The government fixes minimum support prices or MSPs for a selected list of crops that account for the bulk of India’s cropped area. These prices are announced at the beginning of each sowing season. The government essentially guarantees to buy any of the harvest that is offered to it at this price. The assurance of remunerative prices are supposed to encourage farmers to invest more and hence increase production of these crops. If the market price after the harvest is more than the MSP, farmers would be able to get a higher return but if not, the MSP is supposed to provide a safeguard against prices falling too low.
What are the factors that determine MSP?
The MSP is fixed for 23 agricultural commodities for which the Commission for Agricultural Costs and Prices (CACP) is required to give recommendations to the government. Various criteria encompassing the interests of both producers and consumers are used for fixing the MSP. The commission assesses demand and supply by sending questionnaires and holding discussions with government agencies and various trade and industry bodies.
Do all farmers get benefited by MSP?
A 2016 NITI Aayog evaluation report on MSP that studied 36 districts in 14 states showed a mixed picture. While there is general consensus among farmers that MSP should continue, there are huge implementation issues. Only 10% of the farmers surveyed were aware of MSP before the sowing season, which meant there was no incentive to have a particular crop. Also, despite knowing about MSP many farmers could not sell their products to FCI because of various logistical issues like transportation and storage. A vast majority of Indian farmers are small farmers and a delay in official procurement (which is quite frequent) forces them into distress sales of their product due to urgent need of money. Also, public procurement at MSP is largely focused on certain crops like paddy, wheat and sugarcane and on certain states like Punjab, Haryana, Uttar Pradesh and so on.
Why do some criticise the concept of an MSP?
They argue that political pressure increases the MSP without considering the size of the harvest. As a result, prices may not fall despite a good harvest and there could be inflationary pressure on consumers. The middle men who procure crops from marginal farmers and sell it to FCI centres would be the ones to benefit as the farmer gets a low price because of the high yield and prices will not fall correspondingly for the consumers. Also, they say large scale procurement effectively reduces the amount of the produce that reaches open markets and hence creates an artificial shortage in these markets, thereby pushing up prices.