Agri ministry plans to launch price compensation scheme for all crops, including vegetables; states to take final call

New Delhi: The government is planning to compensate farmers for the losses they suffer when the prices of produce fall substantially below the minimum support price, or MSP. 

The scheme will cover all crops and include vegetables, which currently do not have a floor price because they are classed as perishables. 

According to the scheme, when the market price of a farm produce—whether grains, pulses or vegetables—falls below the MSP, the Union government will cover up to 15% of the price difference. This will be paid to the loss-making farmer. 

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For this purpose, the government has come out with a ‘model price’. This will be applicable only to vegetables tomato, onion and potato (TOP) and will act like a base price for vegetables.

To be sure, if the price of a crop or vegetable falls below the 15% threshold set by the government, the loss will be borne by the farmer.  

States given choice

“States have been asked to choose between the Price Support Scheme (PSS) and BBY to ensure remunerative price of agricultural crops in the event of a price crash,” said Union Agriculture Minister Shivraj Singh Chouhan on Thursday while briefing the media on the agriculture ministry’s achievements in the first 100 days of the Modi government’s third term. 

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PSS is yet another scheme, under which the central government buys produce at above the market rate to ensure farmers receive fair compensation. Under PSS, the Central and state governments  buy the produce that is being sold below the MSP, while under BBY the government will pay the difference directly to farmers.

“We are holding discussions with all the state ministers and working on finalising the scheme. It’s the states that should take the final call,” Chouhan said, adding that the compensation for the difference between MSP and model price to be borne by the Central government is limited to 15% of the MSP.

On MP's footsteps

The scheme, called the Bhavantar Bharpayee Yojana (BBY), was first launched in Madhya Pradesh in October 2017 when Chouhan was the Chief Minister of the state but was withdrawn in March 2018, just before the start of the rabi marketing season.

“This cap will ensure that traders and farmers cannot manipulate prices. A model pricing mechanism will be created to directly transfer the difference in price to farmers' accounts,” Chouhan told Mint.

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“In the case of vegetables, which are perishable and not covered by a traditional MSP, the government will set a model price based on the average market price. This model price will be determined by assessing factors such as the cost of production, supply and demand, and market trends,” the minister said.

The changes will be part of the Market Intervention Scheme (MIS), with coverage increased from 20% to 25% of production. The changed MIS scheme allows the government to make direct payments to farmers instead of buying the produce physically.

Transport, storage covered

Additionally, the government will cover transportation and storage costs to help balance prices between producing and consuming states during peak harvesting for TOP crops. This will ensure fair prices for farmers and help keep consumer prices stable.

“To encourage broader participation, the Centre has changed the 25% procurement limit from a state level to a national level. This allows states to procure up to 25% of the national production of notified crops, rather than being restricted to 25% of their own production,” Chouhan said.

This will allow states to procure more crops at MSP from farmers to ensure remunerative prices and prevent distress sales. However, this ceiling will not be applicable in the case of tur, urad, and masur for the 2024-25 season, as there will be a 100% procurement of pulses.

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Haryana was the first state to launch BBY for vegetables in December 2017.

The government has also increased the ceiling for oilseeds procurement for states from the earlier 25% to 40%.

In 2024-25, the Agriculture Ministry has been allocated ₹1.32 trillion, which is 2.7% of the total budgeted expenditure of the central government. In 2024-25, the ministry's expenditure is estimated to be 5% higher compared to the revised estimate of 2023-24 of ₹1,26,666 crore.