Debate Over MSP: The Success Of Amul Has A Few Lessons For The Government

One hears many economists and legislators spouting theories about how MSP is a bad idea without realising that the idea has already worked for milk, ushering in a white revolution and prosperity for India’s dairy farmers.

MSP: The Milk Procurement Model

India’s milkman Dr Verghese Kurien introduced an MSP - without any recourse to government support – by the simple expedient of guaranteeing farmers a minimum price for their milk, given that it met certain quality parameters.

It saved farmers from unscrupulous middlemen who were buying their produce at depressed prices and jacking up the retail prices and yet at the same time incentivised them to produce more and make India self-sufficient in milk products. As a result, the dairy sector and animal husbandry today accounts for 4.5 per cent of India’s GDP.

Not only was an implied MSP enforced by the largest cooperative undertaking to buy milk at a fixed price without any fiscal support from the state, Kurien also ensured that foreign dairy supplies did not queer market economics for the Indian farmer.

All imported dairy products – milk, casein, butter, including those received as gifts by the Indian government – were taken up by National Dairy Development Board and released in the market slowly at market prices. The imports were not allowed to depress domestic market prices, and consequently, farmers were thus never subjected to distress sale, or unremunerative prices.

The government has on many occasions since then opened up the Indian agriculture sector to imports or tried to do so. The government was on the verge of tacitly agreeing to allow diary imports from New Zealand in trade talks some five years ago. Protests by leading experts luckily stalled that as it may well have hurt the interests of the 10 lakh plus farmers who depend on the dairy industry.

Imported Competition For Farmers

The government’s penchant for imports is well known. It resorted to import of edible oil and oilseeds potentially jeopardising the revenue earnings for Indian farmers, especially the small asgriculturists.

The state similarly, allowed import of pulses, even as agriculturists increased acreage under pulse-cultivation. Usually it was the small farmers, that were often abandoned by FCI and STCs, who opted to grow pulses. Even as the market price for the lentils remained high, the farmers got very little as they neither had the bargaining power nor the staying power to wait out a rise in wholesale prices. The bulk of the profit went to middlemen.

With the government itself skewing market prices for farmers, are the agriculturists wrong in demanding MSP for all crops?

As for the government argument that procurement can only be done by state-controlled agencies, the fact is that many of them are riddled by corruption, and known to at times collude with other market forces.

Procurement Woes

They know quite well the plight of small farmers when government agencies walk away, leaving them to the tender mercy of private traders who compel them to sell at distress prices. The current procurement policies appear to have been tailored to favour two states - Punjab and Haryana - at the cost of the country's entire farming population.

While an average of 85.8 per cent and 78.2 per cent of the paddy produced between 2014-15 and 2019-20 by Punjab and Haryana respectively were procured by government agencies, the procurement average for the entire country was just 30.6 per cent of the produce.

Similarly, for wheat while 69.1 per cent and 66.5 per cent of the grain produced during this period in Punjab and Haryana respectively was bought up by state agencies, just 30.6 per cent of the grain produced all over the country was procured.

All this has compelled the farmers to insist that procurement MSP shall be applicable to private traders as well.

To make matters worse, the farmers have not even been allowed to become self-reliant. Futures have been banned in many commodities preventing farmers from planning their cultivation based on futures prices.

Collectively, such practices have actually made the farmer feel more vulnerable than ever before. Not surprisingly, the farmers have little option but to agitate. The reason why northern Indian farmers have taken up the fight more aggressively is because they are close to Delhi and see political advantages as well. But the need for farmers to be heard is growing louder, and justifiably so.

(The author is a Mumbai-based senior journalist and researcher. A longer version of this article earlier appeared here. Views expressed are personal)