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Why will legally mandated MSP create more problems for the farmers?

Why will legally mandated MSP create more problems for the farmers?

New agri-trade laws have provided options to farmers to choose their buyer and the prices to sell their products with or without commission. This freedom of trade gives bargaining power to farmers. In order to protect their monopoly on commission and other commercial interests, the commission agents and traders mobilized some farmer’s leaders to oppose a news law and to build farmers’ sympathy and support introduced the demand of legally mandated “Minimum Support Price (MSP)”.

Background: There is no denying that in the last 70 years farmers of India remained poor but middlemen and commission agents are among the richest people in society. Please look around in your society and cross verify this fact. It means the existing system is not benefiting the small farmers but benefiting the middlemen.  After 56 years of the existence of APMC and FCI in Punjab and other protesting regions, if farmers are still feeling helpless without FCI procurement and unable to stand on their own feet, it means something is seriously wrong with the system. In which country of the world even after 56 years of taxpayers regularly supporting a section of society remain underdeveloped and few 100s have become rich at the cost of many million poor farmers.

Now, there are views that the government assurances on MSP do not convince the farmers because they are witness to the dismantling of the APMC mandis as the bills came into force for the last few months. For example, out of 259 APMC mandis in Madhya Pradesh, 47 have recorded zero business in October and 143 have seen a trading drop by 50 percent in the last 6 months. The solution proposed is to make it legally mandated MSP at higher rates

Implications of this demand:

In the business world, consumers do not work with emotions. Farmers, when they go shopping like any consumer, they also look at value for money like any buyer. Are they not buying Chinese products in place of products of Indian companies? Why do they do this?

The points which we should consider are:

  • Today, the MSP of most crops in India is higher than world market prices. That is why we are losing in the export market.
  • Many APMC markets are getting less volume because the same traders buying outside man dies because now they do not have to pay taxes.
  • Farmers are selling outside APMC because they are getting a better price than APMC markets.
  • If it is legally made binding, what will be the liability of the government if private trade also develops a cartel and refuses to buy. Where is the budget to buy the material from all farmers?
  • No one is telling what will be the quality for MSP rates. Who will buy the material which is substandard and what should be the price for that material.?
  • MSP is an ever-increasing cost with the demand to hike. MSP will always be there and the world market will become cheaper and cheaper. In case the private sector will import more in place of buying from Indian farmers, who will buy the crop of Indian farmers? The classic case is edible oils. 70% of edible oil is imported. Sunflower crop has virtually vanished because it was unsustainable to compete with imported crops. Demand for sesame and groundnut oil has reduced drastically. What this indicates.
  • The sugar sector is suffering due to ever-increasing mandatory FRP and now without subsidy, we cannot export. First pay a subsidy to grow sugar cane, then pay a subsidy to exports. Is this good economics? Is this good for the national economy? Whose money is getting blocked and who is benefiting?
  • Look at the case of maize, Indian was exporting 45 lakh tons of maize every year now it is less than 5 lakh tons due to rising MSP. Maize is 50% cheaper in the world market. Expensive maize means opening the floodgate for poultry imports. Poultry will suffer means maize farmers will suffer more.
  • In the last few years, imports are becoming cheaper and growing at faster rates than exports from India. As the Indian rupee becomes stronger, imports will come cheaper.
  • India had to quit RCEP because our agricultural cost of production is so high due to the ever-rising MSP that today, we cannot be part of any international trade agreement.
  • The MSP formula proposed by the Swaminathan committee only encourages inefficient production, the higher the cost of production, the higher will be the MSP. Zero Budget Agriculture and organic agriculture needs fewer resources and has a lower cost of production but saves the environment and consumers’ health. According to CACP based Swaminathan Formula, they should get less MSP, because their cost of production is low because they claim that there is no loss of productivity. Is this logical?

Way Forward:

No one can ensure sustainable profit other than consumers.  Most of the Consumers are paying higher than MSP for all crops but it is not reaching the farmers. Who is keeping the farmers’ share?  Who is responsible for the leakage? These leaky pipelines should be changed with the direct farmer-consumer interface. This was the demand of many farmers’ bodies since industrial liberalization.

Possible options are:

  1. Handover all APMC markets should replace commission agents with farmers’ bodies so that they have full control of the market and pricing system in the APMC market and also outside APMC markets. With full control of the market, farmers can decide the price based on consumers capacity to pay, like any other sector. Are state governments willing to help the farmers by giving them control of APMCs? Farmers are managing Amul and many similar companies, they can also manage APMCs as well. This will also give them an opportunity to decide which crop to grow and which one to avoid.
  2. While making any policy keep an eye on the global market because with increasing MSP, there will be more imports and the press will crash sharply in India. The private sector will buy on that part of the crop which can be sold higher than the purchase price and after adding all overheads because of legal implications. They will prefer to import because they can do value addition to absorb the higher price in some cases.

India is part of the global economy and with the rising cost of production, we will be further marginalized. Our agro-processing industries will also suffer because of rising costs, exports will suffer and imports will start in a big way. So, the main issue is how to make agriculture profitable and competitive. We need better technologies, infrastructure, market intelligence and guidance for farmers. Legally binding MSP will create more problems than solutions because buyers will have the choice not to buy expensive crops from Indian farmers. Please learn from our own experiences on why Chinese products flooded the Indian market and why MSME was suffering. Indian consumers are buying Chinese products, but not buying products of MSME in India. Why? I do not want Indian farmers to suffer, that is why I am opposing this move planted by commission agents in order to block the consumer-farmer direct interface by agriculture reforms. Please think over it.

By: Vijay SARDANA: Techno-legal and Trade Policy Expert for Agribusinesses

Advocate, Delhi High Court

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