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Balancing Farmer Welfare and Procurement Challenges
Context:
As the Union government engages in fresh negotiations with farmers regarding a legally guaranteed Minimum Support Price (MSP), a recent study by a state-run institute sheds light on the complex realities of India’s MSP-backed procurement system.
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- The study, published by ICAR’s National Institute of Agricultural Economics and Policy Research (NIAP), highlights both the benefits and the disparities in the current system, revealing that only a small fraction of farmers truly benefit from MSP procurement.
Limited Reach of MSP Procurement
- Despite the role of MSP in ensuring price stability and boosting agricultural production, the study found that only 15% of paddy farmers and 9.6% of wheat farmers benefit from government procurement at MSP.
- Moreover, paddy farmers manage to sell only about 24% of their marketable surplus at MSP, while wheat farmers sell just 21% at the benchmark price.
- A significant concern highlighted in the paper is the disproportionate advantage enjoyed by large farmers.
- These farmers, who possess higher marketable surplus, are better positioned to access MSP procurement channels.
- Data from the study indicates that 31.3% of paddy farmers and 23.5% of wheat farmers who engage in market sales successfully dispose of 37.8% and 29.8% of their produce, respectively, at MSP rates.
- In contrast, marginal farmers—who form the backbone of India’s agricultural sector—face substantial barriers to MSP procurement.
- Only 10.5% of marginal paddy farmers and 4.5% of marginal wheat farmers manage to sell at MSP, with their share of surplus disposal at the benchmark price standing at a mere 12.6% and 7.3%, respectively.
MSP’s Role in Income and Productivity Gains
- Despite its limited reach, the MSP-backed procurement system plays a crucial role in safeguarding farmers from price risks.
- The study points out that the price realisation from sales in open markets is significantly lower than MSP rates—by approximately 13.2% for paddy and 3.5% for wheat.
- Furthermore, MSP acts as an incentive for farmers to adopt modern agricultural practices, such as improved seed varieties and better fertiliser use, leading to increased productivity.
- According to the study’s findings, farmers benefiting from MSP procurement recorded 13.5% higher paddy yields and 5% higher wheat yields.
- This yield enhancement translates to a notable increase in income—23.2% for paddy farmers and 9.6% for wheat farmers.
Addressing Procurement Disparities
- To ensure that MSP benefits reach a broader section of farmers, particularly small and marginal cultivators, the study recommends targeted reforms in procurement policies.
- Among the proposed solutions is the expansion of the price deficiency payment scheme, which compensates farmers when market prices fall below MSP.
- Additionally, the study suggests prioritising procurement from small and marginal farmers to bridge existing inequalities.
While MSP remains a critical tool for price stabilisation and income security, its uneven distribution of benefits calls for a reassessment of procurement mechanisms. As discussions between the government and farmers continue, policies must evolve to ensure that the system is not only sustainable but also inclusive—offering real support to those who need it most.
