What we don't know about minimum support price

Markets have failed to provide assured income to farmers globally, but unlike India, farm losses are covered by budgetary support

The government's Economic Survey 2016 put the average farm income in 17 states at just Rs 20,000 per annum (photo: PTI)
The government's Economic Survey 2016 put the average farm income in 17 states at just Rs 20,000 per annum (photo: PTI)

Devinder Sharma

At a seminar in 1996 in Chennai, the then vice-president of the World Bank’s Sustainable Development cell projected that over the next 20 years the exodus of Indians from villages to urban areas would be double the combined population of England, France and Germany (then 200 million).

In other words, the World Bank vice-president was alerting us to the eventuality of 400 million (40 crore) people migrating to the cities. It was much later that the realisation dawned that he was not alerting us — he was merely setting a target for us to achieve.

This was no different from the ‘Bombay Club’, a group of industrialists who came together in 1930 to ensure that food prices were kept low, so that workers’ wages could be kept low too. What mattered was high profits fuelled by the flow of cheap labour from rural areas to urban conglomerations and industrial centres. Pulling people away from agriculture was, they knew, the only way to exploit the value of land.

Villagers were to be trained as industrial workers and their land taken over for development. By denying farmers the right price for their produce, they would be forced to look further afield. Making agriculture less lucrative for investors was also part of this calculated design.

The Niti Aayog continues to place its faith in such dated designs. It believes accelerating migration from agriculture to industry or construction would automatically augment farmers’ income. In the US, only 1.5 per cent of the population depends on agriculture. In India, 50 per cent live off the land.

An OECD study examining support to farmers in 54 countries reveals that India is the only country where farmers have been left to the mercy of the monsoons
Farmers' protests 2024

Ever since the National Crime Records Bureau (NCRB) began compiling data on farmer suicides, nearly 400,000 cases have been recorded. Farmers die by suicide even in the US, with the rate in rural areas being 3.5 times higher than the national average.

In short, markets have failed to provide assured income to farmers across the world. Had the market mechanism been efficient, robust and fair, we would not have seen massive protests by farmers in Europe in recent weeks. However, in all countries other than India, farm losses are covered by budgetary support.

In the US, whenever there is a surplus and prices crash, farmers are compensated by the government. Historically, in India, too, the government has always intervened to correct prices and manage surpluses or shortages. Sometimes exports are prohibited while on other occasions hoarding is discouraged. So, what is the fuss about MSP (minimum support price) to farmers?

Every American farmer gets domestic support worth Rs 79 lakh per year. In the European Union, farmers get a subsidy of a little over 100 billion euros. China gives more than $215 billion subsidy to its farm sector. An OECD (Organisation for Economic Cooperation and Development) study examining support to farmers in 54 countries reveals that India is the only country where farmers have been left to the mercy of the monsoons.

In 1970, the MSP of wheat was Rs 76 per quintal as against Rs 1,450 per quintal in 2015, a 19-fold increase. During this same period, however, the basic pay and DA (dearness allowance) of government employees went up 120 and 150 times, respectively. School teachers’ salaries have also gone up 280 times. Give the farmer the same kind of hike and he will never ask for a subsidy.

Government employees, a minuscule percentage of the population, eat up a sizeable part of the government’s budget. Their pay is revised at regular intervals. The seventh pay commission needed an extra expenditure of Rs 4.5 lakh crore to be implemented across the country. Did any TV anchor ask where the money came from?

When the government announces an economic stimulus to corporates, incentives for investment and export, no questions are asked. A whopping Rs 15 lakh crore have been written off by public sector banks as bad loans during the last 10 years. Once again, no questions were asked.

The Economic Survey of 2016 presented by the government put the average farm income in 17 states, or half the country, at just Rs 20,000 per annum. In other words, half our farmers were surviving on Rs 1,700 per month. The Situational Assessment Survey for Agricultural Households in 2021 computed the average monthly income of a farm household at Rs 10,218. If we were to exclude non-farming activities, farmers earned just Rs 27 per day from farming.

Two days after the Economic Survey was presented, the then finance minister Arun Jaitley said farmers’ incomes would be doubled in five years. The irony was completely lost. If a farmer earned Rs 1,700 a month, what great achievement would it be even if it went up to Rs 3,400 a month? Would that be enough to maintain a cow?

There are several misconceptions about the MSP. It does not mean that the government must procure all produce from farmers. It simply means that the government must fix the minimum price of crops, just as it fixes the maximum retail price (MRP) of, say, medicines. Nobody must sell above the MRP and nobody must buy below the MSP — be they traders, middlemen or corporate bodies.

The government regularly procures rice and wheat (and a few other crops like oil seeds) for distribution through the public distribution system; but it does not procure the entire produce, nor from across the country. It announces the MSP for 23 crops every year, and intervenes only when prices crash.

Farmers would like the MSP to be extended to other crops, fruits and vegetables as well, so that farmers across the country benefit. For instance, in Punjab this year, the prices of kinnow fruit crashed and farmers had to destroy much of their produce because there was no MSP and no government system to procure the fruit and stabilise prices.

It is wrong to claim that implementing MSP across all crops would cost the government Rs 10-16 lakh crore. These are exaggerated numbers and indicate the total value of agricultural produce in the country. As explained, the government is not expected to buy the entire produce but only when prices crash and only so much as is necessary to stabilise prices.

There are credible studies by the Karnataka Agricultural Prices Commission and CRISIL, which put the procurement cost anywhere between Rs 1.5 and 2 lakh crore. A CRISIL study which examined 16 of the 23 crops for which MSP is announced said the real cost to the government was just Rs 21,000 crore for the marketing year 2023.

Farmers who have been producing record harvests year after year under distressing conditions need price and income stability. Indian agriculture requires structural changes, diversification, increased investment and access to infrastructure and technology. Bad-mouthing the farmers and condemning their genuine demand for the legal right to MSP is counterproductive.

There are other emerging threats to agriculture. In Finland, the world’s first food factory has come up, which requires neither farmers nor land — it produces food by growing bacteria using carbon dioxide. More than 200 such ‘biotech’ factories are coming up globally.

The US has given approval for lab-grown chicken. In India too, many startups are working on such solutions. How long before this new wave engulfs India?

Devinder Sharma is an agriculture policy expert based in Chandigarh. Edited excerpts from his conversation with Atal Tewari for Kitabi Dunia

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