Go against the grain: Open markets fetched lower prices than MSP

Analysis of 2019 study shows clear decline in the dominance of APMCs and rise of local traders in agricultural marketing

An average Indian farmer got way less than the minimum support price (MSP) after selling major crops in the markets in 2019, reveals a Business Standard analysis of the data from the national survey on India’s farm households. More importantly, a few crops had fetched a higher price than the MSP, back in 2013. 
 
In the same six-year period, farmers dialled local traders in private unregulated markets more frequently than before, and accessed agricultural produce marketing committee (APMC) mandis to a lesser degree to sell their produce, shows the survey data. This suggests that embracing the open market gave farmers a remuneration far lower from the MSP in 2019 than six years ago. 

 
Barely did the realised market prices grow in real terms, while they moved further away and below the administered MSP, when there was clear decline in the dominance of APMCs and the rise of local traders in agricultural marketing. These findings raise questions on the ability of open markets in India to provide remunerative prices to farmers. 
 

Further, if one looks at the state-wise data on prices realised, it shows only in Punjab and Haryana, and to some extent, Chhattisgarh, did farmers get better prices than the MSP for paddy in 2018-19.
 
This assumes importance, especially when the new farm laws on marketing and trade —currently sub judice - are awaiting the Supreme Court’s nod.

 
The data from the recently released report on the Situation Assessment of Agricultural Households and Land and Holdings of Households in Rural India has been used for the analysis. For comparison, the 2013 edition of the same report has been used. 
 


Market prices repel MSP further
 
Price differential between the price realised by an average farmer and the MSP for a particular crop for that year has been calculated for 15 crops. Of them, eight are kharif — paddy, jowar, bajra, maize, ragi, arhar, urad, and moong, four are rabi — wheat, gram, lentil, and mustard, and three are cash crops — sugarcane, cotton, and soybean. 

 
What the analysis shows is that in 2013, all cash crops, two rabi pulses (gram and lentil, mustard), one kharif cereal (maize), and one kharif nutri-cereal (ragi) fetched more than the MSP after sale in the market. That makes it eight crops out of 15, for which an average Indian farmer got a better price than the MSP. 
 
In 2019, for none of the 15 crops did the open markets give a better price than the MSP. 
 
To be fair, the government did raise the MSP for all crops in the 2013-2019 period. Even in the real market, all crops fetched a higher nominal price in 2019, compared to 2013. 

 
But in real terms, only three out of 15 crops — paddy, jowar, and bajra — fetched a higher price in 2019. Farmers got smaller real remuneration for the sale of 12 out of 15 crops in the open market. 
 


Local traders gain APMCs’ market share
 
A lot of things changed from 2013 to 2019, but the report highlights one interesting fact: local traders in private unregulated markets increased their share in buying farm produce, while the market share of APMCs declined in the six-year period. 
 
For instance, close to 30 per cent of paddy was sold in APMCs in July-December 2012, according to the 2013 edition of the survey. In the same period of 2018, only 8 per cent of paddy was sold in APMCs. Take the example of pulses: only 22 per cent of arhar landed in APMCs in 2018, compared to 66 per cent in 2012. 

 
This applies for rabi crops, too. The share of wheat marketed by farmers in APMCs dropped from 44 per cent in 2013 to 13 per cent in 2019. That for mustard declined from 63 per cent to 13 per cent. 
 


Effective procurement matters
 
Though the realised prices at the national level have been poorer, compared to the MSP in 2019, the data shows that farmers in some states did realise better prices than the MSP. 
 
Punjab, Haryana, and Chhattisgarh were the only states where the market gave better returns than the MSP to paddy-selling farmers. Government agencies procured more than 85 per cent of paddy in the two states in three kharif seasons ended 2018-19, while they bought 82 per cent of rabi wheat in the rabi season of 2018-19 in Haryana. 

 


This shows that farmers in the two states, where procurement has worked well, stood a better chance of getting higher returns on crop sale. 
 
While these findings from national surveys clearly suggest that the MSP regime, if implemented effectively, ensures that farmers get better prices, expanding the procurement operation will crimp the finances of the central and state governments. Meanwhile, the debate on APMCs versus the new laws is slated to continue.