MSP is like a Salary for Farmers

Context: An analysis of vulnerabilities of Indian Agricultural markets.

Problems associated with Indian agricultural markets

• Status as the micro-market: Agriculture markets (Micro markets) cannot be aggregated to form a single big market.
  • They need more capital and technology and a need for higher farmer incomes.
  • The flat demand curve cannot be achieved in the micro-market: A flat demand curve means that there are so many produ­cers that individually none of them can influence the price.
• Minimum Support Price (MSP) related issues :
  • Increases the actual cost: for the government.
  • Results in lazy farming:  In Punjab, farmers want to keep the price line flat because they overproduce owing to huge input subsidies and an assured government market.
• Dilemma between farmers and farming: While farming is about economics and farmers are about politics.
  • The dilemma is that if farming is to be efficient, farmers will be worse off — and if farmers are to be better off farming will be worse off.

Benefits of MSP

• Artificially flatten the demand curve.
• It smoothens the income stream and acts like a salary.

Conclusion: Governments in electoral democracies which try to reform farming get clobbered by the farmers. But still farming reforms is necessary for long term benefits.