Mains Paper 3: Economy
Prelims level: Minimum Support Price
Mains level: Agriculture
• The Finance Minister Nirmala Sitharaman began her budget (2021-22) speech by stating that the Minimum Support Price (MSP) regime has undergone a sea change to assure price that is at least 1.5 times the cost of production across all commodities. “The procurement has also continued to increase at a steady pace. This has resulted in increase in payment to farmers substantially” she said.
• The Finance Minister elaborated on financial benefits to farmers under the MSP operation especially during 2013-14 and 2020-21.
• In case of wheat, the total amount paid to farmers in 2013-2014 was Rs. 33,874 crores. In 2019-2020 it was Rs. 62,802 crores.
• In 2020-2021, the amount, paid to farmers for procurement of wheat rose to Rs. 75,060 crores. The number of wheat growing farmers that were benefitted increased in 2020-21to 43.36 lakhs as compared to 35.57 lakhs in 2019-20.
• For paddy procurement, the amount paid to farmers in 2013-14 was Rs. 63,928 crores. In 2019-2020, this amount rose to Rs. 1,41,930 crores. In 2020-2021, this is further estimated to rise to Rs. 172,752 crores. The number of farmers benefitted from MSP operations in paddy rose from 1.24 crores in 2019 20 to 1.54 crores in 2020-21.
• In case of pulses purchase, the amount paid to farmers in 2013-2014 was Rs. 236 crores. In 2019-20 it increased to Rs. 8,285 crores. In 2020-2021, it is estimated at Rs. 10,530 crores, a huge increase of more than 40 times from 2013-14.
• Similarly, the receipts to cotton farmers rose from Rs. 90 crores in 2013-14 to Rs. 25,974 crores as on 27th January 2021.
• The rationale behind the Minimum Support Price (MSP) operations is to provide guaranteed price and assured market to the farmers and protect them from the price fluctuations and market imperfections. The guaranteed price and assured market meant to encourage higher investment and in adoption of modern farming practices.
• The Commission for Agricultural Costs and Prices (CACP), a body under the Ministry of Agriculture and Farmers Welfare, is mandated to recommend minimum support prices (MSPs) to incentivize the cultivators to adopt modern technology, and raise productivity and overall grain production in response to rising demand pattern in the country. In a bid to meet such an objective, MSP for major agricultural products is announced by the government annually after taking into consideration the recommendation of CACP.
• CACP recommends MSPs of 23 commodities, which comprise of seven cereals (paddy, wheat, maize, sorghum, pearl millet, barley and ragi), five pulses (gram, tur, moong, urad, lentil), seven oilseeds (groundnut, rapeseed-mustard, soyabean, seasum, sunflower, safflower, niger seed), and four commercial crops (copra, sugarcane, cotton and raw jute). The commission submits its recommendation to the government in the form of annual Price Policy Reports published separately for five groups of commodities- Kharif crops, Rabi crops, Sugarcane, Raw Jute and Copra.
• Prior to the preparation of five pricing policy reports, the Commission prepares a comprehensive questionnaire, and sends it to all the state governments and concerned National organizations and Ministries for soliciting their comments and views. Subsequently, separate meetings are also held with farmers from various states, organizations such as Food Corporation of India (FCI), National Agricultural Cooperative Marketing Federation (NAFED), Cotton Corporation of India (CCI), Jute Corporation of India (JCI), trader’s organizations and associated ministries. The officials from CACP also visit states for on-the-spot assessment of the various constraints that farmers face in marketing their produce, or even raising the productivity levels of their crops.
• Based on all these inputs, the Commission then finalises its recommendations/reports, which are then submitted to the government. Subsequently, the government, circulates the CACP reports to state governments and concerned central Ministries for their comments. After receiving the feed-back from them, the Cabinet Committee on Economic Affairs (CCEA) takes a final decision on the level of MSPs and other recommendations made by CACP.
• The key points CACP takes into accounts before recommending MSP for a commodity to the government include demand and supply, cost of production, price trends in the market, both domestic and international, inter-crop price parity, terms of trade between agriculture and non-agriculture; a minimum of 50 percent as the margin over cost of production; and likely implications of MSP on consumers.
• Under the MSP operations, FCI procures mostly rice and wheat from the farmers for ensuring supplies of grain under the National Food Security Act (NFSA) and keeping a buffer stocks of grains. Nafed procures mostly oilseeds and pulses, while CCI procures cotton.