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Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance 2020 (FPTC) & Issues with MSP

Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance 2020 (FPTC) & Issues with MSP

UPSC CSE Mains Syllabus: GS-3- Issues related to direct and indirect farm subsidies and minimum support prices; Public Distribution System- objectives, functioning, limitations, revamping; issues of buffer stocks and food security; Technology missions; economics of animal-rearing.

Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance 2020 (FPTC) & Issues with MSP

Farmer agitations against the recently promulgated farm Bills are growing in northern states of Punjab, Haryana, Madhya Pradesh, and Uttar Pradesh. Interestingly, these are states benefitting most from the government’s MSP operations. This warrants an impartial assessment of the MSP.


  • Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance 2020 (FPTC).
  • Indian agricultural markets are studied to have suffered at the hands of oligopolistic APMC traders/middlemen.
  • The FPTC Bill provides an alternate to state APMCs and offers the freedom to sell and purchase agri-produce to both farmers and buyers.
  • By creating alternate and competing markets, which do not levy taxes/fees, FPTC will help farmers by reducing transaction costs, increasing transparency, and improving their share in consumer’s rupee.

Assessing through an example:

  • NAFIS or NABARD All-India Rural Financial Inclusion Survey 2016-17 reports give state-wise estimates of farmer incomes and its components, for 2015-16.
  • By dividing this income with average landholding size in the state (taken from GoI’s Agriculture Census 2015-16), we get a state-wise estimate of incomes generated per hectare (see graphic).
  • Taking Punjab, Bihar, and Kerala, their average monthly income from cultivation were: Rs 12,481, Rs 1,652 and Rs 6,284, respectively, and average landholding sizes were: 62ha, 0.39ha, and 0.18ha.
  • Upon dividing respective incomes with sizes, we find that on per hectare basis, Kerala farmers generated the highest incomes (Rs 34,910), followed by Bihar (Rs 4,236) and then by Punjab (Rs 3,448).
  • Even though a Punjab farmer earns more than a Bihar or a Kerala farmer, average incomes generated from every hectare in the state are much lower (perhaps, large differences in landholding sizes between these states could mathematically explain this counterintuitive trend).

But how can farmers in Bihar, for example, generate more income per hectare than in Punjab?

Diversified crops vs Cereals:

  • A look at the crops cultivated shows the reason for this. In 2015-16, Punjab’s agricultural output (current prices) valued at about Rs 1.3 lakh crore and Bihar’s at Rs 1.1 lakh crore.
  • While Punjab’s agricultural basket emerged cereal-centric, Bihar’s was more diversified.
  • Cereals constituted only 40% share in Bihar, but 70% in Punjab.
  • Share of fruits and vegetables (F&V) in Bihar was high at 35%, but only 11% in Punjab.
  • Bihar also generated higher value from pulses, oilseeds, sugarcane, among others, unlike Punjab.
  • Cereals are low-valued crops compared to F&V, oilseeds, or pulses.
  • Average yearly prices of F&V are also higher than cereal prices.
    By focusing on lower-valued crops, Punjab is missing benefits of diversification that Bihar is tapping on.
  • Kerala is another striking example. With the smallest landholding size in the country (less than 0.2ha), the state generates the highest per hectare incomes (about Rs 35,000/month)
  • Interestingly, both Kerala and Bihar do not have APMC systems.
  • Bihar does not even have robust MSP procurement machinery.
image 68

 Limitations of MSP:

  • Government’s procurement at MSP offers assured markets to farmers.
  • This market assurance encourages the majority of Punjab farmers to continue producing wheat and paddy year-on-year.
  • As Bihar farmers do not have this assurance, they produce diversified crops.
  • Despite a considerable advantage in the size of operational holdings, Punjab is unable to recover a high value on every hectare.
  • Besides, MSP is not the right remuneration benchmark, and there is only as much growth that GoI’s MSP operations will see going forward.
  • Driven by environmental or economic factors, states dependent on paddy-wheat cropping patterns should consider diversifying their production baskets, and FPTC will facilitate triggering opportunities.

So what is the way forward:

  • By opening space for providing alternate marketing channels, the government seeks to provide a level-playing field to farmers.
  • States like Bihar should build on their enterprising farmers and immediately improve rural infrastructure and marketing facilities, and states like Punjab should look at devising ways to leverage benefits from diversification.
  • The government might handhold farmers and provide checks and balances together with a robust grievance redressal mechanism until farmers establish benefits of the new system.
  • Likewise, the government should work with state governments to customise programmes for different regions.
  • Given that agriculture is a state subject, the government will do well by engaging with stakeholders.

Only with consensus and convergence can the Bill reach where it is rightly positioned and intentioned to reach.

Source:”Financial Express”.


Considering the recent agitation of the farmers against the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) bill, provide an assessment of the efficacy and limitations of the Minimum Support Price.