Government Urged to Explore Alternatives to Legal MSP Framework

Experts have highlighted the challenges of making the minimum support price (MSP) legally binding. Instead, they propose alternative measures, such as introducing a minimum auction rate at agricultural markets to ensure farmers recover their production costs while allowing prices to be influenced by demand and supply dynamics.

Minimum Auction Rate Proposal

The Doubling Farmers' Income (DFI) committee proposed amending State APMC Acts to mandate a minimum reserve price (MRP) at market yards. The MRP, based on production costs, would act as a floor price during auctions to prevent excessively low bids.

Ashok K Dalwai, former DFI committee chairman, stressed that farmers should be free to set higher prices as long as they meet or exceed the MRP.

Challenges with Legal MSP

PK Joshi, Vice President of the National Academy of Agricultural Sciences (NAAS), argued that a legally binding MSP is impractical in an open market economy. Such a policy would necessitate the government to procure, store, and sell all agricultural produce, incurring substantial economic and logistical costs.

Joshi cited rice and wheat as examples, noting that the Food Corporation of India’s (FCI) current procurement and distribution system already has a high economic cost. Extending this model to all crops would require significant investments in infrastructure and new institutions, diverting resources from agricultural development projects like water management, high-value crops, and advanced technologies.

Alternative Strategies for Farmer Support

To ensure fair prices for farmers, experts advocate for alternatives such as:

• Price deficiency mechanisms: Compensating farmers for the difference between the market price and MSP.
• Price insurance schemes: Protecting farmers from price volatility.
• Warehouse receipt systems: Allowing farmers to store produce and sell later at favorable prices.
• Commodity derivatives: Enabling farmers to hedge against price risks.
• Contract farming and cooperatives: Supporting collective production, processing, and branding to enhance market access and profitability.

Region-Specific Reserve Price

The DFI committee recommends implementing a reserve price system distinct from MSP. This reserve price would account for factors like:

• Cost of cultivation (A2 + FL methodology).
• A hardship factor based on regional conditions such as irrigation status, yield levels, and local input costs.

This approach would offer farmers a benchmark price during market negotiations while preserving MSP for government procurement programs.

Conclusion

Experts suggest a multi-pronged strategy to support farmers without legalizing MSP. These measures aim to balance market-driven dynamics with mechanisms to ensure farmers earn a fair price, minimizing reliance on government intervention while promoting sustainable agricultural growth.

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