What is the minimum support price (MSP)?
A stable price environment is considered important to increase agricultural production. To bring it about, the Central Government Agency, Agricultural Costs and Prices Commission (CACP) recommends MSP for 23 commodities. MSP is determined based on seven criteria, of which the cost of production is the most important.
MSP is part of the package to ensure food safety and to keep adequate food inventory in the public distribution system. After the harvest, the Central Food Corporation (FCI) collects the goods in MSP for use in the PDS.
In practice, MSP and procurement are effective for only two commodities – paddy and wheat.
Do all farmers get MSP for sale?
There is. Only 12% of paddy growers, for example, benefit from procurement in MSP. This is because the efforts of state governments to influence where grain is stored. The last mile gathering is mostly done by state governments. If they succeed, farmers will benefit greatly. But the center takes the bill for collection.
In Punjab, more than 95% of paddy growers benefit from MSP while only 3.6% of farmers in UP benefit.
What are Agricultural Product Market Committees (APMCs)?
They are physical markets regulated by the respective state governments under the APMC Act. These statutes are not uniform across states. The Center told the Lok Sabha in March 2017 that India has 6,630 APMCs. On average, an APMC covers a geographical area of ​​496 sq km. Typically, it is only stocks stored in MSP for APMCs and other designated purchasing centers.
Does MSP make any difference to a farmer?
In the case of paddy, the average market price of paddy was less than MSP in the last five forums. In terms of wheat, market price and MSP are more convergent. CACP data is where MSP works, as in Punjab, where the market price is usually proportional to it. While procurement in MSP is limited as in UP and West Bengal, most days the market price is below MSP. This is beneficial to all farmers as the market price and MSP are mostly converging where the purchasing system works.
What are the new central farming laws?
It will help contract farming, weaken the rules on essential commodities, and provide for the establishment of new agricultural markets under central legislation in competition with APMCs.
The last part, which comes in the name of the Farmers’ Production Trade and Commerce (Promotion and Facilitation) Act, has caused concern. This creates an entirely new market space for traders with no access barriers. But more importantly, it does not provide a tax or tariff on the transaction.
Why should farmers not welcome the competition?
To get back to the MSP system, it would work best if the states made an effort. They generally levy taxes on storage that can be used to provide infrastructure. For example, Punjab and Haryana impose a rural development fee of 3% and 2% respectively. There are fears that if there are two markets that buy the same goods but only one of them is taxed, the business will inevitably change to one without taxes.
There are fears that states with insufficient tax revenues or resources may be inclined to pursue the existing MSP system.
For other products, such as fruits and vegetables, most states have eliminated the legal monopoly APMCs previously had. By 2019, 17 states have removed the monopoly of fruits and vegetables from APMCs, and 19 states have provided contract agriculture under the respective APMC statutes.
If MSPs cause environmental damage in Punjab and Haryana and water tables are down, why do farmers not switch to other crops?
The collateral damage of the current system is widely accepted, including by farmers. The reluctance to move to a less resource intensive grain, such as maize, is because prices are unpaid. The CACP acknowledges that Punjab and Haryana farmers have no incentive to change.
The lure of the MSP system for current farmers is well out of the trend in Madhya Pradesh, an emerging star in the purchasing system. The state government runs MPs’ wheat and rice. In the wheat collection this year, MP tops the Punjab. More importantly, in just two years, wheat accumulation in the state’s MSP has increased from 46% to 70%.
Other states have joined the bandwagon. In 2018-19, 9.7 million farmers benefited from paddy collection at MSP, an increase of 34.2% year over year. Most of the new beneficiaries are from the states of Hattisgarh, Telangana, UP and West Bengal.

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