Food security not only means an individual being able to intake adequate nutrition but also constitutes “an important objective at the national level, where political leaders can be held responsible for failures and successes in maintaining accessible supplies of staple foods at stable prices…” Rich countries support agriculture by ensuring a price higher than the market price. This support comes at taxpayers’ and consumers’ expense and is justified by the multi-functionality of agriculture in providing national food security, preserving the environment, and ensuring welfare of rural societies. Indian agriculture needs government support on similar grounds. It is a safety net that acts as a buffer to macro-economic shocks in developing countries.. This is vindicated by the growth of the agricultural sector at 3.4% at constant prices in 2020-21, while the economy as a whole for the same period contracted at -7.2% due to the pandemic. This article analyses the implications of repealing farm laws on Indian agriculture and national food security.
As a matter of public policy, it becomes important to ensure adequate domestic production of rice and wheat and also to stabilise their prices. The repealed farm legislations were not specific to any crop and pertained to all agricultural produce including livestock products. However, this article concentrates only on rice and wheat, two staples that India produces and consumes.
The Indian parliament passed 3 farm legislations in September 2020. A section of the farmers had been demanding a repeal of the legislations since then. Following the farmer protests, the Supreme Court, after hearing the petitions, stayed their implementation in January 2021. The 3-judge bench suspended the legislations in order to calm the agitating farmers and facilitate negotiations with the government. Even though the government offered to keep the laws in abeyance for a period of eighteen months, the standoff ensued. It was only in November 2021 that the government passed the Farm Laws Repeal Bill 2021. It received the assent of the President on November 30, 2021.
The repealed legislations reveal the intentions of the government and its ability to put that intention into effect. Model Agriculture Produce and Livestock Marketing (Promotion and Facilitating) Act 2017 covers the provisions of the 2 repealed legislations on contract farming and on trade facilitation outside the Agriculture Produce Market Committee (‘APMC’) regulated markets. In addition to this, the repealed farm legislations also spelled out the nature of government control on contracts, and provided for an electronic platform and a dispute resolution mechanism. It is quite easy for the government to bring back regulatory provisions of the repealed farm legislations, including an amendment to the Essential Commodities Act that enabled hoarding of food grains, by camouflaging them as domestic trade regulations and not as farm bills. The intent of the government to control trade in agricultural commodities and help private traders and exporters is clear. Though the existing APMC regulated system is far from satisfactory, the fear is that ‘modernising’ the laws will pave way for predatory corporate commercialisation of Indian agriculture led by politically well-connected tycoons.” Journalist P. Sainath opined that the pro-corporate intent behind the bills may enable the intermediaries to get a tighter grip on the farmer. In the nexus of patronage politics of political leaders, bureaucracy, and businesspeople, farmers fear that they will be short changed.
The third repealed legislation enabled the hoarding of food grains. Those with deep pockets could buy food grains at cheap rates soon after the harvest and hoard, get bank loans against the stocks, and then export them or sell in the domestic market for a higher price any time they want. So far, such hoarding of food grains was prohibited by Essential Commodities Act. Economists such as Ashok Gulati, P.K Joshi, and Bharat Ramaswamy are in favour of farm reforms proposed by the repealed Acts as they think that they will release the farmers from the outdated APMC system and modernise agriculture by attracting investments.
This article argues in favour of a Minimum Support Price (‘MSP’) for rice and wheat and explains the link between MSP and national food security. It also examines the adverse impact of dilution of price support through non-procurement and that of hoarding on national food security. The next section elaborates on the link between MSP, food production, food distribution, and food security. The third section relates MSP to World Trade Organization conditionalities and the export trade.
I. Minimum Support Prices, Food grain Production and Food Security
The Minimum Support Price declared for rice and wheat benefit those who sell directly to the procurement agency. It also acts as a reference price or benchmark price for other transactions, inside and outside the markets. Farmers from Punjab, Haryana, Western Uttar Pradesh, Telangana and Andhra Pradesh benefit the most as a significant percentage of rice and wheat procurement comes from these states. At present, there is no legislation on MSP. As per the prevailing public policy, the government buys rice and wheat required for the Public Distribution System (PDS) through procurement at MSP. The government announces MSP for twenty-three crops but does not procure all of them and selects certain crops in certain years to support farmers.
MSP is declared before the sowing season. It helps the government get sufficient stocks of food grains for the PDS and the farmers to get a fair idea of the remunerative price. MSP ensures the stability of prices and provides food security to Below Poverty Line (BPL) consumers as per the report of the Niti Aayog. The market price (the farm harvest price) and the declared MSP for rice and wheat move together (Figure 1 and Figure 2). It encourages the farmers to keep producing rice and wheat as the MSP, which is tied to the cost of production, is constantly revised upwards.
Those who support reforms and are sceptical about MSP argue that the volatility of international prices prevents the exporters from making profits when the domestic price is too high. As shown in Figure 3, the international rice price index varies more widely than the domestic prices in Figure 1. The government’s refusal to legalise MSP, the silence of the repealed farm bills on MSP, and the tone of trade liberalisation in the repealed farm bills suggest that the government wants to keep the option of not procuring the food grains open. The government may be trying to procure from open market at low prices to reduce its expenditure.
Domestic prices will have to be kept stable to avoid food price spikes for the consumers. In 2008, the rice stocks in the international markets plummeted and international as well as domestic prices increased. India banned the export of non-basmati rice for some time, declared higher MSP, and procured enough food grains for PDS. The PDS off-take also increased, as the open market prices of rice were remarkably high. International observers acknowledge that India escaped severe food inflation in 2008 faced by some of the other countries. They point out that the actions of various countries to protect their own interest led to speculation in the international agricultural commodity markets, leading to an increase in prices. As per the Kharif policy report of the Ministry of Agriculture, the international trade in non-basmati rice became competitive only in 2020, and the wholesale prices are below MSP at present.
Production, Distribution, Procurement and Minimum Support Price
Minimum Support Price at present is 50% above the operational cost plus the imputed cost of labour, whereas Prof. M.S. Swaminathan recommended double the total cost, which includes imputed rental values and depreciation on assets. Prof. M.S. Swaminathan in the Report of the farmers’ commission argued that farmers lose the incentive to produce if they do not get remunerative prices. So far Prof. Swaminathan’s recommendation has not been implemented. In the past twenty years, after the price hike in 2008, after the enactment of the National Food Security Act of 2013, and after the adoption of decentralised procurement and distribution of food grains, both the farmers and poor consumers benefited. Under the Food Security Act, the BPL cardholder’s issue price of rice stands at Rs. 3/- per Kg. The price of what was fixed at Rs. 2/-, and that of coarse cereals stands at Rs.1/-. Some states went ahead and distributed more food grains at subsidised rates. For example, Tamil Nadu distributes 35kg of rice for Antyodaya Anna Yojana (Poorest of the Poor) cardholder family and 20 kg of rice for BPL cardholder family of 4, free of cost. Andhra Pradesh distributes 20 kg, per family at Rs.1/- per kg, at the rate of 4 kg per person, to BPL cardholders. Antyodaya Anna Yojana cardholders get 30 kg per family at Re.1 per kg.
While southern states have been distributing PDS more efficiently, states such as West Bengal, Madhya Pradesh, Chhattisgarh, slashed issue prices and reached out to more BPL consumers after rice prices went up in the open market. Decentralised procurement, started in 1997-98, is now adopted by about 17 States. In decentralised procurement, states procure and distribute within the state, give the excess to the central pool and states with deficit take it from the central pool. Food Corporation of India warehouses store the grain, the central government department of food and civil supplies manages the stocks, while the finance department pays the agreed-upon food subsidy to the states. More farmers are directly benefiting from MSP after the decentralisation of procurement by the government, especially in Madhya Pradesh and Chhattisgarh. Because of the covid-19 Pandemic, the central government announced free food grains distribution at the rate of 5kg per person per month for 3 months to all BPL cardholders throughout India. The government also hiked the MSP for rice and wheat after the second wave of the pandemic as an incentive for sufficient production of food grains to meet the needs of the public distribution system.
India’s food security revolves around rice and wheat production and distribution, and the farmers, big and small, who produce them. No doubt, the PDS outlets, FCI, procurement agencies, and distributing outlets engage in corruption. There are problems of mistargeting, errors of commissions and omissions. Despite all the limitations, household food security is related to the public distribution system and to keep it going, MSP is imperative. Former FAO economist advocates diversification of grain production saying that India is producing too much wheat and rice. Erring on the higher side is better than erring on the lower side. India exports surplus production, but also imposes limits on the export of rice and wheat. Agriculture is a state subject under the Constitution. Despite the policymaking by the central government, the entire MSP operation is executed by the state machinery under decentralized PDS. Thus, national food security is closely tied to the implementation of MSP, procurement, buffer stocks, and public distribution system. Disturbing the system and toppling this system is not desirable at this point.
Implications of abolition of MSP and procurement from farmers
MSP is discredited by the supporters of the farm reforms on the ground that only a small percentage of farmers benefit from MSP. Ashok Gulati claims that only 6% of the farmers benefit, Reetika Khera and others say that the figure is about 13% for Paddy farmers and 16% for wheat farmers, based on the figures given in the 70th report of the National Sample Survey (NSS) of 2013. As per the 77th report of the National Sample Survey of 2019, 14% of the paddy farmers cultivating the crop in the rainy season (July- December 2018) and 18.5% of the farmers growing paddy in the winter season (January- June 2019) sold the crop to procurement agencies. 9.7% of the wheat farmers sold their output to the procurement agencies. As per the 2019 NSS report, about 24% of the paddy output and 20% of the wheat output of those with a marketed surplus was sold at MSP, though it may not have been sold to the procurement agencies. Further, a sizable percentage of agricultural households sold paddy and wheat in a local market or to a cooperative or government agency (Table 1). As per the Niti Aayog survey report on MSP, in 2016, about 67% of the farmers in the eleven sample states sold their produce at MSP rate through their own arrangement. This clearly indicates that MSP is a benchmark price at which farmers sell their produce. The benefits of MSP clearly go beyond those who directly sell to the procurement agencies.
MSP is a reference price for the farmers. Local markets may pay a lower price or a higher price than MSP, but it is still close to it. On-farm sale prices of small and marginal farmers could be lower, and we do not have any reliable data on the exact price received. Data on farm harvest prices pertain to prices in selected markets.
As per the 77th round of the National Sample Survey report of 2019, both for Paddy and Wheat (January-July), there was no sale through Farmer Producer Organizations (FPOs) or contract farming sponsor companies. About 0.01% of the agricultural households growing Kharif paddy (July-December) reported sales through Farmer Producer Organizations and 0.04% of the households sold rice through contract farming sponsor companies. It suggests that contract farming in rice and wheat is not attractive to the private companies, judging from the 2019 data, though this was the main focus of the repealed farm legislations of 2020. A meagre 5.7% of wheat growing households and 3.4% of Kharif and 1.7% of Rabi paddy growing households sold their produce in the discredited APMC markets. Most of the sales occur in local markets.
Even after the abolition of MSP, closing down of procurement and buffer-stock operations, the public distribution of food grains can go on as usual. Open market purchases from traders through tenders or entrusting the distribution to a private sector company are possible options. Without an MSP and public procurement operations, the situation gets complex. All big players, big landlords, wholesale traders, corporates, exporters, millers, retail supermarket chains buy rice and wheat from traders, who collect the produce from the farmers and farmers’ groups with or without farming agreements in the harvest season while prices are low. If profit margins are low, big players do not come into the sector. Monopolies and cartels may depress farm harvest prices, especially if hoarding is allowed. If farmers do not get remunerative prices, the production falls, increasing food insecurity in the country at all levels. We may have to depend upon imports. Big landowners and organised farmers groups benefit. Only 0.04% of the rice farmers sold through farmer producer groups (FPOs) in 2019. Given the predominant role of the government at present, the sale of paddy and wheat may be made compulsory on an electronic platform, for modernisation and better targeting. The electronic sales may go up just as the payments on mobile phones went up in recent years, but it does not necessarily mean a better price for farmers.
II. World Trade Organization, Support to Farmers and Minimum Support Price
One may argue that the government is refusing to legislate on MSP to avoid controversy with World Trade Organisation on MSP. The MSP provision per se is not illegal under WTO as long as the support is below the ‘de minimis’ level for India. The reason for the exclusion of MSP from the Farm Acts is seen as the desire of the government to discontinue it in the future. MSP comes under the WTO’s Amber Box of price distorting measures. Countries such as USA and Canada complain that Market Price Support (‘MPS’) as a percentage of Volume of Production (VP) is far higher than 10% in India. On the other hand, the Government of India says that India’s MSP operations are within the limits prescribed by the WTO. The problem arises as to the interpretation of rules of WTO and the method of calculation. For example, India calculates the Aggregate Measure of Support in USD, while the fixed external reference price of 1986-88 in the agreement was in Indian rupees. The eligible production, the currency of calculation, the exchange rate, the adjustment for inflation, the interpretation of fixed external reference price, and the like, make the calculated percentage vary widely. For example, India rightly takes only the procured amount as eligible production, while USA takes the entire production as eligible production, as the MSP is applicable to all. The non-product specific aggregate measure of support was mostly negative for India. However, product-specific aggregate measure of support for rice has been increasing, though it is below 10% now. In 2016, MPS as a percentage of the volume of production calculated as per the WTO methodology for rice was 6.67% and for wheat, it was -2.02%. The deflated support was negative both for rice and wheat in India. WTO’s ministerial decision in 2013 and 2014 gave temporary conditional relief for the developing countries to exceed the limit of 10% for food security reasons (“Peace clause”). While MSP comes under the WTO amber box, purchase of food grains by the government from the open market for PDS would conform to Annex 2 criteria and hence will not be considered a price distorting operation. At present India is comfortable with WTO compliance and it can invoke the peace clause if it exceeds the limit- there is no compelling reason to ignore MSP in the Farm legislations.
It is also argued that MSP distorts the market prices. The OECD (Organisation of Economic Cooperation and Development) countries which are high-income countries, cleverly put the direct support to agriculture in the WTO defined Green and Blue Boxes under farmers’ welfare and claim that they do not distort prices. It is informative to compare the farm income support given by other countries with that of India. To achieve sustainability of food production and agricultural production in the 21st century, support to agriculture through policy interventions is not only inevitable but justifiable both in the developed and the developing world.  There are several types of support provided in developed countries - direct budgetary allocation to farming, restrictions on land use, quotas on production, payments for not producing, making the domestic consumer pay a higher price for the produce. In this scenario, other countries protect their agriculture but Indian farmers do not receive adequate protection. Table 2 gives the agricultural producer support estimates for selected countries. The table gives estimated support as a percentage of farm receipts. Negative support estimate means that the government support is far from sufficient to cover their total cost. Farmers lose potential revenue. The implication is that there is no surplus generated to invest in agriculture.
As the FAO puts it, “the common linchpin of the price component of the PSE (Producer Support Estimate) calculations and of the DAI (Distortions to Agricultural Incentives) measures is the calculation of output price distortions.” All types of policy interventions and protection measures distort prices of agricultural commodities, both in the domestic and international markets. Countries, in which the share of the agricultural population to the total population is relatively small, protect their farmers. In India, 43.6% of the work force is engaged in agriculture.  It is doubtful whether India could give non crop-specific direct support to all its farmers.
At present, the direct support given by the central government under the “PM Kisan” scheme is only Rs. 6000/- per farm family, per year, in 3 installments. The scheme underwent revision since its inception in 2018. Initially, the marginal and small farmers operating less than 2 hectares were eligible. Later the revised scheme in June 2019 included more farmers with specified eligibility criteria. State governments in some states give additional direct support which increases the total direct benefit transfers to 12,500/- per eligible farm family per annum as in Andhra Pradesh. The cost of cultivation was more than Rs 80,000 per hectare of rice in Andhra Pradesh and more than Rs 70,000 per hectare for wheat in Haryana in 2016-17 and it will be far higher now. It is nowhere near the support required for rice and wheat farmers, given the escalating costs of production. Hence, the MSP for paddy and wheat production must stay along with other measures of support to give production incentives. If MSP is inefficient and distorts domestic prices, so be it. MSP helps to stabilise the farm harvest prices, and helps food security in India.
The prospect of India consistently getting profitable prices in the international market through large rice exports is low. As and when India enters the international grain markets in a big way as an exporter, the prices invariably slump, and when India enters as an importer in a big way the prices spike. India (producing for about 1.4 billion population) accounts for 10% of the world production. Even now, Indian rice exports receive a lower price than that of the other countries such as Thailand and Vietnam for similar varieties of 5% broken or 25% broken varieties of rice (Table 3). At present exporters buy rice at farm harvest prices, which is loss-making price for Indian farmers by international standards, as shown in Table 2. Squeezing the farmers’ profits further and paying them less to be internationally competitive is not desirable for India. The export price of other countries has no relation to the cost of production or income to the farmer.
The Price Index (base 2014-16=100) of non-Basmati rice variety, Indica, increased in the international markets from 95.7 in 2016 to 114.7 in 2020. In the past year during the pandemic, the same index increased from 115 in July 2020 to 124.6 in February 2021. The index fell again to 106.5 in July 2021 and further to 104.9 in October 2021. As per the FAO brief, Indian rice quotations slipped to an eleven-month low due to the weakness of the rupee against the US Dollar and increased supply of Kharif (July- October) harvest. Multiple factors beyond the control of the producers and exporters impact exports. Price fluctuations and logistic constraints limit India’s export potential of non-basmati rice.
To recap, the implications of repealed farm laws are threefold. Firstly, the intent of the legislations to enable the central government to control trade at the farm level and the complete absence of the mention of MSP in the laws created a fear that government will abolish MSP and procure food grains for PDS from the open market. Secondly, the farm agitation and the refusal of the government to repeal the legislations till the elections and refusal to talk about MSP, hardened the stand of the farmers on their demands. Thirdly, there is a threat of the amendment to the Essential Commodities Act, which enables hoarding by traders. Food insecurity concerns intensify if MSP is diluted and if the production falls below requirement. Even with MSP, food insecurity concerns surface with the hoarding of food grains by traders.
* Visiting Professor Madras School of Economics.
** Student M. A (General Economics) 2020 Madras School of Economics.
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 PTI, ‘US, Canada move WTO against India on ‘under-reporting’ of MSP on five pulses’ (Hindustan Times, 16 Feb 2019) <https://www.hindustantimes.com/business-news/us-canada-move-wto-against-india-on-under-reporting-of-msp-for-five-pulses/story-W7p19aWyMWYrGcSyEr1MqO.html> accessed 30 December 2021.
 PTI, ‘India’s MSP operations are WTO compliant: Piyush Goyal’ (Economic Times, 09 Feb 2021) <https://economictimes.indiatimes.com/news/economy/agriculture/indias-msp-operations-are-wto-compliant-piyush-goyal/articleshow/80771499.cms?from=mdr> accessed 30 December 2021.
 Dinesh Marothia et al, ‘Re-Visiting Agricultural Policies in the Light of Globalization Experience: The Indian Context’ (2017) IFPRI 73-78.
 ibid 79.
 Sachin Kumar Sharma, ‘WTO and policy space for agriculture and food security: Issues for China and India’ (2018) 31 (2) Agricultural Economics Research Review 214-216.
 Ibid 79.
 C. Peter Timmer and Selvin Akkus, ’Structural Transformation as a way out of Poverty: Analytics, Empirics and Politics’ (2008) Working Paper 150, Centre for Global Development.
 FAO, The State of Agricultural Commodity Markets ( 2015-16) 2.
 Biswanath Goldar et al, ‘Productivity growth in India since, the 1980s, The KLEMS approach’ (2017) 52 Indian Economic Review, 37-71.
 PTI, ‘Centre lifts landholding limit, extends PM-KISAN scheme to all farmers’ (The Hindu, 08 June 2019) <https://www.thehindu.com/news/national/government-lifts-landholding-limit-extends-pm-kisan-scheme-to-all-farmers/article27697207.ece> accessed 30 December 2021.
 BV Mahalakshmi, ‘Andhra Pradesh roll out direct benefit transfer for farmers on October 15’ (Financial Express, 24 September 2019) <https://www.financialexpress.com/economy/andhra-pradesh-roll-out-direct-benefit-transfer-for-farmers-on-october-15/1715293/> accessed 30 December 2021.
 Government of India, Agricultural Statistics at a glance 2019 (Ministry of Agriculture and Farmers Welfare, 2020) 147.
 M. S. Swaminathan and Swarna S. Vepa , ’How can India help prevent Food Price Volatility?’ (2012) 43 IDS Bulletin, Institute of Developmental Studies, Special Issue.
 FAO, ‘Markets and Trade’ (United Nations) <http://www.fao.org/economic/est/publications/rice-publications/the-fao-rice-price-update/en/> accessed 30 December 2021.