MSP policy has not benefitted most farmers

Women farmers work in a paddy field. (Representative image: Reuters)

Soon after the prime minister announced that the three contentious farm laws would be repealed in the winter session of Parliament, Samyukt Kisan Morcha, a coalition of 40 farm unions, demanded that the minimum support price for all agricultural produce be made a legal entitlement of all farmers. That would ensure that every farmer was guaranteed at least the MSP for his entire crop, the farmers' group said.

Guaranteed MSP sets a floor for market prices of farm produce and ensure that all transactions take place at MSP or higher prices. At present, the MSP is not meant to set a floor for market prices but helps prevent any sharp falls.

The farmers may have a point in demanding a legal mandate for MSP, given that they sell most of their surplus produce in the open market. The market prices of almost all 25 crops entitled to MSP settle below the minimum price for government procurement.

This was seen in the instance of wheat and paddy. The all-India weighted average market price of wheat settled below the MSP in three of the last five rabi marketing seasons, the Commission for Agricultural Costs and Prices (CACP) reports show. The average difference was usually small. However, in the last marketing season, the weighted average market price of wheat fell more than 5% below the MSP. Similarly, the average market price for paddy was also below the MSP during the last five marketing seasons.

The market prices are usually determined by the demand and supply position for specific crops, but they can be beaten down when farmers are not aware of the MSP of a crop and government procurement agencies do not operate in that region.

Significantly, lack of awareness about MSP of crops was very high among farmer households, the National Sample Survey found in its July 2018- June 2019 round of data collection. The lack of awareness about the MSP of crops that see huge procurement was also high.

In Punjab, one of the largest wheat-growing states, more than a third of the farmer who grew the cereal were not aware of the MSP for the foodgrain, the survey report titled Situation Assessment of Agricultural Households and Land and Livestock Holdings of Households in Rural India, 2019 said. A similar proportion of wheat farmers in Haryana also reported that they were not aware of the MSP of the crop. Among paddy farmers of Punjab, about half were not aware of the MSP of paddy.

Overall, at the national level, the awareness about the MSP for the two food grains was surprisingly low. Nearly 60% of the farmers who grew paddy as a summer crop and 47% who grew it as a winter crop were not aware of its MSP. Among the wheat farmers, 63% were not aware of its MSP.

The awareness level of the MSP for other crops such as pulses was worse. Over the last few years, the MSP for pulses were sharply increased to encourage farmers to increase acreage for these protein-rich food items. But, the survey found that 70% of the farmers who grew a range of pulses from arhar, masur, urad, moong and chana were not aware of the MSP of these food crops.

The survey also found only a tiny proportion of the farmer households sold their produce to government-run procurement agencies, even if they were aware of the MSP and the procurement agency. A larger share of surplus produce was sold in open markets. For instance, about 15% of paddy farmers sold their summer crops to procurement agencies. The corresponding number for wheat farmers was just about 10%. The reason varied and included the absence of government agencies or a local buyer in their region. Of those who were aware of the MSP for their crop, very few reported higher prices from other buyers as a reason for not selling to government procurement agencies.

Yet, procurement of paddy and wheat has climbed to new highs. The Food Corporation of India and state agencies together procured more than 660 lakh metric tonnes of paddy in 2018-19, about 771 LMT in 2019-20 and 894 LMT in 2020-21, data posted on the FCI website show. About 20-25% of the procurement was made in Punjab in recent years, down from 30-35% a few years ago. During the same years, procurement of wheat climbed from 341 LMT to 433 LMT, with a third of it bought in Punjab.

If the MSP and government procurement has to benefit more farmers, government agencies need to strengthen the procurement machinery in other states and make farmers aware. For the moment, there appears to be a bias in favour of Punjab in the procurement policy for the two staple foodgrain.