Why Farmers are protesting and what is MSP system?

Farmer’s protests is not a new phenomenon in India, but in recent years, the frequency of protests has been increased. Major protests reported from states like Madhya Pradesh, Bihar, and UP.

A look at the timeline of farmers’ protest over the last 10 years shows that the minimum support price (MSP) for various crops has been a major grouse.

Another issue has been that of land acquisition, with farmers complaining that compensation for land acquired for industrial projects was not in tune with market rates.

Most recent protests are against the 3 farm bill enacted recently by the government:

1. Essential Commodities (Amendment) Bill, 2020: aims to provide government with the tool to regulate agri commodities.
2. Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020: aimed to provide a legal contract for farmers to enter into written contracts with companies and produce for them.
3. Farmers’ Produce Trade and Commerce (Promotion and Facilitation),(FPTC) bill 2020: aims toBreak the monopoly of government-regulated mandis and provide farmers and traders freedom of choice of sale and purchase of Agri-produce.

The major bone of contention among the 3 bills is the FPTC bill that permits sale and purchase of farm produce outside the premises of APMC mandis. Such trades (including on electronic platforms) shall attract no market fee, cess, or levy “under any State APMC Act or any other State law.

What are objections raised against FPTC bill?

• Much of government procurement at minimum support prices (MSP) takes place in APMC mandis.
• In a situation when more and more trading moves out of the APMCs, these regulated market yards will lose revenues.
• FTPC Bill is not about delivering on the promise of freedom to farmers but the freedom to private capital to purchase agricultural produce at cheaper prices and without any regulation or oversight by the government.
• APMCs though not abolished but the provisions will drive them dysfunctional gradually. It would pave the way for new capitalists based markets.
• Due to this bill, the revenue earned by the states in the form of market fees will drop drastically. About 13 percent of the total revenue earned by the Punjab government comes from these mandis.
• In India, 86 percent of farmers have a land of the size of less than two hectares, they don’t have the resources to carry their produce too far off places to sell. Thus provision allowing interstate trade of produce to farmers, is not well thought out.

Farmers want a legal guarantee that no procurement will happen below MSP anywhere in the country.

What are 2 private member Bills that can be instrumental in easing the ongoing farmer’s protest?

Kisan Union protesting at present are demanding for the enactment of 2 Private member bills, introduced in 2018.  Bills were drafted by the members of the All India Kisan Sangharsh Coordination Committee (AIKSCC), the umbrella organisation of 500 farmers’ unions across the country.

1. The Farmers’ Freedom from Indebtedness Bill 2018:
   1. obligates the govt. to waive all loans of all peasants, including landless peasants, agricultural workers, sharecroppers, fishermen which includes declaration of private loans as null and void and payment to the creditors by the govt. without any recovery from the debtors.
2. The Farmers’ Right to Guaranteed Remunerative Minimum Support Price (MSP) for Agricultural Commodities Bill 2018:
   1. Bill obligates  to regulate and decrease the cost price of farm inputs including diesel, seeds, fertilizers, insecticides, machinery and equipment
   2. To ensure through public and private purchasing agencies that the farmers get a guaranteed MSP of C2 + 50%.

Why farm protests have been highly intense in Punjab, Haryana?

• The procurement system and MSP mechanism is strong in Punjab and Haryana.
• Though the government announces MSPs for 23 crops, only wheat and rice are bought in sufficiently large quantities.
• For wheat, MSP mechanism is helpful only in the northern and central states like Punjab, Haryana and Madhya Pradesh.
• For rice, the benefit is accrued by the farmers from the states such as Andhra Pradesh, Chhattisgarh, Punjab and Haryana.
• Other states are hardly benefitted from the MSP mechanism.
• The 70th round of National Sample Survey for 2012–13 revealed that only 32.2% of paddy farmers and 39.2% of wheat growers in the country were aware of MSPs.

How MSP is determined?

The CACP determines the MSP, currently based on a formula that was prescribed by the Swaminathan Commission, a government-formed panel that had submitted several reports between December 2004 and October 2006 which set out suggestions for solving the problems faced by farmers.

The formula requires the assessment of three categories of costs:

1. A2: the actual expenses paid by farmers in cash and kind for seeds, fertilisers, pesticides, paid labour, irrigation, etc.
2. A2+FL: the A2 cost along with an adjustment for the costs of unpaid family labour (given traditional Indian farming practices involve families).
3. C2: A2+FL along with all other production costs, including loans, rentals, cost of land and other fixed capital assets, i.e. a comprehensive cost of production.

The MSP is set at a particular level above the C2 for each crop, and applies across the country. In addition to the current C2 level, the CACP also takes into account demand and supply, domestic and international price trends, inter-crop price parity and the likely implications of MSP on consumers of the crop.

How many crops are covered under MSP?

At present, MSP is provided for 23 crops

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

In case of sugarcane, MSP has been assigned a statutory status and as such the announced price is termed as statutory minimum price, rechristened as Fair Remunerative Price (FRP).

On the other hand MSP system is not supported by any law i.e. doesn’t have a statutory status.

How MSP benefits farmers?

MSP help in rescuing farmers from low income trap in the following ways:

1. Fixed Remunerations: The farmers are financially secured against the vagaries of price instability in the market.
2. Diversification of crops: The MSP announced by the Government of India for the first time in 1966-67 for wheat has been extended to around 24 crops at the present. This will encourage the farmers to grow these diverse crops to maximise their income.
3. Prevents Distress-Sale: Farmer rarely has surplus savings for buying inputs for the next cropping season. Access to credit (loans) is also difficult for small and marginal farmers. So, they are forced into distress-sale of produce at throw-away prices, and are not able to buy high quality seeds, fertilisers, pesticides & tractor-rent for next cropping season, which will further decrease their income from the next cycle. MSP prevents this phenomenon.
4. Helps informed decision making: Government announces MSP before the sowing season for 23 crops including cereals, pulses, oilseeds & certain cash crops. This advance information helps the farmer to make an informed decision about which crop to sow for maximum economic benefit within the limitations of his farm size, climate and irrigation facilities.
5. Acts as a benchmark for private buyers: MSP sends a price-signal to market that if merchants don’t offer higher than MSP prices the farmer may not sell them his produce. Thus it acts as an anchor or benchmark for agro-commodity market. While it doesn’t guarantee that market prices will also be higher than MSP, but atleast it ensures the market prices will not drastically lower than MSP.

How to improve MSP system in India?  

NITI aayog in its report provided with the following recommendations to improve the MSP system in India:

• 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.
• Prompt payment: 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.
• Timing of MSP announcement: MSP should be announced well in advance of the sowing season so as to enable the farmers to plan their cropping.
• Transport and storage: More god owns 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.
• Updated criterion for fixing MSP: The criteria for fixing MSP should be current data and based on more meaningful criteria rather than C3.
• The small and marginal farmers can be provided with Procurement Centres in the village itself to avoid transportation costs.

Conclusion

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, mustard, till), sugarcane, jute and cotton, and it did not allow market prices to fall below the MSP fixed for them.

Thus MSP has been very helpful in keeping agriculture in our country alive and we have been able to become self-sufficient in food grains due to it. It becomes crucial for government to provide some solid assurance to farmers that it won’t be allowed to die down.