Why Farmers Rally in News?
The farmers are protesting because they want a sure promise from the government that they will always get a fair price for their crops, called Minimum Support Price (MSP). They're also asking the government to follow the suggestions made by the Swaminathan Commission in 2006, which talk about how farming should be done, and they want their debts forgiven.
What is MSP?
The Minimum Support Price (MSP) is like a safety net provided by the Government to farmers. It's a promise from the Government to buy their crops at a certain price, no matter what. This helps farmers feel secure that they won't lose money if crop prices suddenly drop. So, even if the market prices fall too low, farmers still get paid a fair amount for their hard work. This system encourages farmers to keep growing crops and ensures they can support themselves and their families.
What are the crops covered under MSP?
The government sets Minimum Support Prices (MSPs) for various crops to ensure farmers receive fair payment for their produce. These MSPs are announced for 22 specified crops, including cereals like paddy, wheat, barley, and others; pulses like gram, arhar/tur, and more; oilseeds such as groundnut, rapeseed/mustard, and others; as well as raw cotton, raw jute, copra, de-husked coconut, and Virginia flu-cured tobacco. Additionally, Fair and Remunerative Prices (FRP) are established for sugarcane. Although MSPs are notified for 23 crops, wheat and paddy are primarily procured to meet the requirements of the public distribution system.
Here's a table classifying the crops based on their categories:
| Category | Crops |
|---|---|
| Cereals | Paddy, Wheat, Barley, Jowar, Bajra, Maize, Ragi |
| Pulses | Gram, Arhar/Tur, Moong, Urad, Lentil |
| Oilseeds | Groundnut, Rapeseed/Mustard, Toria, Soyabean, Sunflower Seed, Sesamum, Safflower Seed, Nigerseed |
| Others | Raw Cotton, Raw Jute, Copra, De-husked Coconut, Sugarcane (FRP), Virginia flu-cured (VFC) Tobacco |
This classification helps in understanding the different types of crops for which Minimum Support Prices (MSPs) or Fair and Remunerative Prices (FRP) are announced by the government.
How is MSP calculated?
The Minimum Support Price (MSP) is determined by the government based on recommendations from the Commission for Agricultural Costs & Prices (CACP). The calculation involves three main formulas:
- A2: This includes costs borne by the farmer during crop production, covering expenses like seeds, fertilizers, pesticides, leased-in land, hired labor, machinery, and fuel.
- A2+FL: In addition to A2 costs, this formula incorporates the value of family labor contributed to farming.
- C2: This is a comprehensive cost calculation, comprising A2+FL costs along with imputed rental value of owned land and interest on fixed capital, as well as rent paid for leased-in land.
The government ensures that the MSP is set at a level of at least 1.5 times the all-India weighted average Costs of Production (CoP). However, it calculates this cost as 1.5 times of A2+FL, aiming to provide farmers with a fair return for their efforts and investments.
Why there is a demand to make a Law on MSP?
The demand for a law on Minimum Support Price (MSP) is underscored by compelling statistics and critical factors:
- Ensuring Financial Viability of Agriculture: Legalizing MSP guarantees farmers a minimum price for their produce, shielding them from market fluctuations and ensuring fair returns on their investments and labor. Statistics reveal that despite government subsidies, farmers face increasing debt burdens, with the average debt burden on a farmer’s family exceeding Rs 1 lakh (2019 National Bank for Agriculture and Rural Development (NABARD) report).
- Supporting Farmers' Livelihoods: Millions of farmers, especially small and marginalized ones, depend on agriculture for their livelihoods. Legalizing MSP helps sustain these livelihoods by offering stability in an uncertain market environment. Around 50% of the country’s population depends on agriculture and agriculture-related activities.
- Risk Mitigation: Farmers contend with numerous unpredictable factors like weather extremes and market fluctuations. Legalizing MSP provides a safety net, reducing the risk of income loss during adverse conditions, thereby safeguarding farmers' interests. Natural disasters and market forces are increasingly affecting farmers, highlighting the need for MSP protection.
- Addressing Market Imperfections: Market forces often exploit farmers, who receive low prices for their produce while consumers pay exorbitant rates. Legalizing MSP can address these disparities by ensuring a fair price directly to farmers, thus rectifying market imperfections. The burden of providing cheap grains to protect consumer interests can't solely rest with the farmer.
- Promoting Agricultural Growth: Legalizing MSP encourages investment in agriculture by providing price stability and income security, fostering agricultural growth essential for food security. It also incentivizes sustainable practices, contributing to environmental and resource efficiency. MSP legalization can incentivize the adoption of sustainable agricultural practices.
- Addressing Disparities: Statistics from Shanta Kumar Committee reveal that only 6% of farmers benefited from the support price scheme, with three states — Punjab, Haryana, and Madhya Pradesh — accounting for 85% of wheat procurement in 2019-20. Legalizing MSP can address these issues by providing a uniform guaranteed price, promoting equity, and poverty alleviation.
In essence, legalizing MSP through legislation is crucial for protecting farmers' interests, promoting agricultural sustainability, and addressing socio-economic disparities in the farming sector.
Why Government does not want to make Law on MSP?
Here's a table summarizing the key challenges in legalizing MSP:
| Challenge | Description |
|---|---|
| Financial Burden | Procuring crops at MSP requires significant financial resources, potentially straining government finances. Balancing budgetary allocation with other essential expenditures is challenging. Legal MSP's effectiveness relies on fluctuating demand and supply factors. |
| Disincentive for Investment | Legalizing MSP could deter private investment in agriculture, especially in MSP-covered crops. Private sector reluctance to invest in sectors with government pricing intervention may hinder innovation and modernization efforts. |
| Threat of Water Scarcity | MSP-supported crops like paddy and sugarcane are water-intensive, potentially aggravating water scarcity issues. Legalizing MSP may encourage cultivation of water-intensive crops, further straining water resources. |
| Neglect of Non-MSP Crops | Legalizing MSP may lead to neglect of non-MSP crops, reducing cultivation of nutritious foods like pulses and oilseeds. This could negatively impact food security and dietary diversity, especially among vulnerable populations. |
| Reduced Export Competitiveness | Legal MSP may increase procurement prices for MSP-supported crops, reducing their competitiveness in international markets. Elevated domestic prices could hamper export competitiveness, particularly for crops with high MSP rates. |
| Trade Disputes | Legalizing MSP may trigger trade disputes with importing countries, particularly if the government provides subsidies to maintain MSP prices. Such disputes could lead to retaliatory measures or trade barriers, affecting export volumes and market access, potentially prompting challenges at the World Trade Organization (WTO). |
What did Swaminathan Report 2006 proposed on MSP?
The Swaminathan formula proposed significant changes in determining Minimum Support Prices (MSP) for farmers:
- Remunerative Prices: The formula emphasized providing remunerative prices to farmers as a solution to the farm crisis.
- 1.5 Times Input Costs: The commission recommended that MSP should be set at least 1.5 times the farmers’ input costs to ensure fair returns.
- Inclusion of Comprehensive Costs: Unlike the conventional A2+FL formula, the Swaminathan Commission's formula (C2) included additional costs such as interest on the value of owned capital assets, rent paid for leased-in land, or the rental value of owned land. This comprehensive approach aimed to better reflect the actual costs incurred by farmers.
In comparing the current MSP with the Swaminathan formula, the difference lies in the method of calculating input costs. While the current MSP calculation primarily relies on A2+FL, the Swaminathan formula incorporates additional factors under the C2 formula, resulting in potentially higher MSP rates that better reflect farmers' actual expenses and ensure fair compensation for their labor and investments.
Is there any difference in the final rates as per Swaminathan Report?
Here's a comparison between the MSP announced and the MSP as per the Swaminathan Commission's formula (C2+50%):
| Crops | C2 | MSP announced (Rs/qtl) | MSP as per C2+50% |
|---|---|---|---|
| Wheat | 1652 | 2,275 | 2,478 |
| Barley | 1614 | 1,850 | 2,421 |
| Gram | 4547 | 5,440 | 6,820.5 |
| Lentil | 4890 | 6,425 | 7,335 |
| Rapeseed & Mustard | 4068 | 5,650 | 6,102 |
| Safflower | 5414 | 5,800 | 8,121 |
As evident from the table, the MSP calculated using the C2+50% formula proposed by the Swaminathan Commission is notably higher than the MSP announced by the government for various crops. This highlights the significant difference in the approach to determining fair prices for farmers' produce.
Now how to proceed further?
Certainly, here's the plan outlined in a table format:
| Action | Description |
|---|---|
| Revamp Agricultural Pricing Policy | - Incorporating elements from Swaminathan Committee's recommendation like setting MSP at least 50% higher than the weighted average cost of Production (C2). |
| - Expand MSP criteria to include additional factors like education and health expenses incurred by farmers. | |
| - Consider implementing Price Deficiency Payments (PDP) to bridge the gap between market prices and MSP, providing income support to farmers. | |
| Increasing Farmers' Income | - Include agricultural activities in the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) and increase daily wages. |
| - Promote crop diversification and climate-resilient crops to boost farmers' income. | |
| - Strengthen agricultural marketing infrastructure to reduce post-harvest losses and improve price realization for farmers. | |
| Improving Agricultural Infrastructure | - Increase public investment in rural infrastructure such as irrigation facilities, roads, electrification, and storage capacities. |
| - Promote technology adoption and innovation in agriculture through research and development, extension services, and access to modern farming inputs and practices. | |
| - Facilitate access to credit, insurance, and other financial services for smallholder farmers to mitigate production risks and improve resilience to market fluctuations. | |
| Improving Land and Water Management | - Implement sustainable land and water management practices to conserve natural resources, prevent soil degradation, and enhance agricultural resilience to climate change. |
| - Promote efficient water use through the adoption of drip irrigation, rainwater harvesting, and water-saving technologies to address water scarcity challenges in agriculture. | |
| Ensuring Social Security | - Expand social safety nets and insurance schemes to provide income and livelihood support to vulnerable farming households during periods of distress. |
Implementing these measures comprehensively can lead to a more sustainable and prosperous agricultural sector, ensuring the well-being of farmers and enhancing food security.
