Minimum Support Prices for Agricultural Produce

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Mains Paper 3: Agriculture | Issues related to direct & indirect farm subsidies & minimum support prices

From UPSC perspective, the following things are important:

Prelims level: Pradhan Mantri Annadata Aay Sanrakshan Abhiyan (PM-AASHA)

Mains level: Recent increase in MSP by the government and its effect on farm sector


Debate around farm income

  1. The farmer and his income is an important theme of discussion these days
  2. The government has increased the MSP of Kharif crops substantially for this season, which has come as a shot in the arm for the farmers
  3. Viewed arithmetically, the income of a farmer is a function of three things — the cost of cultivation, production and sale proceeds of the produce

How to achieve these factors?

  • Cost of cultivation
  1. The cost of cultivation can be influenced by the farmer in a limited manner
  2. Farmers can reduce the consumption of inputs per unit of land by using a better package of practices
  3. But, the rising cost of inputs like seeds, phosphatic and potassic fertilisers, pesticides, etc is not in the hands of farmers and thus necessitates subsidies
  • Increasing production
  1. By using high-yielding variety seeds, mechanisation, fertilisers, irrigation facilities, micro-nutrients and the correct package of practices, it is possible to increase productivity and production
  2. With some concentrated effort and use of technology, it should be possible to enhance the yields quickly in low production areas
  • Getting the right price for the produce
  1. This is the most critical issue for farmers today
  2. The challenge for the farmers is that when production goes up, the price tends to fall
  3. This results in zero or very little net gain for the farmers

Pradhan Mantri Annadata Aay Sanrakshan Abhiyan (PM-AASHA)

  1. It is an important step towards securing remunerative price (read MSP) for the farmers
  2. This provides for three methods of procurement: (i) Price Support Scheme (PSS), (ii) Price Deficiency Payment Scheme (PDPS), and (iii) Private Procurement and Stockist Scheme (PPSS)
  3. PDPS and PPSS have been allowed only for the procurement of oilseeds whereas, for all other MSP crops, PSS will be the main instrument
  4. A quantity restriction of 25 per cent of the total production of a state has been put for obtaining central assistance under all the three schemes
  5. Any quantity procured beyond this limit will have to be funded by the state’s own resources

Evaluating the methods under PM-AASHA

  1. PDPS has been tried by Madhya Pradesh during the last year and the feedback has been mixed
  2. PPSS is a new concept with a whiff of freshness but it needs to be seen how it plays out on the ground

Steps that can be taken

  • The mechanism under PSS needs to be strengthened
  1. Currently, the procurement takes place through state government agencies on behalf of NAFED, which itself is a weak organisation
  2. Farmers are not able to get the sale proceeds in time and so prefer to sell their produce at a lower rate in the open market
  3. The states and Centre will have to come together and put a robust system in place in order to provide the real benefit of the MSP increase to the farmers
  •  The inclusion of pulses and millets in the PDS
  1. It will result in the quick disposal of accumulated stocks
  2. This will also lead to health gains for the population and monetary gains for the farmers
  • Efforts to add value to the agricultural produce at the village level
  1. Even if primary processing like cleaning, sorting and grading of produce can be done at the farm-gate level, this will increase returns
  • Storage and negotiable warehouse receipt facility for farmers will have to be expanded
  1. By doing this, farmers will not be forced to undertake distress sales
  • Incentives for exports of surplus produce
  1. It will expand the market for farmers
  • A strategy to ensure appropriate acreage for crops
  1. It will ensure that the production is dictated by the market demand
  2. Most farmers tend to go by the herd mentality and whichever crop gives good returns this year sees a jump in the acreage the very next year
  3. This leads to overproduction and the price tends to crash leading to distress in the farming community

Way Forward

  1. Farm sector needs governmental intervention by providing an enabling policy environment, a robust institutional framework and a vibrant regulatory regime
  2. The government must provide policy, institutional framework for procurement

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