In case of these commodities, while MSPs dont really come to the help of farmers, these prices tend to stoke inflation when market prices are lower as farmers hold on to the stocks anticipating a price rise. Either way, the MSP system is market distorting and inflationary with no commensurate benefit to farmers.
Although the government announces MSPs for 23 agricultural commodities annually, the procurement agencies, Food Corporation of India (FCI), National Agricultural Cooperative Marketing Federation of India (Nafed), Small Farmers Agri Business (SFAC) and the Cotton Corporation of India (CCI), procure only a handful of commodities, rice & wheat, oilseeds, pulses, copra and cotton from farmers leaving most of the other commodities virtually out of the purview of MSPs.
While the FCI purchases large amounts of rice and wheat, the other agencies buy only small quantities of pulses, oilseeds including copra and cotton. Most of the items are hardly purchased.
FCIs mandate is to procure grain which would meet the governments requirement for the Targeted Public Distribution System (TPDS) and ensure enough buffer stocks. In practice, FCI purchases at MSP even as market prices are more, as building buffer stocks rather than price support to the farmer is practically its objective. At the same time, NAFED, SFAC and CCI intervene in the market only when prices fall below the MSP in case of most commodities. Their operations are location-specific and limited.
MSP should only be for wheat and rice, if those are the priority staple crops. The system of effective procurement does not exist even for these across all states. MSPs for other crops are notional and can be done away with over two-three years without any adverse impact, Ashok Gulati, chair professor (agriculture), ICRIER and former chairman Commission for Agricultural Costs and Prices (CACP), said.
Besides, due to the acute crisis being faced by NAFED because of its failed tie-up business, the federations capacity to independently procure agricultural commodities from farmers has virtually stopped.
We carry out only Price Support Schemes on behalf of the government for oilseeds, pulses and corpra but are unable to scale up our capacity, thus resulting in lower volume of purchases from farmers,a senior Nafed official said.
Last year, Nafed procured groundnut in Gujarat and Rajasthan when prices fell below the MSP. However the federation could buy around 2 lakh tonne of oilseeds which did not lift the market price to a large extent. SFACs volumes in procurement of pulses is too small to make an impact on the market price.
However, some farmers groups argue that while MSP sets a benchmark for the future procurement of agricultural commodities, the government must support the private sector in procurement of commodities which are not purchased from farmers regularly. The focus of the government should be to allow the private sector into procurement activities gradually so that farmers interest does not get hurt when prices fall below the MSP. The MSP helps in setting a benchmark for the future procurement drive, Ajay Jakhar, chairman, Bharat Krishak Samak told FE.
Declaring the MSP for agricultural commodities, the CACP takes into account factors such as demand and supply, cost of production, both global and domestic prices and the likely impact of MSP on prices. Following the recommendation of the CACP, the government fixes the MSP.