Here’s why farm protests have been loudest in Punjab, Haryana

The MSP regime doesn’t benefit all farmers and it has not been effective in all states.

Farmers in Punjab and Haryana have blocked roads and railway tracks on Friday to protest three new legislations, which they claim could pave the way for the government to stop buying grains at federally-fixed minimum support prices (MSPs), leaving them vulnerable to exploitation by agribusinesses.

Farmers in Punjab have been at the forefront of the protests against the farm reform bills passed by the Centre.(HT Photo/Gurpreet Singh)

Prime Minister Narendra Modi has backed the bills, recently approved by Parliament, as historic reforms, which will open up agricultural markets, giving more options to farmers other than notified market yards to sell their produce.

Modi has said the new legislations do not dismantle existing markets, known to run as cartels, or in any way jeopardise minimum support prices or MSPs for staples such as rice and wheat. These assurances have failed to reassure millions of farmers in Punjab and Haryana.

Farmers’ groups fear the new changes could cause existing notified market yards to collapse on their own and result in new markets, where large capitalists will hold sway. This will indeed be undesirable. But the reforms were long overdue because the current system is corruption-prone and monopolistic.

Farm protests have been loudest in states such as Punjab and Haryana, states where the procurement system and MSP mechanism is strong. The MSP mechanism however is neither equitable nor adequate in providing remunerative prices to all types of farmers, say experts.

The key determinants of MSP are demand and supply, cost of production, price trends, both domestic and international, terms of trade between agriculture and non-agriculture sectors and a minimum of 50% as the margin over cost of production.

However, costs of production vary widely from state to state. MSPs are calculated by a methodology based on all India weighted average costs. “This does not necessarily guarantee remunerative prices to all farmers in all regions,” states a 2018 paper by PK Mishra of the international food policy research institute and T Haque, former chairman of NITI Aayog’s land policy cell.

Input costs, or the expenses incurred by farmers for inputs, such as fertilisers, have recently risen at a faster pace than the MSPs. From 2004–05 to 2014–15, the average annual growth rate of C2 cost of production of paddy was 11.2% in Bihar and 11.9% in West Bengal, while the MSP of paddy increased only at the rate of 10.6% per year. C2 cost of production is the widest measure of a farmer’s cultivation cost, which includes the imputed rental value of land, depreciation and interests on capital.

A big reason why Friday’s farmers protests is being witnessed more in some states, and not others, has to do with where MSPs are implemented. The government’s procurement system and MSP mechanism do not benefit all farmers. While the government announces MSPs for 23 crops, only wheat and rice are bought in sufficiently large quantities.

For wheat, the MSP mechanism is robust only in Punjab, Haryana and Madhya Pradesh. For rice, only farmers from states such as Andhra Pradesh, Chhattisgarh, Punjab and Haryana benefit. Farmers in other states hardly benefit from support prices because the government’s procurement infrastructure is missing in these states.

The 70th round of National Sample Survey for 2012–13 revealed that only 32.2% of paddy farmers and 39.2% of wheat growers in the country were aware of MSPs. The survey also showed that only 13.5% of paddy farmers actually benefited from MSP, while only 16.2% growers sold their produce to government procurement agencies at MSP prices.

For commercial crops, such as cotton and jute, the state intervenes through the Cotton Corporation of India and Jute Corporation of India only when market prices fall steeply.

Economist Ramesh Chand, member Niti Aayog, argued in a 2012 paper that it is “not feasible for public agencies to procure the marketed surplus of each and every commodity everywhere in the country to prevent prices falling below a floor level; nor would this be desirable … So, new mechanisms have to be devised to protect producers against the prices falling below the threshold level.”