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.
