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Direct Payment of Minimum Support Price

  • 07 Apr 2021
  • 4 min read

Why in News

After the recent orders from the Food Corporation of India (FCI), the farm unions warned that the Centre’s insistence on direct payment of Minimum Support Price (MSP) could derail the crop procurement process.

Key Points

  • Orders from FCI:
    • Direct Payment of Minimum Support Price (MSP):
      • The Centre wants to make direct online MSP payment to farmers’ bank accounts, to remove middlemen from the process.
        • MSP is the price that government agencies pay whenever they procure the particular crop.
      • Currently, arhtiyas (commission agents) get the payments in their accounts, which they in turn pay to farmers through cheques.
      • The Centre has to pay 2.5% commission to arhtiyas who facilitate procurement of the crop from farmers to government agencies and take commission for that from the government.
    • Jamabandhi System:
      • FCI order stipulates that tenant farmers and sharecroppers must produce a jamabandhi.
      • Jamabandhi is a legal agreement proving that they have the right to till leased land, in order to get paid for procured crops.
    • The FCI’s also proposed to tighten quality requirements for wheat and paddy procurement.
  • Significance:
    • Transparency and Accountability: The FCI has insisted that direct payment to farmers’ bank accounts, bypassing the powerful arhatiyas or commission agents, will lead to greater transparency and accountability.
    • Non-Discriminatory in Nature: There is no selection bias in choosing the beneficiaries based on attributes like caste and land size.
  • Challenges to the FCI Order:
    • Since arhtiyas play a key role in the Punjab and Haryana farm ecosystem by providing farm loans, the move has been opposed by a large section of farmers, as well as the Punjab government.
    • According to farm unions, implementing direct payment in haste can lead to many complex problems that will exclude so many farmers from getting their price of the crop.
    • Thousands of sharecroppers do not have Jamabandhi or legal agreements and will be hit hard.
    • The FCI’s proposals to tighten quality requirements for wheat and paddy procurement are also being opposed.
    • At a broader level, farmers connected their issues with the FCI with their existing demands to repeal the farm laws and enact a legal guarantee for procurement of all crops and minimum support prices.

Food Corporation of India

  • FCI is a statutory body set up in 1965 by the Food Corporations Act 1964 under Department of Food & Public Distribution, Ministry of Consumer Affairs, Food and Public Distribution.
  • It was established against the backdrop of a major shortage of grains, especially wheat.
    • Simultaneously, the Commission for Agricultural Costs and Prices (CACP) was created in 1965 to recommend remunerative prices (MSP) to farmers. CACP is an attached office of the Ministry of Agriculture and Farmers Welfare.
  • It has primary duty to undertake purchase, store, move/transport, distribute and sell food grains and other foodstuffs.
  • Objectives of FCI:
    • To provide remunerative prices to farmers.
    • Ensuring food security of the nation by maintaining satisfactory levels of operational buffer stocks of food grains.
    • Distribution of food grains throughout the country for the Public Distribution System.
    • Effective Price Support Operations for safeguarding the interest of farmers.

Source: TH

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