Shortly after the Prime Minister announced that the three controversial agricultural laws would be repealed in the winter session of Parliament, Samyukt Kisan Morcha, a coalition of 40 agricultural unions, called for the minimum subsidy price for all agricultural products to become a legal right for all farmers. This would ensure that each farmer is guaranteed at least the MSP for their entire harvest, the farmer group said.
The guaranteed MSP establishes a floor for the market prices of agricultural products and ensures that all transactions are made at the MSP or higher prices. Currently, the MSP does not aim to set a minimum price in the market, rather it helps to avoid a sharp drop.
Farmers can rightly demand a legal mandate from the MSP, as they sell most of their surplus production on the open market. The market prices of almost all of the 25 plants eligible for the MSP are below the minimum price for public contracts.
This has been observed in the case of wheat and rice. According to reports from the Commission on Agricultural Prices and Costs (CACP), the weighted average market price of wheat across India has been below the MSP of Rabi for three of the last five marketing seasons. The average difference was generally small. However, in the last marketing year, the weighted average market price of wheat fell more than 5% below the MSP. Also, the average market price of rice during the last five trading years has been lower than the MSP.
Market prices are usually determined by the supply and demand position of specific crops but can be canceled if farmers are not familiar with a plant’s MSP and government supply agencies are not in the area.
Significantly, the lack of knowledge of the PEM of plants in farm households was very high, as revealed by the National Sample Survey during its data collection round from July 2018 to June 2019.
In Punjab, one of the largest wheat-producing states, more than a third of grain farmers were unaware of the MSP for food grains, according to the survey report titled Assessing the Situation of Households, Farm Households and Land and cattle in rural India, 2019. A similar proportion of wheat farmers in Haryana said they did not know the MSP of the plant. About half of the rice farmers in Punjab knew nothing about the MSP rice field.
In general, MSP knowledge for the two food grains was surprisingly low at the national level. Almost 60% of the farmers who grew rice as a summer crop and 47% who grew it as a winter crop were unaware of their MSP. 63% of its ASF was unknown among wheat producers.
Knowledge of the PEM for other crops such as legumes was lower. In recent years, the MSP for pulses has been drastically increased to encourage farmers to increase the acreage for these high-protein foods. However, the survey found that 70% of farmers who grow a variety of legumes Arhar, Masur, Urad, Moong, and Chana are unaware of the MSP of these food crops.
The survey also found that a small fraction of farm households sold their products to government purchasing agencies despite knowing the MSP and the purchasing agency. Most of the surplus products were sold on open markets. About 15% of rice farmers sold their summer crops to utility companies. The corresponding figure for wheat producers was around 10%. The reason varied and included the lack of government agencies or a local buyer in your area. Few of those familiar with the MSP for their crops said that higher prices from other buyers were a reason not to sell to government purchasing agencies.
However, purchases of rice and wheat have reached new levels. The Food Corporation of India and government agencies together purchased more than 660 metric tons of lakh rice in 2018-19, around 771 LMT in 2019-2020, and 894 LMT in 2020-21, according to data published on the FCI website. . Around 20-25% of purchases have been made in Punjab in recent years, compared to 30-35% a few years ago. In the same years, wheat purchases increased from 341 LMT to 433 LMT, of which a third was purchased in Punjab.
For MSP and public procurement to benefit more farmers, governments must strengthen procurement mechanisms in other states and train farmers. Currently, there seems to be a pro-Punjab trend in the purchasing policy of the two basic grains.