Market Assurance Scheme

What is the issue?

Central government proposes to launch the new “market assurance scheme” (MAS).
Given the shortfalls with similar systems already in place, the proposal needs a relook.

What is the market assurance scheme?

It is a new price support scheme under which states would be free to procure from farmers all crops for which MSP is announced.
States can procure any quantity of coarse grains, millets, pulses and oilseeds, except rice and wheat.
As, rice and wheat are already being procured by the centre for the public distribution system.
Under MAS, the centre will compensate states for any losses due to procurement, capped at 30% of the procurement cost.
For hill states and those in the north-east, the ratio of compensation will be 40%.
It will be the concerned states’ responsibility to dispose of the procured crops.

What is the need?

The proposal comes in the backdrop of protests and demands by farmer groups for remunerative crop prices and loan waivers.
Currently MSPs are announced for 23 crops but only paddy and wheat procurement is effective.
Procurement by the centre of pulses and oilseeds in small quantities calls for a better system in place to address farmer distress.
Under MAS, states are given the freedom to choose which crop to procure and in what quantities, when wholesale prices drop below MSPs.
States will also be free to use the procured crops for targeted nutrition support programmes or sell them in the open market.
The scheme proposes to strengthen the procurement mechanism by ensuring farmers do not suffer from marketing inefficiencies.

What are the concerns?

Markets - Poorly functioning agriculture markets with lack of competition, cartelization and opaque price discovery which are causes of price distortions stand unaddressed.
Infrastructure - The scheme will require the deployment of huge manpower and creation of massive infrastructure for purchasing, transporting and storing.
Ensuring these may not be affordable for the state governments.
Agri practices - The earlier physical market intervention-based system of price assurance in the case of wheat and rice has not been without its own disadvantages.

Replicating the same in other crops would be ill-advised.
Fiscal - There is a concern that the scheme could place fiscal pressures on the Union government.
There are also some unfulfilled preconditions in place for the successful functioning of a scheme that spends public money.

What should be done?

A lasting solution lies in making farming profitable by reducing production costs and improving returns on the produce.
In this context, MAS is a more temporary measure and an eventual solution is to bring in greater competition in agricultural markets.
Agricultural marketing reforms wooing private investment in setting up crop mandis to enhance competition must be expedited.
The price deficiency payment mechanism is another novel way to address price distress. Click here to know more.
There is also a need to put in place stable policies for agricultural pricing and trade, both external and domestic.
In all, the Centre should take lead to put a proper system in place instead of passing on the responsibility to the states.

Source: Business Standard, Livemint