85 % of farmers own less than 2 hectares of land. Most of the traders have upper hand over farmers and because of these farmers have no negotiating power in front of traders or Agri-firms. Large corporates can misuse their power and position to manipulate laws and can leave the farmer with no choice but to compromise with their crops.
In this article, Aman Degra, a penultimate year student pursuing B.A. LL.B from Institute of Law Nirma University will explain what is MSP (Minimum Support Price) and will further discuss the issues farmers are facing.
Minimum Support Price
MSP is essentially a form of market intervention undertaken by the govt. to provide safety to farmers when the price of certain crops drops in the market. Whenever the price of specific crop drops at a level at which if crops are sold, then it will lead to a loss in revenue to farmers. So before the sowing period, the government comes with certain fix rates and ensures farmers that if they are unable to get a good amount of price for their crops, then govt. will buy those crops at a rate not less than MSP.
The rate at which government buy crops is known as "Procurement Price" and it cannot be less than MSP. The centre currently fixes MSP for 23 farm commodities:
5 pulses and
4 commercial crops
Its is to be noted that, there is no law for MSP but it is given by the govt. under its policy.
How MSP is decided?
The cabinet committee on economic affairs determines the MSP based on the recommendation of the Commission for Agriculture Cost and Price (CACP).
CACP consider various factors while recommending the MSP:
Cost of cultivation
Cost of production
Input-output price parity
Trends in the market price
International price situation
In 2018, the method of calculation was changed to 1.5 times the total cost of production. Also, the cost of production has three variables:
A2: it considers all cash and in-kind expenses incurred by the farmer on the purchase of seeds, fertilizers, equipment’s, etc.
FL: under this imputed value of unpaid family labourers are also considered.
C2: it is the cost of rents and interest that farmers are paying for their lands.
CACP recommendation was based on 1.5 times of A2+FL only.
Here I want to point out that farmer activists are continuously demanding that method must be of 1.5 times of C2 as it includes the rental cost too.
Present Mandi System
Farmers sell their crops to licenced middlemen in their nearest mandi’s, where the price is decided by the middlemen through the method of auction. Traders then approach to mandi’s to purchase the crops. (Here on this transaction, mandi tax is levied).
If any trader import crops from other states, then also he has to pay mandi tax in the state in which he is exporting.
Farm Act 2020
The Farm Act includes three Acts and they are as follows:
The Farmer Produce, Trade and Commerce (promotion and facilitation), Act, 2020