Here's how India can protect its farmers against low prices for their crops

Their plight has been exacerbated due to growing commercialisation of agriculture and failure of the market to evolve with changing times

The agricultural growth rate in India is strongly affected by the terms of trade for the sector. Empirical evidence shows that the growth trajectory of agricultural output accelerated when real prices for farm produce rose and decelerated with the fall in real prices. The main reason for high dependence of the country’s agricultural growth on price trend is the weak impact of non-price factors and technology on it. Till the time technology or non-price factors start driving growth, India has to use the instrument of price to maintain growth in output and farm income. Government support for this becomes essential when markets are not competitive and production follows large year-to-year fluctuations.
 
Minimum Support Price (MSP) is an important public intervention to ensure remunerative prices for farm produce. This system was developed by the Centre in 1965 mainly to address the serious shortage of staple food in the country. Initially, MSP was announced for paddy and wheat to meet the goals of providing incentive to producers to raise production by adopting the new technologies of Green Revolution and to arrange adequate supply of foodgrains through public procurement to serve the needs of consumers. These two goals complemented each other and entail procurement of foodgrains (paddy/rice and wheat) by official agencies. Subsequently, MSP was notified for more crops and now it covers 23 crops including all major cereals, pulses and oilseeds and cotton and jute. However, no effective mechanism was put in place to ensure MSP for the additional crops brought under the ambit of MSP. As a result, the effectiveness of MSP for farmers remained restricted to rice, wheat and cotton, that too in states and markets where public agencies procured the produce.

The use of procurement as an instrument to enforce MSP is usually costly and costlier for crops where a ready avenue for disposal does not exist

Historical data shows that farm harvest prices for various agricultural commodities routinely remained below MSP in many parts of the country. As the awareness about MSP increased, more farmers started asking for it. Growing commercialisation of agriculture and failure of the market to evolve with the changing requirement of production also forced farmers to seek protection against prices turning low. After bumper harvest during 2016-17, farm prices of most crops  declined, turning more severe during 2017-18. As a result, the demand to ensure MSP for every crop has now become  intense and widespread. This demand is justified for two reasons. One, MSP is notified by the government, which, in a way, makes it incumbent on it to honour it. Second, the terms of reference considered by the Commission for Agricultural Costs and Prices (CACP) while recommending MSP provide economic and technical rationale to keep prices received by farmers above the MSP. While there is no contention about the claim of farmers to get MSP, there is a need for clarity on: mechanisms to honour or ensure MSP; the role of the Centre and the states in ensuring price guarantee, and fiscal and market implications.
 
Beside central procurement at MSP, the Ministry of Agriculture and Farmers’ Welfare (MOAFW) operates two other schemes, namely, Price Support Scheme for MSP crops other than rice, wheat and cotton and Market Intervention Scheme for non-MSP crops. These schemes are to be operated by states on a cost-sharing basis with the Centre. Similarly, some procurement is done under Price Stabilisation Fund and the buffer stock scheme of the Department of Consumer Affairs. The coverage of these schemes has remained low and sporadic.
 
To address the problem of unremunerative prices received by farmers, MOAFW has  prepared a proposal,Market Assurance Scheme,  which suggests decentralised procurement of MSP-notified crops other than wheat and paddy by states and it shall be the responsibility of the states to handle and dispose off the procured commodity. The Centre shall compensate the states for losses, if any, in the process  to a   maximum of 40 per cent of MSP of the procured commodity. This covers all the expenses in procurement and storage plus any loss on the sale of procured produce.
 
The use of procurement as an instrument to enforce MSP is usually costly and costlier for crops where a ready avenue for disposal, like PDS for rice and wheat, does not exist. An important alternative for this is the system of deficiency price payment (DPP). Under this, whenever the actual price received by the farmers for the produce sold in notified markets during the specified marketing period falls below the MSP, producers are paid the gap between the MSP and the price they received.  A pilot scheme has been launched by Madhya Pradesh for eight crops of the kharif season 2017 (namely soyabean, sesamum, niger seed, moong, urad, arhar, groundnut and maize). The scheme is named as Bhavantar Bhugtan Yojana. Farmers are being paid the difference between MSP and model price taken as average of farm harvest prices in Madhya Pradesh and two neighbouring states on a monthly basis. The scheme looks attractive and can be refined and tweaked to meet state and crop specifics. The Haryana government has gone beyond MSP crops and announced implementation of a price deficiency payment scheme for four vegetable crops — potato, onion, tomato and cauliflower in this year.
 
Given the vastness of Indian agriculture and the wide range of crops produced across states, the Centre alone cannot ensure price guarantee for all major crops throughout the country. There is a need for active intervention of both the Centre as well as the states to safeguard farmers against low prices and resulting agrarian distress. The Centre should ensure MSP of wheat and paddy throughout the country as these two crops are crucial for food security and they top in terms of area with 37 per cent share in the gross cropped area in the country. The implementation of the price guarantee scheme for the rest of the crops should be taken up by the states, while sharing the  cost with the Centre. State governments should adopt either the Market Assurance Scheme of the Centre or the Deficiency Price Payment scheme launched by MP and Haryana to ensure that farmers are paid more than the threshold level of price for the crops considered important by the states. This will address farmers’ distress related to low prices for their produce and have positive effect on output growth.
 
The best prices for farm produce can be realised from a competitive market. To that end, all states should undertake market reforms as suggested under the Model Act, titled “The State/UT Agricultural Produce and Livestock Marketing (Promotion & Facilitation) Act, 2017” prepared by the MOAFW. The author is member, Niti Aayog and XV Finance Commission. Views are personal