Minimum Support Prices for Agricultural Produce

[op-ed snap] Policy must tackle not just dissatisfaction of large farmers, but distress of most vulnerable


Mains Paper 3: Economy | Transport and marketing of agricultural produce and issues and related constraints

From UPSC perspective, the following things are important:

Prelims level: Basics knowledge of Farmer’s distress.

Mains level: The news-card analyses the prevailing issue of farmer distress, in a brief manner.


  • Recently, the two main policy interventions repeatedly discussed to tackle farmer distress — loan waivers and minimum support prices (MSP) — treat all farmers (large/small, male/female) alike.
  • But farmers are heterogeneous. They differ especially by income, land owned and gender.

Farmer dissatisfaction is not the same as farmer distress.

  • Better-off farmers are dissatisfied but politically vocal.
  • Poor farmers are distressed and many kill themselves in silence.
  • It is the truly distressed the government need to reach, but their policies only address the dissatisfied.

How Government’s policy measures fails to address distress of small & marginal farmers

  1. Loan waivers
  • Today, most economists agree that waivers are a bad idea. They deplete state finances, undermine bank culture, and barely reach 20-25 per cent farmers who have access to institutional credit, but not the marginal farmers or labourers who depend on moneylenders, or get no credit at all.
  • Having a bank debt is not, in itself, a sign of distress.
  • Farming, like other businesses, needs loans, and access to formal credit signifies credit worthiness.
  • It is the marginal and small farmers who depend mainly on private lenders, and whose loans don’t get waived, who are in distress.
  1. Raising MSPs
  • Raising MSPs will help surplus producing farmers, but not net buyers of farm produce — marginal farmers, farm labourers and urban consumers.
  • A 2015 IIM-A report on Marketed and Marketable Surplus found that marginal farmers (up to one hectare land) contributed only 5 per cent of marketed surplus rice and 4 per cent of wheat, even in the major rice and wheat surplus states.
  • And they sold only 39 per cent and 25 per cent of their marketed rice and wheat to government agencies, compared with the 70 per cent and 90 per cent sold by large farmers.
  • Further, the Shanta Kumar Committee reports that only 6 per cent of farmers gained from selling these crops to any procurement agency.
  1. Policy of direct transfers to farmers
  • The policy of direct transfers to farmers also ignores the inequality between farmers.
  • Telangana gave Rs 9,900/ha/season to all landowning farmers. Hence, the very large landowners gained — not only from owning large tracts, but in both seasons, since with irrigation they can cultivate in both kharif and rabi seasons; while pure-tenants and labourers got nothing.
  • Nor did women farmers get anything, few of whom own land.
  • Odisha recently announced that it will pay both farmers and labourers, but like Telangana, it will pay per household and not per person.
  • Both states thus ignore women’s claims, and also the substantial evidence that it is income in a mother’s hands that greatly improves child nutrition and education, rather than income only in the father’s hands.
  • Neither state has recognised intra-household inequalities, or paid heed to the large proportion of women farmers who are either principal cultivators or de-facto responsible for farms with male out-migration.


How to address small & marginal  Farmers distress ?

A multi-pronged strategy of income support, government investment, and institutional innovations, and not a one-size-fits-all approach is need of the hour.

  • Direct transfer for small farmers: To overcome immediate distress, direct transfers are preferable to loan waivers, but transfers should be limited to smallholders (those owning 2 ha or less), pure-tenants and agricultural labourers. The funds should go to women in the family for best results.
  • Investment in Agriculture: To reduce the long-term distress of poor farmers, agricultural investment in priority areas is imperative such as irrigation, water conservation, and storage for surplus produce.
  • Even 70 years after Independence, only 44 per cent of our irrigable area is irrigated. This must increase, but not via groundwater mining, which is unsustainable.
  • Water use efficiency by farmers is also essential: Low-cost techniques of drip irrigation could be one method.
  • Land and labour pooling: Some 70 per cent of farmers cultivate one hectare or less, in scattered plots which is non-viable. In a recent study, it was found that as farm size in India increases from very small to eight ha, profits/ha rise substantially. Therefore, we must encourage land and labour pooling.
  • Institutional reform has long been a blind spot in India’s farm policy. Groups help increase farm size, brought scale economies, saved on hired labour, improved credit access and enhanced bargaining power in input and output markets. Groups can also reduce farmer isolation and the likelihood of suicides.
  • Dietary changes require more focus on non-food-grains for food security, including vegetables which are more profitable and inland fisheries, a key source of protein.

Way Forward

  • Both to overcome farmer distress and farmer dissatisfaction, creating jobs for farmers’ children in their vicinity, not in cities, is essential, through ancillary industries, food processing, SMEs, and so on.
  • This would provide much needed supplementary income for farmers in distress. Doubling farmers’ incomes does not need doubling farm incomes.
  • It needs increasing their incomes from both farm and non-farm sources.
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