Consumer-centric approach by the government has had a considerable impact on farmers
Photo: iStock Farming in India is becoming less profitable due to rising production costs, stagnant yields resulting from soil fertility loss, insufficient irrigation in extensive regions, particularly the central plateau, and other factors, including the government’s consumer-centric approach.
Whenever there is a trade-off between what consumers pay and what farmers receive, governments usually prioritise the interests of consumers. While it is valid that intermediaries often claim a significant portion of the margin between farm and consumer prices, the consumer-centric approach has had a considerable impact on farmers.
Farmers in India face significant challenges in negotiating remunerative prices for their crops, particularly when dealing with traders. Factors such as market fluctuations due to overproduction and farmers’ necessity to sell crops to meet household expenses play a pivotal role in determining the prices they receive.
However, expecting farmers to excel both in producing high-quality crops and adeptly negotiating with traders might be unrealistic. In contrast, traders are skilled negotiators, bargaining for prices as that’s where they make a profit—buying and selling at favourable margins. These inherent imbalances contribute to farmers having less negotiating power to secure fair prices for their crops.
In an effort to assist farmers in securing fair prices for their produce, the government of India implemented the Minimum Support Price (MSP). The determination of MSP falls under the purview of the Commission for Agricultural Costs and Prices (CACP), initially established in 1965 as the Agricultural Prices Commission and later renamed in 1985.
Operating within the Ministry of Agriculture and Farmers Welfare, the CACP forwards its recommendations to the Cabinet Committee on Economic Affairs (CCEA), presided over by the Prime Minister of India, which ultimately makes the final decisions regarding MSP levels.
As of now, CACP recommends MSPs for 22 commodities — seven cereals (paddy, wheat, maize, sorghum, pearl millet, barley and madua or Finger millet), five pulses (gram, toor or pigeon peas, moong or green gram, urad or black lentil, lentil), seven oilseeds (groundnut, rapeseed-mustard, soybean, sesamum, sunflower, safflower and niger) and three commercial crops (copra, cotton and raw jute). Apart from this, the CCEA also announces fair and remunerative prices (FRP) for sugarcane.
Further, the Union Ministry of Tribal Affairs (MoTA), under the scheme “Mechanism for Marketing of Minor Forest Produce through Minimum Support Price and Development of Value Chain for MFP”, provides MSP for 87 minor forest produce (MFP). This excludes tendu leaves, which are procured by the forest department in most of the states and sold to traders.
A press release by the Union Ministry of Agriculture & Farmers Welfare on June 7, 2023 shows that the government is already providing MSPs at 50 per cent or above over the production cost for all 23 crops.
However, announcing MSP for crops is not the same as giving a legal guarantee by the government to procure all 23 crops in MSP whenever the farmers wish to sell them.
In 2020-21, the farmers protested against the new farm law and demanded a legal guarantee for MSP. After the government repealed the three farm laws, the protest was withdrawn. However, farmers kept on demanding legal assurance of MSP.
In 2024 again, several farmers’ organisations initiated a protest, with around 14,000 farmers gathering in Punjab, Haryana and Uttar Pradesh demanding a legal guarantee of MSP and implementation of recommendations of the Swaminathan Committee. They are also demanding pensions for farmers, loan waivers and withdrawals from the World Trade Organization.
Additionally, the farmers also want the government to honour a promise to double their incomes.
One of the recommendations of the Swaminathan Committee was to fix the MSPs of the crop at a minimum of 50 per cent over the weighted average cost of production, which the Union government has already implemented.
The other major recommendations of the Committee were around land reform (equitable distribution of land and protection of agricultural land from non-agricultural use), irrigation (enhance water availability through rainwater harvesting and aquifer recharge and increased investment in irrigation infrastructure) and agricultural productivity (investment in infrastructure, advanced soil testing, and promotion of conservation farming).
The recommendations also included credit and insurance (access to credit for farmers, reducing interest rates, and providing insurance coverage against natural calamities), bioresources (preserving traditional rights to biodiversity, promoting breed conservation, and facilitating the exchange of indigenous breeds), etc.
The major debates revolve around whether a legal guarantee of MSP is at all practically possible. A legal guarantee means that there will be legal provisions for farmers to get the MSP for all 23 crops when they sell them.
One opinion is that it is practically impossible to create a legal provision for MSP. The combined value of all crops covered under MSP, produced in 2020, was Rs 10 lakh crore. India’s total budgeted expenditure in 2023-24 is around 45 lakh crores; so, it is practically impossible to spend 10 lakh crores only to buy crops from farmers.
However, the farmers do not sell their entire produce and use a significant portion of it for personal consumption. Though this varies from crop to crop, on average, 25 per cent of the total production of 23 crops is used for personal consumption. So, a legal guarantee means that a provision of 7.5 lakh crore rupees is to be created in the budget for purchasing agriculture products covered under MSP.
This will have a huge impact on the exchequer and other welfare and development activities won’t be possible to carry out.
The other opinion is that there are different alternatives to providing legal guarantees for MSP other than creating budgetary provisions. The first alternative is to legally obligate private parties to buy the products at a price at or above MSP and to set up systems and processes to monitor and take punitive measures if this is violated.
Currently, there are systems in place to ensure that the sugarcane factories procure sugarcane from farmers at prices equal to or above the FRP announced by CCEA from time to time. Similar measures can be taken for other crops covered under MSP as well.
The second option is to provide direct compensation to farmers if they are compelled to sell their produce below MSP. In that case, the government can reimburse for the difference between the MSP and the price the farmers actually receive.
That would be way less than 7.5 lakh crore. Various estimations suggest that the amount will be around Rs 30,000 to 50,000 crores.
A law that would place an obligation on the government to make necessary interventions to ensure MSP can be achieved by any of these last two options.
No one is contesting the idea of MSP, but rather supporting it. The issue of a legal guarantee can be addressed through ongoing discussions. The government is engaged in a dialogue with the protesting farmers, having already conducted four rounds of discussions.
Union Agriculture Minister Arjun Munda has extended an invitation to leaders of farmer organisations for another round of talks. It is evident that engaging in dialogue is the essential path to reaching a resolution.
Dibyendu Chaudhari works with the Research and Advocacy unit of Professional Assistance for Development Action (PRADAN)
Views expressed are the author’s own and don’t necessarily reflect those of Down To Earth
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