How government can give farmer MSP, and fulfil its goals

• The fluctuating prices of commodities like jeera highlight the need for price assurance mechanisms for farmers.
• For instance, despite a high modal price during sowing, current prices are significantly lower, causing concern among farmers.

Price Volatility Factors

• Price volatility in crops is influenced by various factors, including market demand, production levels, and external conditions like weather patterns.
• Expanded acreages in response to good prices can lead to bumper crops and subsequent price collapses.

Cost Burden on Farmers

• Increased expenses, such as soaring seed costs, have added to the financial burden on farmers.
• With higher input costs and uncertain price realisations, farmers face considerable risk and uncertainty in their livelihoods.

Role of Minimum Support Price (MSP)

• MSP serves as a crucial tool to insulate farmers from low prices and promote crop diversification.
• However, the effectiveness of MSP lies in its implementation and assurance of fair prices to farmers.

Price Deficiency Payments (PDP)

• Price deficiency payments (PDP) offer an alternative approach to ensure price assurance for farmers.
• Under this system, if market prices fall below the MSP, the government compensates farmers for the difference.

Advantages of PDP

• It doesn’t interfere with the market mechanism; traders and farmers would continue buying and selling at market rates.
• Formalisation of Farm Trade
  • With PDP in place, farmers will likely demand receipts from buyers detailing the quantity and price of the produce sold.
  • This will incentivize formalisation of farm trade, which historically has been largely cash-based.
• Establishment of Electronic Trading Platforms
  • It will incentivise states to set up APMC mandis or even electronic trading platforms, where farmers can sell their produce.
  • These platforms will facilitate transparent transactions and enable farmers to sell their produce digitally.
• It aligns with the goals of formalization, digitization, crop diversification and the marketing reforms advocated by the government.

Addressing Concerns

• While there are concerns about potential market manipulations with PDP, regulatory measures can be implemented to mitigate such risks.
• Additionally, combining PDP with physical procurement or setting indicative market prices can help ensure transparency and fairness in the system.