Making farming remunerative

MP's price deficiency mechanism deserves a chance

The Madhya Pradesh government’s new scheme of compensating farmers in cash for their failure to get the minimum support prices (MSP) is a welcome measure. Under this plan, the state will work out a “model price” by looking at past market rates in MP and other states. Subsequently, the farmers will be paid either the MSP or the model price, whichever is higher. This is being done to ensure that farmers do not lose out because it is quite possible that a single all-India MSP may not do justice to the farmers of one region. Though, initially, the scheme will cover some selected pulses and oilseeds, where the official procurement is typically low, unlike in rice and wheat, subsequently it may be expanded to ensure remunerative returns for all major crops. 

Inadequate price realisation during the post-harvest peak marketing season is, indeed, the root cause for farmers’ economic plight, indebtedness, suicides and demand for loan waivers and reservation quotas. In many cases, prices received by growers fail to cover even their production costs, as has happened this year due to a bumper harvest-driven price crash in most farm commodities. The MSP system, devised way back in the 1960s to back the green revolution, relies critically on actual purchases of staple cereals by the Food Corporation of India (FCI) and state agencies at guaranteed floor prices. It has, however, remained confined largely to wheat and rice and, to some extent cotton and sugarcane, in parts of a handful of states where the procurement, transportation and storage infrastructure exists. For other crops and other places, it is wholly irrelevant and growers are forced to go in for distress sales. Little wonder, therefore, that most farmers are even now unaware of the MSPs. The 70th round of survey by the National Sample Survey Office (NSSO), based on the data collected between July 2012 and June 2013, found that only 32 per cent of paddy sellers knew about the government’s MSP operations and, worse still, barely 13.5 per cent managed to sell their stuff at these prices.

The need, therefore, is to replace this mode of price assurance with a non-market intervention-based system to guard farmers against price risks. Such a move is imperative also because other risk management instruments, such as crop insurance and futures trading, have not made much headway. Moreover, the present concept of “one nation, one MSP” is fundamentally flawed because production costs vary from region to region and, in fact, even from farmer to farmer. The task force of the National Institution for Transforming India (NITI) Aayog, which originally mooted the price deficiency payment mechanism in 2015, categorically blamed the MSP system for distorting agricultural markets and cropping pattern in favour of two main staple cereals — rice and wheat. Besides, it tended to cause needless accumulation of stocks in the government coffers, involving huge maintenance costs and storage losses. The proposed new system, on the other hand, has the potential to avoid physical handling and warehousing of commodities even while ensuring effective price support for major crops in all parts of the country, benefiting all farmers.