Farm laws and desirability of MSP

Minimum support price (MSP) for Farm Bill

Context: The recently enacted farm bills have triggered debate on the desirability of the MSP regime.

More in news: The period from 2004 to 2012 was the period of high commodity prices, high government procurement and rapid reduction in rural poverty. This shows a causal link between the high prices and decrease in poverty

What is the issue?

•  The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) bill allow for free entry of agents (private individuals, producer collectives or cooperatives) to set up markets.
•  This means that the Food Corporation of India (FCI) and other associated agencies can procure in the traditional mandis or in a new market established under this law or in their own backyard.
•  Critics view that the dismantling of the monopoly of the APMCs as a sign of ending the assured procurement of food grains at minimum support prices (MSP).

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Are MSPs irrelevant for the welfare of the farmers?

•  According to the supporters of the farm bills the MSPs are irrelevant for most of the farmers in the country as it benefits only a small fraction of farmers (Punjab and Haryana) and procurement has remained confined to only a few crops.
• However, it has indirectly benefited all food grain producers in the country.
• For example, the procurement through MSP significantly exceeds the PDS requirement, this creates additional demand in the food grain market, pushing up the prices especially when the international prices have remained low.
• The RBI’s annual report of 2017-18 on the impact of MSP-based procurement on the food prices conclusively shows that MSP is a leading factor influencing the output prices of the farm produce in the entire country.
• Also, for rain-fed agriculturists, the only state supports these farmers (primarily cotton and pulse producers) have is that of MSPs as they are deprived of irrigation and they don’t benefit from subsidies on electricity and fertiliser.