MSP
Based on the recommendations of the Commission for Agricultural Costs and Prices (CACP), the Department of Agriculture and Cooperation, Government of India, declares Minimum Support Price (MSP) for 22 crops before the sowing season. The idea behind MSP is to give guaranteed prices and assured market to the farmers and save them from the price fluctuations. It insulates farmers from the unwarranted fluctuation in prices caused by the variation in supply (largely influenced by the monsoon), lack of market integration, information asymmetry and other elements of market imperfection plaguing the agricultural markets. The guaranteed price and assured market are expected to encourage higher investment and in adoption of modern technologies in agricultural activities. Further, with globalization resulting in freer trade in agricultural commodities, it is very important to protect farmers from the unwarranted fluctuation in prices, provoked by the international level price variations.
The MSP is set by the central government for select crops, based on recommendations
it receives from the Commission for Agricultural Costs and Prices (CACP). The CACP is
tasked with determining the MSP, which is somewhat based on a formula derived from
the Swaminathan Committee, which was a government-formed panel to resolve issues
faced by farmers.
While the government does declare the MSP twice a year, there is no law making MSP mandatory. What this technically means is that the government, though it buys at MSP from farmers, is not obliged by law to do so.
HISTORY TIME
We inherited an agrarian economy from the British with the agriculture and allied sector contributing to around three-fourths of the Gross Domestic Product (GDP) and providing employment to more than four-fifth of the population. The food shortages faced during the mid-1960s pushed India to reform its agricultural policy and accordingly India adopted significant policy reforms focused on the goal of achieving foodgrain self-sufficiency. Series of institutional reforms were undertaken to boost the agricultural production and to modernize the farming practices. These included land reforms, structural changes in the agricultural administrative arrangements, agricultural extension schemes, initiation of price support policies including the introduction of the Minimum Support Price (MSP) for major agricultural produces, introduction of new technologies (popularly known as the green revolution), strengthening of agricultural research, etc. Resultantly, as per the Central Statistics Office (CSO) revised estimates of GDP (released on 31st January 2013), the agriculture and allied sectors grew at an average rate of 3.6 per cent a year during the 11th Plan (2007-12). Given the limitations in the expansion of acreage, the main source of long- term output growth has been the improvement in
yield
The prices of agricultural commodities are inherently unstable, primarily due to the variation in their supply, lack of market integration and information asymmetry – a very good harvest in any year results in a sharp fall in the price of that commodity during that year which in turn will have an adverse impact on the future supply as farmers withdraw from sowing that crop in the next / following years. This then causes paucity of supply next year and hence, major price increase for consumers.
To counter this, MSP for major agricultural products is fixed by the Government, each year.
MSP is a tool which gives guarantee to the farmers, prior to the sowing season (even tho only 10 percent of farmers know about the MSP before the sowing season), that a fair amount of price is fixed to their upcoming crop to encourage higher investment and production of agricultural commodities. The MSP is in the nature of an assured market at a minimum guaranteed price offered by the Government.
In case of sugarcane, MSP has been assigned a statutory status and as such the announced price is termed as statutory minimum price, rechristened as Fair Remunerative Price (FRP). There is statutory binding on sugar factories to pay the minimum announced price and all those transactions or purchase at prices lower than this are considered illegal.
SO
On the whole, it was found that the MSP has succeeded in providing floor rate for major food grains like paddy and wheat and other produces such as Gram (black & green), spices and oilseeds (groundnut, mustard, til), sugarcane, jute and cotton, and it did not allow market prices to fall below the MSP fixed for them. The data collected from the respondents revealed that the MSP has been playing a critical role in stabilizing market prices in addition to helping the beneficiaries in adoption of modern technologies in farming. However, many farmers continue to sell their produce in the open market to get better returns.
Finally, almost all the beneficiaries were unanimous with the view that the MSP should continue as it insulated them from an unfavorable market conditions by assuring them a minimum return for their produce.
HOWEVER
Certain problems noticed in the implementation of MSP were: the procurement centres being far away resulting into heavy transportation cost, non-opening of Procurement centers timely, the authorities insisting for revenue records, lack of covered storage/ godowns facility for temporary storage of produces, lack of electronic weighing equipment in some places, delays in payments, etc.
Further, the instances of farmers coming to know about the MSP after they have sown their farms, and thus depriving them of any planning for their crops keeping in view the MSP, was quite common. It was also found that sometimes, the small and marginal farmers resorted to distress sales due to urgent need for money or to repay the loan taken before the sowing season. Some also pointed out that the MSP fixed was too low as it did not cover the rising farming costs
PDS
The Public distribution system (PDS) is an Indian food Security System established under the Ministry of Consumer Affairs, Food, and Public Distribution.
How PDS system functions?
- The Central and State Governments share responsibilities in order to
provide food grains to the identified beneficiaries. - The centre procures food grains from farmers at a minimum support price
(MSP) and sells it to states at central issue prices. It is responsible for
transporting the grains to godowns in each state. - States bear the responsibility of transporting food grains from these godowns to each fair price shop (ration shop), where the beneficiary buys the food grains at the lower central issue price. Many states further subsidise the price of food grains before selling it to beneficiaries.
PDS vs. Cash Transfers
- National Food Security Act,2013 provides for reforms in the TPDS including schemes such as Cash transfers for provisioning of food entitlements.
- Direct Benefit Transfer (DBT) aims to:
○ reduce the need for huge physical movement of foodgrains
○ provide greater autonomy to beneficiaries to choose their
consumption basket
○ enhance dietary diversity
○ reduce leakages
○ facilitate better targeting
○ promote financial inclusion
MSP AND PDS (And why msp cant be done away with)
when 67 per cent population of the country falls under the Public Distribution System (PDS) for food grains, stopping of MSP is not even thinkable. And if the government stops MSP, then PDS will also get abolished automatically. However, doing so is not as easy as the government thinks, say experts.
MSP procurement cannot be stopped in India when around 90 crore people are to be covered under PDS for food grain. Farmers of Punjab need not worry about stopping of MSP purchase because Punjab’s grain is going across the country under PDS system,” said economist Dr Sardara Singh Johal, adding that at the time of any natural calamity, the government has to distribute ration to the poor as it happened during the pandemic, and without procuring food grain on MSP, such distribution by the government is not possible.
The UPA government had initiated a programme of replacing food grain under PDS with cash and the NDA government too followed it. UPA had launched pilot projects in three union territories including Chandigarh, Puducherry and Dadra & Nagar Haveli, but this system could not be successful because in many cases, the cash did not reach the beneficiaries and those who got the cash could not meet their food grain demands from the market in the same amount, and majority beneficiaries were not in favour of it.
If we provide cash instead of ration, the beneficiaries may end up using this money on other needs rather purchasing food from the market and it will lead to malnutrition in the country manifold (Why cash transfers wouldn’t work)
THE THREE BILLS
The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act provides for setting up a mechanism allowing the farmers to sell their farm produces outside the Agriculture Produce Market Committees (APMCs). Any licence-holder trader can buy the produce from the farmers at mutually agreed prices. This trade of farm produces will be free of mandi tax imposed by the state governments.
Pros:
- Farmers have now got a new avenue with a freedom to sell their produce outside the APMC (agricultural produce market committee) market and the government has assured that there will be no tax on such trade, which gives higher price to the farmers.
- Farmers can sell their produce within the state or anywhere else in the country and there’s no restriction on this as well. As a result the farmers can get a higher price for their produce from merchants outside their state.
- No need for any kind of license for traders to purchase agricultural produce in the trade area outside the APMC mandi. In addition to this, anyone holding a PAN card or any other document notified by the Central government can join this trade. This provides more selling options to the farmers.
- In case of any dispute related to sale and purchase of these agricultural produce, the matter will be settled within 30 days by the Sub-Divisional Magistrate.
- The Act also assures heavy penalty for violating rules and regulations prescribed in it.
- Will not have to carry their produce to faraway market reducing transportation cost.
E-nam
CONS:
APMCs provide space for farmers for collective bargaining on price and non-price issues (grading, weighing, moisture measurement etc.). For the government, price intelligence comes from the mandis, and the government intervention in markets depends on this, beyond procurement for food schemes. Implications of these Bills on APMCs beyond the reforms being sought should be clearly understood.
One of the key problems with the ‘APMC Bypass Bill’ is that it leads to two parallel and very different markets, with different sets of rules, wherein the APMC set-up is
engineered to collapse. These are markets where the traders are required to be
licensed, where they are monitored and where they pay a fee.
In the new set-up, the existing traders along with their commission agents are the most trade-ready. They will be the first ones who will move out of the mandi spaces and
operate outside. This will obviously lead to a collapse of the mandis. Further, electronic trading like in e-NAM is riding on top of physical mandi structure in the country, not as a parallel system – if Mandis are destroyed without much trading, will e-NAM happen with farmer participation is an unanswered question.
Meanwhile, the new unregulated market space called the ‘trade area’ will have no
oversight and the government will have no information or intelligence about who the players are, who is transacting with who for what quantities and at what prices. Having no intelligence will be a great excuse for the government not to intervene in the market. Today, the government is forced to step in when prices are seen to be crashing,
especially from the mandi-based price intelligence system.
The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020, provides for contract farming, under which farmers will produce crops as per contracts with corporate investors for a mutually agreed remuneration
- The act will provide a national framework for the farming agreements that protect
and empowers farmers to engage with agri-business firms, processors,
wholesalers, exporters or larger retailers for farm services and sale of future farming produce at the mutually agreed remunerative price framework in a fair and transparent manner. Today also farmers are engaging with agri-businesses but this formalises it.
KEY FEATURES:
- Farming agreement: even before the harvest you can enter into an agreement
- Pricing of farming produce:
- Dispute settlement: Agreement must provide conciliation board
- Protection of farmers: Sale, lease or mortgage of farms land is prohibited and
protected. Protected against any recovery.
HOW WILL IT HELP?
- Farmers will have assured prices before sowing
- Transfers market risks from farmers to sponsors
- Gives farmers access to high quality seed, fertilizers and pesticides
- Will attract private players into farming and link farms to global markets
THE ECB (AMENDMENT)
- Removes cereals, pulses, oilseed, edible oils and potatoes from the list of
essential commodities. - Does away with imposition of stock limit except under exceptional conditions. It
will attract private investments in cold storage, warehousing, processing and will
help reduce wastage - It will bring price stability and raise farm income.
CONS: This brings us to the Essential Commodities Amendment Bill 2020, which we will refer to as Food Hoarding (Freedom for Corporates) Bill 2020, wants to legitimise what would otherwise be called as hoarding, without the government even having the capability of knowing what stocks are existing with who, when and where. This is being done in the name of attracting private investment in post-harvest infrastructure.
Invisibilizing of stocks through this Bill is a dangerous situation to walk into,
which will create serious food supply problems during extraordinary
circumstances. How will the government be able to even verify on the stock
limits front when it has no information on who the players are, and the levels of
stocks are not clear. In fact, it is unclear why a predictable policy cannot be used
to regulate in a predictable fashion, rather than tinkering with the existing law.
GOVT PROPOSALS FOR RECTIFICATION
- State govt can impose fee/cess on the private mandis
- Written assurance from govt for the continuation of the existing MSP system ● State govt can register traders to regulate them
- Under the contract farming law, farmers will have the alternative to approach the
court and their land will be safe as no loan will be given on farmers land and their buildings by mortgaging it.
All in all, the new Bills bring in players bigger than the local traders and it is not just
local monopsonies with cartelized trade but big monopolies that can be expected
now, with the government willingly giving up its regulatory powers. In the new set-up,
it will not only be fragmented markets with different sets of rules but also
fragmented regulatory structures that will create a more uneven playing field for
farmers. Ultimately, this is going to lead to the replication of old structures outside
the mandi.
The Bypass Bill will help a few large farmers who can obtain favorable terms from
buyers. Large buyers, in turn, driven by the need to minimize the cost of procurement,
would prefer to deal with large farmers. This will create a separate ecosystem in
which buyers divide up regions and large farmers among themselves, drive hard
bargains and transact on terms that are publicly invisible. In the absence of a
regulator, cartelization of buyers and inferior terms for farmers cannot be prevented.
The anti-competitive and exploitative impact of the bills has not been examined. Far
from converging prices towards the minimum support price (MSP), the bills will
create asymmetric markets in which farmers are the losers. Privatization of trading
will selectively benefit peri-urban farmers with access to better infrastructure and
literate farmers, though the caveats listed here would continue to apply to them. The only important example of a large-scale experiment with the abolition of APMCs is available from Bihar, which repealed the APMC Act in 2006. Studies in the state have concluded that there has been little change in the way farmers sold their produce before and after the repeal. Small farmers continue to sell to traders on unfavorable terms, even when transport facilities are available. In any case, widely varying efficiency and modalities with which the Act has been implemented in the states make interstate comparisons meaningless.
Small and marginal farmers form 86% of the farming community and contribute over
50% of crop output. This majority faces substantial bottlenecks in connecting to
markets and the bills bring no relief to them. In the absence of infrastructure, small
and most medium farmers will continue to turn to local traders. With the
marginalization of APMCs, this relationship will turn even more adverse for the
farmer.
MORE PROBLEMS
“No suit, prosecution or other legal proceedings shall lie against the Central Government or the State Government, or any officer of the Central Government or the State Government or any other person in respect of anything which is in good faith done or intended to be done under this Act or of any rules or orders made thereunder.”
The immunity given to all those in respect of anything, acting ‘in good faith,’ whatever they do, is sweeping. Not only can they not be taken to the courts for a crime they may have committed ‘in good faith’ – they’re protected against legal action for crimes they are yet to commit (‘in good faith’ of course).
“No civil court shall have jurisdiction to entertain any suit or proceedings in respect of any matter, the cognizance of which can be taken and disposed of by any authority empowered by or under this Act or the rules made thereunder.”
No suit, prosecution or other legal proceedings shall lie….” It’s not just farmers who cannot sue. Nobody else can, either. It applies to public interest litigation too. Nor can
non-profit groups, or farm unions, or any citizen (driven by faith good or bad) intervene.
It is a universally acknowledged fact that the voting on the Farm Bills in the Rajya Sabha was not done in accordance with the rules of the House. These rules require the
Chair to order the recording of votes (division) by members even when one member
demands it. The Deputy Chairman of the House, who was conducting the proceedings
at that time, did not order division although a few members openly and loudly
demanded it. It is true that there was disorder in the House but it could have been
controlled and a proper voting could have been conducted. Disorder was not taking
place for the first time in the House. Thus, there was a violation of the rules of the
House in passing the Bills by voice vote when there was a demand for division.
Article 100 says that all questions at any sitting of either House shall be determined by a
majority of votes of the members present and voting. Majority can be determined only in
terms of number, and therefore what this Article requires is that all questions in the
House should be determined by recording the votes of the members present and voting.
Majority cannot be determined through voice vote. In fact the Constitution does not
recognise voice vote to determine majority in a legislature. However, deciding a
question by voice vote is a practice prevailing in all legislatures. This was devised for
the sake of convenience and there is always an assumption that since the government
of the day has a majority, any proposal before the House has the support of the
majority. But that assumption goes when a member demands voting in the House and
the Chair has, then, no option but to order the actual voting. Since this was not done
and the Bills were all passed by voice vote, there is a violation of the rules as well as the
Constitution.
THE CURIOUS CASE OF APMC ABOLISHMENT IN BIHAR
However, the Bihar government decided to abolish the APMC system altogether in
2006.
Before their abolition, Bihar had 95 market yards, of which 54 had infrastructure such as covered yards, godowns and administrative buildings, weighbridges, and
processing as well as grading units. In 2004-05, the state agricultural board earned ₹60 crore through taxes and spent ₹52 crore, of which 31% was on developing
infrastructure. With no revenue to maintain it, that infrastructure is now in a
dilapidated condition. Also, no major private investment has come in.
In a study of agriculture in Bihar last year, the National Council for Applied Economic Research reported increased volatility in grain prices after 2006, which negatively affected the crop choices and decisions of farmers to adopt improved cultivation practices. It concluded that Bihar’s repeal of the APMC system and consequent increase in price volatility could be one of the reasons for low growth of agriculture in the state. It concluded, “Farmers are left to the mercy of traders who unscrupulously fix a lower price for agricultural produce that they buy from [them].
Inadequate market facilities and institutional arrangements are responsible for low
price realisation and instability in prices.” Most of the farmers surveyed reported high
storage costs at private warehouses. Further, the need for immediate cash meant that
they were forced to sell at whatever prices private traders offered. Recent field studies
have also reported traders and farmers both being charged market fees in private
unregulated markets, even though infrastructure for weighing, sorting, grading and
storage is missing.
The Bihar experiment has important lessons for future marketing reforms in agriculture. The benefits of these reforms will only accrue to farmers if they are accompanied by private investment in creating the physical infrastructure and institutional mechanisms needed to allow for greater participation of farmers.
By only attempting to shift trade away from APMC to non-APMC areas, without a regulatory framework, the new law is unlikely to ensure better price realization for farmers. On the contrary, it might even lead to a decline in the APMC infrastructure if enough revenue for its upkeep and development isn’t generated.
AMERICAN KISANS
Start from 1971, when President Nixon appointed Earl Butz as Secretary of Agriculture, with the mandate to control food prices. By then America was already worrying about corporate farming and its effect on rural America, but Butz viewed agriculture as big business and a sector the government should get out of. He discouraged farm subsidies given under the New Deal—somewhat similar to MSP—and advocated a free-market approach of consolidation, and corporate and industrial farming to increase production. Surpluses were to be managed by exports.
After a couple of growth years, crop prices slumped and farmers across the US went on strike in December 1977.
Since 2013, American family farms have again been hit by a crisis—some
100,000 farms shut down between 2011 and 2018, including 12,000 just in
2017-18.
The quintessential American family farm is no longer viable. As family farms are winding up, it’s leading to a closure of village stores and farm support services like schools and vets.
Farmer suicides have become so prevalent that the National Farmer Union and Farm Aid now run Suicide Prevention Helplines. The 2018 Farm Bill even has a $50 million budget for mental health. Some 30% farmland in the US is now
owned by non-operators who lease it for farming—this includes 2% with foreign owners. Large farms in the USA—with sales over $1 million—account for just 4% of all farms but their output is 66% of the total farm produce.
2018 FARMERS PROTESTS
Protesting farmers demand a special session of Parliament on agrarian crisis to pass two Bills: one pertaining to one-time full loan waiver, the other for a long-term institutional measures to ensure farmers are not pushed into debt again. They also demand implementation of Swaminathan Commission
recommendations that say the minimum support price should be fixed at 50% above the comprehensive cost of production.
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