Relevance: GS-3: Issues related to Direct and Indirect Farm Subsidies and Minimum Support Prices

Key Phrases : MSP, WTO, AoA, De-minimis

Why in news?

•  Farmers demand legal guarantee for MSP

Analysis:

What is MSP?

• The MSP is the rate at which the government purchases crops from farmers, and is based on a calculation of at least one-and-a-half times the cost of production incurred by the farmers.
• The Commission for Agricultural Costs & Prices (CACP) recommends MSPs for 22 mandated crops and fair and remunerative price (FRP) for sugarcane.

Importance of MSP

• If a crop witnesses sharp decline in prices growers will have no incentive to cultivate it next year-if happens to staple food item, we will have to import-fiscal burden-MSP gives them confidence.
• Reduces the debt burden -Farmers get a fair amount for their produce which helps them to sustain their losses.
• Eliminates middlemen - Farmers can directly sell their produce to the government at fixed prices.
• The added focus on nutri-rich nutri-cereals is to incentivise its production in the areas where rice-wheat cannot be grown without long term adverse implications for groundwater table.
• Acts as a benchmark for private buyers: MSP sends a price-signal to market that if merchants don’t offer higher than MSP prices the farmer may not sell them his produce
• Prevents Distress-Sale: Farmer rarely has surplus savings for buying inputs for the next cropping season. Access to credit (loans) is also difficult for small and marginal farmers. So, they are forced into distress-sale of produce at throw-away prices
• Concerted efforts have been made over the last few years to realign the MSPs in favour of oilseeds, pulses and coarse cereals to encourage farmers shift to larger areas under these crops and adopt best technologies and farm practices, to correct demand - supply imbalance

Issues involved with MSP

• The major problem with the MSP is lack of government machinery for procurement for all crops except wheat and rice, which the Food Corporation of India actively procures under the PDS.
• As state governments procure the last mile grain, the farmers of states where the grain is procured completely by the government benefit more while those in states that procure less are often affected.
• The MSP-based procurement system is also dependent on middlemen, commission agents and APMC officials, which smaller farmers find difficult to get access to.
• Scope for augmenting farmers’ incomes is going to be more from allied sectors like rearing animals (including fisheries). It is worth noting that there is no minimum support price (MSP) for products of animal husbandry or fisheries
• Grain stocks with the government are already overflowing and more than double the buffer stocking norms
• MSPs in Favour of Paddy and Wheat: Skewed MSP dominated system of rice and wheat leads to overproduction of these crops.
• Economically Unsustainable: The economic cost of procured rice comes to about Rs 37/kg and that of wheat is around Rs 27/kg. However, market prices of rice and wheat are much lower than the economic cost incurred by the Food Corporation of India
• Shanta Kumar Committee, formed to suggest restructuring of the Food Corporation of India (FCI) in 2015, in its report, had stated that only 6% of the MSP could be received by the farmers.

How feasible is the legal backing?

• Some believe it would be “fiscally ruinous” to procure all the 23 crops for which MSP is announced annually
• Others contend that procuring these crops would be a logistical nightmare
• Procuring all the 23 crops at MSP, as against the current practice of procuring largely rice and wheat, will result in India breaching the de minimis limit making it vulnerable to a legal challenge at the WTO.
• Recently, a WTO panel in the case, India – Measures Concerning Sugar and Sugarcane, concluded that India breached the de minimis limit in the case of sugarcane
• Farmers’ face many other issues other than price, which itself is not guaranteed given the influence of politicians and cartels in mandis.
• They do not get adequate facilities to irrigate their lands, with nearly 50 per cent of the land being rain-fed and lacking ample warehouses to store their produce at the village level, besides proper roads to connect them to the mandis.
• Legal backing for the MSP could also lead to the danger of the trade keeping away from places where the law is implemented vigorously.
• Providing legal guarantee for the entire marketable surplus of the 23 MSP crops would mean covering another Rs 5 lakh crore or so.

Way ahead

• India can move away from price-based support in the form of MSP to income-based support, which will not be trade-distorting under the AoA provided the income support is not linked to production
• Government needs to engage with the farmers and create an affable environment to convince them of other effective policy interventions, beyond MSP, that are fiscally prudent and WTO compatible.
• Policies to ensure equitable distribution of resources- land as well as water — and access to a range of alternative economic practices and support structures must also be framed.
• Comprehensive programme should enable not only a transition to sustainable agriculture but also enable people to develop climate change mitigation and adaptation strategies
• Supporting farmers to form collectives in which resources, labour, skills and knowledge are pooled for production, value addition and marketing could go a long way in correcting the multiple ways in which they are excluded from profits or gain
• Promoting small-scale industries and processing centres that help rural areas to retain resources and skills along with providing employment is the answer to the vexed issue of unemployment and migration
• Public institutions such as panchayats, anganwadis, schools and primary health centres require urgent reforms that de-bureaucratise state-citizen transactions and ensure that rural residents are treated as citizens, and not supplicants.
• Include pulses, edible oil and millets in PDS: Despite repeated demands from food activists, there has not been any progress in including pulses, edible oils and millets in PDS

Source: The Hindu