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MSP Raised for Rabi Crops

  • 22 Sep 2020
  • 8 min read

Why in News

Recently, the Cabinet Committee on Economic Affairs has marginally increased the Minimum Support Price (MSP) of six rabi crops for 2021-22.

  • Rabi crops are agricultural crops that are sown in winter and harvested in the spring in India. Eg. wheat, barley, mustard etc.

Key Points

  • MSP rates were hiked for wheat, barley, gram, masoor dal (lentil), safflower, and rapeseed and mustard.
  • However, the MSP has seen a lower hike compared to 2020-21. The wheat MSP has seen an increase of just 2.6% — the lowest increase in 11 years.
  • The increase in MSP is in line with the principle of fixing the MSPs at a level of at least 1.5 times of the All-India weighted average Cost of Production as announced in Union Budget 2018-19.
  • The increase in MSP comes in the midst of a vehement protest by farmers, who fear that new agricultural marketing reforms will result in the phasing out of MSP and public procurement.

Issues with New Agricultural Reform

  • The farmers are protesting against the three Bills which includes:
    • Farmers' Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020.
    • Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020.
    • Essential Commodities (Amendment) Bill, 2020.
  • In short, the Bills aim to do away with government interference in agricultural trade by creating trading areas free of middlemen and government taxes outside the structure of Agricultural Produce Market Committees (APMCs).
    • They also aim to remove restrictions on private stock holding of agricultural produce.
  • This according to farmers will give preference for corporate interests at the cost of farmers’ interests and a lack of regulation in these non-APMC mandis are cause for concern for farmers.
    • In the new system, companies will benefit as trading rates will not be under pressure of government procurement and they will be able to force farmers to reduce their rates.
  • The absence of any regulation in non-APMC mandis is being seen as a precursor to the withdrawal of the guarantee of MSP-based procurement.
  • These fears gain strength with the experience of States such as Bihar which abolished APMCs in 2006. After the abolition of mandis, farmers in Bihar on average received lower prices compared to the MSP for most crops.
    • The government procurement also reduced significantly compared to other states.
  • Government is relying on the market to realise better prices. However, recent data suggest limitations of market intervention in raising farm gate prices.
    • For most crops where MSP-led procurement is non-existent, the decline has been sharper. Even cash crops such as cotton have seen a collapse in prices in the absence of government intervention.
    • With rising input costs, farmers do not see the market providing them remunerative prices.
  • The farmers also raise concern about the intent of the government to leave the price discovery mechanism on the market.
    • It has time and again made ad hoc interventions, such as raising import duties on masur and a ban on onion exports.

Minimum Support Price

  • The MSP is the rate at which the government buys grains from farmers.
  • Reason behind the idea of MSP is to counter price volatility of agricultural commodities due to the factors like variation in their supply, lack of market integration and information asymmetry.
  • Fixation of MSP: The MSP is fixed for 23 crops based on the recommendations of the Commission for Agricultural Costs and Prices (CACP), Ministry of Agriculture.
  • Factors taken into consideration for fixing MSP include:
    • Cost of cultivation,
    • Demand and supply,
    • Price trends in the market, both domestic and international,
    • Inter-crop price parity,
    • Terms of trade between agriculture and non-agriculture,
    • A minimum of 50% as the margin over cost of production, and
    • Likely implications of MSP (inflation) on consumers of that product.
  • The CACP also makes visits to states for on-the-spot assessment of the various constraints that farmers face in marketing their produce, or even raising the productivity levels of their crops.
  • Based on all these inputs, the CACP then finalizes its recommendations/reports, which are then submitted to the government.
  • The government, in turn, circulates the CACP reports to state governments and concerned Central Ministries for their comments.
  • After receiving the feed-back from them, the CCEA of the Union government takes a final decision on the level of MSPs and other recommendations made by the CACP.
  • Procurement: The Food Corporation of India (FCI), the nodal central agency of the Government of India, along with other State Agencies undertakes procurement of crops.
  • MSP Calculation: This MSP is usually estimated based on three types of calculation methods.
    • A2: Under this, MSP is set 50% higher than the amount farmers spend on farming including spending on seeds, fertilisers, pesticides, and labour.
    • A2+FL: It includes A2 plus an assigned value of unpaid family labour.
    • C2: Under C2, the estimated land rent and the cost of interest on the money taken for farming are added on top of A2+FL.
  • The Central government had set up the National Commission on Farmers (NCF) in 2004 to address the issues of farmers in India including that of calculation of MSP.

National Commission on Farmers: Swaminathan Committee

  • It was constituted in 2004 by the Union government with MS Swaminathan as its chairman.
  • The main aim of the committee was to come up with a sustainable farming system, make farm commodities cost-competitive and more profitable.
  • The commission, in 2006, recommended that MSPs must be at least 50% more than the cost of production and recommended the C2 method for MSP calculation.
  • However, the government calculates its MSP based on the A2+FL method.

Commission for Agricultural Costs and Prices

  • The CACP is anb of the Ministry of Agriculture and Farmers Welfare, formed in 1965. It is a statutory body.
  • Currently, the Commission comprises a Chairman, Member Secretary, one Member (Official) and two Members (Non-Official).
    • The non-official members are representatives of the farming community and usually have an active association with the farming community.
  • It is mandated to recommend Minimum Support Prices (MSPs) to incentivize the cultivators to adopt modern technology, and raise productivity and overall grain production.
  • CACP submits separate reports recommending prices for Kharif and Rabi seasons.

Source: IE

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