Should MSP be made legal?

An excerpt from Sukhpal Singh’s ‘Regulating Agricultural Markets in India: A Smallholder Perspective’

GN Bureau | November 8, 2023


#Policy   #Agriculture   #MSP  


Regulating Agricultural Markets in India: A Smallholder Perspective
By Sukhpal Singh
Orient BlackSwan, 208 pages, Rs 580

In 2020, contentious agricultural market Acts, popularly known as the Farm Laws, were passed. This led to massive protests by farmers at Delhi’s borders for over a year, at great cost to their lives and livelihood. Though repealed in 2021, these Acts need urgent analysis as they represented a fundamental reorientation of the existing regulatory framework into a package of ‘reform’ measures, aimed at opening up the domains of agricultural production, trade, and storage to the private sector. ‘Regulating Agricultural Markets in India’, the first book in the ‘Policy Studies’ series from Orient BlackSwan, offers a comprehensive view of changing regulations at the state and the Union levels.

The book, by Sukhpal Singh, professor, Indian Institute of Management Ahmedabad, studies various agricultural market regulation reforms carried out over two decades, such as the Model APMC Act of 2003, the Model APLM Act of 2017, and the Model Contract Farming Act of 2018. He examines the legality of MSP and questions the 2020 Farm Acts from the oft-neglected perspective of the small farmer. The book also observes a shift away from regulation towards facilitation and promotion of markets, especially private markets, and offers suggestions for more inclusive and effective regulation.

‘Regulating Agricultural Markets in India’ will interest scholars and practitioners of economics and agribusiness management, research institutes, think tanks, policymakers, journalists, farmer organisations and NGOs working on India’s agricultural market regulation and interventions.

Here is an excerpt from a chapter devoted to ‘The MSP Question’:

The MSP Question

So far as the rationale for MSP as a legal right is concerned, the farmers’ unions argued that if there could be principle of ‘one nation–one market’, then why not ‘one nation–one price’. They also argued that if there could be right to food or minimum wages in various occupations, then why not right to minimum price for the farmer produce. They maintained that cheap food causes rural poverty as farmers and farm workers cannot earn enough, and therefore, those who can afford to pay higher for food should pay, and everybody need not be provided subsidised or cheap food. They also found more merit in price protection being more effective and desirable for farmer incomes as it would benefit all cultivators and farmers, unlike cash payments which mostly target landowners and exclude off-farm and allied activity farmers dealing with milk, fish, and meat. In this regard, a private member Bill was introduced in Parliament in 2017–18, which provided for a remunerative MSP as C21 + 50 per cent for every farmer as a right and for all crops and produce in all markets and channels. It also suggested MSP as floor auction price in APMC mandis or any other purchase location and no purchases being allowed below such MSP. It also provided for a legal status to the central- and state-level CACPs, which should be headed by a farmer each, and whose recommendations should be mandatory for government so far as guaranteed remunerative MSP (GRMSP) and regulation of input cost to manage such an MSP are concerned.

It is also interesting to note that the legalisation of MSP as an idea did originate in many government documents. For example, the CACP report of Kharif 2017–18 (‘Price Policy for Kharif Crops: The Marketing Season 2018–19’, 2018) has this to say, ‘to instil confidence among farmers for procurement of their produce, a legislation conferring on farmers “The Right to sell at MSP” may be brought out’. Similarly, a NITI Aayog report (‘Strategy for India @75’, 2018) which examined the Minimum Reserved Price (MRP) by an expert group recommended ‘replacing MSP with MRP which could be the starting point for auctions at mandis’. It further suggested ‘replacing CACP by an Agricultural tribunal as per article 323(b) of the Constitution’. Even the Dalwai Committee on Doubling of Farmers’ Income also recommended MRP at A2 + FL + 50 per cent as the floor price for any purchases by any buyer. [FL stands for family labour; A2 is cost of production which includes only paid out costs, not all costs.] The above shows that the cat among the pigeons was let loose by the government committees and reports, and not just farmer unions.

Here it is important to examine limited state-level experience of making MSP legal to protect farmer interest. In Madhya Pradesh, in the APMC Act, it is stated that no sale of a crop produce should take place below MSP declared by the state government for the crop in question, and no bid should be permitted to start below such MSP in APMC auction in the state’s mandis. The Madhya Pradesh APMC Act states:

“provided that, in the market yard, the price for such notified agricultural produce of which support price has been declared by the State Government shall not be settled below the price so declared and no bid shall be permitted to start, in the market yard below the rate so fixed” (MPSAMB 2005: 37).

This provision has been a part of state APMC Act since 1986 but the state has never declared its own MSP for any crop so far and therefore, the question of implementation of this measure did not arise. Similarly, Maharashtra had amended its APMC Act in 2018 making all purchases in APMC mandis at least at prices which are on par with MSP. The traders in the mandis went on strike and within a week, the state had to withdraw the said amendment.

The above shows that it is not desirable to adopt such measures of farmer interest protection without considering the implications of such measures for the open market and all the stakeholders involved. Chand (‘New Farm Acts: Understanding the Implications’, NITI Aayog, 2020) also argued that the MSP was being unnecessarily linked with new Acts as MSP and procurement are purely administrative decisions, and some states like Bihar and Kerala have been procuring at MSP without having APMC structure or regulation. He cites the cases of the Maharashtra APMC Act amendment of 2018 and the Fair and Remunerative Price (FRP) for sugarcane, which did not go down well as a legal or mandatory price for farm produce by the private buyers, and this model cannot be sustainable.

Even if the argument of the farmer unions for the right to MSP as a legal measure is accepted from the rights perspective, it is important to apply the rights framework in an appropriate manner. Here the examples of MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) and Food Security Act can help as both these legal rights to the intended stakeholders make it mandatory for the state to deliver this mandate, and do not involve the private sector in it even though private sector also provides employment to the people and also sells food products to consumers. Therefore, seen in this light, the legal right to MSP should only mandate the Government of India, which declares MSP for various crops, to be responsible for delivering this right and not tie the private sector into it since the latter never promised any minimum price to farmers, and they go by demand-and-supply dynamics to discover farmer-level purchase price. Also, in a capitalist market system, it is not desirable to expect the state to impose price controls on buyers. It is also at cross purposes with the government direction of opening-up the agricultural market to bring new channels and private buyers into the market as legal MSP would discourage them.

The government can easily implement a legal guarantee to MSP by using various existing mechanisms such as public procurement, DPP, and MIS. There are various innovations in MSP-based procurement and delivery system like decentralised procurement which can be brought in. Further, warehouse receipt system–based credit to farmers and staggered purchase and storage being incentivised can also help prevent distress sale at harvest.

Further changing the crop focus of MSP-based procurement is much needed as are local institutions for their involvement in public procurement as in Odisha, Kerala, and Bihar. The MSP is a double-edged weapon, and can cut both ways if not used smartly, and therefore it is also important to re-examine the purpose of MSP in terms of whether it is for farmer income enhancement or income stabilisation.

[The excerpt reproduced with the permission of the publishers.]

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