India’s Cabinet Committee on Economic Affairs has recently slightly raised the Minimum Support Price (MSP) of six rabi crops for the year 2021-22. Rabi crops referring to agricultural goods that are sown in winter and harvested in spring in India, including wheat, barley, mustard, and others.
The MSP rates experienced a surge for wheat, barley, gram, masoor dal (lentil), safflower, and rapeseed and mustard. Though, the increase in MSP was smaller compared to the year 2020-21, with the wheat MSP witnessing an upsurge of only 2.6%, marking the lowest hike in 11 years. Despite the protests by farmers fearing the elimination of MSP and public procurement due to new agricultural marketing reforms, this increase aligns with the principle of setting the MSP at a level of at least 1.5 times of the All-India weighted average Cost of Production, as stated in Union Budget 2018-19.
Controversy Surrounding the New Agricultural Reforms
Farmers are showing resistance toward three bills: Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020; Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020; and Essential Commodities (Amendment) Bill, 2020.
In essence, these bills aim for less government interference in agricultural trade by establishing trading areas devoid of intermediaries and government taxes outside the Agricultural Produce Market Committees (APMCs) structure. Moreover, these intend to abolish restrictions on private stock holding of agricultural produce.
Farmers believe these measures prioritize corporate interests, jeopardizing farmers’ benefits. They suggest that the lack of regulation in non-APMC mandis will urge companies to pressurize farmers into decreasing their rates, since trading rates will not be subject to government procurement.
Implications of New Agricultural Reforms on Minimum Support Price
The MSP is the rate at which the government buys grains from farmers. Instituted to counter price volatility of agricultural commodities, the MSP is fixed for 23 crops based on the Commission for Agricultural Costs and Prices (CACP), Ministry of Agriculture’s recommendations. The CACP takes several factors into account when setting the MSP, including cost of cultivation, demand and supply, price trends in the market, inter-crop price parity, terms of trade between agriculture and non-agriculture, and implications of MSP inflation on consumers of that product.
The Food Corporation of India (FCI), the nodal central agency of the Indian Government, along with other state agencies, carries out procurement of crops. Furthermore, the MSP is generally calculated using three methods: A2, where MSP is set 50% higher than the amount farmers spend on farming; A2+FL, which includes A2 plus an assigned value of unpaid family labour; and C2, which adds the estimated land rent and the cost of interest on the money taken for farming on top of A2+FL.
National Commission on Farmers and Commission for Agricultural Costs and Prices
The Central government established the National Commission on Farmers (NCF) in 2004 to address farmers’ issues in India, including the calculation of MSP. The commission recommended that MSP must be at least 50% more than the cost of production and advised the C2 method for MSP calculation. However, the government calculates MSP based on the A2+FL method.
The Commission for Agricultural Costs and Prices (CACP) was formed in 1965 as a part of the Ministry of Agriculture and Farmers Welfare. This statutory body is entrusted with recommending Minimum Support Prices (MSPs) to encourage cultivators to adopt advanced technology, increase productivity, and boost overall grain production. It submits separate reports suggesting prices for Kharif and Rabi seasons.
