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Why Farmers Deserve Price Security: A Strategic Imperative
Context:
India’s agricultural sector is at a crossroads, grappling with a loss of fertile lands to urbanisation and a declining number of serious farmers. As the country’s population is expected to reach 1.7 billion by the 2060s, ensuring food security requires addressing these challenges strategically.
Key Indicators of Decline in Farming:
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- Decline in Terms of Trade (ToT): Terms of trade for farmers rose from 87.82 in 2004-05 to 102.95 in 2010-11, only to drop to 97.21 in 2022-23.
- Loss of Fertile Farmlands: Fertile agricultural lands are increasingly being converted for real estate and infrastructure. Example: Amaravati in Andhra Pradesh, occupying 33,000 acres of former paddy and turmeric fields.
- Decline in Serious Farmers: Out of 146.5 million operational holdings, only 40 million households derive at least half of their income from farming. The farming population is shrinking faster than expected, posing a threat to food security.
Need for Legalising MSP:
- Better Terms of Trade (ToT): Legalising Minimum Support Price (MSP) ensures fair returns, reversing the decline in ToT and encouraging farmers to remain invested in agriculture.
- Encouraging Technological Investment: Price assurance motivates farmers to adopt innovations such as Bt cotton, hybrid seeds, and drip irrigation.
About Price Deficiency Payments (PDP):
How PDP Works
- Farmers are compensated for the difference between MSP and the market price when crops sell below MSP.
- Encourages formalisation and digitisation of farm trade.
Benefits of PDP
- Formalisation of Trade: Farmers demand receipts and digital payments, improving accountability.
- Market Infrastructure Development: States develop APMC mandis and electronic trading platforms.
- Crop Diversification: With price security, farmers are more likely to diversify into soybean, maize, or pulses
- Managing Agricultural Risks
- Production risks include unpredictable weather, pests, and diseases.
- Price risks stem from volatile market prices. Legal MSP can provide a safety net, ensuring farmers are not deterred by uncertainties.
- Sustaining Agriculture: Without assured prices, farmers are likely to grow water-intensive crops like rice and sugarcane or exit farming entirely. MSP guarantees can prevent this exodus.
Negative Impacts of Not Making MSP Legal:
- Farmers remain vulnerable to price fluctuations, deterring investments in land and technology.
- Continuation of water-intensive cropping patterns, exacerbating resource depletion.
- Risk of food security challenges, as farmers might abandon agriculture.
Reasons Why MSP Should Not Be Legalised:
- Market Dynamics and Excess Supply
- Legal MSP could lead to surplus production, with the government burdened by unsold crops.
- It is impractical for the government to purchase and manage all 23 MSP crops.Problems with PDP Under Legal MSP
Why Market-Based Systems Work Better:
- Growth in Non-MSP Sectors
- Non-MSP sectors like fisheries, meat, eggs, and milk have shown higher annual growth rates compared to wheat and paddy:
- Fisheries: 8.2%
- Meat: 7.3%
- Wheat: 2.5%
- Non-MSP sectors like fisheries, meat, eggs, and milk have shown higher annual growth rates compared to wheat and paddy:
Challenges in Agricultural Markets:
- Distorted markets due to export bans, stocking limits, and suspension of futures trading suppress farmer incomes and highlight a consumer bias in policy.
- Implicit Taxation of Agriculture: India’s Producer Support Estimates (PSEs) are negative, indicating that farmers are implicitly taxed through suppressed prices, unlike other G20 nations.
- Unrealistic Prices: Private players may exit if they cannot buy below MSP, stifling price discovery.
- Collusion Risks: Manipulated reports of low market prices could increase fiscal burdens.
- Past Failures: Madhya Pradesh’s PDP scheme failed due to manipulation and financial impracticality.
- Limited Reach of MSP
- MSP covers only 30% of agricultural value and is effectively implemented for wheat and rice in select states.
- 10% of farmers benefit from MSP sales, as per the Situation Assessment Survey.
Way Forward:
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- Making MSP Efficient: Improve MSP’s efficiency by targeting needy farmers and expanding reach beyond wheat and rice.
- Promoting Free Markets
- Remove restrictive policies like export bans and stock limits to enable true price discovery.
- Invest in building agri-value chains to ensure farmers receive a larger share of the consumer price.
Stabilisation Fund: A ₹25,000 crore fund focused on import-dependent crops like pulses and oilseeds can provide targeted support.
