction of MSPs and hike every year, market prices are dictated by MSP. This brings market prices at least on a par with MSP resulting into a steep rise in food inflation.
• Lack of sufficient government machinery for procurement of all crops, except wheat and rice which the Food Corporation of India (FCI) actively procures under the public distribution scheme, is another problem. Inadequate storage facilities add to the bottleneck.
• Procurement process involves huge costs of handling (storage, packing and distribution). Further, the procured stocks are distributed at extremely subsidized rates or sometimes free to the poorest section of society under welfare schemes. Thus, the government is left with burgeoning bills.
Legal Guarantee
Making MSP a legal guarantee will entail huge costs and have severe economic repercussions. Under legal guarantee, if the government declares MSP as the baseline price for 23 crops in the market, it will be a mandate for private players to pay MSP rates. It will push retail and wholesale prices on the higher side while alienating them from the market equation of demand and supply. Apart from causing inconvenience to consumers, it may lead to acute food inflation. It may also cause an adverse impact on agricultural exports which have been so far a silver lining of the economy.
At present, the government through multiple agencies such as FCI, NAFED and CCI buys these 23 crops. This provides price support to farm producers, especially in the case of a glut when prices fall below the MSP. If the MSP is made legal for all the 23 crops, other farmers will also make similar demands for their crops such as fruits and vegetables. Currently, government agencies are finding it difficult to make adequate storage arrangements. If MSPs are made a legal guarantee, it could compound the government’s efforts to ensure storage. Apart from storage, packing and distribution involve huge costs.
Calls for Coordination
Most of the policies governing the agriculture sector, such as support prices and exports, are in the Centre’s court. Perfect coordination between the Center and the States is paramount for the success of the policies.
There is a need to strengthen the Negotiable Warehouse Receipt System which was launched in 2011. Farm producers are issued with negotiable warehouse receipts (NWR) making them eligible for collateral loans from banks to avoid distress sale of their produce. More warehouse facilities must be set up under the Warehouse Development & Regulatory Authority.
Another route for guaranteeing MSP is via a price deficiency payments system. Under this, farmers are compensated by paying them the difference between the prescribed MSP and the actual market price for certain crops. To avail of this scheme, farmers have to register with the nearest APMC mandi or agriculture office and report the total area s/he has owned. The amount will be credited to his/her Aadhar-linked bank account through direct benefit transfer.
There is also a need to set up Agriculture Advisory Council at the Center and Agriculture Advisory Boards in States. Some States have already set up Agriculture Advisory Boards which need activation. Every agricultural commodity needs a Board and an action plan at the national level to market the produce globally and also to ensure uniformity in quality.
To facilitate a hassle-free procurement process, adequate number of procurement centers may be opened. The produce at the procurement center should be lifted in the shortest period possible. The aim should be ‘produce and flourish’ for the farm sector instead of ‘produce and perish’.
(The author is former Assistant General Manager, Nabard)
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