IMPORTANT NEWS ANALYSIS

MINIMUM SUPPORT PRICES FOR AGRICULTURAL PRODUCE

INTRODUCTION:   

In 2007-08, Madhya Pradesh government announced a bonus of Rs 150 above the minimum support price (MSP) per quintal of wheat.  Predictably, a large segment of farmers in the state shifted to the crop. The bonus was stopped in 2014. Farmers who had shifted production were not pleased. It fed into the resentment that would eventually erupt in widespread farmer agitations in the state this year.

PROBLEM: 

Its policies have created artificial incentives that are unsustainable, an inefficient drain on public funds, or both.

ANOTHER SCHEME BY MP GOVERNMENT: 

The Bhavantar Bhugtan Yojana will replace government procurement with compensatory payment. This will be when market prices are below the MSP. It is being implemented as a pilot scheme for eight crops

HOPE FROM THE SCHEME: The hope is that this will sidestep the implementation shortcomings of the procurement system. These extend from the lack of government storage facilities and supply chain logistics. Despite the government declaring MSPs for 25 crops, it largely procures only rice and wheat. It will be less distortionary, freeing up space for the market to set rates.

WHAT IS NEEDED?

1.       Mandi system:

With the 2003 and 2017 versions of the model Agricultural Produce Market Committee (APMC) Act, governments have attempted to liberalize this system, providing for private markets and integrated state markets.  This was a step towards a national market facilitated by the National Agriculture Market (eNAM). The problem with this is that it still operates within the mandi system. Solution: Government needs to get out of the business altogether—and that is only possible with a switch from the public distribution system to direct benefit transfers.

2.      Reforms should be aimed at inputs:

The Pradhan Mantri Krishi Sinchayee Yojana aims to extend irrigation cover to all forms and maximize water-use efficiency over a period of five years. In a water-stressed yet groundwater-dependent country like India, this is only possible with comprehensive rural electrification, allowing for techniques such as drip irrigation. The other major reform needed here is access to formal credit.  The current dependence on informal credit leaves farmers beholden to middlemen and traders who are often the credit suppliers, thus undercutting the former’s bargaining power

3.      Reforms should be reduction in number of people participating in Agriculture.

CONCLUSION: 

The agricultural sector is one of the handful where inelastic demand for the products, the deleterious public effects of supply shocks and inherent risks for suppliers mandate a government role. So, government policies should be sustainable and an efficient with less peoples participation.