The hapless farmers must be liberated from the stranglehold of cartel licenced traders by giving them options to sell their produce wherever they want
Union leaders may have called off farmers’ agitation in Haryana over Minimum Support Price (MSP) for sunflower seeds following the State government’s decision to agree to their demand. However, they maintain that their protest for securing legal guarantees for MSP across the country will continue.
A legal guarantee for MSP was a major demand of the farmers mainly from Punjab, Haryana and western Uttar Pradesh during the year-long protest in 2020/2021 over the three Central farm laws. That protest ended when Prime Minister Narendra Modi announced on November 19, 2021, the repeal of those laws. Do the farmers understand the implications of this demand? MSP is a “minimum price” for any crop that the government considers as remunerative for farmers and hence deserving of “support”. It fixes MSP for 23 crops grown in Kharif and Rabi seasons based on the recommendations of the Commission for Agricultural Costs and Prices (CACP) – a statutory body that works under the aegis of the Ministry of Agriculture & Farmers Welfare.
The agencies of the government, such as the Food Corporation of India (FCI), buy wheat, rice/paddy, and coarse cereals, from farmers at the MSP. They also purchase other crops such as pulses and oilseeds which are procured by the National Agricultural Cooperative Marketing Federation of India Ltd (NAFED). However, not all crops for which MSP is announced are purchased.
The procurement of food crops by state agencies is meant for giving to over 800 million beneficiaries under the National Food Security Act (NFSA) at a subsidized price of Rs 1/2/3 per kg. The excess of MSP, plus handling, storage and distribution costs over this price is paid as a subsidy by the government.
The government pays MSP to farmers under an ‘executive order’ introduced in the 1960s. It is not backed by any law. What would happen if the government decides to give a legal guarantee for MSP? The farmers would want it for all 23 crops for which MSP is fixed. The demand could be extended to cover all crops; in fact the entire agricultural produce.
Today, apart from government agencies, farmers’ produce is picked up by private traders, processors, aggregators, exporters etc. When there is a law on MSP requiring that no purchase can be made at a price less than this minimum, they will all be scared of buying from farmers. Who will take the risk of landing in jail? A big chunk of private players (in fact, ‘all’) would desert farmers. The latter will be stuck with the crop only to rot in the fields. The ball doesn’t stop here.
In view of a sizeable chunk of the crop produce not coming to the market (inevitable when there is no purchase/sale by private entities), there would be acute shortage resulting in an ‘astronomical’ rise in food prices and inflation. No measure fiscal or monetary aimed at reining in price rise would work. In such a scenario, farmers would expect the government/agencies to pick up their entire produce albeit at MSP – pointing at the ‘legal guarantee’. Can the latter respond to their call? This is next to impossible.
The value of agricultural produce being about Rs 33,00,000 crore (estimated level for 2023-24), the Union government will have to spend nearly 75 per cent of its annual budget of Rs 45,00,000 crore (2023-24) on buying farmers’ agri-produce. The remaining amount Rs 12,00,000 crore won’t pay for bare essentials such as defence, maintaining law and order and payment of wages and salaries forget infrastructure, other development works and running welfare schemes.
Hundreds of thousands of crore are spent every year on subsidies for agricultural inputs such as fertilizers, irrigation, seeds, credit etc. All this goes towards helping farmers reduce production costs. With little money left after paying MSP, all this support would cease. Apart from financing, state agencies don’t have the wherewithal to handle and store even the ‘limited’ quantities currently procured by them leading to huge wastages. One shudder at the very thought of a scenario where they will have to procure, handle and store the mountain of produce farmers offer for sale.
A related question is what would the state agencies do with this stuff? They can’t hang on to it forever. The stock has to be offloaded to private trade sooner than later. This will entail huge losses due to sales at below MSP and the cost of handling and carrying it as long as they hold. These losses will have to be paid from tax payer’s money. Moreover, this will be a totally avoidable distraction for the government whose prime responsibility is delivering on governance.
There will be other collateral damage. Under the Agreement on Agriculture (AoA) of the World Trade Organization (WTO), aggregate measurement support (AMS) – a WTO nomenclature for agricultural subsidies – is capped at 10 per cent of the value of agricultural production for a developing country. If a member country gives AMS in excess of 10 per cent, it is a violation. Already, with limited purchases from farmers, India is facing a daunting challenge at the WTO due to AMS exceeding the 10 per cent threshold. Imagine, what would happen when the government/agencies buy the entire produce from farmers albeit at MSP? Defending our subsidies at WTO would become impossible.
It is abundantly clear that a legal guarantee for the purchase of farmers’ produce at MSP is a despicable idea. The government should not even look at it. True, farmers don’t get a good price. But, a solution to that problem lies elsewhere. The state laws viz. APMC (Agricultural Produce Market Committee) Act permit the sale of agri – produce only at designated APMC mandi whose capacity is extremely limited. These mandis can’t even cope with the quantities brought by large farmers even as small and marginal farmers who constitute 86 per cent of total land-owning farmers are forced to come to private local markets where ‘sales are legally barred’.
At APMC mandi, a cartel of licensed traders and commission agents (known as artisans in local parlance, their job is to facilitate transactions between farmer and the buyer) rules the roost. They make sure that the farmer doesn’t get a fair price. At local markets also, this very cartel forces the more vulnerable farmers (read: small and marginal) to sell their crops at throwaway prices. Having come to the mandi travelling a long distance, the poor fellow has no option but to sell and get whatever is possible.
All that needed to be done was to liberate hapless farmers from the stranglehold of this cartel by giving them ‘multiple options’ to sell their produce wherever they like. This is precisely what the three farm laws sought to do. Unquestionably, farmers would have got a good price probably even higher than MSP depending on the demand-supply scenario while artisans/traders needed to surrender a portion of their hefty margin. But, the latter masquerading as champions of the former spearheaded a year-long protest forcing Modi to withdraw the laws. The Supreme Court (SC) did its bit in letting this happen.
Meanwhile, Modi – government has taken several steps including an increase in MSP, hiking fertilizer subsidies and so on to help farmers but all this comes to naught as long as they remain strangulated. The irony is that these very saboteurs castigate the Prime Minister for not fulfilling his promise of ‘doubling farmers’ income’.
(The writer is a policy analyst)
https://www.dailypioneer.com/2023/columnists/msp-guarantee-will-spell-disaster-for-farmers.html
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