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Thursday, December 09, 2021

Farm bill advocates should not ask farmers to choose between MSP and market

Instead of allaying their fears, if farmers are asked to choose between the MSP system and the market, the debate on farm bills becomes unnecessarily ideological.

Written by Milind Murugkar |
Updated: October 30, 2020 8:35:45 am
Farm bills, Farm bills 2020, Farm bills protests, Punjab farmers, Punjab farmers farm bills, Farmers protest, Indian expressThe RBI's annual report of 2017-18 conclusively shows that MSP is a leading factor influencing the output prices of the farm produce in the entire country. (File Photo)

The recently enacted farm bills have triggered debate on the desirability of the MSP regime. It is a strange outcome. The bills do not facilitate a policy to do away with Minimum Support Prices (MSPs). All it does is allow free entry to agents who wish to set up markets — whether they be private individuals, producer collectives or cooperatives. This means that the Food Corporation of India (FCI) and other associated agencies can procure in the traditional mandis, or in a new market established under this law — or in their own backyard. So, the argument that if the mandis cease to exist, the procurement will also cease is, in fact, flawed. But the staunch defenders of the bills, instead of making this point and stopping at that, are questioning the MSP regime in the same breath. (For instance, Ashok Gulati, ‘MSP in the age of surplus’ IE, October 12).

Elsewhere, supporters of the bills have quoted the Shanta Kumar committee’s figures to argue that MSPs are anyway irrelevant for most of the farmers in the country. This linkage of the farm bills with the MSP only adds to the apprehension that farmers have about the bills. Instead of allaying their fears, if they are asked to choose between the MSP system and the market, the debate on farm bills becomes unnecessarily ideological.

It is true that the procurement has remained confined to only a few crops. But as an analysis in this paper (IE, October 6) shows, the benefits to the farmers even beyond Punjab and Haryana are certainly not negligible. It is true that only a small fraction benefits directly from the procurement. But one cannot ignore the indirect benefit of this to all foodgrain producers in the country. Procurement of wheat and rice is from a fraction of the grain producers, but it is around 35 per cent of the total grain production in the country. As the procurement significantly exceeds the PDS requirement, this creates additional demand in the foodgrain market, pushing up the prices. This has been a great help for all the grain producers in the country, especially when the international prices have remained low for a long time now.

Explained | Minimum support price (MSP) for farmers: How is it fixed, and how binding is it?

The RBI’s annual report of 2017-18 analyses the impact of MSP-based procurement on the food prices. It conclusively shows that MSP is a leading factor influencing the output prices of the farm produce in the entire country. Gulati is offering an either-or choice to the farmers. They should either embrace the “inefficient” and “costly” MSP system or opt for open markets. This is problematic.

During a three-year period of UPA II, the Commission for Agricultural Costs and Prices (CACP) — headed incidentally by Gulati — recommended a steep increase in MSPs. In fact, the commission was criticised by some for its inflation-inducing policy. What has changed so much between then and now for the MSPs to become irrelevant for the welfare of the farmers? Why should the farmers believe that the enactment of the farm bills will offer them remunerative prices, making MSPs redundant? After all, the process of emergence of a new market has just begun.

The period from 2004 to 2012 was the period of high commodity prices, high government procurement and rapid reduction in rural poverty. Can we deny the probable causal link between the high prices and decrease in poverty?

The issue of MSP is all the more important for rain-fed agriculturists. Being deprived of irrigation, they don’t derive benefit from subsidies on electricity and fertiliser as their use is limited. So, at the moment, the only state support these farmers (primarily cotton and pulse producers) have is that of MSPs. This, though far from adequate, is crucial.

Editorial | Statutory backing to MSP makes no economic sense. Farmers would be better off with income support that is crop-agnostic

Above all, the debate on whom and how the state should support is an issue that should be addressed independent of the farm acts. Presenting these acts as an alternative to MSPs will not persuade farmers. And they cannot be blamed for that.

This article first appeared in the print edition on October 30, 2020 under the title ‘The wrong link’. The writer is a policy analyst with Pragati Abhiyan.

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