India Farmers Protests: Do other countries have MSP?

India is again seeing an outbreak of farmer protests over demands for minimum support prices for farmers. Many economists and experts have called MSPs an outdated mechanism to provide pricing and income support to farmers and protect them from sharp fluctuations in the market.

We examine the experiences and lessons learnt by other countries that tried the MSP or minimum support price regime.

Minimum Price Floors in the United States

The United States has a long history of administering commodity support programs for major staple and export crops under its notorious Farm Bills. First introduced in 1933 to raise collapsing farm incomes during the Great Depression, the legislation has since ensured minimum price floors and compensation for American farmers by making deficiency payments when market rates dip below established target prices set by the USDA.

The Agricultural Act of 1949 established price floors for basic commodities including wheat, corn, cotton, peanuts, and rice. This was followed by the Agriculture and Consumer Protection Act of 1973 which brought more commodities under support programs during a period of rapid food inflation. Outlays expanded substantially over the years – by 2000, $56 billion was spent on commodity supports through loans, deficiency payments, and disaster relief programs for crops like wheat, corn, soybeans, rice, peanuts and dairy (Orden et al, 1999).

While revisions in the 1985 and 1990 Farm Bills attempted to slowly decrease price distortions, the average annual expenditure on commodities still exceeded $15 billion until the 1996 Federal Agriculture Improvement and Reform (FAIR) Act which finally decoupled subsidies from production volume and introduced more market orientation. However, subsequent bills in 2002, 2008 and 2014 reinstated higher guarantees to booster farmer income amidst rising costs of land, technology and inputs.

EU Common Agricultural Policy Reforms

Originally formulated in 1962 during food scarcity, the Common Agricultural Policy (CAP) remains the European Union’s mechanism for stabilizing farm earnings, supplementing almost 40% of agricultural revenue annually. CAP initially administered high product price minimums accompanied by export subsidies, which led to overproduction and stockpiling of excess grains, beef and dairy. This necessitated expensive storage and disposal of public food mountains and lakes by the 1980s.

Recognizing the need for agriculture policy reforms, CAP spending was limited by agricultural legislation packages in 1992, 1999 and 2003 which promoted moderation of outputs, sustainable farming, second incomes and emphasis on food quality. This pivot continued from 2005 via the Single Farm Payment scheme which acknowledged historical production levels and costs while incentivizing environmental sustainability.

At the same time market distortion from high price floors was progressively lowered – expenditure on price interventions fell from 70% in 1985 to just 29% of the total CAP budget in 2020. Current estimates suggest taxpayers have saved tens of billions of Euros via the pro-market reforms, even while transition and income support funding continues for smaller at-risk farms. Policy evolution aims to balance producer, taxpayer and environmental priorities amidst climate change risks.

Canadian Income Stabilization Programs

In Canada, producer safety nets revolve around established reference margins and income covers rather than fixed commodity prices. The AgriStability program makes support payments when farm margins decline below 70% of historical producer benchmarks covering allowable cost of productions. The coverage provided can reach 85% based on eligibility. Meanwhile heavily subsidized crop insurance protects against yield variability stemming from adverse weather, insects, pests, and disasters like wildfires. Almost 12 million acres were insured in 2020, buffering farms against production risks not in their control. Premiums can range from $3-15 per acre based on coverage, accompanied by 40-60% subsidies on administrative and overhead costs from federal and provincial governments.

Strategic Stockpiles in Oceania

Australia maintains substantial reserves of key export crops like wheat, barley and sorghum in a network of port silos and inland storage sites through the National Food Plan governance. Stockpile releases during global supply crunches like the Russia-Ukraine war and droughts helped domestic prices stay resilient – Australian wheat prices stayed 26% below international benchmarks in 2022 protecting consumers while reducing volatility exposure for farmers. Meanwhile in New Zealand, farmer collectives manage long-term supply management plans for meat, dairy and wool sectors to ride out demand troughs based on strategic inventory drawdowns. Industry organizations like Fonterra and Beef+Lamb New Zealand provide production forecasts to align output to consumption patterns across seasons.