Issue 6

MSP: What has it Meant Historically and What does it Mean Now?

Amlan Bibhudatta

2020 has seen widespread farmer protests against proposed laws. What is the history of the contested issue? What are the perspectives for and against it?

We must keep in mind three  things – 1) price systems are symptoms, not solutions 2) all group interests have sub group interests, which further disintegrate to individual interests and  3) agricultural political economy is shaped by history. So when someone calls farmers protesting  “khalistani”, not only is that horrible behaviour but also a disservice to the nation & detrimental for national interest.

Recently, the parliament passed three bills that were hailed to be both anti farm and farm liberating. This led to widespread protests throughout the country, more so in north india. The main summary is – farmers can sell their produce outside the government controlled mandis, they can get into contracts with agents as they prefer. When and  how depends on  their judgement & capacity.

During the 1960’s owing to war, and political instability, India suffered a food shortage which made the idea of “High Yield Variety” seeds attractive in order to ramp up agriculture. The MSP, or Minimum Support Price was hence brought in, to a) Incentivise  crops like wheat, rice & b) to create a sense of agricultural stability. 

In 1965 an Agricultural Price Commission (renamed as CACP now) was set up to estimate and advise the price policy. It is a price floor, under which the government ensures all the listed crops. Since it is a five decade old policy, scrutiny is natural. Normally there are around two  dozen crops under it. It was after all, , a temporary reform to boost production..

The APMC or Agricultural Produce Market Committee formed by the government . has two major roles – tackling exploitation coupled with  fixing power asymmetry between farmers & bigger agents and reducing farm to retail prices. By dividing states into geographical spots it runs mandis where there are charges and licenses for participation. Now many mandis have been brought to online mode of operation like e-mandis through digital means & token systems. All MSP procurement is not through APMC either. There are other ways like through the arhatiya (agents) who are generally powerful figures.

The next major economic reforms came in 1990, needless to say, bypassed the farm.

Our focus is primarily on the MSP. Is it a right? Is it a solution? In my opinion, it is not. Price assurance isn’t belling the cat, it is rather negotiating with the cat at the expense of another cat, with heavy consequences. Prices are indicators of the market, they are a product of people’s preferences. They cannot arise out of legislation. The birth of MSP took place to boost certain crops. Today it leads to overproduction (and wastage) of these crops at the expense of the taxpayer. Another important concern is the diversion of resources. Since MSP makes these crops attractive it leads to diversion of resources that could be used for growing other suitable crops (only where MSP is accessible). 

At best, the MSP is a symptom of inefficiency and need of a safety net, not a solution to it. It distorts the market in the promise of safe outcomes. The FCI currently stocks more than twice the buffer stock requirement (97mt in 2020 vs 41 mt req.). This is not just overproduction but dead capital. Other concerns are the inequality in the policy itself. A small number of farmers concentrated in a few states are beneficiaries of the scheme e.g. Punjab, Haryana, MP vs Odisha. Therefore farmers do not benefit equally from it. In fact there are large inequalities which are reflected in the outcomes. Smaller farmers in states like Odisha (which in fact produces 1/10th of rice) depend on public welfare, not  price insurance.  There are also information barriers as not many small farmers are even aware about the MSP, let alone derive their income from it. It is quite possible that this policy makes rich farmers richer and poor ones poorer. An average farming household in Punjab enjoys 1.2 lac per annum in subsidy, 2.5 times of national avg. More importantly, by definition, the government . cannot “predict” prices, it will most certainly predict it wrong. 

APMC’s hurt both the freedom of selling and the freedom of movement as per one’s wish. There is excessive cartelization and barriers to entry and trade. In that sense there’s fundamentally nothing revolutionary about these bills as the government claims while they may be more freedom enabling. They do little to address the broken system. The fear or misconception that the private sector will consume the farmers is not exactly true. Firstly it is a fact that agriculture, which is heavily state regulated is ironically one of the largest private sectors in the country. It runs on trust, contracts, promises and so on, much of which are informal. Mark that only about 6-7 percent of total farmers have access to MSP. More than 90 percent are doing trade in their personal capacities voluntarily in local markets, through agents and supply chains which are private sector transactions. If the government starts buying all the production of all MSP crops, it will go broke. Moreover the govt claims the MSP isn’t going anywhere. Neither are the mandis. Though if people find better opportunities by this increase in freedom, they will become obsolete. The bigger question is how many farmers have the resources to deal directly?  The blame towards the “middlemen” is unwarranted as they play a crucial role in any supply chain.

Another misconception is that farmers are driven by other politics and belong to certain states. Such claims aren’t well founded either. The reason is simple. Even though the protests are widespread, Punjab & Haryana have  been at the forefront of agro movements, historically. They were the biggest beneficiaries of the Green Revolution and they’re biggest beneficiaries of MSP and mandi systems. Wheat & Rice contribute to huge parts of agri-revenue. They have bigger and more connected unions unlike say Odisha. Punjab has avg land holdings of 3.7 hectares vs national avg of 1.08 hectares. Involvement in states such as Bihar (avg 0.4 hectares holding) isn’t very wide spread as they have already abolished APMC

The point is whether they’re aware about how good/bad the alternatives (which haven’t been tested) are or they realise the trade-offs which may come at the expense of someone else. With these bills some speculations are obvious. What about the price support? What about volatility without it? Are there not going to be any mandis anymore? It is only natural that we dissent. With these bills that will supposedly “liberalise” agriculture, some sections might suffer losses too and then move from farming to manufacturing or other productive sectors as most developed nations do. But are there enough opportunities ? How smooth is this transition? Will this lead to alienation of traditional occupation? What about power asymmetry, negotiation and information barriers? These are genuine questions and the government response to them have been lacklustre and opaque. The problem of agriculture is two fold – productivity and accessibility. The removal  of APMCs in themselves does little to solve either. However it is worth pointing out that most parties protesting or disapproving of the bills demanded similar reforms. Some even included them in their manifestos.

Almost all countries protect their primary sector and so should India. But not through price supports where there is overproduction. Incentives to increase productivity and shift to other beneficial crops, transition to farm entrepreneurship etc.The alternative should be to have a more universal, decentralised and direct support e.g. an income support. A Universal Basic Income could be on the cards but it is still a long long time away. Some policies that have delivered results the Rythu Bandhu scheme or the Kalia scheme by the Odisha govt. Welfare is a tricky, slippery slope and old policies must be tested and retested before they get politicised. Farm prosperity must be the priority, even if it comes at the cost of knee jerk decisions. The image of a poor farmer representing the country seems patronising and representative at the same time. But it must go.

Amlan is a final year student at Ashoka University who hails from Odisha.

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