MSP — the factoids versus the facts

AGRICULTURE / GOVERNANCE/ FEDERALISM

Topic: General Studies 2,3:

• Issues and challenges pertaining to the federal structure 
• Public Distribution System- objectives, functioning, limitations, revamping; issues of buffer stocks and food security
• Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

MSP — the factoids versus the facts

Context:  After the passage of the three controversial farm laws, the Minimum Support Price (MSP) — not mentioned in the laws — has gained a lot of attention. 

What is Minimum Support Price (MSP)?

• MSP is the price set by the government to purchase crops from the farmers, whatever may be the market price for the crops.
• The MSP is meant to set a floor below which prices do not fall, and is announced by the government for 23 commodities. It is the price at which the government ‘promises’ to buy from farmers if market prices fall below it.

• MSP is declared by Cabinet Committee on Economic Affairs before the sowing time on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP)
• Support prices generally affect farmers’ decisions indirectly, regarding land allocation to crops, quantity of the crops to be produced etc
• MSP assures farmers agricultural income besides providing a clear price signal to the market
• The major objectives are to support the farmers from distress sales and to procure food grains for public distribution. 

Do You Know?

• Even for commodities for which MSP is announced, the proportion of sales via the mandi range is only between 10-64%
• The demand for the MSP originates because the prices paid outside the mandi tend to be much lower. Countrywide, sales to mandi or government procurement agencies fetched on average 13.3% higher prices for paddy and 5.8% for wheat.

What are some of the misconceptions regarding MSP and arguments against it?

1. Few (6%) farmers benefit

• One, the 6% figure from the NSS data 2012-13 relates to paddy and wheat alone. Even here, however, among those who sold any paddy/wheat, the numbers are higher — 14% and 16%

2. Only farmers of Punjab and Haryana (to some extent, western UP) benefit.

• The Government of India has made a systematic effort to expand the reach of MSP to more States, via the Decentralized Procurement (DCP) Scheme. 
• Introduced in 1997-98, it was not very popular in the initial years and began to be adopted by States in earnest only around 2005. 
• Under the DCP scheme, the responsibility of procurement devolved to the State governments which were reimbursed pre-approved costs. 
• FCI data suggest that by July 2015, as many as 15 States had taken up this programme, though not all were implementing it with equal enthusiasm. 
• Largely on account of it, procurement began moving out of ‘traditional’ States (such as Punjab, Haryana, western Uttar Pradesh). 
• Until 2000, barely 10% of wheat and rice was procured outside the traditional States. By 2012-13, the share of the DCP States rose to 25-35%.
• Chhattisgarh and Odisha contribute about 10% each to the total paddy procurement in the country. For wheat, decentralised procurement has taken off in Madhya Pradesh in a big way, accounting for approximately 20% of wheat procurement. 

3. Only large farmers benefit

• Procurement has benefited the small and marginal farmers in much bigger numbers than medium and large farmers. 
• At the all-India level, among those who sold paddy to the government, 1% were large farmers, owning over 10 hectares of land. 
• Small and marginal farmers, with less than 2 hectares accounted for 70%. The rest (29%) were medium farmers (2-10 hectares).
• In the case of wheat, 3% of all wheat-selling farmers were large farmers. More than half (56%) were small and marginal farmers.
• In Madhya Pradesh, nearly half (45%) of those who sell wheat to government agencies are small or marginal farmers.

Conclusion

Getting the facts right is an important first step in resolving the issues facing the agricultural sector and farmers’ issues. To recap, the facts are as follows: 

• One, the proportion of farmers who benefit from (even flawed) government procurement policies is not insignificant. 
• Two, the geography of procurement has changed in the past 15 years. It is less concentrated in traditional States such as Punjab, Haryana and western Uttar Pradesh, as DCP States such as Chhattisgarh, Madhya Pradesh and Odisha have started participating more vigorously. 
• Three, perhaps most importantly — it is predominantly the small and marginal farmers who have benefited from the MSP and procurement,