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I have looked up the definition of both terms on internet but still its not clear to me. MSP is the minimum price at which govt assures to biy the produce before harvest .Correct me if i am wrong here. Also ,Could someone explain here what is Procurement price and is there any relation b/w Procurement price and MSP as such ? These terms are quite in news these days as India tries to defend its case of higher MSPs at WTO .
Minimum support price are the prices of the crop announced before harvesting. The motive of announcing MSP is to drive and promote certain crops so that farmer in order to get higher price will sow and harvest this crops.
e.g. MSP for Maize is 10Rs and Wheat is 15 Rs. So if farmers sow wheat they will get minimum 15Rs. Also it can be noticed that since MSP of wheat is more farmer in india will sow more wheat compared to maize there can be scarcity of maize.
Procurement price : The price at which crops are actually procured. Also procurement price is always higher than MSP because if procurment price is less then from next year farmers will believe in the MSP annoucement of MSP.
So if MSP of wheat is 15 Rs then procurment price of wheat should be minimum 15 Rs (normally it is more only).
Now the problem starts, suppose goverment purchase wheat at 18Rs (which is greater than MSP) to supply this for food security bill. Now selling is very low e.g. 3 Rs/kg then there is huge loss to government 18-3 = 15Rs. This is treated as indirect subsidy.
@dp81 Got it but Can procurement price cant be equal to MSP ? As far as i know, India had signed an Agreement on Agriculture in WTO that imposes a limit of 10% on the MSP meaning the MSP cant exceed more then 10% of the international import price of a crop.I read in an article that this limit should be calculated on procurement cost rather then production cost .What is production cost in this case ? Also US has been offering subsidies amounting to millions of dollars in its food programmes for its citizens so why now india is being targeted to save the vested interests of other countries in name of trade distortion ?
@dp81 Got it but can procurement price be equal to MSP ? Is it necessarily have to be higher then MSP ? Also doesnt MSP indirectly motivates farmers to sow a certain crop and drop the other crops in the fray.So wouldnt higher MSP lead to a large and unwanted over production of a particular crop thereby reducing price of crop in the market . As far as i know, India had signed an Agreement on Agriculture in WTO that imposes a limit of 10% on the MSP meaning the MSP cant exceed more then 10% of the international import price of a crop.I read in an article that this limit should be calculated on procurement cost rather then production cost .What is production cost in this case ? Also US has been offering subsidies amounting to millions of dollars in its food programmes for its citizens so why now india is being targeted to save the vested interests of other countries in name of trade distortion ?
@dp81 Got it but can procurement price be equal to MSP ? Is it necessarily have to be higher then MSP ? Also doesnt MSP indirectly motivates farmers to sow a certain crop and drop the other crops in the fray.So wouldnt higher MSP lead to a large and unwanted over production of a particular crop thereby reducing price of crop in the market . As far as i know, India had signed an Agreement on Agriculture in WTO that imposes a limit of 10% on the MSP meaning the MSP cant exceed more then 10% of the international import price of a crop.I read in an article that this limit should be calculated on procurement cost rather then production cost .What is production cost in this case ? Also US has been offering subsidies amounting to millions of dollars in its food programmes for its citizens so why now india is being targeted to save the vested interests of other countries in name of trade distortion ?
Exactly thats is what i said..diff MSP for diff crops cause discrimination in the crops itself. Means higher MSP crops will be sown more.
US has imposed 10% is to regulate the imports. If MSP goes down compared to the import crops than farmers will not sow the crops and that leads less self suficient crops production and higher CAD. So to protect the agricultre, farmers interest and to make india self sufficient for food it is done.
US gives Green box subsidies, which are lumpsum amounts, have no bearing on production, procurement - are regional development programmes WTO considers Greenbox subsidies as Non-Trade distorting and hence they can be any % of procurement cost or production value etc.
India gives subsidies in Fertiliser and MSP. Which are Product Specific Support (PSS) and Non-Product Specific Support(NPSS) which fall under amber box and are considered trade distorting and hence the limit of 10%.
If India is able to give Blue box subsidies, WTO has no issues but we feel Blue box subsidy targetting is tough and also that would give no incentive to the farmer to improve his productivity. it is a policy issue. I read in parts in Green revolution topic on why we opted for Amber box and not Blue Box.
@Thor Most of the terms in your reply are still unknown to me as i have yet not covered the relevant topic . The question only popped up in my mind as i was browsing through some articles pertaining to India's current case of MSP at WTO & Peace clause (which India has rejected ).
You better read AoA - Uruguay round of WTO then, usme sab likha hai.
India is going to overshoot its 10% due to FSB and also the base year to which intl import price is benchmarked was during low inflation years.
We want the benchmark year to be changed in the main agreement and also AoA changed to give leeway for Amber Box subsidies to cross 10%.
And the peace clause is till next COP not this one in Bali to try to get to a consensus, we rejected it as it contained clauses of disclosure about price, quantity which India says is its own sovereign issue and need not disclose it.
@Thor Nopes buddy. 2014 be my first attempt. Also as far as i read the peace clause has already expired on january 1st 2004 and WTO has offered to extend it by 4 years i.e. till 11th ministerial.After 4 yrs at 11th ministerial the workup programme would list out its possible solutions if any to this problem. India has propsed to accept the clause only if this interim solution is avilable till a permanent solution to India's MSPs breaching the WTO limits has been.found out and agreed to. Correct me if i am wrong above . Thanks.
Got it but Can procurement price cant be equal to MSP?
The government procures only at the MSP these days. There is no need for govt to procure at higher prices as the FCI stock already exceeds PDS offtake. In 2013, procurement through MSP was around 64 million tonnes (of foodgrain) and offtake was 53 million tonnes.
As far as i know, India had signed an Agreement on Agriculture in WTO that imposes a limit of 10% on the MSP meaning the MSP cant exceed more then 10% of the international import price of a crop.I read in an article that this limit should be calculated on procurement cost rather then production cost .What is production cost in this case ?
I think you may be a little confused here. WTO's AoA says a India's trade-distorting subsidies should not exceed 10% of the value of total agricultural production in the country.
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Comments
Minimum support price are the prices of the crop announced before harvesting. The motive of announcing MSP is to drive and promote certain crops so that farmer in order to get higher price will sow and harvest this crops.
e.g. MSP for Maize is 10Rs and Wheat is 15 Rs. So if farmers sow wheat they will get minimum 15Rs. Also it can be noticed that since MSP of wheat is more farmer in india will sow more wheat compared to maize there can be scarcity of maize.
Procurement price : The price at which crops are actually procured. Also procurement price is always higher than MSP because if procurment price is less then from next year farmers will believe in the MSP annoucement of MSP.
So if MSP of wheat is 15 Rs then procurment price of wheat should be minimum 15 Rs (normally it is more only).
Now the problem starts, suppose goverment purchase wheat at 18Rs (which is greater than MSP) to supply this for food security bill. Now selling is very low e.g. 3 Rs/kg then there is huge loss to government 18-3 = 15Rs. This is treated as indirect subsidy.
Got it but Can procurement price cant be equal to MSP ?
As far as i know, India had signed an Agreement on Agriculture in WTO that imposes a limit of 10% on the MSP meaning the MSP cant exceed more then 10% of the international import price of a crop.I read in an article that this limit should be calculated on procurement cost rather then production cost .What is production cost in this case ?
Also US has been offering subsidies amounting to millions of dollars in its food programmes for its citizens so why now india is being targeted to save the vested interests of other countries in name of trade distortion ?
Got it but can procurement price be equal to MSP ?
Is it necessarily have to be higher then MSP ?
Also doesnt MSP indirectly motivates farmers to sow a certain crop and drop the other crops in the fray.So wouldnt higher MSP lead to a large and unwanted over production of a particular crop thereby reducing price of crop in the market .
As far as i know, India had signed an Agreement on Agriculture in WTO that imposes a limit of 10% on the MSP meaning the MSP cant exceed more then 10% of the international import price of a crop.I read in an article that this limit should be calculated on procurement cost rather then production cost .What is production cost in this case ?
Also US has been offering subsidies amounting to millions of dollars in its food programmes for its citizens so why now india is being targeted to save the vested interests of other countries in name of trade distortion ?
US has imposed 10% is to regulate the imports. If MSP goes down compared to the import crops than farmers will not sow the crops and that leads less self suficient crops production and higher CAD. So to protect the agricultre, farmers interest and to make india self sufficient for food it is done.
US gives Green box subsidies, which are lumpsum amounts, have no bearing on production, procurement - are regional development programmes
WTO considers Greenbox subsidies as Non-Trade distorting and hence they can be any % of procurement cost or production value etc.
India gives subsidies in Fertiliser and MSP. Which are Product Specific Support (PSS) and Non-Product Specific Support(NPSS) which fall under amber box and are considered trade distorting and hence the limit of 10%.
If India is able to give Blue box subsidies, WTO has no issues but we feel Blue box subsidy targetting is tough and also that would give no incentive to the farmer to improve his productivity. it is a policy issue. I read in parts in Green revolution topic on why we opted for Amber box and not Blue Box.
Others can contribute as well.
Blue box - Amber box with certain restrictions
Most of the terms in your reply are still unknown to me as i have yet not covered the relevant topic .
The question only popped up in my mind as i was browsing through some articles pertaining to India's current case of MSP at WTO & Peace clause (which India has rejected ).
Are you writing CSM-2013??
You better read AoA - Uruguay round of WTO then, usme sab likha hai.
India is going to overshoot its 10% due to FSB and also the base year to which intl import price is benchmarked was during low inflation years.
We want the benchmark year to be changed in the main agreement and also AoA changed to give leeway for Amber Box subsidies to cross 10%.
And the peace clause is till next COP not this one in Bali to try to get to a consensus, we rejected it as it contained clauses of disclosure about price, quantity which India says is its own sovereign issue and need not disclose it.
Nopes buddy.
2014 be my first attempt.
Also as far as i read the peace clause has already expired on january 1st 2004 and WTO has offered to extend it by 4 years i.e. till 11th ministerial.After 4 yrs at 11th ministerial the workup programme would list out its possible solutions if any to this problem.
India has propsed to accept the clause only if this interim solution is avilable till a permanent solution to India's MSPs breaching the WTO limits has been.found out and agreed to.
Correct me if i am wrong above .
Thanks.
Could explain this better, will do after Mains. Read this in the interim:
http://www.wto.org/english/tratop_e/agric_e/ag_intro03_domestic_e.htm
(And don't panic-- WTO terms are confusing to everybody)