Farmers’ Protest 2.0: Why Is MSP A Major Demand And How Will It Help In Agriculture Sector?

Farmers often operate in a buyer’s market which can lead to sudden supply increases relative to demand, putting downward pressure on prices. This means that they are price takers, lacking the market power to influence the prices of their produce.

Farmers sell at prevailing supply-and-demand determined rates while paying retail prices for everything from seeds, pesticides, diesel, and tractors to cement, medicines, toothpaste, and soap. Farmers sometimes demand minimum support prices (MSP) for their crops, and there could be a clamour for political parties to include a “legal guarantee for MSP” in their manifestos as the Lok Sabha elections approach.

While most economists oppose government-fixed MSPs based on cost-plus pricing, sans any consideration to market demand, they largely believe that it is better to give farmers “income”, instead of “price”, support. Direct income support schemes aren’t market-distorting and benefit all farmers.

However, the flip side to everyone being paid the same money is: where does this leave the real producing farmer, who invests more resources, time, and effort in the field?

Farmers may be justified in seeking some kind of price assurance for the crop they are sowing now and harvesting a few months down the line. Price support can be a useful tool for promoting crop diversification.

Farmers are more likely to grow pulses, millets, and other nutrient-dense, less water-intensive crops than rice, wheat, or sugarcane if they are assured of MSP on the former.

There are two conventional ways to guarantee MSP: force buyers to pay MSP or for government agencies to buy the entire marketable produce of farmers offered at MSP. However, both of these options have their limitations.

There’s a third option: price deficiency payments (PDP) which entails the government not physically purchasing or stocking any crop, and simply paying farmers the difference between the market price and MSP if the former is lower.

PDP was first tried out in Madhya Pradesh through a Bhavantar Bhugtan Yojana. The Madhya Pradesh scheme was implemented during the 2017-18 kharif (post-monsoon) season for eight crops. But despite 21 lakh-odd farmers registering and payments of about Rs 1,952 crore being made, the scheme couldn’t be continued for lack of Central support.

Haryana’s PDP scheme, called Bhavantar Bharpai Yojana (BBY), is being implemented mainly in bajra (pearl millet), mustard, and sunflower seed, although technically, it also covers groundnut, chana (chickpea), moong, and 16 vegetable and 3 fruit crops. BBY operates on the Haryana government’s ‘Meri Fasal, Mera Byaura’ portal, in which farmers have to register themselves along with details of their land.