Explained: What is MSP and why farmers are protesting over it?

As farmers in the country continue to protest over the three contentious farms bills, it seems that a major part of their dissatisfaction revolves around the issue of minimum support price or MSP.

While the BJP-led NDA government has assured farmers that the MSP and mandi structure would continue, farmers do not seem to trust the government. They believe that the three farm bills will give them corporates an upper hand in negotiations when the agricultural marker is deregulated and opened for all.

Having said that, here is all you need to know about MSP and why farmers are protesting in 10 points:

1. What is MSP | The MSP is a minimum price guarantee that acts as a safety net or insurance for farmers when they sell particular crops. These crops are procured by government agencies at a promised price to farmers and the MSP cannot be altered in any given situation. The concept of MSP, therefore, protects the farmers in the country in situations where crop prices fall drastically. Wheat and rice are among the top crops that are procured by the government at MSP from the country’s farmers. A total of 22-23 crops are procured under MSP. 

2. Who Sets MSP | The MSP is set by the central government for select crops, based on recommendations it receives from the Commission for Agricultural Costs and Prices (CACP). The CACP is tasked with determining the MSP, which is somewhat based on a formula derived from the Swaminathan Committee, which was a government-formed panel to resolve issues faced by farmers.

3. How did MSP come into existence 

In short, the MSP-based procurement by the government has its origin in the rationing system introduced by the British during World War II. A department of food came up in 1942. After Independence, it was upgraded into the ministry of food. Those were the times when India faced acute food shortages. When the Green Revolution started in the 1960s, India was actively looking to shore up its food reserves and prevent shortages. The MSP system finally started in 1966-67 for wheat and was expanded further to include other essential food crops. This was then sold to the poor under subsidised rates under the public distribution system.

MSP and law | It is somewhat strange that the concept of minimum support price — an important aspect for boosting farmers’ income — finds no mention in any law even if it has been around for decades. While the government does declare the MSP twice a year, there is no law making MSP mandatory. What this technically means is that the government, though it buys at MSP from farmers, is not obliged by law to do so. As a matter of fact, there is no law which says that MSP can be imposed on private traders as well. The CACP had asked earlier recommended legislation to iron out a concrete MSP law for farmers, but it was not accepted by the Centre.

5. Farm bills explained | The Farmers Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020 allows farmers to sell their produce outside APMC mandis to whoever, even the end customer, offers a higher price. The second one — The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020 — allows farmers to enter into a contract farming agreement the buyer for procurement of crops at pre-approved prices. The third bill is The Essential Commodities (Amendment) Bill which declassifies items like onions, cereals, pulses, potatoes, edible oilseeds and oils as essential items in normal circumstances.

Photo: PTI

6. Farm bills and MSP | Farmers are upset with the three farm bills because none of them mentions anything about MSP. While Prime Minister Narendra Modi and his government verbally promised farmers that the MSP system will stay, farmers are finding it hard to trust the government. The three farm bills that have been introduced by the government, however, have little to do with MSP.

7. Why farmers are protesting | The fact that there is no law safeguarding MSP worked in favour of the government. While farmers have been allowed to sell their crops to any entity including private corporates, they have demanded a written promise on MSP from the government as they are afraid that corporates will start exploiting them in the absence of a minimum support price.

8. What Farmer groups say | Speaking to India Today Magazine, several farmer groups have explained that the new laws do not require prices for sales to private parties to be linked to the MSP — a key factor governing the mandi structure. Without this protection, farmers with small landholdings will be vulnerable to price exploitations by corporates or large-scale purchasers. It may be noted that 86 per cent of the country’s farmers have landholding less than 86 per cent.

Members of various farmer unions protest against the new farm bills in Patiala, Punjab. (Photo: PTI)

9. What critics say about MSP and farm bills | The politics over MSP over the years is another reason why farmers in India want a better reform. While they enjoy some sort of safety net under the current structure, only 6 per cent of farmers in India actually succeed in selling their crops at MSP. This is according to the 2015 Shanta Kumar Committee report. Critics of the farm bills say the existing mandi structure is already leading to exploitation of farmers by middlemen, but introducing them to bigger middlemen could harm them even more.

10. The politics of MSP | A majority of Indian farmers have never really benefitted from the MSP structure. An India Today DIU analysis for the last decade shows how successive UPA and NDA government have been hesitant in increasing the minimum support price net for procurement of farm produce. The MSP data over the last decade reveals that MSP for all crops (Kharif and Rabi) declined on an average. Since farmers have been already suffering for decades due to lack of laws on MSP, they want the government to guarantee an MSP when they will be dealing with private players.