Prof. Raj Kishore Panda* in Bhubaneswar, November 17, 2020: Of the three Farm Reform Laws recently enacted by the Government of India, the Farmers’ Produce Trade and Commerce  (Promotion and Facilitation ) law has become more contentious and thus attracted intense protest among some farmers’ organizations in the country.

These farmers’ organizations are of the opinion that the new law by way of providing freedom to farmers to sell their crops to the buyers of their choice will not only throttle the working of APMCs mandis in agri-produce  purchases but also pave the way for weakening the MSP (Minimum Support Prices) system leaving them at the dictate prices of the big corporations.

No doubt, the Government of India through various press releases has clarified the apprehension of the farmers. Yet their fear has not died down and they are continuing  protests in various forms viz: holding rallies, staging dharna, road blocked etc, demanding the repeal of the law.

Since the moot point of controversy lies in the status of MSP in the new farm law, and MSP being concerned with ensuring remunerative prices to the farmers for their crops, we have here made an attempt to analyze how far the new law makes provisions for better prices for the farmers selling their produces. More so, since MSP is the focus of discussion, we have here provided the historical perspective of the origin of the concept of MSP as a part of the agricultural price policy during 1960s and examine how far it has been able achieve its stated objectives over time.

In the first place, as it is understood, the new farm law provides freedom to the farmers to sell their produce anywhere they like instead of selling to APMCs  at MSP as has been practiced earlier. By this way the new law incorporates a competitive market structure in place monopsonistic  buying of agri-produce by the APMCs . As the union government intends to raise farmers’ income, the new law provides flexibility to the farmers to realize better price for their product by either selling to APMCs at MSP or to outside agencies at a price higher than MSP.

However, in the new situation the farmers will realize higher return provided there is level playing field between farmers and corporate agencies in the fixation of prices of the farm produces. As it is seen, in case of milk and poultry product businesses there is no MSP, yet both sectors are growing at a much higher rate than rice and wheat. In case of milk cooperatives pricing is decided by the company in consultation with milk federations.  Today India is the largest producer of milk and much ahead of U.S. A.  In contrast we find studies which have amply shown how farmers under MSP system were found harassed by the APMCs on various pretexts.

Secondly, as regards the introduction of MSP in the agricultural pricing policy, going back to the history, we find that the idea dates back to the 1960s when the country was witnessing severe shortage of foodstuffs, particularly cereals and New Agricultural Policy was born to make a start for Green Revolution. However, over the period Indian agriculture has made tremendous progress in raising food production and the country has achieved self-sufficiency in food grains, particularly in rice and wheat production. Besides, with the changes in consumers’ food preferences in recent years , there has been increasing emphasis at Government level to shift the cropping pattern from cereals to high-value crops. All these suggest for a serious re-thinking on the continuation of MSP system and providing support to farmers for more acreages under cereals.

Along with above developments, there are also studies which have noted that the working of MSP system over time has developed a lot of anomalies and inequities.  As it is stated, MSP suffers from poor coverage in terms of number of farmers receiving the benefits. As per the recent Shanta Kumar Committee Report (2015), hardly 6 percent of the total farmers in the country sell their produce  in the market yards of APMCs at MSP.  Particularly, the small and marginal farmers are largely unaware of the concept and the benefits of MSP are cornered mostly by large farmers.

There is also wide inter-state disparity in sharing the benefits of MSP. Three states, Punjab, Haryana and Andhra Pradesh account for more than 50 percent of total rice procurement of the country at MSP rate. Ironically the states such as Uttar Pradesh and West Bengal being the top two states in the rice production in the country account for less than 10 percent of total procurement at MSP. In contrast Punjab and Haryana having smaller share in the total rice production, there is nearly 100 percent rice procurement in these two states.

MSP is meaningful if it is backed by procurement of government agencies. But what is observed  from studies there is huge gap between production and procurement implying farmers have not been able to get remunerative prices for their produce. FCI and state government agencies are not a wholesome substitute for an efficient marketing system.  Between 2002-03 and 2017-18 these agencies could procure 30-35 per cent of rice production and the rest is left to be sold at below MSP. The small farmers are mostly affected in this process. They have to sell to the middlemen/traders for the latter’s benefit.

Having discussed that new law does not do away with the MSP business , instead it provides added opportunity to farmers to sell their produce in open market , the new system is supposed to be more efficient than the earlier one provided  the farmers are united  and demand a better deal in the market.  In this context the recently formed farmer-producer companies are doing good to improve the livelihood of the farmers in the country. On July 5, 2019 the Central Government has announced a plan to promote 10,000 new farmer-producer companies over the next five years. These companies need to be strengthened and Government of India has to play a big role in this context.

  • Formerly Professor of Economics, Utkal University and Director, Nabakrushna Choudhury Centre for Development Studies

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