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Farmer’s Protest | Minimum Support Price

  • Context (IE | IE | IE): Over 200 farmers’ unions from Punjab are preparing to march to Delhi. In response, the Delhi Police has enforced Section 144 across the national capital for a month.
  • The farmers’ primary demand in their 12-point agenda is:
    • A law to guarantee the minimum support price (MSP) for all crops.
    • Determination of crop prices based on the recommendations of the Dr M S Swaminathan Commission’s report (C2+50% Formula).
  • MSP was introduced in an executive order in the 1960s, basically as an incentive to farmers in areas like Punjab and Haryana.
  • It was never backed by a parliamentary act and, therefore, could never be legally enforced.

Other Demands of the Farmers

  • Full debt waiver for farmers and labourers;
  • Implementation of the Land Acquisition Act of 2013, with provisions for written consent from farmers before acquisition, and compensation at four times the collector rate.
  • Punishment for the perpetrators of the October 2021 Lakhimpur Kheri killings.
  • India should withdraw from the WTO and freeze all free trade agreements.
  • Pensions for farmers and farm labourers.
  • Compensation for farmers who died during the Delhi protest, including a job for one family member.
  • The Electricity Amendment Bill 2020 should be scrapped.
  • 200 (instead of 100) days’ employment under MGNREGA per year, a daily wage of Rs 700, and the scheme should be linked with farming.
  • Strict penalties and fines on companies producing fake seeds, pesticides, fertilisers, and improvements in seed quality.
  • National commission for spices such as chilli and turmeric.
  • Ensure the rights of indigenous peoples over water, forests, and land.
  • Market conditions favouring buyers over sellers
    • Farmers sell their crops, except for perhaps milk, in large quantities.
    • This results in a sudden increase in supply compared to demand.
    • The surplus supply puts downward pressure on prices.
  • Farmers don’t have the market influence to impact their produce prices
    • Unlike many industries, they can’t set the Maximum Retail Price (MRP).
    • Instead, they sell their products at rates determined by prevailing supply and demand.
  • Farmer’s burden
    • Farmers sell their crops in bulk at wholesale rates.
    • However, they purchase everything they need, such as seeds, pesticides, diesel, tractors, cement, medicines, toothpaste, and soap, at retail prices.

How can MSP be guaranteed?

  • Make buyers pay MSP enforced by law: For instance, sugar mills must pay cane growers a fair price within 14 days. However, this approach can face implementation challenges, as seen with recurring cane payment delays or private trade opting not to buy.
  • Government agencies buying all the marketable produce from farmers at MSP: Yet this is impractical both physically and financially.
  • Price deficiency payments (PDP): Here, the government doesn’t physically buy crops but pays farmers the difference between the market price and MSP if the former is lower. This payment is based on the quantity of crops sold to the private trade.
  • For procuring all 23 crops at MSP, the Union government will have to spend Rs 17 lakh crore, according to the rough estimate from government officials

Madhya Pradesh & Haryana Model

  • Both Madhya Pradesh and Haryana have demonstrated the feasibility of delivering MSP via PDP to farmers, at least in some crops other than rice, wheat, and sugarcane.
  • PDP was tried out first in Madhya Pradesh through a Bhavantar Bhugtan Yojana.
  • But despite 21 lakh-odd farmers registering and payments of about Rs 1,952 crore being made, the scheme couldn’t be continued for lack of Central support.
  • Haryana’s PDP scheme, called Bhavantar Bharpai Yojana (BBY).
  • If a nationwide PDP scheme with 50% Central funding were to be implemented, it could perhaps incentivise other states to follow the examples of Madhya Pradesh and Haryana.

Expert’s opinion

  • Fixed MSPs that ignore demand conditions can lead to imbalances in production, with oversupply of some crops and undersupply of others. So, Farmers are advised to grow crops based on market demand and current prices.
  • Suggestion
    • Many economists suggest providing farmers with income support rather than price support.
    • This could involve transferring a fixed sum of money annually into their bank accounts, either per farmer (like PM-Kisan Samman Nidhi) or per acre (like Telangana’s Rythu Bandhu).
    • Direct income support doesn’t distort the market and benefits all farmers, regardless of the crops they grow, the quantity, or the selling price.

Significance of legalising MSP

  • Cash support during times when prices go below MSP.
  • Crop Diversification: MSP for all crops can lead to farmers moving to crops other than paddy and wheat.
    • Over 60% of field crop production in India comes from only these two crops (excluding sugarcane), as farmers lack risk appetite for other crops.
  • Benefit farmers nationwide: MSP-based procurement is currently limited to certain states (Uttar Pradesh, Punjab, Telangana, Madhya Pradesh, Haryana and Chhatisgarh).

How is MSP calculated?

  • The Commission for Agricultural Costs & Prices (CACP) details three major formulae to arrive at MSP.
    • A2: Costs incurred by the farmer in production of a particular crop. It includes several inputs such as expenditure on seeds, fertilisers, pesticides, leased-in land, hired labour, machinery and fuel.
    • A2+FL: Costs incurred by the farmer + the value of family labour.
    • C2: A comprehensive cost, which is A2+FL cost + imputed rental value of owned land + interest on fixed capital, rent paid for leased-in land.
  • At present, the CACP adds both A2 and FL to determine the MSP.
  • The government adds 50 percent of the value obtained by adding A2 and FL only, i.e. 1.5 times A2 + FL cost to fix the MSP.
  • Issue: Farmers say they should be given MSP after adding 50 per cent to the cost under C2, i.e., 1.5 times C2 (Dr M S Swaminathan Commission’s recommendation).

Sanjay Agrawal Committee

  • Context (IE): While announcing the decision to repeal the three farm laws, PM assured that a committee will be constituted to look into various issues of farming.
  • Consequently, the Centre constituted a committee headed by former Union Agriculture Secretary Sanjay Agrawal on July 18, 2022.
  • The committee’s terms of reference are:
    • To promote zero-budget-based farming.
    • To change crop patterns, keeping in mind the changing needs of the country.
    • To make MSP more effective and transparent. It does not include a legal guarantee for MSP.
    • Recommendations to strengthen the Agricultural Marketing System.
    • Suggestions on the practicality of giving more autonomy to the Commission for Agricultural Costs and Prices (CACP) and measures to make it more scientific.
  • Members of the committee: Representatives of the Central and State governments, farmers, agricultural scientists, and agricultural economists.
  • Deadline: The notification did not specify the tenure of the Sanjay Agrawal committee. Therefore, the committee has no deadline by which it is required to present its report.

Zero Budget Natural Farming (ZBNF)

  • It is a low-cost farming system that avoids the use of synthetic fertilisers and pesticides.
  • It is based on homemade amendments made from locally sourced materials such as cow dung, urine and plant residues (mulch).
  • It was originally promoted by agriculturist Subhash Palekar, who developed it in the mid-1990s as an alternative to the Green Revolution’s methods.
  • It promotes soil aeration, minimal watering, intercropping, bunds and topsoil mulching.
  • It discourages intensive irrigation and deep ploughing.
  • ZBNF has been adopted enthusiastically in Andhra Pradesh, with nearly 600,000 farmers currently engaged.
  • ZBNF was also highlighted in the 2019 budget in the bid to double farmers’ income by 2022.
Components of Zero Budget Natural Farming
Main components of ZBNF

NCF Report Recommendations

  • Context (IE): On November 18, 2004, the Ministry of Agriculture constituted a National Commission on Farmers (NCF) under Prof Swaminathan.
  • Between December 2004 and October 2006, the NCF submitted five reports.

Key Recommendations by the NCF reports

  • Causes of Farmer suicide: Insufficient public investment and inadequate public actions were the reasons for the acute agricultural distress leading to farmer suicides.
  • For Women in Agriculture
    • Support services and access to timely credit and extension services should be ensured.
    • It proposed the establishment of a National Board for Women in Agriculture.
  • Pro-market reforms
    • The NCF suggested a code of conduct for contract farming.
    • The Commission recommended amending State Agriculture Produce Marketing Acts to facilitate private sector or cooperative involvement in establishing markets, developing marketing infrastructure, and providing support services.
    • It also suggested rationalising market fees and other charges while enabling marketing without the obligatory involvement of APMC/licensed traders.
    • Need to reassess the Essential Commodities Act, considering that certain laws may have become outdated.
    • Promote the formation of farmer groups or organisations to negotiate with buyers and safeguard the interests of small-scale farmers.
    • The Commission suggested allowing futures and options trading in agricultural commodities, supervised and regulated by an autonomous body similar to SEBI.
  • Recommendations regarding MSP
    • It emphasised the need to avoid delays in issuing the MSP, especially for Kharif crops.
    • Highlighted the necessity for improving the implementation of MSP across different regions.
    • The Swaminathan Commission did not recommend the fixing of MSP based on C2 (actual cost of production) plus 50 per cent, as demanded by the protesting farmers.
    • MSP should be the minimum benchmark for both government and private traders procurement.
    • Government purchases should include MSP plus the cost escalation since its announcement, reflecting the prevailing market price.
    • The government should also procure staple grains for the Public Distribution System (PDS) at a price equivalent to what private traders offer to farmers.

Abhijit Sen Committee – High-Level Committee on Long-Term Grain Policy, 2002

  • The CACP, when recommending MSPs, should consider Fair Average Quality [FAQ] grain.
  • It should strictly rely on the C2 cost of production, encompassing all costs (including imputed costs of family labour, owned capital, and land rental), especially in more efficient regions.
  • Additionally, the CACP should provide estimates of A2 + FL costs, covering costs actually paid plus the imputed value of family labour for relatively high-cost regions.
  • But this recommendation was not mentioned in the recommendations of the Swaminathan Commission report.
  • Other Suggestions
    • Creation of Farm Schools in the fields of innovative farmers to disseminate their practices.
    • Establishment of a grain bank and community food and fodder banks.
    • Advocated for the promotion of insurance and the creation of a national network of advanced soil testing labs.
    • CACP should function as an independent statutory body, primarily tasked with recommending profitable prices for key agricultural commodities in both dry and irrigated areas.

Cost of Production

  • The CACP suggests setting the MSP based on the weighted average cost of production in states, considering the variability of production costs.
  • It takes into account factors of production, both paid and imputed values of unpaid factors in fixed and variable production costs.
  • However, it does not consider the risk factor, marketing expenses, and post-harvest costs.
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