A restructured MSP would broaden safety nets and encourage sustainable practices, empowering farmers to thrive amidst challenges.

Suresh Kumar

The minimum support price (MSP) system was a significant policy intervention for ensuring food security and protecting farmers from market fluctuations. However, it has begun to show limitations and is now a source of unrest among farmers. Its narrow focus on a few crops has drawn criticism as today’s agricultural challenges are evolving, with rising costs, ecological concerns and the need for viable alternatives.

While the MSP system successfully stabilised wheat and paddy production, it inadvertently discouraged crop diversification, leaving farmers vulnerable to market volatility and climate impacts. The demand for reform is escalating, with farmers advocating for a legal MSP framework that encompasses a broader range of crops, backs sustainability and enhances economic security.

Opponents of an expanded MSP, including many economists, argue that such a system is impractical and financially unsustainable for the government, which they believe should not be obligated to purchase all crops. They argue for a more liberated agricultural market, similar to other economic sectors.

However, the agricultural market is not as free as it might seem; government regulations to maintain affordable food prices sometimes create opacity and most of the small and marginal farmers cannot compete against powerful traders and intermediaries.

Moreover, there is no demand requiring government purchases at MSP. Yet, it is crucial that MSP serves as a price floor — ensuring market prices do not drop below it. Reforming the MSP to align with free-market principles requires creative thinking from policymakers, economists and legal experts.

A promising approach is the establishment of a diversified MSP. Expanding coverage beyond wheat and paddy to include pulses, oilseeds, millets and horticultural produce would create a more inclusive and dynamic system, responsive to farmers’ needs. This will not only secure farmers financially but also promote sustainable practices. For instance, millets need less water than paddy, making them ideal for drought-prone areas, while pulses can enrich soil quality.

To successfully implement a diversified MSP, five key elements are essential:

1. Dynamic pricing: MSP rates should adapt to regional needs, market trends and environmental conditions to ensure equitable compensation and promote sustainable practices.

2. Robust infrastructure: Significant investments are necessary to enhance storage, transportation and processing facilities, helping reduce post-harvest losses.

3. Legal safeguards: Farmers must have legal protections to secure fair prices and mechanisms to deter exploitation.

4. Technological integration: Utilising digital platforms can aid in transparent price discovery and facilitate direct sales between farmers and consumers.

5. Education: Training and awareness campaigns are crucial to inform farmers about the benefits of diversification.

The demand for reformed and expanded MSP is justified because in the last over five decades, states have not evolved any sustainable alternative marketing intervention for the farmers. The Government of India made special financial provisions for MSP as a marketing intervention to meet the challenges of food security.

The food credit limits sanctioned to the Green Revolution states were not included in their public borrowings. This special dispensation, often termed special central assistance, was crucial for these states. However, during all these years, innovative market access systems should have been developed to give farmers alternative options. In the absence of any other alternatives, the farmers’ dependence on MSP and their demand for its expansion is appropriate.

However, it is never too late. Both the Central and state governments need to evolve alternative market mechanisms for the farmers that assure them of good remuneration while maintaining the floor process for the produce.

There are good examples to emulate. Some countries have implemented agricultural support mechanisms that could inspire MSP reforms in India. For example, the US employs a combination of direct payments, crop insurance and market loans to support its farmers. These steps ensure that farmers have multiple safety nets and are not overly dependent on any single policy. The US Farm Bill includes provisions for price loss coverage and agricultural risk coverage, which help stabilise farmers’ incomes during price drops. Similarly, the European Union’s Common Agricultural Policy (CAP) offers subsidies and incentives for sustainable farming practices, which can be adapted to Indian conditions to promote crop diversification and environmental conservation.

Further, farmer cooperatives have shown promise in providing market stability and better bargaining power for small farmers. These cooperatives can be leveraged to aggregate produce, negotiate better prices and reduce dependency on middlemen.

Examples from countries like Israel and the Netherlands illustrate how cooperative models can significantly enhance the profitability and sustainability of farming communities. In Israel, cooperative societies like Tnuva have helped farmers secure better market access and fairer prices through collective marketing and distribution networks.

While government intervention is crucial in determining MSP for crops, a collaborative approach that includes private sector involvement in procurement could alleviate the financial load on public systems. Incentivising private companies through tax benefits to procure products at or above MSP can enhance market competitiveness and opportunities for farmers. This model has seen success in the contract farming system in Thailand, where private companies provide guaranteed prices to farmers, ensuring stable incomes.

Further, connecting farmers directly to consumers or industries through digital platforms can bypass intermediaries, resulting in fairer prices. Initiatives like e-NAM (National Agriculture Market) in India are steps in the right direction. They promote a unified online trading platform for agricultural commodities. Investing in training for young farmers and providing transport support to target markets is vital for achieving better pricing. Digital literacy programmes and mobile-based applications can empower farmers with real-time market information, enhancing their decision-making capabilities.

The urgent need for MSP reform is clear. Environmental issues and farmer discontent demand prompt action. By diversifying the MSP system, we can transform agriculture into a more resilient and prosperous sector.

A restructured MSP would broaden safety nets and encourage sustainable practices, empowering farmers to thrive amidst challenges. It can create a balanced agricultural ecosystem where farmers are protected, markets are efficient and food security is assured for future generations.