Minimum Support Prices for Agricultural Produce

Explained: How is MSP fixed?

Note4Students

From UPSC perspective, the following things are important :

Prelims level : MSP

Mains level : Fixation of MSP and its legal backing

The recently enacted Farmers bill seeks to dismantle the monopoly of APMC mandis, thereby allowing sale and purchase of crops outside these state government-regulated market yards. This has prompted many fears regarding the continuance of the existing minimum support price (MSP)-based procurement regime.

Try this PYQ:

Q.There is also a point of view that agriculture produce market committees (APMCs) set up under the state acts have not only impeded the development of agriculture but also have been the cause of food inflation in India. Critically examine. (UPSC 2014)

What does the law say about MSP?

  • The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill does not give any statutory backing to MSP.
  • There is not even a single mention of either “MSP” or “procurement” in the Bill passed by both Houses of Parliament last week.

Is there any legal backing for MSP?

  • MSP, by contrast, is devoid of any legal backing. Access to it, unlike subsidised grains through the PDS, isn’t an entitlement for farmers.
  • They cannot demand it as a matter of right.

What is the basis of MSP then?

  • It is only a government policy that is part of administrative decision-making.
  • The government declares MSPs for crops, but there’s no law mandating their implementation.
  • The Centre currently fixes MSPs for 23 farm commodities based on the Commission for Agricultural Costs and Prices (CACP) recommendations:
  1. 7 cereals (paddy, wheat, maize, bajra, jowar, ragi and barley)
  2. 5 pulses (chana, arhar/tur, urad, moong and masur)
  3. 7 oilseeds (rapeseed-mustard, groundnut, soyabean, sunflower, sesamum, safflower and nigerseed) and
  4. 4 commercial crops (cotton, sugarcane, copra and raw jute) —

What about CACP?

  • The CACP come to existence in 1965 and MSPs are being announced since the time of the Green Revolution, starting with wheat in 1966-67.
  • The CACP is simply an attached office of the Ministry of Agriculture and Farmers Welfare.
  • It can recommend MSPs, but the decision on fixing (or even not fixing) and enforcement rest finally with the government.
  • The government can procure at the MSPs if it wants to. There is no legal compulsion. Nor can it force others (private traders, organised retailers, processors or exporters) to pay.

Exceptions to MSP: Fair and remunerative price (FRP)

  • The only crop where MSP payment has some statutory element is sugarcane.
  • This is due to its pricing being governed by the Sugarcane (Control) Order, 1966 issued under the Essential Commodities Act.
  • That order, in turn, provides for the fixation of an FRP for cane during every sugar year (October-September).
  • But even the FRP — which, incidentally, was until 2008-09 called the ‘statutory minimum price’ or SMP — is payable not by the government.
  • The responsibility to make FRP payment to farmers within 14 days of cane purchase lies solely with the sugar mills.

Has there been any move to give MSP legislative backing?

  • The CACP, in its price policy report for the 2018-19 Kharif marketing season, had suggested enactment of legislation conferring on farmers ‘The Right to Sell at MSP’.
  • This, it felt, was necessary “to instil confidence among farmers for procurement of their produce”. That advice, predictably, wasn’t accepted.

A cause for farmers fury

  • The ongoing farmer protests essentially reflect a loss of that very confidence.
  • Is the dismantling of the monopoly of APMC mandis in wholesale trading of farm produce the first step at ending even the present MSP-based procurement programme, largely limited to wheat and paddy?
  • If APMCs were to turn unviable due to the trades moving outside, how will government agencies undertake procurement that now takes place in mandis?
  • These questions are playing in the minds of farmers, particularly in states such as Punjab, Haryana and MP that have well-established systems of governmental MSP purchases.
  • For them, freedom to sell to anyone, anywhere and anytime has little value compared to the comfort of assured procurement at MSP.

Govt’s response

  • PM has tweeted that the “system of MSP will remain” and “government procurement will continue”.
  • The Agriculture Minister, too, has pointed out that past governments never thought it necessary to introduce a law for MSP.
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