Minimum Support Price (MSP) for agriculturists, which has been in vogue since 1965 in India, postulates government procurement chiefly through Food Corporation of India (FCI) public distribution, largely to the Below the Poverty Line (BPL), under the Public Distribution System (PDS). Starting with rice and wheat, it has been over the years extended to pulses. Minimum sugarcane prices are also determined by government at which sugar mills in the private sector have to buy willy-nilly.
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MSP caters but to a minuscule segment of the farm sector with only 14% of the farm produce benefitting from this, and in terms of number of people dependent on farming only kulaks or rich/large scale farmers with resources at its command hogging bulk of the government support.
Small farmers who predominate the farm landscape are unable to profit from MSP as they are in any case under the clutches of middlemen who keep a tight leash on them with their overweening presence all the way— from financing their seed procurement, extending loan to grow till buying the final production often by squaring of the outstanding loans.
Thus, MSP which appears to be a grandiose scheme benefits a very small segment of the agriculture sector.
Why Counterproductive
Agronomist Ashok Gulati questions MSP also on another ground — how milk which accounts for 30% of the farm produce and is not covered by it, is nevertheless getting remunerative price?
He also debunks the new clamour for MSP being extended to every procurer, be he private trader or middleman, as going overboard and potentially counterproductive. There is no way the regulators can monitor what goes on between farmers and private traders in every nook and cranny of the country.
Furthermore, Gulati rightly points out, the private trader will simply not buy if the MSP is unreasonably high when there is less demand in the market and he is going to end up incurring losses.
Specious Counter
The counter to objection to MSP at the conceptual level is if there can be minimum wages for factory workers, why not MSP for farmers?
The argument is specious as farmers are scattered all over the place and do not constitute a homogenous mass. In any case, minimum wage is to protect the small worker whereas MSP simply does not percolate down to the small and marginal farmers.
In the ultimate analysis, it is the big farmers who hog all the benefits of MSP which is why they are always at the forefront of all farmers’ protests. Be that as it may.
Government Stand
The central government has made it clear that there is no way a legal guarantee can be given promising procurement at MSP as fixed on the basis of the recommendations of M.S Swaminathan Committee — 1.5 times the cost-plus profit plus the normative cost of family labour given the fact typically the entire family of a farmer toils on their land.
Determination of cost any day is fraught with difficulties. Is it marginal cost? How to find out the cost of imputed labour the family expends and so on. In any case, it is not the business of the government to be in business. FCI over the years had piled up grains through MSP so much so that its infrastructure started bursting at the seams necessitating storage in the open covered by tarpaulin and decaying thanks to exposure to the elements.
It is worth noting that the centre often has been magnanimous in giving free food grains in the dawning realisation that instead of allowing the grains to rot, they can as well be distributed free!
What's The Solution
What then is the answer to the festering problem? Strengthening the hands of farmers so that they are not exploited by middlemen who pay a pittance to them and sell at urban centres at unconscionable prices is the ultimate solution.
Amul (Anand Milk Union Limited) is a classic example of producers’ cooperative that has worked wonders for the milk producers. Unfortunately, the Amul model has not percolated across the agrarian sector. Under the producers’ cooperatives model, the producers alone can be their shareholders.
Such cooperatives can engage the services of full-time managers and experts who can procure inputs at competitive prices and sell the final produce at remunerative prices. That Amul is now an international brand is a testimony to the efficacy of the producers’ cooperative model. Corporate farming is yet another solution but, in a country, where corporates are demonised by a large segment of the political class, it may not present itself as an immediate solution.
—The author, S Murlidharan, is a Chartered Accountant and writes on legal and tax matters. The views expressed are personal.
(Edited by : C H Unnikrishnan)
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