Minimum Support Price (MSP) is a crucial agricultural policy tool designed to ensure a stable income for farmers by setting a floor price for their produce. It serves as a safeguard, guaranteeing farmers a minimum price for their crops to protect them from market fluctuations and price crashes. The MSP is typically determined by the government, taking into account various factors such as production costs, market conditions, and the overall economic well-being of farmers. In essence, MSP acts as a safety net, shielding farmers from the uncertainties of the market and preventing them from falling into a low-income trap. By offering a guaranteed minimum price, MSP provides farmers with economic security, encouraging them to invest in quality inputs, adopt modern farming practices, and enhance productivity without the fear of financial losses. In this way, MSP plays a pivotal role in rescuing farmers from the cyclical challenges of low income, thereby promoting agricultural sustainability and rural livelihoods.
Tag: Issues related to direct and indirect farm subsidies and minimum support prices
Decoding the Question:
- In the Intro, try to define the concept of Minimum Support Price.
- In Body,
- Justify how MSP prevents farmers from low-income trap.
- Add issues around MSP in two to three small points.
- Try concluding the answer with what can be the way out in a realistic way.
Answer:
MSP is a form of market intervention by the Government of India to insure agricultural producers against any sharp fall in farm prices during bumper production years. The major objectives are to support the farmers from distress sales and to procure food grains for public distribution. The MSPs are announced by the Union Government at the beginning of the sowing season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP).
The Centre fixes MSPs for 23 farm commodities:
- 7 cereals (paddy, wheat, maize, bajra, jowar, ragi and barley),
- 5 pulses (chana, arhar/tur, urad, moong and masoor),
- 7 oilseeds (rapeseed-mustard, groundnut, soyabean, sunflower, sesamum, safflower and Niger seed),
- 4 commercial crops (cotton, sugarcane, copra, and raw jute).
MSP help rescue farmers from low income trap in the following ways:
- Fixed Remunerations: The farmers are financially secured against the vagaries of price instability in the market.
- Diversification of crops: The MSP announced by the Government of India for the first time in 1966-67 for wheat has been extended to around 24 crops at the present. This will encourage the farmers to grow these diverse crops to maximize their income.
- Prevents Distress-Sale: Farmer rarely has surplus savings for buying inputs for the next cropping season. Access to credit (loans) is also difficult for small and marginal farmers. So, they are forced into distress-sale of produce at throw-away prices, and are not able to buy high quality seeds, fertilizers, pesticides & tractor-rent for next cropping season, which will further decrease their income from the next cycle. MSP prevents this phenomenon.
- Helps informed decision making: Government announces MSP before the sowing season for 23 crops including cereals, pulses, oilseeds & certain cash crops. This advance information helps the farmer to make an informed decision about which crop to sow for maximum economic benefit within the limitations of his farm size, climate and irrigation facilities.
- Acts as a benchmark for private buyers: MSP sends a price-signal to market that if merchants don’t offer higher than MSP prices the farmer may not sell them his produce. Thus it acts as an anchor or benchmark for agro-commodity market. While it doesn’t guarantee that market prices will also be higher than MSP, at least it ensures the market prices will not be drastically lower than MSP.
Challenges with MSP:
- While the government does declare the MSP twice a year, there is no law-making the MSP mandatory.
- Farmers across the country have been facing problems selling their produce at the Minimum Support Price.
- Only 6 percent of farmers in India succeed in selling their crops at MSP.
- The politics over MSP over the years is another reason why farmers in India want better reform. Farmers are upset with the three farm Acts because none of them mentions anything about MSP.
Conclusion
However, despite these issues, MSP helps farmers to avoid income-trap in three ways such as preventing distress sale, helping farmers to make informed decisions about sowing and assuring farming as a profitable business activity. The need is expansion of MSP in terms of farmers covered and number of crops balancing the dominance of wheat and rice.
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