MSP-Minimum support prize

Minimum
Support
Price
Drafted by
Denadyalan. S | 2019507002

2
Minimum support price
Meaning, how it is worked out, MSP of different
commodities, Issues & Research studies
Submitted by
Denadyalan. S | 2019507002
I M.Sc Agrl extension & Communication
Department of Agricultural Extension and Rural sociology
Submitted to
Dr. Ravikumar Theodore
Professor and Head, Training Division
Dr. R. Premavathi
Asst Prof (Agrl., Extension)
Tamil Nadu Agricultural University
Coimbatore
Drafted as part of the course - AEX 512 Market Led Extension (1+1)
Internal Examiner External Examiner

3
Minimum Support Price
section content Pg.no
1 Introduction
Over view, market size, issues
5
2 Un addressed issues in Agricultural marketing
APMC act, Mandi system, APLMA act & issues
7
3 Commission for agricultural costs and prices
CACP structure, MSP arriving, crops covered
10
4 Minimum support price
MSP factors, determinants, methodology, NCF
12
5 MSP for the crop year 2020-21 14
6 Analogous: MSP, MIP, MFP
Difference, significance
15
7 PM-AASHA — assuring MSP
Components, PSS, PDPS, PPPS, issues
18
8 Issues related to MSP
High MSP, compulsory MSP, issues with methodology, BBY
scheme, Europe example, legal backing
21
9 Way ahead
Options for fair renumeration, market reforms, pro farmer
initiatives
28

4
section content Pg.no
10 Reforms needed in agrl policies
Producer vs consumer balance, policies so far, its implica-
tions, OECD & ICRIER report, reforms needed
32
11 Reports and research studies
NSSO report, Shantakumar committee, NAFIS report, MSP
evaluation– Niti Ayog report, & articles
38
12 conclusion 46
13 Reference 47
Meet Vartha , he will brief you over
each sections and will share current
intriguing information and questions
in between the sections….
APPENDIX
1. Graphs
2. MSP for the crop year 2019-20

5
Agriculture is the primary source of livelihood for about 59 per cent of India’s
population. India has the 10th-largest arable land resources in the world. With
20 agri-climatic regions, all 15 major climates in the world exist in India. The country
also possesses 46 of the 60 soil types in the world. India is the largest producer of spices,
pulses, milk, tea, cashew and jute; and the second largest producer of wheat, rice, fruits
and vegetables, sugarcane, cotton and oilseeds. Further, India is second in global pro-
duction of fruits and vegetables and is the largest producer of mango and banana.
India's economic growth in financial year 2018 is expected to accelerate to 6.75 percent
in 2018 on improved performance in both industry and services. Agriculture accounted
for 23% of GDP, and employed 59% of the country's total workforce in 2016.
Agriculture, with its allied sectors, is the largest source of livelihoods in India. 70 per-
cent of its rural households still depend primarily on agriculture for their livelihood,
with 82 percent of farmers being small and marginal.
Market Size
During 2018-19 crop year, food grain production is estimated at record 283.37 million
tonnes. As of August 2019, total area sown with kharif crops in India reached 92.6 mil-
lion hectares. Gross irrigated area under food grains is estimated to have grown to 64.8
million hectares in FY19.
Total agricultural exports from India grew at a CAGR of 16.45 per cent over FY10-18 to
reach US$ 38.21 billion in FY18. In FY19, agriculture exports were US $ 38.54 billion.
India is also the largest producer, consumer and exporter of spices and spice products.
Introduction
Hi…. Its better to know back ground of any case / issue
This section will furnish the overview on Indian agriculture,
market size, prospects and retrospects of present scenario

6
India is among the 15 leading exporters of agricultural products in the world. Agricul-
tural exports from India reached US$ 38.54 billion in FY19 and in FY20 US$ 22.69 billion
(till November 2019).
While agriculture in India has achieved grain self-sufficiency but the production is, re-
source intensive, cereal centric and regionally biased. The resource intensive ways of
Indian agriculture has raised serious sustainability issues too. Increasing stress on water
resources of the country would definitely need a realignment and rethinking of policies.
Desertification and land degradation also pose major threats to agriculture in the coun-
try. The social aspects around agriculture have also been witnessing changing trends.
The increased feminisation of agriculture is mainly due to increasing rural-urban migra-
tion by men, rise of women-headed households and growth in the production of cash
crops which are labour intensive in nature. Despite agriculture occupying a major por-
tion of Indian economy and the election manifestos of political parties, it is dishearten-
ing to see the rising incidences of farmers’ suicides and agitations in various parts of the
country. While we have managed to excel in almost all the sectors of the economy and
are matching pace with technological advancements around the world, our expertise
and innovation seem to have failed the small and marginal farmers.
The government of India from early 50’s to till have introduced a range of policy
measures including the green revolution to boost the producticvity, assuring food secu-
rity, catering the needs of rural people (farmers), the intervention schemes of the gov-
ernments with respect to marketing were atmost criticized and have not fullfilled their
purpose of assuring the renumeration to the farmers for their produce. The unresolved
issues in the agricultural marketting will be discussed in the next session, MSP being
one of the intervention would be discussed in detail in the forthcoming sections.
“Better-off farmers are dissatisfied but politically vocal.
Poor farmers are distressed and many kill themselves in silence ”
It is the truly distressed the government need to reach, but their policies
only address the dissatisfied.

7
Agriculture is the backbone of Indian economy. Even, with the growth of other
sectors, agriculture still continues to play a dominant part in the overall eco-
nomic scenario of India. But, is plagued with many problems. The problem of agri mar-
keting tops the list of issues related to agriculture. Agricultural marketing plays a pivot-
al role in promoting and sustaining agricultural production and productivity, leading to
food security and inclusive growth of the country.
Agricultural marketing is mainly a state entitlement with the Central Government
providing support under central sector schemes. Starting from the year 1951, various
Five-Year Plans focused on the price support programs through Minimum Support
Price (MSP), development of physical markets, on-farm and off-farm storage structures,
facilities for standardization and grading, packaging and transportation. However,
these can only succeed if states are willing and active partners.
APMC act.
The first attempt for reforms in agricultural markets was made by the Central govern-
ment by designing a model Agricultural Produce Market Committee (APMC) Act in
2003. It provides for new market channels other than the APMC market- such as direct
purchase, private wholesale markets, and contract farming for farmers and buyers alike.
Mandi system.
Under the APMC acts, farmers are required to sell a large number of commodities in
the vast majority of the states in a local mandi where intermediaries often manipulate
the price. These same intermediaries then sell the produce to the next layer of
intermediaries.
Unaddressed Issues In Agri Marketing
Issues with the APMC act, APLMC act, Mandi system, their
long term over the farmers, awaited reforms in agricultural
markets were furnished below

8
Because mandis lack good storage and warehousing facilities especially when it comes
to fruits and vegetables, substantial wastage occurs undermining the price received by
the farmer. Mandis also charge multiple entry, exit, and other fees. Therefore, it is
essential that states genuinely reform their APMC acts.
APLMA act.
Then came, Agricultural Produce and Livestock Marketing (promotion and facilitation)
Act, 2017 (APLMA, 2017). Only some States have adopted the APLMA Act fully. Lack of
coverage is one of the main hindrances in addressing the issues of agri marketing.
Maharashtra tried to bring this into its APLM Act but had to withdraw this provision
due to a traders’ strike.
The APMC act does not deal with issues in the livestock sector which is a very
important sector of the agribusiness economy. By clubbing the farm produce and live-
stock into one legislation, it also fails to recognize that the dynamics of these markets
are very different in terms of perishability, frequency, and nature of transactions.
Most disappointingly, the Act ignores the vexed issue of the role of Arthiyas
(commission agents or CAs) in the APMCs and maintains them as central agents in the
system.
Contract farming
Contract farming can be defined as agricultural production carried out according to an
agreement between a buyer and farmers, which establishes conditions for the produc-
tion and marketing of a farm product or products. The Contract farming has been tak-
en out of the APMC domain, citing conflict of interest. Traders and commission agents
oppose it due to their business getting adversely affected; the contracted produce does
not have to come to the APMC mandi or pass through the mandi agents.
Private traders
Not many private markets could come up during the last 15 years as the local APMCs
felt threatened by them and scuttled them, by not allocating land, placing other condi-
tions and even charging a fee from them- despite many of them being granted licenses.
Flawed MSP provision forces the private traders to buy produce at or above MSP or
penalizing for not doing so, can kill the private markets for agricultural produce.
The issue is that who will regulate direct purchase outside the market yard by buyers
like food supermarkets or traders or exporters. This is also contradictory to section 4(1)
of the Act 2017, which declares the whole State as one unified market.

9
Recent initiatives
NITI Aayog three year agenda calls for reforming the APMC (Agricultural Produce Mar-
keting Committees) acts so that farmers are empowered to sell their produce to whom-
soever they wish. This will ensure that farmers receive remunerative prices.
On the issue of fragmented agricultural markets in India, the plan recommended plug-
ging the gaps in eNAM (electronic National Agricultural Market) where cross-market
purchases are few and far between. These issues held responsible for agriculture becom-
ing a loss-making venture.
Minimum Support Price (MSP) is a form of market intervention by the Government of
India to insure agricultural producers against any sharp fall in farm prices. The mini-
mum support prices are announced by the Government of India at the beginning of the
sowing season for certain crops on the basis of the recommendations of the Commission
for Agricultural Costs and Prices (CACP). What is needed for more effective MSP imple-
mentation is the effective provision of procurement by the State and its agencies with
the involvement of local institutions like PACS (Primary Agricultural Credit Societies)
and producer companies. The next section will CACP and how it fixes MSP for different
commodities
President promulgates two Ordinances with the aim of giving a boost to rural
India and agriculture on 5th June 2020
The Farmers’ Produce Trade and Commerce (Promotion & Facilitation) Ordinance
2020 — promotes efficient, transparent and barrier-free inter–State and intra-State trade
and commerce of farmers’ produce outside the physical premises of markets or deemed
markets notified under various State agricultural produce market legislations. Facilitates
framework for electronic trading
The Farmers (Empowerment and Protection) Agreement on Price Assurance and
Farm Services Ordinance 2020— Provide for a national framework on farming agree-
ments , land of the farmers can never be mortgaged for the contracts, farmer can get
higher price than in the contract on the assured terms provided by the contractor

10
Commission for Agricultural Costs & Prices (CACP) is an attached office of the
Ministry of Agriculture and Farmers Welfare, Government of India. It came in-
to existence in January 1965.
Currently, the Commission comprises a Chairman, Member Secretary, one Member
(Official) and two Members (Non-Official). The non-official members are representa-
tives of the farming community and usually have an active association with the farming
community.
It is mandated to recommend minimum support prices (MSPs). Assurance of a
remunerative and stable price environment is considered very important for increasing
agricultural production and productivity since the market place for agricultural produce
tends to be inherently unstable, which often inflict undue losses on the growers, even
when they adopt the best available technology package and produce efficiently. To-
wards this end, MSP for major agricultural products are fixed by the government, each
year, after taking into account the recommendations of the Commission.
As of now, CACP recommends MSPs of 23 commodities, which comprise
 7 cereals (paddy, wheat, maize, sorghum, pearl millet, barley and ragi),
 5 pulses (gram, tur, moong, urad, lentil),
 7 oilseeds (groundnut, rapeseed-mustard, soyabean, seasmum, sunflower, safflower,
nigerseed),
 4 commercial crops (copra, sugarcane, cotton and raw jute).
Commission for Agricultural Costs
& Prices (CACP)
Let us know what is CACP, its significance, organizational structure
and how it arrives at MSP? commodities covered under MSP

11
Recently the cacp have removed the tobacco rom the list of notified crops, however
some states like AP made the MSP for their state tobacco farmers.
Arriving at MSP:
 CACP submits its recommendations to the government in the form of Price Policy
Reports every year, separately for five groups of commodities namely Kharif crops,
Rabi crops, Sugarcane, Raw Jute and Copra.
 Before preparing aforesaid five pricing policy reports, the Commission draws a com-
prehensive questionnaire, and sends it to all the state governments and concerned
National organizations and Ministries to seek their views. Subsequently, separate
meetings are also held with farmers from different states, state governments,
National organizations like FCI, NAFED, Cotton Corporation of India (CCI), Jute
Corporation of India (JCI), trader's organizations, processing organizations, and key
central Ministries.
 The Commission 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 produc-
tivity levels of their crops. Based on all these inputs, the Commission then finalizes
its recommendations/reports, which are then submitted to the government.
 The government, in turn, circulates the CACP reports to state governments and con-
cerned central Ministries for their comments. After receiving the feed-back from
them, the Cabinet Committee on Economic Affairs (CCEA) of the Union government
takes a final decision on the level of MSPs and other recommendations made by
CACP.
 Once this decision is taken, CACP puts all its reports on the web site for various
stakeholders to see the rationale behind CACP's price and non-price recommenda-
tions.
L. K Jha Committee 1964 prescribed the first price policy in the
matter of foodgrains and recommended the establishment of
Agricultural Prices Commission (APC) which announced Mini-
mum Support Prices and Procurement Prices. Later, Procurement
Prices were abolished and only MSPs are announced by the gov-
ernment, presently.

12
Minimum Support Price is the rate at which the government buys grains from
farmers. Reason behind the idea of MSP is to counter price volatility of agri-
cultural commodities due to the factors like variation in their supply, lack of market in-
tegration and information asymmetry.
The rationale for ‘minimum’ support price lies in two factors:
 Protection of farm income in years of abundance through purchases by the govern-
ment at minimum prices and building up of stocks; and
 Maximum price would imply protection of consumer interests in years when there is
crop failure. This is because the food price acts as a base in the determination of
both agricultural and industrial costs.
Determinants of MSP
While recommending price policy of various commodities under its mandate, the Com-
mission keeps in mind the various Terms of Reference (ToR) given to CACP in 2009.
Accordingly, it analyzes
1) demand and supply;
2) cost of production;
3) price trends in the market, both domestic and international;
4) inter-crop price parity;
5) terms of trade between agriculture and non-agriculture;
What is MSP? why MSP was introduced? factors and determinants of
MSP, method of calculation and what was the recommendation of
National commission of farmers recommendation over MSP ?

13
6) a minimum of 50 percent as the margin over cost of production; and
7) likely implications of MSP on consumers of that product.
It may be noted that cost of production is an important factor that goes as an input in
determination of MSP, but it is certainly not the only factor that determines MSP.
The following factors are taken into account while determining MSP for foodgrains:
 Cost of production
 Changes in input prices
 Input-output price parity
 Trends in market prices
 Demand and supply
 Inter-crop price parity
 International price situation
 Types of Production Costs
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.
National Commission on Farmers: Swaminathan Committee
The Central government had set up the National Commission on Farmers (NCF) in
November 18, 2004 to address the issues of farmers in India including that of calcula-
tion of MSP 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 govern-
ment calculates its MSP based on the A2+FL method
 Effect on industrial cost structure
 Effect on cost of living
 Effect on general price level
 Parity between prices paid and prices
received by the farmers.
 Effect on issue prices and implications
for subsidy

14
MSP for the crop year 2020-21
CROP MSP in Rs per quintal
Paddy common 1868
Paddy [f]/ grade A 1888
Jowar hybrid 2620
Jowar maldandi 2640
Bajra 2150
Ragi 3295
Maize 1850
Tur 6000
Moong 7196
Uraad 6000
Groundnut 5275
Sunflower seed 5885
Soyabean yellow 3880
Sesamum 6855
Niger seed 6695
Medium staple cotton 5515
Long staple cotton 5825
Sometimes, the CACP and states will announce bonus apart
from the MSP promised
For example the CACP announced Rs 100 bonus over a quintal
for tur, mung, urad in the year 2017-18

15
Fruit and Vegetable Farmers have been among the hardest hit by the lockdown.
They are facing major losses due to obstacles in harvesting and marketing their
perishable produce. The Central Government has directed all the States and Union Ter-
ritories to implement the Market Intervention Scheme to ensure remunerative prices to
farmers for perishable crops.
It has also begun a train service to transport perishable agricultural and horticultural
commodities to markets due to the obstacles in road transport. According to the Minis-
try of Agriculture & Farmers' Welfare 50 trains have been deployed for this purpose.
Market Intervention Scheme
MIS is a price support mechanism implemented on the request of State Governments
for the procurement of perishable and horticultural commodities in the event of a fall
in market prices. Its objective is to protect the growers of these horticultural/
agricultural commodities from making distress sale in the event of the bumper crop.
Under MIS, support can be provided in some years, for a limited but defined period, in
specified critical markets and by purchasing specified quantities. The initiative has to
emerge from the concerned state. It is implemented when there is at least a 10% in-
crease in production or a 10% decrease in the ruling rates over the previous nor-
mal year. MIS works in a similar fashion to Minimum Support Price based pro-
curement mechanism for food grains but is an ad-hoc mechanism.
Commodities covered
The MIS has been implemented in case of commodities like apples, garlic, oranges,
grapes, mushrooms, clove, black pepper, pineapple, ginger, red-chillies, coriander seed,
chicory, onions, potatoes, cabbage, mustard seed, castor seed, copra, palm oil etc.
Analogous: MSP vs MIP vs MFP
Have you came across the abbreviations of the schemes MSP, MIP,
MFP, here are the their differences and their significance

16
Remuneration under MIS
 MIS provides remunerative prices to the farmers in case of glut in production and
fall in prices.
 Proposal of MIS is approved on the specific request of State/UT Government, if they
are ready to bear 50% loss (25% in case of North-Eastern States), if any, incurred on
its implementation.
 Further, the extent of total amount of loss shared is restricted to 25% of the total
procurement value which includes cost of the commodity procured plus permitted
overhead expenses.
Implementation of MIS
1) Market Intervention Price (MIP)
 The Department of Agriculture & Cooperation is implementing the scheme.
 Under the MIS, a pre-determined quantity at a fixed MIP is procured by NAFED as
the Central agency.
 There are other agencies designated by the state government for a fixed period or till
the prices are stabilized above the MIP whichever is earlier. The area of operation is
restricted to the concerned state only.
2) Funds transfer
 Under MIS, funds are not allocated to the States.
 Instead, central share of losses as per the guidelines of MIS is released to the State
Governments/UTs, for which MIS has been approved, based on specific proposals
received from them.
MSP for MFP Scheme
The Union government’s ‘mechanism for the marketing of minor forest produce (MFP)
through minimum support price (MSP) and development of value chain for MFP’
scheme can offer respite to forest-dependent labourers in the wake of novel coronavirus
(COVID-19) outbreak.
The scheme, launched by the Centre in August 2013, provides fair price for MFP collect-
ed by tribals through MSP. It is designed as a social safety net for improvement of liveli-
hood of MFP gatherers by providing them fair price for the MFPs they collect. MFP
comprises all non-timber forest produce of plant origin such as bamboo, brush wood,
stumps, cane, tussar, cocoons, honey, wax, lac, tendu or kendu leaves, medicinal plants
and herbs, roots, tubers, etc, according to the Forest Rights Act, 2006.

17
The Scheme was been implemented in eight States having Schedule areas as listed in
the Fifth Schedule of the constitution of India. From November 2016, the scheme is ap-
plicable in all States.
Issues in implementation
 Almost 60-70 per cent income of forest dwellers depends on collection and sale of
MFP, according to the tribal affairs ministry.
 However, the scheme has not been activated because in most cases, states have not
given their 25 per cent share.
In WTO terminology, subsidies in general are identified by “boxes”
which are given the colours of traffic lights: green (permitted), amber
(slow down - i.e. need to be reduced), red (forbidden). In agriculture,
things are, as usual, more complicated. The Agriculture Agreement
has no red box, although domestic support exceeding the reduction
commitment levels in the amber box is prohibited; and there is a blue
box for subsidies that are tied to programmes that limit production.
There are also exemptions for developing countries (sometimes called
an “S&D box” or "development box"
“Look for the boxes in the upcoming sections”

18
Pradhan Mantri Annadata Aay Sanrakshan Abhiyan a new umbrella scheme (PM-
AASHA) approved by the central government, which will provide Minimum
Support Price (MSP) assurance to farmers.
 The Scheme is aimed at ensuring remunerative prices to the farmers for their pro-
duce as announced in the Union Budget for 2018.
 The increase in MSP can improve farmer’s income by strengthening procurement
mechanism in coordination with the State Governments.
Components of PM-AASHA
 Price Support Scheme (PSS)
 Price Deficiency Payment Scheme (PDPS)
 Pilot of Private Procurement & Stockist Scheme (PPPS)
Price Support Scheme (PSS)
 Under the PSS, Central nodal agencies will procure pulses, oilseeds and copra with
proactive role of state governments.
 The Food corporation of India (FCI) and the National Agricultural Cooperative Mar-
keting Federation of India (NAFED) will help implement the scheme.
 The procurement expenditure and losses due to procurement will be borne by Cen-
tral Government as per norms.
PM AASHA— Assuring MSP
What the schemes PM AASHA is about? How it will assure the fair
renumeration for farmers? issues with the schemes, Has it achieved its
motto ?

19
 The government will procure 25% of the marketable surplus of farmers for eligible
crops.
 The Centre has made a provision of about Rs 16,000 crores to be provided as bank
guarantee for the agencies to procure from farmers.
Price Deficiency Payment Scheme (PDPS)
 Under the PDPS, the state will provide the difference between the prices prevailing
in mandis and the MSP.
 All oil-seeds are to be covered under PDPS.
 This scheme is modelled on the Bhawantar Bhugtan Yojana that has been imple-
mented by the Madhya Pradesh state government as well as Bhavantar Bharpai
Yojana of Haryana Government.
 There will be no physical procurement of crops.
Pilot of Private Procurement & Stockist Scheme (PPPS)
 In lieu of PSS and PDPS, in certain pilot districts the PPPS will be tried out.
 Private agencies will procure oilseeds in coordination with the government.
The selected private agency shall procure the commodity at MSP in the notified mar-
kets during the notified period from the registered farmers in consonance with the
PPSS Guidelines, whenever the prices in the market fall below the notified MSP and
whenever authorized by the state/UT government.
Issues Associated with the Scheme
 The scheme provides little to strenghthen the procurement mechanism infrastruc-
ture in the country which largely only works for two crops – wheat and rice.
 According to a survey conducted by the National Sample Survey Office (NSSO) in
the 70th round in 2013, only 6% of farmers are able to sell their produce at MSP.
 A 2017 study by K.S. Aditya found that only 24% households were aware about
the MSP of crops grown by them. According to a 2016
 NITI Ayog evaluation report 79% farmers were dissatisfied with the MSP re-
gime.

20
 Further, the study found, although MSP is announced for the whole of India, the op-
eration is limited only to few states where the designated government agencies pro-
cure the produce from farmers and except for crops like rice and wheat, quantity
procured is very limited leading to low level of awareness.
The umbrella policy clubbed together an existing government procurement scheme
with newly introduced options — meant for oilseeds only — of additional procurement
by private traders or a cash payment scheme.
Six weeks later, senior Agriculture Ministry officials admit that the scheme will make
no difference to the plight of farmers on the ground this season, and will not improve
their chances of getting MSP for their crops.
Lack of infrastructure
 Only Madhya Pradesh has opted for the cash payment component as it already had
been implementing a cash payment using State funds.
 The only difference is they can now use Central funds up to 25%, but that will not
change anything for the farmer.
 No other state has readied the IT infrastructure needed to implement it.
 Some of the reasons for their dissatisfaction were delay in payments, lack of infra-
structure at procurement centres, distance to procurement centres and delayed an-
nouncement of MSP rates. NITI Aayog’s evaluation also found that there were sever-
al states where the procurement infrastructure facilities were ‘inadequate’.
AMBER BOX: Domestic support measures considered to distort produc-
tion and trade (with some exceptions) fall into the amber box, These include
measures to support prices, or subsidies directly related to production quanti-
ties.
These supports are subject to limits: “de minimis” minimal supports are al-
lowed (generally 5% of agricultural production for developed countries, 10% for
developing countries);

21
Issues related to MSP
Minimum Support Price initially was started as a safety net for farmers
through a guarantee that if their produce is left unsold in the market,
will be bought by the government. Another purpose was to incentivize farmer to
produce more crops so as to ensure food security in India. The scheme loses its
purpose when its been explicitly used to overcome the farmers distress rather
than the institutional reforms and better options for the farmer
Hiking the MSP
The big jump in minimum support prices (MSPs) for kharif crops in 2018 announced by
the government to fix it over 50 % of the cost could be its biggest economic blunder.
MSP climbing over market prices: It gives farmers a fixed margin of 50% over
their input costs and imputed labour cost, ignoring demand, supply and international
competitiveness. The attempt has fallen flat as market prices of most of those commodi-
ties remain 20 to 30 per cent below MSPs. Procurement by government agencies has
been limited, as they already have overflowing stocks that they cannot offload without
incurring massive losses.
Fiscal deficit: As the global demand for cereals and other crops under the ambit
of MSP is low, keeping prices at a very high level will cause fiscal deficit.
Inflation: Giving unrealistically high prices to farmers will also push inflation.
This will make domestic prices much higher than global prices, which will strongly hit
exports and make way for cheaper imports.
Besides, the large inefficiencies and market distortions caused by a MSP-regime make it
an unfavourable choice.
What happens when MSP is kept higher? Europe's example, when MSP
is made compulsory? issues with the method of calculation, what will
be the outcome? what is BBY ?

22
Decline in market competitiveness: If the MSP crops are procured at prices far
higher than other crops, there will be little incentive for efficiency and diversification in
the crop sector. This will also impact the competitiveness of the market negatively.
Unequal distribution: In any case, the MSP policy cannot reach more than 20 per
cent of peasantry even with augmented procurement of pulses and oilseeds, and, there-
fore, cannot be a solution to farmers’ distress, it pertains to a limited number of farm-
ers. benefitting large farmers who have marketable surplus; these operations exclude
much of country’s marginal farmers who produce little surplus.
As per NSSO 2012-13, less than 10 per cent of the country’s farmers sold their produce at
MSPs — the percentage though is a little higher for sugarcane, wheat and rice farmers.
What will be the impact of such high MSP ?
 It will worsen over-production, A fixed mark-up over costs will encour-
age even greater use of purchased inputs and labour, which in turn will send MSPs
even higher in a vicious circle
 Higher food prices will worsen inflation drastically affects the poor of both urban
and rural areas
 The RBI will seek to curb this by raising interest rates, hurting industry and exports.
This will dent India’s long-term GDP growth and prosperity
Europe’s example
The European Economic Community once tried something similar, offering prices to
farmers well above global rates to make Europe self-sufficient in food, to provide food
security in the event of war with the USSR. High prices created unsold mountains of
butter and meat and lakes of milk and wine. These ultimately had to be disposed
of by selling them at a throwaway price to the USSR, the supposed enemy
Learning from this folly, Europe shifted its subsidies from crops to farmers, direct cash
transfers to farmers replaced high prices for crops. This finally brought supply and de-
mand back in balance, eliminated huge surpluses, and still alleviated farm distress
BLUE BOX: Any support payments that are not subject to the amber
box reduction agreement because they are direct payments under a produc-
tion limiting program.

23
What can India do?
 India needs to learn from the EEC’s mistakes, not replicate them. Indian experience
shows that subsidising goods (food, fertiliser, electricity, LPG) leads to large leakages
to the undeserving and to middlemen.
 Experts estimate that three rupees of spending are needed to get one rupee through
to beneficiaries. Direct benefit transfers to bank accounts work only if good financial
and telecom infrastructure exist
 A possible national strategy would start with preparatory efforts for good land rec-
ords and financial infrastructure. Next should be phased moves to a cash grant to
farmers per land holding
Legal Backing to MSP: CACP
Commission for Agricultural Costs and Prices (CACP) has recommended that the Cen-
tre bring out a legislation which would give the 'right to sell at MSP' some legal teeth by
giving farmers the right to sell their produce at those prices.
The CACP highlighted that the procurement mechanism is broken for most crops and
for most farmers. Often farmers of remote areas do not have sufficient access to APMCs
(Agricultural Produce Market Committees) and their potential market is local haats
where their produce is sold below MSP. Strong procurement operations need to be ex-
panded to neglected regions, particularly eastern and northeastern regions.
Therefore, the CACP wants the Centre to bring in a legislation conferring the “right to
sell at MSP”, which will give legal backing to the exercise, ensure that crops are not pur-
chased below fixed price and “instil confidence among farmers”.
GREEN BOX: green box subsidies must not distort trade, or at most
cause minimal distortion. They have to be government-funded (not by charg-
ing consumers higher prices) and must not involve price support.
They tend to be programmes that are not targeted at particular products, and
include direct income supports for farmers that are not related to (are
“decoupled” from) current production levels or prices, includeS environmental
protection and regional development programmes, are therefore allowed with-
out limits, provided they comply with the policy-specific criteria

24
Methodology used to arrive MSP
The government has in principle adopted the policy of fixing procurement
prices at least 50% over what CACP calls cost A2 + FL. A2 includes the actual or
imputed cost of all purchased or own inputs such as seeds, fertilizers, manure, bullock
or machine labour + actual rent on leased in land + actual interest on working capital.
FL is the imputed value of family labour. Thus A2 + FL excludes the imputed value of
owned fixed capital, such as farm machinery, and the rental value of own land
Adding these components would give us cost C2, the cost on which the Swaminathan
Commission had recommended a 50% markup for procurement prices
 If MSP is just equal to cost C2, it includes 40 percent as a net return for the farmers
 No principle of economics tells us to award a margin on those costs which are not
actually incurred
 Keeping MSP at 50 percent above cost C2 involves an increase in the current MSP by
27-89 percent for kharif and up to 45 percent for rabi crops.
 Such a price entails a 50-100 percent increase in the existing farm-level prices of
some crops at one go
Using C2 cost instead of A2
 Cost C2 is arrived at by adding the rental value of owned land and interest on fixed
capital to cost A2 plus FL
 On average, around 40 percent of Cost C2 (imputed rent for own land and imputed
value of family labour used in crop production) is not a cost but income to the
farmer
Why imputed values should be used?
 Imputed values are the opportunity costs of both inputs and factors of production,
such as land, labour or capital.
 This means the costs that the farmer would have incurred if he had acquired these
from the market or what he would have earned if he had supplied these owned re-
sources to the market.
 If the imputed rental value of owned land is not included in the reckoning then the
average rental value factored into the costing would be less than the actual rental
value paid by those who have leased their land, the large bulk of whom are marginal
or landless farmers

25
Impact of using the C2 methodology
C2 includes income rather than cost: As C2 includes imputed rent for own land,
this shouldn’t be counted as a cost rather as an income for the farmer which he earns
by not having to pay rent on land.
Net income to farmers is justified: The new announcement will give 50 per cent
net return to farmers over cost C2 when rent on own land and wages for family labour
are treated as a return to the farmer.
Why cost of production doesn’t matter much ?
Cost of production is only one of several considerations factored into the determination
of MSPs, such as the estimated demand-supply balance, global prices, etc. Besides, an-
nouncing an MSP means nothing unless it is supported by public procurement at the
announced MSP
What can be done to ensure fair prices?
 Regulatory reforms
 Institutional changes
 There is a particular need to put pressure on the states to undertake the required
reforms to make agricultural markets more efficient, competitive and responsive to
the needs of producers and consumers
DEVELEOPMENT BOX: The type of support includes measures of as-
sistance, direct or indirect, designed to encourage agricultural and rural
development and that are an integral part of the development programmes
of developing countries, include investment subsidies, agricultural input
subsidies , and domestic support to producers in developing country mem-
bers to encourage diversification from growing illicit narcotic crops.

26
Making MSP compulsory:
In a controversial move, the Government of Maharashtra (GoM) has made buy-
ing at MSP mandatory in the state for traders. In case the order is not observed, the li-
cence of the trader will be cancelled, a fine of Rs 50,000 imposed and he must serve a
jail term of one year.
Implications of the decision
In the first scenario, let us assume that traders fall in line and buy everything at
MSP or above, complying to the governments decision
 What if supply exceeds demand for some Kharif products, which is likely to be
the case for most pulses, oilseeds and coarse cereals? Market prices will tend to
fall, possibly below MSPs
 If the high MSPs are translated into higher retail prices by not allowing any in-
ward flow from neighbouring states, this would amount to creating a republic of
its own with elevated price structures
 In that case, the GoM may face the wrath of consumers who would be paying
much higher prices than consumers in neighbouring states
In scenario two, a private trader buys at MSP, unloads the produce at prevailing
market prices that are below MSPs and incurs heavy losses
 No rational businessman would do that unless the government promises to
compensate losses, akin to the BBY of Madhya Pradesh
In the third scenario, Maharashtra’s neighbouring states like Karnataka, Madhya
Pradesh and Gujarat are selling the same crops at prices below MSP
 Maharashtra’s traders may move to the adjoining states and buy at market pric-
es, In that case, the GoM becomes the buyer-of-last-resort, resulting in a de fac-
to takeover of the wholesale trade
What is actually required?
 The best way to deliver a better deal to farmers is to “get the markets right”
 Treat farmers as businessmen and facilitate a conducive environment for them to
flourish, reform archaic laws like the Essential Commodities Act (ECA) 1955 and
APMC Act
 Invite the private sector to build storage, assaying, grading, packing facilities at the
back-end with farmer-producer-organisations (FPOs)
 Freeze the commission of the commission agents. As for the market fee, possibly cap
it at 2 per cent of the value of agri-produce being transacted for all commodities
across the country

27
Artificial incentives for agriculture
The Indian state has often played the same role in the agricultural sector, its poli-
cies have created artificial incentives that are unsustainable, an inefficient drain on pub-
lic funds, or both.
BBY scheme by MP government
The Bhavantar Bhugtan Yojana is a price deficiency payment (PDP) scheme, in Kharif
2017, will replace government procurement with compensatory payments, it compen-
sated farmers of selected crops for the difference between the realised price and MSP
 This will be when market prices are below the MSP
 It is being implemented as a pilot scheme for eight crops
Expectation from the scheme
 The scheme will sidestep the implementation shortcomings of the procurement sys-
tem
 These extend from the lack of government storage facilities and supply chain logis-
tics. Also, the fact that despite the government declaring MSPs for 25 crops, it largely
procures only rice and wheat
 It will be less distortionary, freeing up space for the market to set rates
Reality check
 The knowledge that the government will make up the shortfall will incentivize trad-
ers to set rates well below the MSP
 The scheme has a two-month window, which means that the rush to sell in that peri-
od will also push prices down
But the government gave up the scheme abruptly in the rabi marketing season as the
scheme could not cover even 25 per cent of the harvest, even though prices of most
crops were way below their MSPs
Potential costs of scaling up the BBY/PDP scheme is high: Scaling up BBY/PDP
scheme requires reaching all farmers, registering their market arrivals, and paying them
the difference between the MSP and market prices
Cost plus pricing, which ignores demand side, will lead to major distortions in the sys-
tem. For example, farmers will find jowar relatively more attractive and increase its pro-
duction. Higher supply without any change in demand will create a glut and thus de-
press market prices, requiring either large-scale procurement by the government at en-
hanced MSP or a huge PDP

28
Way ahead
Agricultural sector is one of the handful where inelastic demand for the prod-
ucts, the deleterious public effects of supply shocks and inherent risks for
suppliers mandate a government role
A mechanism for implementation of the Minimum Support Price (MSP)
Government think-tank NITI Aayog said it will work out a mechanism for implemen-
tation of the Minimum Support Price (MSP) for different crops in the country
The Aayog noted that the procurement by central and state agencies is limited to rice
and wheat and some amount of coarse cereals
When output increases well beyond the market demand at a price remunerative to
producers, market prices decline and in the absence of effective price support policy,
farmers are faced with a loss of income, depending on how much the price decline is.
Based on the scale of over/ surplus production than the demand the following con-
cepts could be administered to ensure the remuneration to farmers
Concepts for fair remuneration:
The first option related to market assurance scheme
 Which proposes procurement by states and compensation of losses up to a certain
extent of MSP after the procurement and price realization out of the sale of the pro-
cured produce, reforms over the markets, eliminating trade barriers, proper ware-
house facilities, incentives for exports, connecting markets, pan India marketing
platforms, etc.,
Viable options for ensuring renumerative price to the farmers, market
reforms needed, pro- farmer initiatives of the government were
discussed

29
Second option related to price deficiency procurement scheme.
 Under this scheme, if the sale price is below a modal price then the farmers may be
compensated to the difference between MSP and actual price subject to a ceiling
which may not exceed 25 percent of the MSP. No compensation would be due if the
modal price in neighboring states is above the MSP
 The “price deficiency” scheme may compensate the farmers when prices decrease
below a certain specified level. However, the market prices may continue to fall as
the supply exceeds the “normal demand”
 Nearly all the produce may become eligible for the “deficiency payments” in theory
as the prices, in general, would have fallen for all the producers
Third option related to private procurement and stockist scheme
 It relates to procurement by private entrepreneurs at MSP and government provid-
ing some policy and tax incentives and a commission to such private entities
Fourth, alternative is the limited procurement scheme.
 Under this scheme, the government will procure the “excess”, leaving the normal
production level to clear the market at a remunerative price. Thus, procurement will
continue until the market price rises to touch the MSP
 The effectiveness of the limited procurement system would depend on several fac-
tors
 The timing and speed with which the procurement is implemented are critical. It is
important to determine the excess supply, which will indicate how much is to be
procured
 Equally important is the quick assessment of price trends, particularly in the period
immediately after the harvest begins, to arrive in the key markets
 In any case, the idea is not to absorb all the output but a quantity that would keep
the supply-demand balance at the trend level . The suggested “limited procurement
system” will not work if the MSP is fixed at a level to which the market price will
never rise. A limited procurement option is necessary only in times of a sharp in-
crease in production
Better prospects via private procurement
The option of private procurement and stockist scheme offered great promise as it re-
duces the fiscal implications for the government, involves private entities as partners in
agriculture marketing and improves the competition in the market The government’s
liabilities for storage and post-procurement management and disposal are also avoided

30
Reforming the Agricultural Markets:
Removal of entry barriers: Allow buyers to participate across all markets with a
single license. Allow farmers to sell in any market of their choice.
Assist price discovery: Auction of the produce should take place simultaneously
on the electronic platform in all regulated markets all over the country.
Standardized scientific assaying and grading: Reliable assaying and quality test-
ing infrastructure have to be established in every market, and quality-based bidding
must be encouraged. Standardization of quality and quantity parameters, dissemination
of these parameters to buyers, clearing and settlement mechanisms and dispute resolu-
tion are key prerequisites for encouraging participation from remote locations in a pan-
India market.
Electronic settlement of sales: Collection of sale proceeds from the buyer and re-
mitting it to the bank account of the seller must be facilitated by the market;
Removal of controls: Restrictions on inter- and intra-state transportation of com-
modities should be removed.
Move to a warehouse-based trading system: In the longer term, the marketing
system needs to transform into a warehouse-based trading system. A farmer brings his
produce to a warehouse; the produce is graded as per a standard protocol and the
farmer is issued a Negotiable Warehouse Receipt (NWR). The NWR guarantees the
grade quality of the product for a certain period of time.
Involvement of other stakeholders: Participation of private players along with
farmer producer organizations (FPOs) should be encouraged. The Maharashtra model
of linking FPOs with Apni Mandi concept of providing marketing platforms to retail
FPOs production to consumers should also be considered.
Improve market infrastructure: Existing physical infrastructure related to logis-
tics, supply chain, storage should be improved.
New institutional mechanisms: The public-private partnership (PPP) model adopted
by Karnataka with the help of National Commodity and Derivatives Exchange Limited
(NCDEX), wherein an SPV was floated to create a United Market Platform (UMP) mod-
el across 65 markets offers some key lessons on some aspects of operationalizing the
NAM. Additionally, besides the PPP model, the build-operate-transfer model also needs
to be explored. Formation of a Special Purpose Vehicle (SPV) can be a way forward to
implement the strategy.

31
Other Pro-farmer initiatives of the Government
 The Government is committed to realizing the vision of doubling farmers’ income by
2022 through emphasising on enhancing productivity, reducing cost of cultivation and
strengthening post-harvesting management, including market structure.
 Efforts are on for a new market architecture, so as to ensure that farmers get remu-
nerative prices on their produce. These include setting up of Gramin Agricultural Mar-
kets (GrAMs) so as to promote retail markets in close proximity of farm gate; competi-
tive and transparent wholesale trade at Agricultural Produce Market Committee
(APMC) through National Agriculture Market or eNAM and a robust and pro-farmer
export policy.
Several other pro-farmers’ initiatives such as implementation of Pradhan Mantri Fasal
Bima Yojana, Pradhan Mantri Krishi Sinchai Yojana, Paramparagat Krishi Vikas Yojana
and distribution of Soil Health Cards have been undertaken. The commitment for farmer
welfare is also reflected by decision of announcing minimum support price based on the
formula of 1.5 times the cost of cultivation.
 Steps should be taken to improve facilities at procurement centres, such as dry-
ing yards, weighing bridges, etc.
 More godowns should be set up and maintained properly for better storage and re-
duction of wastage.
 The procurement centres should be in the village itself to avoid transportation costs.
 Hence, the Government must reinforce the procurement infrastructure which was a
key recommendation of the Centre’s NITI Aayog for the success of this well inten-
tioned scheme for the farmer's welfare.
What happens when the govt keep on increase the MSP ?
What happens when govt prints its currency unmindfully ?
Does both meant to have same results ?

32
Reforms needed in agricultural policies
India needs a good blend of investments and subsidies in its agriculture policy.
There is not a severe constraint on resources to invest in rural areas, be it roads,
water (irrigation), sanitation, and even housing. Including agri-research and develop-
ment (R&D) and quality education in this list of rural investments would ensure hand-
some payoffs — reducing poverty and propelling agri-growth at a much faster pace
than has been the case so far
Ensuring food security
 Given the overarching food security concern of 1.32 billion people in India, the
country’s policymakers have a challenging task
 On the one hand they need to incentivise farmers to produce more and raise
their productivity in a sustainable manner, and on the other, they need to
ensure that consumers have access to food at affordable prices, especially
those belong to the vulnerable sections
Maintaining fine balance
 In order to find a fine balance between these twin objectives, India has followed
myriad policies that impact both producers and consumers
 These policy instruments range from domestic marketing regulations (for example
the APMC Act, Essential Commodities Act, ECA), budgetary policies (such as input
subsidies), trade policies (such as Minimum Export Prices, MEP or outright export
bans and tariff duties) to food subsidies for consumers through the public distribu-
tion system
In this sections the struggles of the government to balance between
protecting its consumers and producers of agrl produce, its inviable at-
tempts, policies so far and its implications, OECD ICRIER report, policy
reforms needed were discussed.

33
Loan waiver not a viable decision either
 The loan waiver will not benefit more than 30 per cent of the peasantry, who have
access to institutional credit.
 Already, the bill from loan waivers announced by some state governments is touch-
ing about Rs 1.8 trillion (lakh crore). The policy of zero-interest on loans too is rid-
dled with loopholes, leading to massive diversion of funds out of agriculture.
Return on investments low
 Public capital formation in agriculture has been declining from 3.9 per cent of agri-
GDP in 1980-81 to 2.2 per cent in 2014-15
 Input subsidies on fertilisers, water, power, crop insurance and agri-credit have risen
from 2.8 per cent to 8 per cent of the agricultural GDP during the same period
 The rapid increase in input subsidies has squeezed public investments in agriculture.
Therefore, India has not got the biggest bang for its buck being spent in the agricul-
ture space
 The results show that expenditure incurred on Agri-R&E (Research and Education),
roads or education are five to 10 times more powerful in alleviating poverty or in-
creasing agri-GDP than a similar expenditure made on input subsidies
Impact of excessive subsidies
 Excessive input subsidies have caused large-scale inefficiencies in the agriculture sys-
tem. For example, fertiliser subsidies, especially on urea, have led to the imbalanced
use of soil nutrients
 The subsidy on irrigation water has resulted in an inefficient use of scarce water.
Highly subsidised power has led to over-exploitation of groundwater. Subsidy on the
interest rates on crop loans has diverted substantial amounts of agri-credit to non-
agricultural use
India’s policy so far
Most countries support agriculture to ensure food security and/or enhance farmers’ in-
come, so does India. The main policy instruments to support farmers in India include
subsidised fertilisers, power, agri-credit and crop insurance on the input side, and mini-
mum support prices for major crops on the output front
Organisation for Economic Co-operation and Development (OECD)
Indian Council for Research on International Economic Relations (ICRIER)

34
Research on the nature of agriculture policies
 The OECD and ICRIER jointly undertook research over two years to map and meas-
ure the nature of agricultural policies in India and the ways they have impacted pro-
ducers and consumers The report includes key policy indicators like Producer Sup-
port Estimates (PSEs) and Consumer Support Estimates (CSEs)
 In the case of PSEs, it basically captures the impact of various policies on two compo-
nents: One, the output prices that producers receive, benchmarked against global
prices of comparable products; and
 Two, the various input subsidies that farmers receive through budgetary allocations
by the Centre and states
What the data implies ?
 A positive PSE (in percentage) means that policies have helped producers receive
higher revenues than would have been the case otherwise
 Negative PSE (in percentage) implies lower revenues for farmers (an implicit tax of
sorts) due to the set of policies adopted
Data from India
 Based on an application of these indicators, it is claimed that Indian producers have
suffered a net negative impact amounting to 14% of farm receipts on average for the
period 2000-01 to 2016. This is primarily because of restrictive export policies
(minimum export prices, export bans or export duties) and domestic marketing poli-
cies (due to the Essential Commodities Act, APMC, etc)
 The negative PSEs were particularly large during 2007-08 to 2013-14 when benchmark
global prices were high but Indian domestic prices were relatively suppressed due to
restrictive trade and domestic marketing policies
 This means is that there has been a pro-consumer bias in India’s trade and marketing
policies, which actually hurts the farmers and lowers their revenues compared to
what they would have received otherwise
 It estimates that India’s trade and marketing policies have inflicted a huge negative
price burden upon the country’s farmers, it was much more severe for the small,
marginal and landless farmers who account for 80% of rural households and face
multiple price and non-price risks on top of the non-viability of their tiny plots of
land
 Their circumstances also force them to sell their small lots of marketable surplus at
prices way below the announced MSPs while having to buy their inputs at high
prices

35
Concerns raised over such policies & schemes
Macroeconomists and investors are worried about how much such schemes will cost
(MSP, input incentives). Will it be fiscally sustainable and what impact will it have on
investments in due course.
Is India not becoming a welfare state even before generating enough wealth?
The experts however view that these efforts are not “doles” but atonement for not re-
forming agriculture sector, especially its marketing and trade policies, which remain
highly distorted, restrictive and pro-consumer, often at the cost of farmers.
Indian farmers have been “implicitly taxed” through restrictive marketing and
trade policies
One of the key findings of a mega ICRIER-OECD study on agricultural policies in India
is that the Indian farmers have been “implicitly taxed” through restrictive marketing
and trade policies that have an in-built consumer bias of controlling agri-prices.
If one calculates the sum involved in this “implicit taxation”, it amounts to Rs 2.65 tril-
lion (lakh crore) per annum, at 2017-18 prices, for 2000-01 to 2016-17.
Cumulatively for 17 years, this comes to roughly Rs 45 trillion at 2017-18 prices.
No country in the world has taxed its farmers so heavily during this period.
This is nothing short of plundering of farmers’ incomes.
Correlation between farm distress & poverty
Farm distress is a reality but does not mean growing poverty. A recent Brookings paper
shows that 44 Indians per minute are rising above the poverty line, and extreme pov-
erty will soon fall to almost nothing
The farm problem is not poverty or scarcity but excess production of several crops, the
resulting glut has depressed farm prices, often below old MSP rate
During deccan famine in 1630’s Shah Jahan (Mughal emperor) orga-
nized ood and cash transfers to the residents & migrants of Gujarat and
deccan het set up langhars to feed the people and offered money trans-
fers on Monday’s. He spent over 1,50,000 rupees in 20 weeks

36
Policy changes required
Market reforms
 The first policy change that is needed is to “get the markets right” by reforming its
domestic marketing regulations (ECA and APMC), promoting a competitive nation-
al market and upgrading marketing infrastructure
 India also needs to review its restrictive export policies for agri-products which have
inflicted large negative price support to farmers during the period studied
 These changes will reduce and, in time, eliminate the negative market price support
to farmers and allow them to earn much-improved returns
 With the 2003 and 2017 versions of the model Agricultural Produce Market Commit-
tee (APMC) Act, governments have attempted to liberalize this system, providing
for private markets and integrated state markets
 This was a step towards a national market facilitated by the National Agriculture
Market (eNAM)
DBT
 The concerns of policy-makers to protect consumers from potential price hikes
when global prices are on the rise could be served by switching to an income policy
approach through the Direct Benefit Transfer (DBT) targeted to the vulnerable sec-
tions of the population
 The present system of delivering subsidies through the pricing policy needs to be
shifted to an income policy, which could be well-targeted, and leakages minimised-
Many OECD countries, as well as emerging countries such as China, are moving in
that direction
 DBT will avoid the evils of cost-plus pricing and encouraging overproduction, while
benefiting small farmers most. This shift will be better for the country as it is more
predictable and less market distorting.
Reforms aimed at inputs
 Indian agriculture and farmers would be much better-off if input subsidies are con-
tained and gradually reduced. The equivalent savings can be channelled simultane-
ously towards higher investments in agri-R&D, extension, building rural infrastruc-
ture for better markets and agri-value chains, as also on better water management
to deal with climate change
 Investments need to be prioritised towards agricultural research and development,
roads and education

37
 At the global level, the private sector is leading in agri-R&D. If India needs to access
that technology, it needs to develop a proper IPR regime, which is in the interest of
farmers as well as investors
 India needs to make moves to give its farmers access to the best technologies in the
world. This, in turn, can augment their productivity and incomes and give the na-
tion long-term food security
 The Pradhan Mantri Krishi Sinchayee Yojana aims to extend irrigation cover to all
forms and maximize water-use efficiency over a period of five years
 In a water-stressed yet groundwater-dependent country like India, this is only possi-
ble with comprehensive rural electrification, allowing for techniques such as drip
irrigation
Formal credit
 The other major reform needed here is access to formal credit. The current depend-
ence on informal credit leaves farmers beholden to middlemen and traders who are
often the credit suppliers, thus undercutting the former’s bargaining power
Less labour intensive
 The next reforms should be reduction in number of people participating in Agricul-
ture. As per the last Agriculture Census, the average farm holding in India is a mi-
nuscule 1.15 hectares
 Their number has been on the rise since the 1970s and is expected to touch 91% by
2030. There is no feasible way to make such a fragmented agricultural economy
workable
 For a sustainably healthy agricultural economy, the number of people participating
in it must be drastically reduced
 Measures such as enabling large-scale contract farming and corporate farming will
help here—but the only genuine solution is job creation in non-agricultural sectors
These policy changes, many of which are already underway, will make Indian agricul-
ture more competitive, more vibrant, sustainable and resilient, and will also augment
farmers’ incomes on a sustained basis

38
Reports and Research Studies
NSSO Report -2013
A National Sample Survey Office (NSSO) report that mapped the income, expenditure
and indebtedness of agricultural households in India in 2013 provides some clues. For
households owning farms of less than 0.4 hectares, who are a 1/3rd
of all agricultural
households, net receipts from cultivation account for less than 1/6th
of income. They
will certainly not benefit from higher MSPs as their sole bread and butter is not only
cultivation. For those holding between 0.4 and 1 hectare, net receipts from cultivation
are around 2/5th
of their earnings. This class constitutes another 1/3rd
of all farming
households.
Broad inference from this Report
 Taken together, farmers owning up to 1 hectare of land constitute 69.4% of total
agricultural households.
 The report finds their monthly consumption expenditure is higher than their earn-
ings from all sources, which means they are chronically in debt.
 Many rely on moneylenders, rich farmers and landlords to advance them the mon-
ey needed for cultivation and they are often forced to sell their produce to these fi-
nanciers at lower than market prices. In short, almost 70% of farming households
are unlikely to be beneficiaries of the MSP hike.
Small and Big Farmers to get benefits
 Those having more than 4 hectares of land, a mere 4.1% of the farming population,
get more than three quarters of their net income from cultivation.
 It is the rural rich, rural India’s ruling class, who pay no income taxes, who gain the
maximum benefit from farm loan waivers, who will reap the bonanza from higher
MSPs.
This section aims to present the implications of MSP and market re-
forms through the reports of NSSO, NAFIS, Niti Ayog and some re-
search articles

39
Shanta Kumar Committee Report on FCI :
The high level commitee was form with shanta kumar as chair person and plus 6 dele-
gates to report on the restructuring of FCI was set up in august 2014 and they submit-
ted their report in janurary 2015
Findings
 The revelations of the Shanta Kumar Committee report underscored that fact. It
found that a mere 5.8% of agricultural households in India had sold paddy or
wheat to any procurement agency.
 Even these households sold only a part of their total sales, ranging from 14-35% for
different crops, at MSP.
 The upshot of this entire evidence is that the direct benefits of procurement opera-
tions in wheat and rice, with which FCI (Food Corporation of India) is primarily en-
trusted, goes to a minuscule of agricultural households in the country.
 Obviously then, much of the procurement that government agencies undertake
comes from larger farmers, and in a few selected states (Punjab, Haryana,
Andhra Pradesh and lately from Madhya Pradesh and Chhattisgarh).
Recommendations:
 Reduce the number of beneficiaries under the Food Security Act—from
the current 67 per cent to 40 per cent.
 Allow private players to procure and store food grains.
 Stop bonuses on minimum support price (MSP) paid by states to farmers,
and adopt cash transfer system so that MSP and food subsidy amounts can be
directly transferred to the accounts of farmers and food security beneficiaries.
 FCI should involve itself in full-fledged grains procurement only in
those states which are poor in procurement. In the case of those states
which are performing well, like Haryana, Punjab, Andhra Pradesh, Chhattis-
garh, Madhya Pradesh and Odisha, the states should do the procurement.
 Abolishing levy rice: Under levy rice policy, government buys certain per-
centage of rice (varies from 25 to 75 per cent in states) from the mills compul-
sorily, which is called levy rice. Mills are allowed to sell only the remainder in
the open market.
 Deregulate fertiliser sector and provide cash fertiliser subsidy of Rs 7,000
per hectare to farmers.

40
 Outsource of stocking of grains: The committee calls for setting up of ne-
gotiable warehouse receipt (NWR) system. In the new system, farmers can de-
posit their produce in these registered warehouses and get 80 per cent of the
advance from bank against their produce on the basis of MSP.
 Clear and transparent liquidation policy for buffer stock: FCI should be
given greater flexibility in doing business; it should offload surplus stock in
open market or export, as per need.
NABARD survey on farmer’s income
NABARD-All India Rural Financial Inclusion Survey (NAFIS). The survey
estimates 2015-16 farmers’ income levels. NAFIS is based on a sample of 40,327 rural
households in 29 states of which 48 per cent are agriculture households (agri-HHs) 87
per cent are small and marginal farmer households
The survey combines the strengths of the NSSO’s Situation Assessment Survey
(SAS) and RBI’s All India Debt and Investment Survey
Findings from NAFIS
 Based on household-level data, NAFIS estimates that an average Indian farming
household earned Rs 8,931/month (Rs 1,07,172/year) in the agriculture year 2015-16
 This is up from Rs 2,115 earned in 2002-03 as per the NSSO’s SAS, implying a com-
pounded annual growth rate (CAGR) of about 12 per cent in nominal terms and 3.7
per cent in real terms (2015-16 base) in 13 years
 The survey also estimates the income of non-agri rural HH at Rs 7,269/month, more
than half of which comes from working as wage labourers
 On the financial aspects of these rural agri-HHS, NAFIS found for the reference year
that about 43.5 per cent borrowed money with an average availed loan of Rs 1,07,083
 More than 60 per cent of these HHs borrowed from institutional sources, 30.3 per
cent from non-institutional and 9.3 per cent from both
 More than half (52.5 per cent) of the agri-HHS were found to be indebted, with an
average outstanding debt of Rs 1,04,602 for the year
 Almost 88 per cent of all rural HHs had bank accounts, and their monthly consump-
tion expenditure on food was 51 per cent of total expenditure
FCI stocks as of Mar 2020 Rice - 309.76 lakh MT
Wheat - 275.21 lakh MT
Total - 584.97 lakh MT

41
Reasons for rise in estimates
 The rise in estimates is because of a wider definition of rural areas the NABARD sur-
vey includes areas that are bigger including Tier Three, Four and Five Towns
 If NAFIS followed NSSO’s definitions, the 2015-16 estimate of farmers’ income
would have been somewhat lower, and so would have been its growth rate
Uses of NAFIS
 In terms of sources of income, NAFIS offers interesting insights, particularly for the
Dalwai Committee
 The Dalwai Committee was set up in April 2016, to advise on the strategy to double
farmers’ incomes by 2022
Farmers becoming labourers
 NAFIS estimates that in 2015-16, 35 per cent of farmers’ income came from cultiva-
tion, 8 per cent from livestock, 50 per cent from wages and salaries and 7 per cent
from non-farm sectors
 It appears that working as labourers is a fall-back option for average farmers in
drought years
 The increasing pressure as a result of shrinking average holding size (NAFIS esti-
mates it at 1.1 hectares) is presumably forcing farmers to work as labourers to meet
their needs
 This is very different from what the Dalwai Committee assumes when it says that by
2022-23, 69 to 80 per cent of farmers’ incomes will accrue from farming and animal
rearing
Can we double ?
To achieve PM Modi’s dream of doubling farmers’ incomes by 2022-23, the Dalwai
Committee points out that farmers’ real incomes need to grow at 10.4 per annum,
that is, 2.8 times the growth rate achieved historically (3.7 per cent)
This sounds like a challenge of raising country’s GDP growth from 7.2 per cent to 20 per
cent. It can possibly be done by 2030 unless the government undertakes drastic steps to
augment farmers’ incomes at a faster pace
Watch it !!!
Indian Agriculture Faces Complex Problems - PBS
https://www.youtube.com/watch?v=c7qKz1jyWak

42
Evaluation Study On Efficacy of Minimum Support Prices (MSP)
on Farmers
The evaluation study on MSP was carried out by the erstwhile Programme Evaluation
Organization (PEO), now the Development Monitoring and Evaluation Office (DMEO),
on a request received from the Ministry of Agriculture, Government of India.
The study reference period was from the year 2007-08 to 2010-11.
Findings Based on Case Study
The findings emerged from the case study of MSP using the latest available data for
year 2010-11 pertaining to the selected sample States are as under:-
a. Generation of Annual Income: Small farmers which constituted 65% of the total
farming households earned 60% of their annual income from agriculture whereas in
the case of medium farmers which constituted 19% of the total farming households, it
was 68%. Finally, the large farmers which constituted 16% of the farmers’ community
received 74% of their annual income from the cultivation.
b. Awareness about MSP: The 81% of the cultivators are aware of MSP fixed for differ-
ent crops. 10% of the farmers who were aware of MSP, came to know about it before the
sowing season whereas 62% of them came to know about MSP after the sowing season.
Finally, 28% of the farmers, although knew about the MSP, they were not able to recol-
lect whether MSP was declared before or after the sowing season.
c. Medium of Awareness: It was noticed that 18% of the farmers came to know
about MSP for their produces through their own efforts and 29% through the newspa-
pers. Only 7% of the farmers came to know about MSP through the State officials. Fur-
ther, 11% of the farmers knew about MSP from the FCI officials whereas 34% of them
received information from the knowledgeable persons such as Village Headman, Sar-
panches, School Teachers and Gram Sevaks. The remaining 1% of farmers knew about
MSP through the traders.
d. Mode of Receipt of Payments: It was found that 32.13%, 40.29% and 27.4% of the
farmers received their MSP payments in cash, Cheques or in the shape of Bank deposits
respectively.
e. Time Taken in getting Payments: 20%, 7%, 8%, 51% and 14% of the farmers of the
sample States received their MSP payments on the spot/same day, within 2 to 3 days of
sales, after 3 days but within one week of sales, after a week but within one month of
sales and after a period of one month respectively.
f. Medium used for Sales: 67% of the farmers sold their produces through their own
arrangement whereas 21% of them sold through Brokers. The shares of sales through
the private and Government agencies were 8% and 4% respectively.

43
g. Improvement in Farming Practices: It was found that 78% of the farmers
adopted improved methods of farming such as: high yielding varieties of seeds, organic
manure, chemical fertilizer, pesticides and improved methods of harvesting, etc. for in-
creasing the production as a result to the MSP declared by the Government.
h. Effectiveness of MSP: It was found that 21% of the farmers of the sample
States expressed their satisfaction to the MSP declared by the Government. While 79%
of them showed their dissatisfaction to MSP due to the various reasons, almost all of
them (94%) wanted MSP to continue.
Tamil Nadu: It was revealed from the field investigation that the MSP rates were
declared after the sowing activity during the reference period leading to the dissatisfac-
tion of the farmers. However, it was found that the MSP rate for the major crops like
Paddy was always remunerative to the cultivators, as it was covering the cost of cultiva-
tion in addition to some profit. Therefore, the procurement of Paddy by the State Gov-
ernment was working effectively. On the other hand, the MSP rates for the pulses such
as: Green Gram, Black Gram and Ground Nut were always less than the open market
prices which led to no procurement of pulses and oil seeds. It was also noted that there
had been an increase in the acreage for paddy cultivation in Tamil Nadu, at the same
time there had been a major decline in the acreage for groundnut cultivation.
Suggestions
In order to improve the MSP procurement system and make it more effective, the fol-
lowing recommendations are offered:
i. First and foremost the awareness among the farmers needs to be increased and the
information disseminated at the lowest level so that the knowledge would increase the
bargaining power of the farmers. In the process the farmers will become empowered
which would give them the legitimate dues.
ii. The basic source of livelihood for the farmers is farming and the delay in payment
has negative effect. Our micro-level analysis finds, inter-alia, that although fair grad-
ing and weighment in MSP procurement induces farmers to opt for MSP, unavailability
of on-spot payments deters farmers to sell at MSP. The delay in payment needs to be
corrected and immediate payment should be ensured. For sustainability of farming
prompt payment at remunerative rates should be made. Thus, intervention may be spe-
cifically directed towards reducing payment time for farmers in case they are accessing
the MSP route to protect them from unfair market practices and guaranteeing them an
effective minimum support price.

44
iii. It has been found that MSP rates are announced after the sowing season begins or at
the time when the farmers have already initiated the necessary preparation for sowing
a particular crop. Rather, as intended by the policy makers, MSP should be announced
well in advance of the sowing season so as to enable the farmers to plan their cropping.
iv. Improved facilities at procurement centres, such as drying yards, weighing bridges,
toilets, etc. should be provided to the farmers. More godowns should be set up and
maintained properly for better storage and reduction of wastage. Transport facility (say,
in the form of providing two wheelers) for Purchase Officers may be considered to help
them effectively discharge their work, as they have to cover all the DPCs located within
their jurisdiction.
v. These should be meaningful consultation with the State Government, both on the
methodology of computation of MSP as well as on the implementation mecha-
nism. The criteria for fixing should be current data and based on more mean-
ingful criteria rather than C3.
vi. The small and marginal farmers can be provided with some exemption in FAQ
norms to provide them with a source of income. The Procurement Centres should be in
the village itself to avoid transportation costs.
vii. The farmers should receive their MSP rate in case on the spot and in the same day,
so that they will be encouraged to improve their production and create more marketa-
ble surplus.
Food Corporation of India (FCI)was setup under the Food Corporation's
Act 1964 :Effective price support operations Distribution of foodgrains throughout
the country for public distribution system. Maintaining satisfactory level of opera-
tional and buffer stocks
National Agricultural Cooperative Marketing Federation of India Ltd.
(NAFED) was established on 2nd Oct 1958. Nafed was setup with the object to
promote Co-operative marketing of agricultural produce to benefit the farmers.
Tamil Nadu Cooperative Marketing Federation Ltd (TANFED) commenced
its business on 20.2.1959. The area of operation is whole of Tamil Nadu except
composite Thanjavur and Nilgiris Districts.
Tamil Nadu Civil Supplies Corporation (TNCSC) is a State owned Public Sec-
tor Company It procures, stock and distribute essential commodities for PDS,
Spl.PDS and Noon Meal Programme.

45
Awareness about Minimum Support Price and Its Impact on Diversification De-
cision of Farmers in India—K.S. Aditya
The article, have analysed farmers’ awareness about Minimum Support Price (MSP) and
its impact on diversification of crops grown in India. We used nationally representative
data collected by National Sample Survey Office, 70th round data. The data revealed
that only 23.72 and 20.04 per cent of farmers in then rural agricultural households in
India are aware ofMSP of crops grown by them in kharif and rabi season, respectively.
From the results of probit model, it is inferred that MSP needs to be backed up by effec-
tive procurement coupled with awareness creation by extension system to enable more
number of farmers to take benefit of this safety net.We have also explored the relation-
ship between farmers’ awareness about MSP and decision to go for crop specialization
using Heckman selection model. The study shows that farmers’ knowledge of MSP had
not lead to specialization.
Effectiveness of Minimum Support Price Policy for Paddy in India with a Case
Study of Punjab—Shayequa Z. Alia et al
The effectiveness of minimum support price (MSP) for paddy has been examined in
different regions of India and its role and contribution towards production in surplus
states like Punjab have been studied. Based on the secondary data spanning from 1980-
81 to 2006-07, the deviations of farm harvest prices from the MSP have been used as a
measure of ineffectiveness and the impact of prices and technology on rice productivity
has been examined by using the simultaneous equation model. While the MSP policy
has been very effective in surplus producing states like Punjab and Andhra Pradesh, it
has not been so effective in the deficit states. In Punjab, the effective implementation of
the price policy has helped in improving the production and productivity of rice. Non-
price factors such as use of improved varieties, availability of assured irrigation at subsi-
dized rates and high fertilizer-use have been found to be significant determinants of
growth in rice production. The study has suggested that without losing sight of the en-
vironmental concerns, the Punjab model can be used for increasing the production of
rice in other potential areas of the country.
Cost of cultivation varies among the states, but why we have common
single MSP for all the states ?

46
Conclusion
The Minimum Support Price is an important policy of the Union Government to deter-
mine floor price of major agricultural produces every year for protecting the farmers
from the middlemen and fluctuating market conditions as it provides them an assured
market in addition to a minimum assured return. On the whole, it was found that the
MSP has succeeded in providing floor rate for major food grains like paddy and wheat
and other produces such as Gram (black & green), spices and oilseeds (groundnut, mus-
tard, til), sugarcane, jute and cotton. MSP has been playing a critical role in stabilizing
market prices in addition to helping the beneficiaries in adoption of modern technolo-
gies in farming. However, many farmers continue to sell their produce in the open mar-
ket to get better returns. Certain problems noticed in the implementation of MSP were:
the procurement process. Further, the instances of farmers coming to know about the
MSP after they have sown their farms, and thus depriving them of any planning for
their crops keeping in view the MSP, was quite common. It was also found that some-
times, the small and marginal farmers resorted to distress sales due to urgent need for
money or to repay the loan taken before the sowing season. Finally, the MSP should
continue as it insulated the farmers from an unfavorable market conditions by assuring
them a minimum return for their produces with minimal intervention. The supportive
marketing conditions has to be developed such that MSP would be the last resort of the
farmers , the farmers preference order must be Market > export/value addition > MSP.
So … Whats your stand ?
‘Minimum’ Support Price (or) Minimum ‘Support Price’

47
Reference
 https://www.civilsdaily.com/story/minimum-support-prices-for-agricultural-produce/
 https://indianexpress.com/article/explained/rabi-crops-minimum-support-price-5387163/
 https://indianexpress.com/article/opinion/columns/from-plate-to-plough-the-msp-smokescreen-5052736/
 https://www.financialexpress.com/market/commodities/kharif-crop-2018-mandi-prices-of-most-crops-below-msps-
gap-up-to-43/1363117/
 https://www.business-standard.com/article/markets/raise-minimum-support-price-for-pulses-says-cacp-
117040601245_1.html
 https://www.business-standard.com/article/economy-policy/will-raising-minimum-support-price-necessarily-lead-to
-higher-inflation-118041100352_1.html
 mint-india-wire Budget 2018agriculturerural economyfarmersminimum support priceCrop MSPfarmer in-
comesfarmer protestsfarm loan waiversbudget newsUnion Budget 2018
 https://www.downtoearth.org.in/tag/minimum-support-price
 https://byjus.com/free-ias-prep/minimum-support-price-msp/
 https://iasgatewayy.com/minimum-support-price/
 https://vikaspedia.in/agriculture/market-information/minimum-support-price
 https://www.aljazeera.com/news/2019/04/india-elections-farm-crisis-pm-narendra-modi-190418191725241.html
 https://www.quora.com/What-do-you-think-about-the-minimum-support-price-hike-by-the-Modi-government
 https://www.hindustantimes.com/opinion/minimum-support-price-for-rice-gave-return-of-50-over-cost-13-times-
since-1996-97/story-qeH1JBLjmQOtlmTkAcSbVP.html
 https://www.myfarminfo.com/blog/what-is-msp-understanding-msp-and-its-impact-on-farmers/
 https://www.ceicdata.com/en/india/minimum-support-price/minimum-support-price-kharif-crop-paddy-grade-a
 https://www.cnbctv18.com/agriculture/cabinet-approves-proposal-to-raise-minimum-support-price-for-kharif-crops
-248141.htm
 https://economictimes.indiatimes.com/news/economy/agriculture/budget-2018-focus-on-msp-ideal-for-tackling-
farm-distress/articleshow/62715338.cms
 https://www.farmer.gov.in/mspstatements.aspx
 https://www.indianeconomy.net/splclassroom/what-is-minimum-support-price/
 https://dfpd.gov.in/minimum-support-prices.htm
 https://economictimes.indiatimes.com/news/economy/agriculture/cabinet-approves-higher-minimum-support-
prices-for-kharif-crops/articleshow/70065838.cms?from=mdr

48
 https://economictimes.indiatimes.com/news/economy/agriculture/cabinet-approves-higher-minimum-support-
prices-for-kharif-crops/articleshow/70065838.cms
 https://www.insightsonindia.com/2019/06/08/shanta-kumar-committee/
 https://niti.gov.in/writereaddata/files/writereaddata/files/document_publication/MSP-report.pdf
 https://www.wto.org/english/tratop_e/agric_e/agboxes_e.htm
 https://timesofindia.indiatimes.com/city/chandigarh/not-msp-procurement-policy-is-real-issue-experts/
articleshow/76640815.cms
 https://cacp.dacnet.nic.in/ViewReports.aspx?Input=2&PageId=40&KeyId=682
 https://pib.gov.in/PressReleasePage.aspx?PRID=1629750
 https://www.prsindia.org/report-summaries/swaminathan-report-national-commission-farmers#:~:text=The%
20National%20Commission%20on%20Farmers%20(NCF)%20was%20constituted%20on%20November,in%20the%
20Common%20Minimum%20Programme.
 https://onlinelibrary.wiley.com/doi/epdf/10.1002/app5.197
 https://ageconsearch.umn.edu/record/53143/
 https://onlinelibrary.wiley.com/doi/full/10.1002/app5.197
 https://ageconsearch.umn.edu/record/137357/
 http://mospi.nic.in/agriculture-surveys
 http://www.mospi.gov.in/sites/default/files/publication_reports/KI_70_33_19dec14.pdf
 https://affairscloud.com/nabard-all-india-financial-inclusion-survey-nafis/
 https://blog.forumias.com/the-bhavantar-bhugtan-yojana-experiment/
 https://www.civilsdaily.com/news/pib-pradhan-mantri-annadata-aay-sanrakshan-abhiyan-pm-aasha/

49
Appendix

53
CROP MSP in Rs per quintal
Paddy common 1815
Paddy [f]/ grade A 1835
Jowar hybrid 2550
Jowar maldandi 2570
Bajra 2000
Ragi 3150
Maize 1760
Tur 5800
Moong 7050
Uraad 5700
Groundnut 5090
Sunflower seed 5650
Soyabean yellow 3710
Sesamum 6485
Niger seed 5940
Medium staple cotton 5255
Long staple cotton 5550
Wheat 1925
Barley 1525
Gram 4875
Lentil 4800
Rapeseed/ mustard 4425
Safflower seed 5215
Jute (tds) 4225
Copra (milling) 9960
Copra (ball) 10300
Forthecropyear2019-20

MSP-Minimum support prize

More Related Content

What's hot

Similar to MSP-Minimum support prize

More from denadyalan98

Recently uploaded

MSP-Minimum support prize