While cotton farmers in several states have demanded an increase in the crop’s minimum support price (MSP), the Centre has stated that it will monitor the cotton production scenario and make a decision accordingly.
MSP
- The MSP guarantees farmers a fixed price for their crops that is well above their production costs.
- MSP, on the other hand, has no legal backing. Unlike subsidized grains through the PDS, access to it is not a right for farmers.
- They do not have the right to demand it. It is only a government policy that influences administrative decisions.
- The Centre currently sets MSPs for 23 farm commodities based on recommendations from the Commission for Agricultural Costs and Prices (CACP).
Fixing of MSPs
- When recommending the MSP for a commodity, the CACP took into account a number of factors, including the cost of cultivation.
- It also considers the commodity’s supply and demand situation; market price trends (domestic and global) and parity with other crops; and implications for consumers (inflation), the environment (soil and water use), and trade terms between agriculture and non-agriculture sectors.
Changes in 2018 budget
- The 2018-19 Budget stated that MSPs would be fixed at 1.5 times crop production costs as a “predetermined principle” going forward.
- Simply put, the CACP’s role was reduced to estimating production costs for a season and recommending MSPs using the 1.5-times formula.
How was this production cost arrived at?
- The CACP forecasts three types of production costs for each crop, both at the state and national levels.
- ‘A2’ covers all direct costs incurred by the farmer, both in cash and in kind, on seeds, fertilizers, pesticides, hired labor, leased-in land, fuel, irrigation, and so on.
- ‘A2+FL’ refers to A2 plus the value of unpaid family labor.
- On top of A2+FL, ‘C2’ is a more comprehensive cost that includes rentals and interest foregone on owned land and fixed capital assets.
How much produce can the government obtain at MSP?
- The MSP value of the total production of the 23 crops worked out to around Rs 10.78 lakh crore in 2019-20.
- However, not all of this produce is sold. Farmers keep a portion of it for personal consumption, seed for the following season’s sowing, and animal feed.
- The marketed surplus ratio for various crops is estimated to vary depending on the crop.
- It ranges from less than 50% for ragi, 65-70% for bajra (pearl millet) and jawar (sorghum), to 75% for wheat, 80% for paddy, 85% for sugarcane, 90% for most pulses, and 95% or higher for cotton, soybean, and other crops.
- Using a 75% average, the total would be slightly more than Rs 8 lakh crore.
- This is the MSP value of production, which is the marketable surplus that farmers sell.
Nature of MSP
- There is currently no statutory backing for these prices, nor any law mandating their enforcement.
Farmers demand legalization
- Legal entitlement: There is a push to make MSP based on a C2+50% formula a legal entitlement for all agricultural products.
- Some argue that private traders should bear the majority of the cost, pointing out that both middlemen and corporate behemoths buy commodities at low prices from farmers.
- Mandatory purchase at MSP: A farm union affiliated with the left has proposed a law that simply states that no one, neither the government nor private players, will be allowed to buy at a rate lower than MSP.
- Other unions have stated that if private buyers do not purchase their crops, the government must be prepared to buy out the entire surplus at MSP rates.
- C2 Expansion: Farm unions are demanding that C2 include capital assets as well as rentals and interest foregone on owned land, as recommended by the National Commission for Farmers.
Government’s stance
- The Prime Minister has announced the formation of a committee to make MSP more transparent and to change crop patterns, which are frequently determined by MSP and procurement.
- The panel will include representatives from farm groups, state and federal governments, agricultural scientists, and economists.
Sowing season
- Cotton sowing season varies greatly from tract to tract but is generally early (April-May) in northern India.
- Sowing is delayed as it moves south (monsoon based in the southern zone).
Source: https://economictimes.indiatimes.com/topic/cotton-msp/news