From UPSC perspective, the following things are important :
Prelims level : MSP
Mains level : Issues related to MSP
- The CACP recommendations on Minimum Support Prices (MSP) for the mandated six Rabi crops wheat, barley, gram, lentil, rapeseed and mustard, and safflower are arrived by considering several factors.
What is MSP?
- MSP is a part of India’s Agriculture Price Policy. The MSP for various crops is announced by the central government at the beginning of every crop season on the recommendation of CACP.
- MSP is price at which the government purchases crops from the farmers. It is the guaranteed ‘minimum floor price’ that farmer must get from the government in case the market price of the crops falls below the MSP.
- The Rationale behind MSP is to support the farmer from excess fall in the crop prices, it is like an insurance policy for the farmers to save them from price falls.
- The most important aim of the MSP policy is to save the Indian farmer from making distress sales. In the event of glut and bumper harvest, when market prices fall below the announced MSP, the government through its agencies buys the entire stock offered by the farmers at the MSP.
What are the factors included in MSP calculation?
- Factors taken into consideration are as follows:
- Cost of production,
- Supply and demand situation of various crops in domestic and global markets,
- Domestic and world prices along with trade opportunities,
- Terms of trade between agriculture and non-agriculture sector,
- Optimal utilization of land, water and other production resources,
- A minimum of 50 per cent mark-up over the cost of production.
- Though on the surface the list looks comprehensive, there are two missing concerns given the present-day challenges, necessitating a change in the MSP formula.
- Water usage
- Rising MSP leads to water conflict: There is ample data-based evidence to show the causal relation between acreage and MSP movements. Rising MSPs of water-intensive crops has resulted in some of the water conflicts over river basins as shown by recent studies in the Cauvery and the Teesta River basins.
- MSP for rice and wheat: This is also because MSP for rice and wheat, where government agencies like Food Corporation of India play a role in procurement, has created a reference for market prices. Ever since the MSP was introduced in the late 1970s, it became the “floor” price-setter for rice and wheat.
- Higher MSP for water consuming cereals: Between 1980 and 2000, the MSPs of rice and wheat increased at a much faster rate than those of the “coarse” cereals (like jowar, bajra and ragi) which eventually led to movement of the terms-of-trade (defined as ratio of prices of competing crops, e.g., rice and millets) in Favour of the water-consuming cereals.
- Shifting of High acreage to High MSP crop: This led to acreages moving largely in Favour of water consuming staples, whose crop-water requirements are many times of that of the drier millets. In the case of Cauvery and Teesta, the introduction of dry season paddy and its expansion created reliance on irrigation thereby Fuelling demand for water.
- Non promotion of rabi millets: Though the MSP formula claims to take into account land and water use, it needs to be noted here that there is a need for Rabi millets (e.g., ragi) to be promoted through MSPs. This is because the millets are less water-consuming as compared to many other alternatives including wheat. However, there does not seem to be any MSP announced for Rabi millets.
- Higher MSP for less water consuming crop is needed: In the process, it will be crucial to take into consideration the estimates of irrigation water need for specific crops, redefine the Rabi basket by including millets, and declare a higher MSP for less water-consuming crops vis-à-vis the high-water consuming crops.
Nutritional security in MSP calculation
- Nutritional security is not included in MSP calculation: The other consideration that is missing from the MSP formula is the consideration of the nutritional security. Ideally, the MSP regime should remunerate those crops that have a higher nutritional value per unit of resource use.
- Rabi crops are more water efficient: Ragi is the most efficient water user in producing calories. Bajra followed by wheat and ragi are the better performers in terms of water efficiency in producing iron. For the case of fiber, ragi is the most water efficient crop followed by barley and maize demonstrating the same water efficiency.
- Rabi crops are nutrition rich: Maize is the most efficient water user in producing carbohydrates with ragi being second and wheat third. With reference to fat production, bajra takes the first position followed by ragi and wheat. Ragi is the best performer in the case of calcium production. Wheat and ragi do equally well with phosphorus production per unit of water at the margin.
- Missing MSP estimate: However, so far, the MSP formula has not taken into consideration the health and the nutritional aspect. Irrespective of the season, the nutritional aspect needs to be figured into the MSP recommendations, and more nutritional crops should command higher support prices.
- Present MSP regime is biased in Favor of rice and wheat. MSP can be utilized as great tool to achieve crop diversification by incentivizing cultivation of water efficient and nutrition rich millets. India can achieve the regional as well as financial balance in distribution of MSP by proper estimation of MSP and promotion accordingly.
How is MSP calculated? Analyse the linkages of MSP and water conflict and suggest the solution to overcome the water inefficiency by MSP.