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Farming - price deficiency mechanism

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September 08, 2017

Why in news?

In line with the NITI Aayog's earlier suggestion, Madhya Pradesh government has announced a new price deficiency payment mechanism.

What is it about?

  • The price deficiency mechanism aims at compensating farmers in cash for their failure to get the minimum support prices (MSP).
  • Under this plan, the state will work out a “model price” by looking at past market rates in Madhya Pradesh and other states.
  • Subsequently, the farmers will be paid either the MSP or the model price, whichever is higher.
  • Initially, the scheme will cover some selected pulses and oilseeds, where the official procurement is typically low, unlike in rice and wheat.
  • But, subsequently it may be expanded to ensure remunerative returns for all major crops.

What is the need for this?

  • As highlighted in one of the recent reports of Niti Aayog, MSP has many shortfalls in making farming profitable for farmers.
  • Unremunerative - It blamed the MSP system for distorting agricultural markets and cropping pattern in favour of two main staple cereals - rice and wheat.
  • Also, the post-harvest peak marketing season and the resultant price fluctuation lead to inadequate price realisation for farmers.
  • In many cases, prices received by growers fail to cover even their production costs due to a bumper harvest-driven price crash.
  • Coverage - MSP is largely confined to wheat and rice and to some extent to cotton and sugarcane.
  • Also region wise, it is confined to parts of a handful of states where the procurement, transportation and storage infrastructure exists.
  • For other crops and other places, MSP is seeming irrelevant and growers are forced to go in for distress sales.
  • Reach - NSSO survey reveals that a very few percentage of farmers knew of MSP and that only a few within that managed to sell their produce at MSP.
  • Besides these, MSP causes needless accumulation of stocks in the government coffers, involving huge maintenance costs and storage losses.

What is the way forward?

  • As production costs vary from region to region and even from farmer to farmer, the present concept of “one nation, one MSP” should be modified to address the regional concerns.
  • Farmers should be made aware of the various schemes that the government run for their benefit.
  • The risks associated with price fluctuations can be addressed with the new non-market intervention-based system.
  • The proposed new system has also the potential to avoid physical handling and warehousing of commodities.
  • The price deficiency payment mechanism thus can go a long way in making farming remunerative.


Source: Business Standard

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