Updated: May 18, 2021
On September 20, 2020, the Government of India passed the so-called three farm laws from Rajya Sabha based on a voice vote despite opposition asking for division, i.e., recorded vote. From that day onwards, MSP (Minimum support price) gained a lot of attention, which was not mentioned in the laws. In this article, we will try to answer three questions about the MSP.
1. What is the MSP and idea behind MSP? 2. Who and how is MSP calculated? 3. Who is getting the benefit of the MSP system?
What are MSP and the idea behind MSP?
MSP is the minimum support price. The idea behind the MSP is to set the floor below which prices don’t fall. It is the price at which government promises to buy from farmers if the market price falls below.MSP started in 1966-67 for wheat and was expanded further to other essential food crops. Currently, the Government of India announced MSP on 23 commodities which comprise seven cereals (paddy, wheat, maize, sorghum, pearl millet, barley, and ragi), five pulses (gram, tur, moong, urad, lentil), seven oilseeds (groundnut, rapeseed-mustard, soybean, sesamum, sunflower, safflower, nigerseed), and four commercial crops (copra, sugarcane, cotton, and raw jute).
Who and how is MSP calculated?
The Government of India declares MSP on the Commission for Agriculture Costs and Prices(CACP) recommendation. CACP recommends MSP twice a year. The CACP submits its recommendations to the government every year, separately for five commodities: Kharif crops, rabi crops, sugarcane, raw jute, and copra.
CACP is a statutory body. It consists of five members. Its chairman is Prof Vijay Pal Sharma, member secretary Anupam Mitra, member (official) Dr. Navin P Singh, and two vacant seats.
There are currently three formulas on which CACP calculates production cost. These three formulas are A2, A2+FL, and C2. In these formulas, various input costs are considered. Among these three formulas, C2 is the most comprehensive formula, including most of the input cost. National Commission on Farmers(2004-2006), headed by great agriculture scientist Dr. M.S. Swaminathan, recommended that farmers get MSP based on C2+ 50% above C2 formula. But currently, the government of India is giving MSP based on the A2+FL formula. In the last many years, farm unions are demanding to provide MSP based on C2+ 50% above the C2 formula.
Who is getting the benefit of MSP based procurement system?
As per economists like Surjit Bhalla, who are supporting these so-called three Farm laws, only 6% of farmers sell their crops through APMC (Agriculture Produce Market Committee). This 6% are all large farmers primarily residing in two states of Punjab and Haryana. Both of his arguments that only 6% and all large farmers sell their crop through APMCs are not correct. As per data available till 2012-13 (after that, these data are not available). Among those who sold paddy to the government, 10% were medium (9.88 acres to 24.7 acres holdings) and large (more than 24.7 acres holdings) farmers. Small and marginal farmers with less than 4.94 acres accounted for 70%. The rest, 20 %, were semi-medium farmers (4.94 acre to 9.88 acre). In the case of wheat, 3% of all wheat-selling farmers were large farmers. More than half (55%) were small and marginal(less than 2.47 acres). This suggests healthy participation by smallholders in the procurement system. Many economists who are supporting these new farm laws argue that the APMCs system favors large farmers, which is factually incorrect, APMCs procurement system actually helps the small and marginal farmers to sell their produce on MSP.
Featured Image Source: IStock
Gupta,Prankur(2021) Minimum Support Prices in India: Distilling the Factshttps://papers.ssrn.com/sol3/papers.cfm?abstract_id=3791859
Bhalla, Surjit (2020) Protesting farmers are arguing for the perpetuation of colonial rule https://indianexpress.com/article/opinion/columns/farmers-protest-agri-laws-apmc-mandis- msp-surjit- bhalla-7101406/
Sharma, Unnati (2020) What’s MSP and how is it determined? The issue at the heart of farm protests https://theprint.in/theprint-essential/whats-msp-and-how-is-it-determined-the-issue-at- the-heart-of-farm-protests/562172/
Damodran, Harish (2017) The Cost+50% Swaminathan formula miragehttps://indianexpress.com/article/india/the-cost-plug-50-percent-swaminathan-formula- mirage-agriculture-sector-minimum-support-price-4715922/