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Photo: PTI
Photo: PTI

An MSP guarantee won’t solve the problems of Indian farmers

There needs to be a simultaneous rise in procurement if such price assurances are to be of any use

Farmer agitations against the three farm bills passed by Parliament continue in different parts of the country. Their concern is largely that the proposed Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 (FPTC) will make the Agricultural Produce Marketing Committee (APMC) mandis irrelevant. These concerns are valid, given the experience of states that have diluted or abolished APMC mandis. But a related concern, at least among farmers in Punjab, Haryana and Uttar Pradesh, is also the fear that the new law will reduce the scope of minimum support price (MSP)-led operations. Although not shared by farmers in many other states, it has led to demands by major political parties for the government to guarantee MSP procurements.

While the law does not make any such mention, there are no changes in the government’s position on MSPs and the procurement of foodgrains by the Food Corporation of India (FCI). Farmers’ fears stem from the possibility of FCI procuring grain from traders who would have bought it cheaper from open markets, where there will be no levy of commission and taxes, unlike at APMC mandis. It is likely that the demand will find resonance in states that are the biggest beneficiaries of the MSP-based procurement regime. However, it has also contributed to the dilution of several important issues, including improvement of the accessibility and efficiency of APMC mandis.

So how reasonable is the demand for MSP-based procurement? It has gained traction because it remains the only visible and accessible form of state support to agriculture. With the withdrawal of subsidies on diesel and complex fertilisers, MSP procurements have helped farmers realise better prices, at least for the crops that are procured by the government. These are mainly wheat and rice, even though MSPs are announced for 23 crops. There has been the occasional procurement of other crops as well, but these are insignificant and have been regionally restricted.

For rice and wheat, MSP procurement is feasible because of central foodgrain requirement under the National Food Security Act (NFSA). But even for these, procurement in recent years has been much higher than what’s needed. Last year, FCI procured 51.4 million tonnes of rice and 39 million tonnes of wheat, far exceeding the requirement under the NFSA. The procurement of wheat was almost entirely by the five states of Punjab, Haryana, Madhya Pradesh, Uttar Pradesh and Rajasthan. For rice, the top seven states accounted for 81% of all procurement.

The total foodgrain stock in the central pool on 1 July was 94 million tonnes, as against the buffer requirement of 41.1 million tonnes. Stocks on 1 September continued to be at 77 million tonnes even though the buffer norm for 1 October is only 30.8 million tonnes. With procurement for paddy already underway, the stocks will likely cross 100 million tonnes by the end of this year. These high food stocks are not just a financial burden on the government, but also create inflationary pressures by withdrawing essential foodgrain stocks from the open market. The problem of distribution is much more serious in the case of other crops where such distribution mechanisms are not available. Also, the skewed regional procurement has caused environmental imbalances, with farmers in Punjab and Haryana continuing to grow rice despite the consequences of water and soil depletion.

The demand for guaranteed MSPs is only useful if there is also corresponding procurement. Otherwise, such a guarantee is meaningless. The limitation of the MSP procurement system is not just about it being feasible for only a few crops, but also the regional procurement skew, which leaves the majority of crops as well as small and marginal farmers at the mercy of the market in the absence of support from the government. Still, the MSP demand continues since it is the only support available to farmers at a time when farm gate prices for most crops are declining.

Also, because prices are likely to go down further due to weakened demand in the economy and a sustained rise in input prices. MSP-based procurement is unlikely to offer a solution for the low price realisation of most agricultural produce. With government finances strained, the solution lies in improving access to private markets and making them more reliable and transparent. Despite their flaws, APMC mandis do help farmers. What India needs is to enhance their storage and logistics infrastructure and regulate markets well, not weaken the existing system.

Himanshu is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi

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