It's time to make MSP a legal right for farmers

Aware that farmer has no mechanism to provide a price tag for his produce; markets often end up in ruthless exploitation like what the Nashik farmer had to face when market prices crashed, and was left with no option but to throw his produce. To bring in equilibrium in the way markets operate, allowing it to treat agriculture and industry in uniformity, crop prices too need come with a pre-determined price tag

A couple of days back a small video clip of an irate Nashik farmer pulling out crates of tomatoes from his vehicle and throwing it on the street went viral. A number of other reports showed truckloads of tomatoes being emptied in the streets at some places in Maharashtra.

It is not the first time that such distressing reports have appeared. It is tomato now, it was potato earlier and even the pricy onion has been dumped. Every now and then such agonising reports from different parts of the country have appeared in the media. Only the location, the commodity and the face of the farmer changes. And every time, as far as I remember, these reports have been dismissed with a flip of the hand by economists and the educated elite calling it simply a play of the supply demand mechanism.

That makes me wonder. Every time an industrial product – be it a car, motorcycle or an FMCG product like soap, shampoo and toothpaste to name a few – enters the market, it comes with a price tag. While economists tell us that free markets, based on the supply demand equilibrium, will lead to price discovery, the fact is that prices are in reality already fixed for all industrial products before they are brought into the market. Take, for instance, the automobile sector. Each new brand that is launched comes with a price tag. Or consider for that matter, medicines that every household require. The maximum retail price (MRP) is always mentioned. Whatever remains unsold is taken back by the supplier.

When it comes to agriculture, none of the commodities ever come with a pre-fixed price tag. Whether it is tomato, mango or chillies or for that matter any other farm product. And in the absence of a price tag, farmers are left with little option but to face the vagaries of the markets. Unless the production for a particular crop falls, there is hardly a probability for the farmers to get a higher price. Since only six per cent farmers get the benefit of an assured Minimum Support Price (MSP) as the high-powered Shanta Kumar Committee had earlier worked out, imagine the plight of the remaining 94 per cent farmers who have been at the mercy of free markets all these years. No wonder, as the Economic Survey 2016 acknowledges, the average annual income of a farm family in 17 States of India, which means roughly half the country, is only a paltry Rs 20,000.

Aware that farmer has no mechanism to provide a price tag for his produce; markets often end up in ruthless exploitation like what the Nashik farmer had to face when market prices crashed, and was left with no option but to throw his produce. Even in America, where free market operates for decades in agriculture, farmers have paid the price. Studies show when a consumer buys food products, the average realisation of a farmer from every dollar worth of food sold is hardly 8 per cent. With such low incomes, American farmers too are faced with a severe agrarian distress, with farmers saddled with a bankruptcy of $ 425 billion in 2020.

This doesn't happen with industrial products for the simple reason that it's not markets that determines the consumer price. To illustrate, Maruti has decided to raise prices of its vehicles for the third time this year. A hike of 1.4 per cent in January, followed by another increase of 1.6 per cent in April, and in September Maruti is contemplating another increase by 3-4 per cent. The company's argument is that the price rise is unavoidable because of the continuous rise in input prices. While most urban elite will back this argument saying the company has to cover-up for the additional costs, the fact remains that the correction in vehicle price has been done before the product enters the market. This is not a privilege that a farmer can exercise. He has to live content with whatever the market offers.

Take for instance, the drop in apple prices for the farmers this year. In Himachal Pradesh, where Adani Agri-fresh happens to be a monopoly buyer, it has reduced the purchase price of premium quality apples by Rs 16 a kg this year. Against Rs 88 per kg offered last year, the company is giving a price of Rs 72 per kg. While the farm input prices have certainly gone up, and inflation too has remained high, there seems to be no economic justification for a reduction in apple prices. But because apples don't come with a pre-determined price tag, like for the industry, lakhs of apple growers will silently bear the losses. In the absence of a price tag for farm produce, we are actually penalising farmers to grow food.

In other words, markets treat agriculture and industry separately. This dichotomy in market operations however remains unacknowledged. To bring in equilibrium in the way markets operate, allowing it to treat agriculture and industry in uniformity, crop prices too need come with a pre-determined price tag. This will certainly lead to disruptions of the food value chains, which is invariably built on keeping farm prices low. This must change. It is therefore high time economists and policy makers realise that when the protesting farmers demand MSP to be made a legal right, meaning no trading to be allowed below the assured price that is announced every year for 23 crops, they are actually asking for a price tag for the farm produce. Making MSP a legal right for farmers is the reform India is waiting for. More money in the hands of farmers, by way of a guaranteed price, will lead to creation of a huge rural demand that will fast forward the wheels of economic development.

(The author is a noted food policy analyst and an expert on issues related to the agriculture sector. He writes on food, agriculture and hunger)