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MSP & Public Procurement Must Be Considered Separately

Shivam Dwivedi
Shivam Dwivedi

Farmers' union leaders are pushing for legal minimum support price (MSP) entitlement for 23 crops now that the Centre has repealed farm laws. Farmers cannot demand these prices as a matter of right because MSP has no statutory backing.

The Centre has assured the unions that a committee will be formed to review this demand. Currently, the MSP is determined based on the recommendations of the Commission for Agricultural Costs and Prices (CACP).

Demand of Farmer’s Union:

Farmers' unions have been calling for a legal entitlement equal to the total cost of production (C2) plus 50% (i.e., C2+50%). Farmers are also demanding that a legally enforceable MSP be established for the 23 crops for which MSP is currently announced by the government for all buyers who willingly participate in the market.

Finding a middle ground on certain policy issues in large multi-stakeholder countries is nearly impossible. As a first step, the issue of MSP should be separated from the issue of public procurement. The MSP is a price guarantee, which can be delivered both by the government as well as by the market - the freedom of price negotiation should lie with the farmer.

Concerns to be addressed:

Some worry that legalizing MSP will be a huge financial burden on the exchequer, as well as a barrier to farmers' crop diversification. The government has already purchased MSP output worth approximately Rs. 4 lakh crores from these 23 crops (including sugarcane).

The private sector, which typically purchases farm produce at 20-25 % less than the MSP, purchases the output at a total value of about Rs. 3 lakh crore (of these 23 crops), which would amount to Rs 4 lakh crore if purchased at the MSP. As a result, there is no additional burden on the government and the private sector's infusion of an additional Rs. 1 lakh crore into the rural economy will benefit both the government & private sector.

If we talk about crop diversification, the crop basket chosen for MSP should take into account food security, market demand, and processing potential, and the mix may be revisited every few years to ensure farmers eventually become more incentivized by the market (including food processors) and rely less on the government.

After all, the food processing sector (which is recognized as a sunrise industry) is the only engine capable of ensuring the agriculture sector's healthy long-term growth, and the need of the hour is to significantly increase budget allocation for the food processing sector.

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