MSP applicable to govt procurement only – Tomar

An agricultural mandi

Minister for Agriculture and Farmers Welfare on Friday indicated that the minimum support price announced by the government has nothing to do with the price at which farmers sell their produce to private companies under India’s new agricultural laws.

Minister Narendra Singh Tomar made this clarification in response to a question raised by Congress MP Mallikarju Kharge on whether MSP would be applicable to procurement by private companies under the new Farm Acts or not.

If farmers want to get the benefit of MSP, they should sell their produce to government agencies, as the MSP regime is targeted at government procurement, and not procurement by private companies.

Tomar went on to clarify that buying and selling of farm produce under the new agricultural laws is based on a mutually agreed price between the seller and the buyer, and not the MSP.

“MSP policy has nothing to do with Farm Acts,” Tomar said, adding that if farmers wanted MSP, they should sell their produce to the government.

“Farmers are free to sell their produce to the Government procurement agencies at MSP or in the open market or through contract farming whichever is advantageous to them,” he added.

The mutually agreed price can be fixed in one of two ways. First, it can be a fixed amount.

Secondly, it can be made a derivative of prevailing market prices. If market prices go down, the price paid by the company to the farmer will also go down, and if the market prices go up, the price paid by the private company to the farmer will also go up.

If it is based on a market price-based formula, the contract must include a ‘minimum price’ that must be paid, even if the market price goes below that threshold. However, this minimum price is also not based on the MSP, but is decided by the farmer and the company through negotiation.

“..the Act stipulates that the produce must be purchased at a price provided for in the farming agreement. The price may be linked to market price and in such case, a minimum guaranteed price must be specified,” he said.


The statement by the minister is unlikely to calm misgivings among the farmers with regard to the new laws.

Thousands of farmers have taken to the streets to protest what they see as a plan to make redundant the existing MSP regime.

Under the existing MSP regime, central government agencies such as Food Corporation of India and NAFED — along with state government agencies — offer a guaranteed minimum price at which they will buy crops produced by farmers.

To prevent the exploitation of farmers by buyers, it is illegal in many states for anyone to buy or sell crops outside designated areas known as mandis and at a price below the government’s MSP.

However, these prohibitions have been removed under the new law passed last year and companies can now buy crops directly at a mutually negotiated price without routing it through mandis.

While the point about the mandis was not in doubt, there was some doubt about whether these off-mandi transactions would also have to be carried out keeping in mind the MSP of the government. Going by Tomar’s statement, the answer would be no.


The government has pitched the new farm laws as giving more flexibility to farmers to enter into contracts wherever they want at whatever price they want, instead of being forced to sell their produce only at or above MSP at APMC mandis.

“The New Farm laws..are intended to provide an ecosystem where the farmers can enjoy the freedom of choice relating to sale of farmers’ produce which facilitates remunerative prices to farmers through competitive alternative channels for selling their produce,” Tomar said.

“These farm Acts will facilitate direct buying from farmers in trade area by traders, processors, exporters, Farmer Producer Organizations (FPOs), agriculture co-operative Societies etc., so as to facilitate farmers with better price realization due to reduction in supply chain and marketing cost to enhance their income,” he added.

However, farmers are wary of the reforms, which they see as an indirect way to make the mandi system redundant. Many fear that that the entry of large corporations into agricultural procurement and trading will drive out small agents and traders, and that these large companies will eventually monopolize the market.

Once the small traders and agents are eliminated, the farmers fear, they will have no option but to sell their produce to these large corporations at whatever price they demand.