Farmers’ Protest and MSP: The opposition of farmers’ organizations running on the borders of the capital Delhi is mainly related to the recently passed three agriculture bills and the Electricity Amendment Bill 2020 by the central government. Farmers’ organizations are demanding that it be withdrawn. Efforts are on to negotiate on behalf of the government. One major thing among all this is that the biggest issue in the talks between the two sides is the minimum support price (MSP) of crops. The farmers fear that the new agricultural laws will gradually eliminate the MSP system.
Therefore, the leaders of farmer organizations want a written guarantee of the MSP from the government that it will not be abolished. At the same time, the government has made it clear that the system of MSP will remain. An interesting aspect in this is also that there is no law in the country regarding MSP. It is an administrative system, which has been in place for years.
On the issue of MSP, amid the ongoing deadlock between farmers and the government, it is important for us to understand how MSP is decided. Where did the formula to keep MSP one and a half times the cost of production come from? Actually, through the MSP, the farmers ensure a certain minimum price for their crop.
In the Union Budget 2018-19, it was ensured that the MSP would be kept at one and a half times the cost of production. In March this year, the government had set MSP at one and a half times more than the cost for the Kharif, Rabi and other commercial crops of the agricultural years 2018-19 and 2019-20.
MSP’s arrangement for 23 crops
The Commission for Agricultural Costs and Prices (CACP) of the Ministry of Agriculture recommends MSP for 23 crops. It consists of 14 kharif crops and six rabi crops. Apart from this, the CACP also recommends MSP for sugarcane, jute and copra. Apart from the cost of cultivation, CACP determines the MSP for crops based on many other factors.
In addition to the cost of a crop, the CACP also considers its demand and supply conditions, market price trends (domestic and global) and comparison with other crops. The CACP considers the trading conditions between agricultural and non-agricultural products in addition to the impact on the use of soil and water on consumers and the environment due to MSP when deciding on MSP.
There are three types of production costs involved.
The CACP takes the data for the production cost from the crop-specific production cost, state-wise, under the Directorate of Economics and Statistics, under the Ministry of Agriculture. Although these figures are also three years old. CACP projects three types of production costs at the central and state level for a crop. A table is given below.
- This includes all expenses in A2 that are directly borne by the farmer; Such as seeds, fertilizers, pesticides, laborers, fuel and irrigation etc.
- In ‘A2 + FL’, apart from all the expenses under A2, wages are also assessed for the family members who do not get any wages.
- C2 is a comprehensive way to determine production costs. In this, the amount of rent and interest is assessed on own land and fixed capital assets.
The basis was not decided in the budget speech
- In 2018, the then Finance Minister Arun Jaitley did not mention in his budget speech that one and a half times of which cost will be fixed as MSP. According to the CACP’s ‘Price Policy for Kharif Crops: Marketing Session 2018-19’ report, the MSP is being fixed at one-half of ‘A2 + FL’.
- In the 2018-19 budget, it was announced that the MSP would be fixed at one and a half times more than the cost based on pre-determined rules. The CACP assesses the cost and recalls the MSP at 1.5 times its cost.
- However, the form activists said that the BJP had promised in the 2014 Lok Sabha election manifesto and the 1.5 times MSP formula proposed by the National Commission for Farmers under the chairmanship of agriculture scientist MS Swaminathan, based on C2 cost Should be fixed.
MSP is decided based on both the cost
CSP considers both A2 + FL and C2 costs to determine MSP but ultimately determines it based on A2 + FL. However, CACP uses C2 costs as benchmark reference costs (opportunity costs) to ensure that the MSP it is offering can cover at least this cost in major producing states.
Source: www.financialexpress.com