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White Paper on MSP: Enact Agricultural Prices Stabilization Act

JANUARY 13, 2021

By Naresh Minocha, Consulting Editor

STATUTORY Minimum support price (MSP) is not a weird demand of farmers. It is actually a multi-
dimensional fuzzy ball debated superficially by half-knowledge anchors and their guests on cockfight
shows.

No one has disclosed how many committees recommended what and when on statutory MSP over more
than 100 years. A timeline of vital recommendations made by major panels has been prepared later in
this column to give a touch of White Paper (WP) for giving a new deal to agriculture.

If farmers-caring Government had cared for facts, it would have first published a WP on why it showed
urgency to issue three farm ordinances. It should have rationalized NDA's & UPA's indifference towards
the need for long-pending legislations, apart from MSP law.

Of the many pending legislations on agriculture, 5 deserve special mention: a new seed law, new
pesticides law, a comprehensive fertiliser law, biotechnology regulatory authority law and agricultural
biosecurity legislation.

Farmers are baffled at the majestic failure of all regimes from British Raj to Modi Government to
compute bare minimum economical prices below which sale of vegetables and fruits becomes losing
proposition.

Hence peasants' justifiable suspicion about Union Government's offer to set up a committee to study
their demand for MSP law. This is because the term MSP has been left out of two new farm laws
including one relating to contract farming. The existing rules pertaining to contract farming under
Agriculture Produce Market Committee (APMC) Act in few States stipulated MSP-linked private
transactions. Prime Minister Narendra Modi was once himself a champion of MSP in transactions
between farmers and private entities. This is reflected in the 2011 Report of Chief Minister's Working
Group (WG) on Consumer Affairs constituted by UPA regime chaired by Mr. Modi as Gujarat CM.

WG recommended: "Enforce MSP since intermediaries play a vital role in the functioning of the market
and at times, they have advance contract with farmers. In respect of all essential commodities, we
should protect farmer's interest by mandating through statutory provisions that no farmer-trader
transaction should be below MSP, wherever prescribed".

There are other reasons too for farmers' distrust over Government's offer to assure in writing that MSP
would not be phased out. First, the Government ruled out enacting such a law in reply to a parliament
question raised during July 2019. It was perhaps raised after Commission for Agricultural Costs and
Prices (CACP) recommended such a legislation in March 2018.

CACP stated: "To instil confidence among farmers for procurement of their produce, a legislation
conferring on farmers 'The Right to Sell at MSP' may be brought out".

Second, NITI Aayog mooted radical MSP reforms in report captioned 'Strategy for New India @ 75'
released in November 2018' whose foreword is written by Mr. Modi himself.

The Report calls for setting up of a group to examine "replacing the minimum support price (MSP) by a
minimum reserve price (MRP), which could be the starting point for auctions at mandis. Separating the
criteria for MSPs for (i) surplus produce; (ii) for deficit but globally available products; and (iii) for
products that are in deficit both domestically and globally".

It also called for examining "options for including private traders operating in markets to complement
the minimum support price regime through a system of incentives and commission payments".

NITI contended: "Raising MSP or prices can only be a partial solution to the problem of assuring
remunerative returns to farmers. A long-term solution lies in the creation of a competitive, stable and

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unified national market to enable better price discovery, and a long-term trade regime favourable to
exports".

Trust deficit gets magnified if we reckon the fact that successive regimes have kept farmers in dark
about the terms of trade (ToT) between agriculture and manufacturing & services sector & how they
are reckoned in fixing MSP.

Modi Government has kept under wraps reports of a ToT committee and an experts' committee on
review of methodology for MSP computation. Both Committee were appointed by UPA Government and
submitted their reports during first term of NDA Government. It made public only executive summary
of ToT panel in 2015.

There has never ever been any independent audit of MSP costing especially the claim that NDA
Government hiked MSP for all 25 notified crops, offering 50% margin over cost of cultivation.

For majority of years, Government has not appointed any farmers' representative on CACP ever since
its formation in 1965. It remains an administrative body in spite of recommendations to make a
statutory authority by different panels over the decades.

While exclusion of perishable from MSP system is understandable, the failure to create an automatic
system for Government's market intervention before prices fall below economical levels is indefensible.
The periodic swings in prices of perishables notably tomatoes, onions and potatoes (TOPs) rattles both
the consumers and cultivators, depending on skyrocketing or crash of prices.

No wonder every year cultivators dump vegetables and fruits on roads when their prices touch rock-
bottom in some part of the country.

When TOPs and other perishables stir politics, the State-Centre hot lines work. This leads to an ad hoc
arrangement called market intervention scheme (MIS) under which NAFED and similar cooperatives are
asked to buy perishables at arbitrarily decided prices.

Thriders-loaded MIS is put into operation for a limited period after many a farmer has resorted to
distress sale. It is classical case of too little; too late that Government repeats without any qualms.

Notification of economical prices for major horticultural crops & regularisation of MIS would reduce
cultivators' risks. This, coupled with technological packages, is key to crop diversification. This is
essential for sustainable farming and nutritional security of the masses.

Once farmers find price and yield parity in crops other than wheat & water-guzzling paddy and
sugarcane, they would increase area under non-MSP or MIS crops.

Leave aside lack of MIS vision, the Government has done precious little to improve lame-duck MSP
system. The list of MSP notified crops have remained unchanged for decades except exclusion of
tobacco in 2016. The previous change in MSP list happened in 2002. In that year, pulses pea was
excluded from the list within one month's its inclusion in a hush-hush manner.

MSP operations largely remain confined to surplus wheat and paddy producing areas. The Government
has not made MSP operations secular, inclusive and pan-India, overlooking recommendations of expert
groups.

The absence of MSP infrastructure for purchase of cereals in all accessible markets across India deters
farmers from generating cereal surpluses.

As regards pulses and oilseeds covered by MSP, Modi Govt deserves credit for increasing their
procurement under Price Support Scheme (PSS). Though PSS has been operated as marginal initiative
for 3 decades, the Government issued detailed guidelines for this scheme only in May 2014.

The Guidelines limit the procurement of notified pulses or oilseed crops up to 25% of their respective
output in the year of operation. Another rider limits purchase from farmers to 50 bags of 50 kg each in
a day. Only farmers in notified area of PSS centre can sell their produce in that region.

While retaining PSS for pulses & copra, the Government rolled out alternative schemes under an
umbrella initiative named Pradhan Mantri Annadata Aay Sanrakshan Abhiyan (PM-AASHA) in 2018.
Three alternative schemes are offered to States under PM-AASHA with certain conditionalities. The
underlying objective is to limit the volume of procurement and share operational losses with the States.

Neither MIS nor PM-AASHA have perhaps figured in eight rounds of talks between protesting farmers
and the Government, leave aside the idea of making them more robust and inclusive for all farmers.

As regards sugarcane, it has a statutory price called fair and remunerative price. Farmers sell their
produce to sugar mills under contractual arrangement. Jute, on the other hand, is purchased by Jute
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Corporation of India. Similarly, cotton is purchased by Cotton Corporation of India and Nafed.

The plantation crops have always been out of MSP ambit as they are export-oriented and hence their
prices are linked to global prices. Moreover, this sector has corporate farming too as reflected in
ownership and operation of tea and coffee gardens.

The Government, however, does rescue plantation crops sector when there is global commodity
recession. It, for instance, operated a price stabilization fund for ten years ending 2013.

In 2017, it rolled out a pilot Revenue Insurance Scheme for Plantation Sector (RISPC). Its objective is
to protect small plantation farmers from risk of fall in global prices and risk of drop in yield due to
factors such as adverse weather.

The key point to note here is that there is no alternative Government intervention in protecting both
farmers and consumers from the risks of price volatility.

In fact, RISPC-type farmer income insurance scheme (FIIS) was implemented as pilot project for two
years ending 2004-05. The objective of the scheme was to protect farmers' income and to reduce
Government expenditure on foodgrain procurement under MSP.

Thus, FIIS-type scheme should be an alternative under MSP law. The two other obvious options are 1)
centralized and decentralized direct procurement at MSP In the latter mode, private sector should be
encouraged to purchase notified crop produce at MSP or higher prices. 2) price deficit payment to
farmers under which farmer is forced to sell at below MSP in a competitive, Government monitored
market. At present, lakhs of transactions take place below MSP for notified crops in any year. One can
easily check below-MSP transactions from an official website agmarket.gov.in. This columnist, for
instance, generated a 821-pages online report on cereals under category 'Below MSP transactions'
across India during January 2020.

The MSP law should be captioned as Agricultural Price Stability Act to protect the interests of both the
farmers and consumers. At present, the government policies are tilted towards consumers. Their voice
gets amplified by the media whenever there is sharp rise in prices of perishables or when food index
rises fast.

The bias for consumers can be verified by looking at National Food Security Act and periodic ban on
export of commodities whenever there is hue and cry over rise in their prices in domestic market.

The MSP law should separately define economical price (EP) for perishables. The Government should
create a mechanism to ensure that there is no distress sale below EP. And if there is below MSP sale for
produce of fair quality norms, then the mechanism should provide for payment of price deficit.

To acknowledge the crucial importance of statutory MSP from the standpoint of agricultural price and
production stability, we need to delve into its tortuous history right from the Raj era.

This is important for the decision-makers especially those who are belittling the demand for statutory
MSP. The solution to the problem lies in careful reading of MSP history.

The seeds of MSP are scattered in reports of commissions and committees constituted by British India
Government. The concern for MSP got amplified and articulated in the Constituent Assembly and in
certain reports constituted by different regimes since the Independence over the decades.
Unfortunately, protesting farmers don't have access to all these reports. The Government, however,
has. It, however, didn't transform them into a white paper on MSP to demonstrate good governance.
Such an initiative would have lent credence to farmer's demand for statutory MSP.

The TV anchors won't mention & debate such facts as most of them view farmers protest and their
demands as handiwork of China, Pakistan, Khalistanis, terrorists, urban naxals and all those who
oppose Mr. Modi.

A glance through reports of Raj era would show that they made varied recommendations to stabilize
prices in agricultural economy for benefit of all stakeholders. The panels include Royal Commission on
Agriculture, Famine Inquiry Commission (FIC) and Central Banking Enquiry Committee on Marketing.

FIC investigated 1943 Bengal Famine. In its final report submitted in 1945, FIC observed: "The
development of agriculture, which is so essential, cannot take place unless, first the cultivation of land
remains a more paying business than it was in the decade before the war, and, secondly, all engaged
in the business feel assured that it will remain so".

FIC took note of "minimum price for sugarcane" as key driver of increase in cane production and
success of cooperative marketing societies. FIC also quoted 1943 United Nations Conference on Food

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and Agriculture to underscore the importance of price stability for both farmers and consumers. One of
the Conference's recommendation pitched for "prices fair to both consumers and producers".

Analysing replies of provincial governments on subject of agricultural prices, FIC observed: "It will be
seen that ideas have not yet crystallized to the scheme of measures which would constitute a workable
system of regulated prices and ensure a fair minimum price for agriculturist and a fair maximum for
the consumer, and prevent undue fluctuations".

The 1943 Food Grain Policy Committee, which laid down elaborate plan for controlling food prices and
rationing food, acknowledged farmers' right for fair prices.

It noted that statutory grain prices when fixed must be fair to the cultivator, since the consumers'
goods, which he needed both for the production of his crop and for his own subsistence, had risen so
greatly in cost. It is perhaps for the first time that a panel invoked ToT without using this term.

Ironically, the first instance of minimum guarantee price in British India pertains to 1806 famine in
Madras Presidency. As put by Commission of Enquiry on Indian Famines in its report published in 1880,
"The Government (of Madras Presidency) at the outset declared against any interference with private
trade, but in the end, they conceived it necessary to purchase, guaranteeing a minimum price to
importers; when the famine came to an end through the plentiful rain-fall of 1807, large stocks were
left on hand, and had to be disposed of at a loss".

The path-breaking recommendations for statutory MSP & national food security were made in 1946 by
a panel Prices Sub-Committee of the Policy Committee on Agriculture, Forestry and Fisheries (PSC-
PCAFF). It recommended: "The State should (i) guarantee minimum remunerative prices for selected
agricultural commodities and ensure that the benefits thereof reach the small cultivators and
agricultural labourers, (ii) prevent the prices of such commodities from exceeding specified maxima,
granting relief to persons with low incomes by subsidies on consumption, (iii) undertake simultaneously
a wide variety of other measures of agricultural and general economic development, accompanied by a
complementary policy for maintaining adequate employment, incomes and purchasing power".

The Committee also recommended: "in the future, the minimum prices should under no circumstances
be permitted to fall below a certain rock-bottom level, determined by the fixed elements in agricultural
costs".

PSC-PCAFF's recommendations figured in the Conference of provincial and states' ministers and
representatives of the Central Government held in January 1947. The Conference decided to discuss in
detail recommendations of FIC and other panels on agricultural prices at its next meeting.

The 1947 conference also considered MSP-type suggestions and observations made by PSC-PCAFF and
1931 Indian Central Banking Enquiry Committee (ICBEC) and 1928 report of Royal Commission on
Agriculture (RCA).

ICBEC, in its 1931 report Volume I, stated: "The social and economic conditions of the cultivator are -
according to our information - so unfavourable that it is difficult for him to obtain a net profit and so to
get rid of his debt. That is the main reason why the question of financing Indian agriculture is a difficult
problem".

It added: "An energetic agrarian policy of reform is necessary for the purpose of creating profitable
agriculture under modern conditions. Unless this is brought about credit will remain weak and in
consequence the command for cheap money beyond the power of the ryot".

Similarly, RCA pitched for setting up of regulated markets across India to help farmers realize good
prices for their produce and to check their exploitation by private traders and intermediaries between
them.

As put RCA in its 1928 report, "The most hopeful solution of the cultivator's marketing difficulties
seems to lie in the improvement of communications and the establishment of regulated markets, and
we recommend for the consideration of other provinces the establishment of regulated markets on the
Berar system as modified by the Bombay legislation".

It affirmed: "The establishment of regulated markets must form an essential part of any ordered plan
of agricultural development in this country".

The ministers decided to consider in "greater detail" the full report of the committee at their next
conference, according to ' Report showing action taken by Central and Provincial Governments on the
recommendations made by the Famine Inquiry Commission in their final report ' submitted in April
1948.

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The farmers' right to fair price was eclipsed by urgency to control prices and manage food supply to
cope with shortages at the time of independence & in next 25 years.

The Government retained statutory control over both procurement and retail prices of foodgrain for
many years after the Independence.

The idea of statutory MSP also found echo in Constituent Assembly that drafted Constitution of India.
Participating in Constituent Assembly debates in November 1948, Chaudhari Ranbir Singh moved an
addition to draft Constitution of India. He, however, did not press for its formal motion and voting as
other members claimed that farmers interests were protected in article 34 of draft constitution (This
corresponds to Article 43 of finalized Constitution).

Mr. Singh stated: "That after the article 34, the following new article 34-A be added. The article 34-A
read: (a) The State shall endeavour to secure by suitable legislation or economic organisation or in any
other way the minimum economic price of the agricultural produce to the agriculturists. (b) The State
shall give material assistance to national co-operative organisations of the producers and consumers.
(c) Agricultural insurance shall be regulated by special legislation. (d) Usury in every form is
prohibited."

MSP was indirectly echoed by Hyderabad Government-constituted Agrarian Reforms Committee. In its
report submitted in 1949, the Committee recommended: "The Government should by rule prescribe
the size of economic holdings for different areas in such a way as to secure for the cultivator an income
of Rs 150/-per month. The minimum or basic holding should be 2 acres of wet or 15 acres of dry.
Measures should be taken for the consolidation of holdings below the minimum size".

MSP thread can also be discerned in Foodgrains Procurement Committee. In is report submitted
in1950, the Committee observed: "Everything that tends to the production of adequate food within
(the country), therefore be, encouraged. One of the most important inducements to production is the
price of foodgrain; conversely, one of the impelling compulsions to the diversion of food acreages to
other crops, is the fact that foodgrain prices are controlled and the prices of other crops are not
controlled".

It thus saw "a confusion, even a contradiction in the objectives of food policy, without a definition of
priorities or an absorption of these into a single system".

Even amidst the food crisis, the 1952 GMF (Grow More Food) Enquiry Committee underscored MSP
importance.

It recommended: "To enable agriculturalists to carry out permanent improvements and raise
production over a long period, they should be assured that the Government would take steps to ensure
that prices are not allowed to fall below certain minimum levels".

GMF Enquiry panel added: "Though we feel that prices of foodgrain are not likely to decline to
uneconomic levels in the near future, we recommend that the Government of India should make a
declaration accepting the principle of guarantee of minimum prices, as this will provide an incentive to
agricultural production ".

The 1957 Foodgrains Enquiry Committee also pitched for MSP. It stated: "The formal announcement
and effective enforcement of minimum prices throughout the country should be necessary in conditions
when there may be possibility of prices falling sharply. The cultivator does require the assurance that
prices will not be allowed to fall below economic levels to maintain his incentive to invest in the
improvement of his farm and, thereby, sustain the basis of progressive agriculture".

It added: "This assurance will, in our view, be available if the general framework of our
recommendations is accepted and it is decided to set up an organisation charged with the function of
operating in the market".

A Government-invited team of 13 American agricultural experts too pitched for credible MSP in its 1959
submission titled ' Report on India's Food Crisis & Steps to Meet it by The Agricultural Production Team
'. It observed: "Unless the cultivator is assured of a floor price for his food grains, he will be unwilling
to invest in fertilizer, better implements, improved seed and other expenses necessary to increase
production".

The Ford Foundation-sponsored team recommended: "(a) A guaranteed minimum price announced in
advance of the planting season. (b) A market within bullock-cart distance that will pay the guaranteed
price when the cultivator has to sell. (c) Suitable local storage".

MSP idea got concretized with the submission of report by 1964 the Foodgrains Prices Committee in
three parts. Released in October 1965, it recommended setting up of Agricultural Price Commission

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(later renamed as CACP) with elaborate terms of reference. It observed that APC's function, among
others, "should be to see that the benefits of the price policy accrue to the producer on the one hand
and the consumer on the other".

In 1966, Foodgrain Policy Committee, noted: "Guaranteed minimum support prices for foodgrains
announced in advance can help in creating conditions favourable for increasing production. It would be
necessary for Government to fix procurement prices. The procurement price should be higher than the
support price".

In 1967, The Study Team Report on Agricultural Administration constituted by the fist Administrative
Reforms focused well on MSP and farmer's growing frustration.

As put by the Study Team, "We shudder to think what would befall the country if farmers, desperate
with frustration, think of taking recourse to such steps as strikes and gheros". What it wrote in
September 1967 is visible to all of us in latest, unprecedented farmers' protest.

It recommended: "Price support should be an instrument of State Policy in order to ensure production
of any crop at any moment when the State needs it".

MSP has figured in several other agricultural reports all of which can't recalled in this timeline for price
stability for agriculture sector.

One such report that has special relevance here is the one submitted in 1967 by Expert Group (EG) on
Cropping pattern.

EG stated: "A selective use of price policy through minimum support / procurement prices has every
chance of bringing about the desired shift in cropping pattern."

EG recommended: "It is essential that while considering price policy, the relationship between the
productivity ratio of competing crops and their inverse price ratios is taken into account".

It added: "Market support operations should be taken up for commodities in which the producers' share
in consumers' price is low on a regular basis."

EG was of the view that "mere fixation of minimum support prices of commodities and occasional
market intervention where market prices fall below the minimum support prices do not serve the basic
purpose".

The 2002 High-Level Committee on Long Term Foodgrain Policy again brought on national agenda the
issue of statutory MSP and CACP. It recommended: "The CACP should be made an empowered
statutory body". While computing MSP for crops, CACP should "go strictly on the basis of C2 cost of
production (i.e. all costs including imputed costs of family labour, owned capital and rental on land) in
more efficient regions".

It added: "The MSP, set at a floor price on the recommendations of the CACP, should have a statutory
status. In particular, the responsibilities of the Central government and obligations of State
governments should be defined clearly".

This recommendation for statutory MSP was endorsed by Kerala Government-constituted a Commission
on WTO concerns in Agriculture under the Chairmanship of Prof. M.S. Swaminathan.

In Its report submitted in 2003, "Statutory MSP to be extended to field and plantation crops in Kerala".

Statutory status for CACP was also recommended by 2005 Expert Committee to Examine
Methodological Issues in Fixing MSP.

UPA-constituted National Commission on Farmers (popularly known as Swaminathan Commission)

urged the Government to take a call on this recommendation.

In its 4th report submitted in 2006, it recommended: "Implementation of MSP across the regions
needs considerable improvement. Arrangements to protect the Minimum Support Price (MSP) needs to
be put in place for crops other than paddy and wheat. These include coarse cereals like millets. Without
MSP support or other effective need-based market intervention by the government, advice to farmers
on crop diversification could lead to disastrous results. MSP should be adjusted according to the
wholesale price index."

It added: "MSPs for the commonly produced commodities should be appropriately fixed (based on C3
cost) and timely announcement (of the MSP), procurement and payment should be ensured. Enhanced
income of the farmer will lead to increased per capita consumption and enhanced domestic demand for
a larger and diversified food basket and consumer goods at household levels, stimulating overall
economic growth".
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NITI Aayog's 2016 study titled 'Evaluation Study On Efficacy of Minimum Support Prices (MSP) on
Farmers, gave an affirmative stamp on MSP. It stated: "The MSP scheme requires a complete overhaul
in those States where the impact of the scheme ranges from 'nil' to 'at-best marginal' to ensure that
MSP as an important instrument of the Government's agricultural price policy is not undermined".

It concluded: "is an important policy of the Union Government to determine floor price of major
agricultural produces every year for protecting the farmers from the middlemen and fluctuating market
conditions as it provides them an assured market in addition to a minimum assured return".

The Committee on Doubling Farmers' Income too backed MSP policy. In its XIV report submitted in
2018, the Committee stated: "The government may consider at least 50 per cent margin on all paid
out costs of production, for the notified commodities, incurred by farmers in cash or kind, including
imputed value of family labour. This, combined with assured procurement, for the share of production
government requires to procure, would be a good income intervention in favour of farmer".

It added: "remunerative prices on the produce can be ensured if markets are able to discover good
prices in case of at least 60 per cent of the agri-produce and the remaining 40 per cent be managed
through government supported procurement programs".

The final experts' opinion on virtues of credible MSP has come from the 'Report on Policies and Action
Plan for a Secure and Sustainable Agriculture'. The Report was submitted by a committee of experts
appointed by Principal Scientific Adviser to the Government of India (PSA).

As put by the Committee, "The support prices announced by the Government against price risk are
long-felt inadequate to cope-up with the rise in the production costs. For non-MSP crops, Price
Stabilization Fund are not adequate to cover needed market operations and therefore allocations
should be enhanced".

It has called for review of MSP scheme in changed market and climatic situation while reinforcing the
need for computation of remunerative MSP for notified crops.

It has prepared a comprehensive package of agricultural reforms. The Government should take a call
on all such expert advice to unveil a complete blueprint for agricultural renaissance.
 

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