Assessing the case for a legal MSP

News: After getting the three farm laws repealed, the farm unions are now demanding a legalisation of MSP.

But legalising MSP must be backed by a programme with requisite resources (like MGNREGA) and a time-frame within which governments would expand and diversify their procurement portfolios, in line with agro-ecology.

Why the state continues to intervene in agricultural markets?

In India, for almost 50 years, the state has intervened in agricultural markets to protect both farmers and consumers.

Protecting farmers: During bumper harvests, farm revenues decline for the vast majority of India’s small and marginal farmers. This happens as farmers lack storage facilities, so they have to come to the market at the same time, resulting in an increased supply. And an increased supply with almost no increase in demand causes the prices to fall.

Protecting poor consumers: The market for foodgrains is unregulated. So during a drought, the poor consumers either starve or are further made poor by being forced to buy very expensive commodities, conveniently hoarded by traders.

Thus, the government brought in the MSP regime to procure crops from the farmers and then distribute these crops at subsidised rates via Public Distribution System (PDS).

This intervention protected farmers during bumper crops and protect poor consumers during droughts by having adequate buffer stocks.

What is the rationale behind the demand for legalisation of MSP?

– Read here: Legalising MSP: Challenges and way forward – Explained, pointwise

Why MSP-based procurement needs to be expanded to include other crops?

– Diversified cropping pattern: Govt should expand and diversify its MSP-based procurement operations to include climate resilient crops like millets (nutri-cereals), pulses and oilseeds, which are better suited to the agro-ecology of each region. This will incentivise farmers to shift to a diversified cropping pattern.

– Include locally procured crops into anganwadi supplementary nutrition and school mid-day meal programmes. This would ensure a large and steady market for farmers. This will also make a huge contribution to tackling India’s twin syndemic of malnutrition and diabetes as these crops have a lower glycemic index, & higher content of dietary fibre, vitamins, minerals, protein and antioxidants.

Hence, India’s MSP regime needs to be expanded, but what is the best way of doing it? Should MSP be legalised or is there any better alternative available?

What is the way forward?

The MGNREGA example: The scheme does not guarantee 365 days of work to every person who seeks work. The legal guarantee is for 100 days per family per year, around 1/10^th of the former. But even such a small intervention has resulted in the tightening of the labour market, with rural wages and livelihood security improving. Something very similar can be done through the 2018 PM-AASHA scheme, wherein 25% of the production for the season is to be procured by the government (to be expanded up to 40%, if the commodity is part of the PDS).

– For more: Read here

But, merely reforming MSP regime is not going to end the farm crisis.

How to resolve the farm crisis?

In a forthcoming paper in the journal Ecology, Economy and Society, Mihir Shah has outlined multiple issues that need to be addressed:

– correcting uneven regional distribution of investments, which has led to the neglect of India’s drylands

– moving away from commodity-centric R&D towards a whole systems understanding of farming

– Altering the pattern of subsidies that is overwhelmingly biased in favour of chemical inputs

– Taking the understanding of soils beyond narrow GR thinking

– Strengthening the legal and regulatory framework governing chemical inputs

– Making massive investments in post-harvest infrastructure to support safe and nutritious food; and

– bringing agriculture education out of the 50-year-old Green Revolution paradigm.

Source: This post is based on the article “Assessing the case for a legal MSP” published in Business Standard on 2nd Dec 2021.