QUES . What do you mean by Minimum Support Price (MSP)? How will MSP rescue the farmers from the low income trap? UPSC 2018 GS MAINS PAPER 3 150 Words 10 Marks

HINTS:

What is Minimum Support Price (MSP)?

Minimum Support Price (MSP) is a form of market intervention by the Government of India to insure agricultural producers against any sharp fall in farm prices. The minimum support prices are announced by the Government of India 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).

MSP is price fixed by Government of India to protect the producer – farmers – against excessive fall in price during bumper production years. The minimum support prices are a guarantee price for their produce from the Government. The major objectives are to support the farmers from distress sales and to procure food grains for public distribution. In case the market price for the commodity falls below the announced minimum price due to bumper production and glut in the market, government agencies purchase the entire quantity offered by the farmers at the announced minimum price.

The minimum support price is aimed at:

• Assuring remunerative and relatively stable price environment for the farmers by inducing them to increase production and thereby augment the availability of food grains.

• Improving economic access of food to people.

• Evolving a production pattern which is in line with overall needs of the economy.

How will Minimum Support Price (MSP) rescue the farmers from the low income trap?

MSP help in rescuing farmers from low income trap in the following ways:

֍ MSP provides income security to farmers by assuring them a minimum price for their crops and protects farmers from the volatility of market prices, especially during times of surplus production or price crashes. This stability in income helps the farmers come out of low income trap.

֍ The government purchases crops at the MSP and builds a buffer stock to maintain stability in prices and ensure food security. This support protects farmers from exploitation by middlemen and ensures they receive a fair price for their produce.

֍ MSP encourages farmers to invest in agricultural activities by providing them with a guaranteed crop price. This assurance of income motivates farmers to adopt modern agricultural practices, invest in quality inputs, and strive for higher productivity. It leads to increased production, which in turn contributes to food security and economic growth.

֍ MSP acts as a reference price in the agricultural market. It serves as a benchmark against which market prices are compared, enabling farmers to negotiate better prices with private buyers. Even farmers who do not sell their produce to government agencies benefit indirectly from MSP as it influences market rates and prevents prices from falling too low.

֍ MSP plays a crucial role in the rural economy by supporting farm incomes and boosting rural employment. The agriculture sector is a significant source of livelihood for a large population in India. By providing a fair price for agricultural produce, MSP contributes to rural income generation, stimulates economic activity, and reduces migration from rural to urban areas. The increased income in the hands of farmers leads to enhanced purchasing power, thereby stimulating economic activity in rural areas.

֍ MSP particularly benefits small and marginal farmers who have limited access to market information and bargaining power. It provides them with a reliable price , enabling them to earn a decent income and improve their socioeconomic conditions. This empowerment of small farmers helps reduce income disparities and promotes inclusive growth. It provides them with income security, enabling them to improve their livelihoods and invest in their farms. This empowers them to break the cycle of poverty and improve their socio-economic conditions.

Challenges associated with the Minimum Support Price (MSP)

֍ MSP operations predominantly focus on a few crops and specific regions, leaving out farmers growing other crops. Ensuring wider coverage and accessibility to all farmers, especially small and marginal farmers, remains a challenge.

֍ The MSP system’s heavy reliance on certain crops, such as wheat and rice, has led to imbalances in cropping patterns. This creates market distortions, as farmers tend to favour these crops at the expense of others, resulting in overproduction and limited diversification. Addressing this challenge requires promoting MSP for a wider range of crops and encouraging crop diversification.

֍ Procuring crops at MSP requires robust procurement infrastructure and adequate storage facilities to prevent wastage and maintain quality. However, the existing procurement and storage infrastructure in many regions of India is insufficient, leading to post-harvest losses and inadequate support to farmers.

֍ Despite MSP, price disparities persist due to variations in market prices and the involvement of intermediaries in the supply chain. Farmers often face challenges in selling their produce at the MSP due to the dominance of middlemen and commission agents who manipulate prices. Addressing these issues requires improving market linkages and reducing the influence of intermediaries.

֍ The MSP may not always align with the actual cost of production, including rising input costs, such as seeds, fertilizers, pesticides, and irrigation. Farmers face challenges when the MSP falls short of covering their production costs, leading to reduced profitability and financial stress. Addressing this challenge requires periodic review and revision of MSP rates based on input costs and market dynamics.

֍ The financial burden on the government for procuring crops at MSP and maintaining buffer stocks can be significant. Allocating sufficient funds and managing fiscal resources to support MSP operations pose challenges, especially during periods of surplus production and declining global prices.

Thus we can say that though MSP has provided significant benefits, it is not a comprehensive solution to all the challenges faced by farmers. Addressing issues related to access to credit, technology, infrastructure, and market linkages, along with ensuring sustainable agricultural practices, are equally important for the long-term well-being of farmers and the agricultural sector as a whole. It requires a multi-faceted approach that includes improving infrastructure, expanding the MSP coverage, and promoting market reforms among others.