Farmers deserve assured minimum price

If the govt were to bear the entire cost of price deficit suffered by farmers for 13 crops (out of the 23 for which MSP is declared) in 2017-18, the bill would be Rs47,764 crore. If you add 10 minor crops, the bill would have been about Rs50,000 crore. This is less than the MGNREGA budget that year. The actual budget would be smaller since market intervention and legal provisions would raise the market price and reduce the amount to be paid by the govt.

Farmers deserve assured minimum price

In a bind: The current crisis calls for a prudent approach. PTI

Kiran Kumar Vissa and Yogendra Yadav

Kiran Kumar Vissa, Agriculture activist; Yogendra Yadav, president, Swaraj India

Can the farmers be offered a guaranteed remunerative price for their produce? The government, some economists and the media would have you believe that this is impossible, both logistically and financially. They are wrong. They either do not understand what the farmers demand, or have not calculated the costs; or they mislead, deliberately. If there was one moment to bust this myth, it is now, when lakhs of farmers are preparing to march to the Capital on Republic Day.

Fortunately, we don’t have to start from scratch. The Central government declares minimum support price (MSP) for 23 crops every year. So, in principle, the government does recognise that the farmers need and deserve a minimum price for their produce. It has a mechanism, however faulty and disputed, for computing and announcing this price. And it acknowledges, though not in legal terms, its responsibility to “support” the farmers in terms of their price.

The problem is that it does not do much to actually offer this support. In reality, less than one-fifth of the farmers get this support, as the government steps in only for two or three crops and that too in a few regions. For most farmers, this MSP remains a maximum securable price, almost a dream price. In the current season, the MSP of maize is Rs 1,850 per quintal, but farmers had to sell it in the past three months between Rs 1,100 and Rs 1,350. Bajra fetched an average price of Rs 1,340 this January in Rajasthan, its largest producer, against the official MSP of Rs 2,150. Growers of pulses like urad, moong and tur face a similar situation. The farmers want and demand that the government must ensure that they get what the government itself admits to be minimum. They demand a law that would place an obligation on the government to make necessary interventions to ensure MSP.

Is this possible? Let us first get rid of the faulty notion of what such a support might mean. Guaranteed MSP doesn’t mean that the government should purchase every quintal of every crop. That would be impossible, unaffordable and unnecessary. Government procurement at MSP can and should be expanded beyond current levels, but it is only one of several mechanisms that can be used to support the farmers. Procurement for the public distribution system should be expanded to include millets, pulses and oilseeds. That would also help meet the nutrition needs of crores of families. Providing 1 kg of pulses to each of the 750 million PDS beneficiaries would generate a demand for about 13 million tonnes of pulse crops, giving a boost to pulse production that currently stands at about 25 million tonnes.

The second mechanism could be a robust and timely market intervention whenever the market prices fall below MSP. This would mean expanding the operations of existing agencies like Markfed and Nafed with better funding, storage and marketing capacities. They need to purchase only a part of the crop, say 10-20%, and this would shore up the prices for the farmers in the rest of the market too. Such a scheme does exist, but its funds need a quantum jump. If this fails, the government can use a third mechanism by way of deficit payment. The government can compensate the farmers for the difference between the MSP and the price they actually secured. This was tried in Madhya Pradesh, as the Bhavantar scheme, but the experiment failed due to poor designing. It should be designed afresh and sufficient funds allocated for this purpose.

The fourth and the last resort mechanism is to make it illegal to trade below MSP. This is not a silver bullet solution and can boomerang if not supported by the first three. Used sparingly, penal provisions for the violators would act as a deterrent to ensure that the market officials implement the provisions.

A prudent mix of these four methods can indeed ensure that no farmer receives a price lower than the official MSP.

Finally, is this affordable? Government spokespersons have pooh-poohed this demand by claiming that it would cost Rs 17 lakh crore, more than half the Union Budget. This is a mischievous figure. This is what it would cost the government if the entire produce of all crops is purchased by the government at MSP and then destroyed or dumped in the Indian Ocean. This calculation assigns zero value to the purchased crop.

To get a realistic estimate, we have calculated the difference between the MSP and the average actual market price of the crop, using the official data for 2017-18. This is what it would cost the government if it procures the crops at higher than the market price or makes deficit payment to the farmers. The average market price is derived from the average (modal) daily prices in markets across the country reported by AgMarknet during the entire season, weighting the modal prices with the quantum of sales for each day.

For instance, the MSP of maize that year was Rs 1,425 but the weighted average market price was only Rs 1,159. Using the estimated marketed surplus production that year of 25.29 million tonnes, the total price deficit suffered by the maize farmers is calculated to be Rs 6,727 crore. In 10 out of the 13 crops (paddy, maize, wheat, bajra, tur, urad, moong, chana, masur, soybean, groundnut, mustard and cotton), the average market price is significantly lower than the MSP.

So, if the government were to bear the entire cost of the price deficit suffered by the farmers for 13 crops (out of the 23 for which MSP is declared) in 2017-18, the bill would have been Rs 47,764 crore. If you add the remaining 10 minor crops, the bill would have been about Rs 50,000 crore. This is less than the MGNREGA budget that year. The actual government expenditure would be smaller since market intervention and legal provisions would raise the market price and reduce the amount to be paid by the government. A higher cost is presented if the government raises the MSP itself at 50% above the Comprehensive Cost (C2), as recommended by the MS Swaminathan Commission. In that case, the maximum cost to government would have gone up to Rs 2,28,000 crore. That is about 1.3% of the GDP, about 8% of the Union Budget. This is stiff, but not impossible. The cost could be shared between the Central and the state governments.

Can the country afford this? Well, it depends on what you think this country is and what is the worth of annadata. This is a question of political will. This is the question crores of farmers are asking today.

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