17 Feb 2024 Farmers’ protest for Minimum Support Price (MSP)
This article covers ‘Daily Current Affairs’ and the topic details of ”Minimum Support Price”.This topic is relevant in the “Agriculture and Indian Economy” section of the UPSC CSE exam.
Why in the News?
A prominent demand of the farmers protesting in Delhi is the passage of legislation to ensure minimum support prices (MSP) for all crops, as proposed by the Dr M S Swaminathan Commission.
What are the Demands of Farmers?
- Granting Legal Standing to MSP: The introduction of legislation to confer obligatory legal status to Minimum Support Price (MSP) in accordance with the recommendations put forth by the MS Swaminathan Commission.
- Debt Relief: Complete forgiveness of debts for farmers and labourers;
- Implementation of the Land Acquisition Act of 2013: Including provisions necessitating written consent from farmers prior to acquisition and compensation at a rate four times the collector rate;
- Exit from WTO: Advocating for India’s withdrawal from the World Trade Organization (WTO) and a cessation of all free trade agreements;
- Pension Assistance: Provision of pensions for both farmers and farm labourers;
- Employment under MGNREGA: Amplifying the employment tenure under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) to 200 days annually (as opposed to 100), with a daily wage of Rs 700, and interlinking the scheme with agricultural activities.
What is the Minimum Support Price?
- MSP is a form of governmental intervention, crafted to safeguard farmers from significant declines in the pricing of their produce and to help them prevent financial losses.
- The Indian government establishes MSP for 24 different commodities biannually, with the aim of shielding farmers from price drops during favourable crop years. When the market price falls below the declared MSP, the government commits to purchasing the entire quantity from farmers at the MSP, serving as a protective measure. This strategy encourages agricultural production, ensuring a consistent supply of essential food grains in India.
- MSPs not only establish a benchmark for prices in the specified commodities but also influence pricing in alternative crops. A genuine MSP involves government intervention whenever market prices dip below a predetermined level, particularly in instances of surplus production, oversupply, or price collapses influenced by global factors.
- Beyond its role in stabilizing prices, MSP serves as an incentive for the cultivation of various crops crucial for nutritional security. This includes coarse cereals, pulses, and edible oils, where India relies on imports, emphasizing the multifaceted utility of the MSP mechanism.
How is the Minimum Support Price (MSP) calculated?
- The determination of the Minimum Support Price (MSP) involves the consideration of both explicit and implicit costs borne by farmers. Explicit costs encompass expenditures such as chemicals, fertilizers, seeds, and hired labour, while implicit costs include factors like family labour and rent. These variables are denoted as A2, FL, and C2.
- A2 signifies the costs associated with inputs like chemicals, fertilizers, seeds, and hired labour for the growth, production, and maintenance of crops.
- A2 + FL encompasses both actual and implicit costs, incorporating family labour. C2 comprises A2 + FL along with fixed capital assets and rent paid by farmers.
- In addition, the Commission for Agricultural Costs and Prices (CACP) takes various other factors into account:
- Crop costs and cultivation costs per hectare vary by region.
- Cost of production per quintal and regional disparities.
- Market prices of relevant crops and their variations.
- Other production and labour costs, along with associated fluctuations.
- Prices of commodities bought or sold by farmers and any price fluctuations.
- Information on product supply, such as area, imports, yield, exports, production, and stockpiles, is shared with governmental authorities or industries.
- Demand information across regions, encompassing total and per capita consumption, trends in the processing industry, and capacity.
Reasons behind no legalisation of MSP till now
Several challenges have hindered the government’s willingness to provide a legal guarantee to the Minimum Support Price (MSP). These issues include:
- Heavy Subsidy: The current MSP system places a significant subsidy burden on the government, leading to an escalation in the fiscal deficit within the annual budget.
- Challenges in Foodgrain Management: The government lacks the necessary physical resources to procure, store, and market large quantities of produce. This limitation arises when there are no buyers willing to pay the MSP, creating difficulties in effective foodgrain management.
- Consistent Increase in MSPs: The continual rise in MSPs results in overflowing Food Corporation of India (FCI) godowns. Additionally, the elevated MSP makes it challenging for the FCI to sell its stocks in the international market at a profitable rate.
- Sale Outside APMC: The majority of the sales for crops covered under MSP do not occur within Agricultural Produce Marketing Committees (APMCs). Consequently, there is no recorded information on the purchasers or seller farmers involved in these transactions. Ensuring MSP for such transactions becomes impractical, especially when small and marginal farmers sell their produce to village traders operating outside the purview of APMCs.
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Prelims practice questions
Q1. What does A2 + FL represent in the calculation of MSP?
A. Actual costs only
B. Implicit costs only
C. Both actual and implicit costs
D. Fixed capital assets only
ANSWER: C
Q2. Consider the following statements: (UPSC Prelims-2020)
- In the case of all cereals, pulses and oil seeds, the procurement at Minimum Support Price (MSP) is unlimited in any State/UT of India.
- In the case of cereals and pulses, the MSP is fixed in any State/UT at a level to which the market price will never rise.
Which of the statements given above is/are correct?
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2
ANSWER: D
Mains practice question
Q1. Discuss the role of Minimum Support Price (MSP) and subsidies in agriculture. How do these mechanisms influence farmers’ decisions, crop choices, and overall agricultural practices?
Q2. Examine the environmental implications of the subsidies provided in agriculture, particularly in the context of water usage, pesticide application, and land management.
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