MSP — the factoids versus the facts

Context: Popular factoids related to the Minimum Support Price (MSP) need decluttering to have a more informed discussion on farm reforms.

What is Factoid? According to one definition, a factoid is “an item of unreliable information that is re­ported and repeated so often that it becomes accepted as fact”.

Debunking the Factoids on Public procurement and Minimum Support Price (MSP) system:

• Skewed Concentration of MSP: The MSP is meant to set a floor below which prices do not fall, and is announced by the government for 23 commodities.
  • However, government procurement is heavily concentrated on wheat and rice, with other crops barely being procured.
• On the actual benefit received: It is often alleged that only a few (6%) farmers(large farmers) benefit from the MSP Scheme.
  • However, the 6% figure from the Nation Sample Survey (NSS) data 2012-13 relates to paddy and wheat alone. While the actual numbers are higher — 14% and 16%.
  • At the all India level, among those who sold paddy to the government, only 1% were large farmers, owning over 10 hectares of land.
  • Small and marginal farmers, with less than 2 hectares accounted for 70%. The rest (29%) were medium farmers (2­10 hectares).
  • In the case of wheat, 3% of all wheat­selling farmers were large farmers. More than half (56%) were small and marginal farmers.
  • Across Regions:
    • In Punjab and Haryana, the share of small and marginal farmers (38% and 58%, respectively, among paddy sellers) is not insignificant.
    • In Chhattisgarh and Odisha, small and marginal farmers comprise 70­80% of all sellers to government agencies.
• On the Skewed Procurement that benefits only Punjab and Haryana farmers: While the public procurement had been skewed in the past, the majority of states are now running the MSP system.
  • Geography of procurement has changed: Food Corporation of India (FCI) data suggest that by July 2015, 15 States had taken Decentralized Procurement (DCP) Scheme (1997-98).
  • Until 2000, barely 10% of wheat and rice was procured out­ side the traditional States. By 2012­ 13, the share of the DCP States rose to 25­35%.
  • An over­whelming majority of agricultural households selling wheat to the procurement agencies come from Madhya Pradesh (33%) compared to Punjab (22%) and Haryana (18%).
• On the consequence of MSP on diversification: It is often alleged that the MSP system leads to mon-cropping
  • However, among Punjabis who cultivated any crop, 21-37% did not grow paddy and wheat.
  • All agricultural households including those which did not cultivate a crop (indicating more diversified sources of agricultural income), a larger proportion (58 and 48%, respectively) stayed away from paddy and wheat.
• On the monopoly of Agricultural Produce Market Committee (APMC): It is a factoid that the new laws allow farmers to sell outside the APMC.
  • However, it must be noted that the proportion of sales via the mandi is only between 10-64% for MSP crops.
  • Demand for MSP originates because farmers get low prices outside; Sales to mandi fetched, on average, just 13.3% higher prices for paddy and 5.8% for wheat.

Conclusion: Getting the facts right is an important first step in resolving the issues facing the agricultural sector and farmers’ issues.