Assignment

International Business Management

Submitted By:
Nirbhay Kumar Mishra
IMB2020024
Minimum Support Price (MSP) in context of new farm law
The Minimum Support Price (MSP) is a type of market intervention used by the Indian
government to protect agricultural farmers against a significant drop in farm prices. The
Government of India announces minimum support prices for particular crops at the start of the
sowing season, based on the recommendations of the Commission for Agricultural Costs and
Prices (CACP).
The MSP is a market intervention technique used by the government to encourage the cultivation
of a certain food crop that is in short supply. It also protects farmers from a significant drop in a
commodity's market price. The MSP is calculated using the Commission on Agricultural Costs
and Prices' guidelines (CACP).
Agriculture's contribution to India's GDP has progressively declined, from over 25% in the early
twentieth century to less than 17% now. However, agriculture provides a living for about half of
India's people. Farming is a dangerous enterprise since the farmer's revenue is dependent on the
weather, pests, and local and worldwide pricing patterns. Farmers are protected to some extent
by the MSP system, which guarantees a floor price for their crop. MSP also guarantees that the
agricultural production of the country adapts to shifting consumer demands. Higher MSP and
rising farm income can augur well for companies that make consumer durable goods,
automobiles or FMCG. Besides, higher farm profits will encourage farmers to spend more on
inputs, technology etc., which can have a positive rub off on companies in the Agri inputs and
farm equipment space.

Impact on MSP
Leaders of several farmers' organisations in Punjab and Haryana have voiced concern that the
new Act will progressively phase out public procurement under MSP, leaving the field open to
private corporate actors who are seen as a danger to farmers. Punjab and Haryana will continue
to be concerned about MSP for wheat and paddy till better crop choices are created. However,
there is no basis for tying the continuance of MSP to the new Act. Procurement and MSP are
both entirely administrative choices. If the government wants to modify them, it doesn't need the
support of any act or legislation to do so. The existing government's objectives on MSP and
procurement could be best assessed by its deeds. The present administration at the Centre has
given the MSP system three big pushes in the previous six years. One, a new MSP standard that
provides a 50% or greater profit on cost A2+imputed family labour costs. As a result, MSP has
advanced to a higher trajectory. Two, much-needed procurement to ensure that the MSP is
spread to additional crops. To help with this, the Centre is now keeping a larger quantity of
pulses on hand. Three, a new programme called ASHA was launched to provide financial
assistance and share cost/losses among states who pay MSP to pulse producers. These actions
demonstrate the central government's commitment to MSP.
 World Trade Organization (WTO) in context of New farm law

The Agriculture Agreement (AoA) is a World Trade Organization (WTO) deal that was
negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade (GATT)
and approved in Marrakesh, Morocco, in 1994. In 1995, the AoA went into effect.

• Its rules required developing nations to meet their reduction pledges by the year 2000, and
developing countries by the year 2004.

• No reductions were needed of the Least Developed Countries.

• The agreement includes agricultural goods, with the exception of forestry and fishing products,
as well as rubber, sisal, jute, coir, and abaca.

• The primary purpose of the AoA is to eliminate "trade distorting" agricultural subsidies. The
Agreement's overarching goal, according to the World Trade Organization, is to "create a fairer
trading system that will promote market access and improve the livelihoods of farmers
throughout the world."

Subsidies became "trade distorting" and a point of conflict between developing and industrialised
countries. The former accused the latter of substantially subsidising its farmers through price
supports (MSPs), export and import tariff controls, and protectionist policies.

The subsidy regime is divided into three boxes Red, Amber, and Green depending on the
degree of subsidy being provided. In AoA red box is prohibited but includes Amber which
limits the subsidies like support prices, or subsidies directly related to production quantities
up to 5% for developed nations and 10% for developing ones. It means a country like India
cannot provide price support for farmers in the form of MSP and other subsidies cumulating
to more than 10%. If any breach happens, it’s a violation. This was precisely what happened
with the India Food Security Act which brewed a storm at the WTO and India had to negotiate
hard to procure food grains for its own citizens to assure them food security with a temporary
peace clause at Bali.

This is a carefully planned gradation of subsidies and farmer support that limits developing
nations support while giving the developed nations a free hand. India spends USD 282 with
most of this spending coming from the Amber box which has a limitation on spending.
Developed countries have been long arguing developed countries like India to further reduce
their subsidy bill from the Amber box and shift to subsidies of Green box. However, this is
out of the question for nations like India with tight budgets compared to the deep pockets the
developed countries enjoy.
 Advantages and disadvantages of the three Farm laws
S No. Farm Law Advantages Disadvantages
1. Farmers will get the 1. The ‘mandi fees’ that state
freedom to sell their governments collect is a big
produce at a place they source of revenue. As the
choose, outside APMC farmers will be allowed to
mandis. sell beyond APMC markets,
2. The concept of ‘One the states will lose
Nation, One Market’ considerable revenue.
promotes interstate trading, 2. As this rule eliminates the
The Farmer’s eliminating all trade role of middlemen,
Produce Trade and barriers. commission agents’
Commerce 3. Encouraging farmers to business will be shut, and
1
(Promotion and engage in trade using the farmers can sell directly
Facilitation) Law, electronic trading to registered traders.
2020 platforms, allowing them 3. The rule will put an end to
to save marketing and the MSP based procurement
transportation costs. system followed in India for
4. A dispute resolution decades.
mechanism is also 4. It will destroy the traditional
introduced, under which mandi system.
farmers can avoid pending
court litigation.

1. Farmers can enter into a 1. The corporates and traders

commercial agreement
with retailers, wholesalers,
exporters, and food product
manufacturers, etc.,
eliminating their fear of
exploitation and allowing
The Farmer’s access to the global market.
(Empowerment 2. This rule now allows
and Protection) buyer-enterprises to invest
Agreement of Price in technology and
2
Assurance and infrastructure to foster
Farm Services agriculture sector and boost
Law, 2020 food grain production. This
will help farmers to reduce
farming costs and increase
income.
3. Once the contract terms are
finalised, the buyer shall
provide farmers with the
means needed to yield a
good crop.
are likely to have the upper
hand and can be smart
players, whereas, farmers
usually have negotiation
skills too weak to lock a
profitable deal.
2. The small and marginal
farmers may not benefit
from this rule, as they may
be deprived of sponsors.
3. In case of disputes,
corporates, exporters, and
sponsors will have an
advantage edge.
4. This law grants
independence to corporates
and not to farmers as the
MSP is not mentioned
anywhere in the law papers;
this is one big reason behind
the on-going protest.
 4. The contract will strictly be
for agriculture produce and
not for the land used for it.
Hence, the farmers will
remain the owner of their
land can utilise loan, credit
facilities from financial
institutions whenever
needed.
1. This law allows private 1. Since there are no limits for
investment in the stocking commodities, big
agriculture sector to companies can charge
provide farmers with a highly exorbitant prices,
massive pool of funds, leading to farmers’
facilitating production. exploitation.
2. It will help both farmers 2. The price limits the
and consumers to ensure government has set for
price stability. “extraordinary
3. Government has removed circumstances” are too high
onions, potatoes, cereals, and likely not to be
pulses, oil seeds, etc. from implemented ever.
the list of essential
The Essential
commodities and
Commodities
3 eliminated stock holding
(Amendment) Law,
limits.
2020
4. It will encourage
investments from the
private sector in cold
storage, leading to supply
chain modernisation.
5. With the removal of stock
limits, farmers can attract a
large market to invest in
infrastructure and
transportation as now there
are fewer government
restrictions.