Minimum Fixed Price (MFP): A Sustainable Alternative
for Farmer Income Stability and Market Reform
Acad Group - 2, FYA
Members:-
Aditi Upadhyay (A007)
Hardik Sethi (A017)
Jiya Bajoria (A019)
Krishvi Bansal (A023)
Samruddhi Dange (A038)
Shiv Gangwar (A039)
Tarang Saraf (A046)
Vaidehi Baranwal (A049)
1) INTRODUCTION
The issue of low farmer income in India is a pressing concern, as highlighted by the findings that
nearly 70% of farmers earn an annual per capita income of less than ₹15,000, while only 10% make
more than ₹30,000. The overwhelming majority of low-income farmers belong to the marginal
category, cultivating landholdings of one hectare or less. This structural limitation significantly
impacts their ability to generate substantial income from agriculture. Although a small percentage of
marginal farmers manage to earn higher incomes, their success is largely attributed to diversification
into high-value crops and nonfarm activities, an opportunity that remains inaccessible to most
farmers due to systemic constraints.
One of the primary challenges faced by low-income farmers is their limited access to essential
agricultural infrastructure such as irrigation, roads, and electricity. The lack of reliable irrigation
facilities forces many farmers to depend on erratic monsoons, increasing the risk of crop failure and
income volatility. Additionally, the absence of proper market linkages prevents farmers from getting
fair prices for their produce, leaving them vulnerable to middlemen who exploit their weak
bargaining power. Poor road connectivity further exacerbates the situation by limiting farmers’
ability to transport goods efficiently, leading to post-harvest losses and reduced profitability.
Institutional barriers also play a critical role in perpetuating low farm incomes. Many farmers
struggle to access credit due to inadequate formal banking penetration in rural areas, compelling
them to rely on informal lenders who charge exorbitant interest rates. Similarly, the lack of effective
crop insurance schemes leaves them exposed to financial distress in the event of crop failures.
Moreover, despite the penetration of mobile phones in rural areas, agricultural information on
modern techniques, weather advisories, and government policies remains underutilized. The absence
of an efficient information dissemination system prevents farmers from adopting best practices that
could enhance their productivity and earnings.
The regional disparity in agricultural development further worsens the income divide, with nearly
80% of low-income marginal farmers concentrated in the eastern and western parts of India. These
regions have historically lagged in agricultural growth due to factors such as under-investment in
research and development, weak institutional support, and a lack of complementary agricultural
services. The failure to implement tailored strategies for these regions has left farmers struggling
with stagnating incomes and limited opportunities for economic advancement.
In addition to structural and institutional barriers, the shrinking net cropped area and declining
productivity pose significant constraints on income growth. With land expansion no longer a viable
option, farmers need to rely on increasing cropping intensity and shifting to high-value agriculture.
However, achieving this transition requires substantial investment in technology, mechanization, and
resource-efficient farming methods, which remain out of reach for most low-income farmers due to
financial constraints and inadequate policy support.
Overall, the findings underscore that low-income farmers in India are trapped in a cycle of poor
earnings due to small landholdings, inadequate infrastructure, weak institutional support, and
regional disparities in agricultural development. Without targeted policy interventions, improved
market linkages, and enhanced access to financial and technological resources, the goal of doubling
farmers’ income will remain an uphill challenge.
2) DATA: FARMERS’ INCOME AND DEBT BURDEN ACROSS STATES
The data highlights significant disparities in the income and debt burden of Indian farmers. The
average monthly income for agricultural households across India is ₹10,218. However, there is a
stark contrast between states, with Punjab (₹26,701), Haryana (₹22,841), and Meghalaya ( ₹29,348)
having the highest incomes, likely due to better irrigation, infrastructure, and market access. On the
other hand, states like Jharkhand (₹4,895), Bihar (₹7,542), and Odisha (₹5,112) report some of the
lowest incomes, indicating challenges such as poor irrigation, low productivity, and reliance on
traditional farming methods.
Indebtedness is another major issue, with 50.2% of Indian agricultural households in debt. Andhra
Pradesh (93.2%), Telangana (91.7%), and Kerala (69.9%) have the highest levels of indebtedness,
suggesting that farmers in these states rely heavily on loans to sustain their agricultural activities. In
contrast, states like Meghalaya (9.1%) and Nagaland (6.0%) have much lower levels of debt,
possibly due to limited access to formal credit systems or different agricultural practices.
A concerning trend is that the outstanding loan amount is disproportionately high compared to farmer
incomes. The average outstanding loan per household in India is ₹74,121, which is approximately
7.25 times the average monthly income. Some states exhibit even greater disparities—Andhra
Pradesh (₹2,45,554), Kerala (₹2,42,482), and Punjab (₹2,03,249) have exceptionally high debt
burdens despite relatively higher incomes. In states like Jharkhand (₹8,415) and Meghalaya
(₹2,237), low debt levels may not necessarily indicate financial stability but rather limited access to
credit.
This data also reflects regional inequality in farmer welfare. While farmers in Punjab, Haryana, and
Telangana have higher incomes, they also carry substantial debt, indicating that commercialized
farming brings financial risks. In contrast, states with both low income and moderate-to-high debt,
such as Bihar, Odisha, and Uttar Pradesh, face deeper financial distress, making them particularly
vulnerable to economic shocks.
From a policy perspective, the high debt burden in states with relatively higher incomes suggests a
possible debt trap, where farmers borrow for investment but struggle with repayment. For states with
both low income and moderate debt, policies should focus on improving market access, increasing
crop prices, and promoting diversified income sources like dairy, fisheries, and agro-processing.
Loan waivers provide temporary relief but do not address the root causes of financial distress.
Instead, long-term solutions should focus on better price realization for crops, reducing input costs,
and creating fair credit systems for farmers.
3) POLICIES UNDERTAKEN
The debate on legalizing the Minimum Support Price (MSP) has gained momentum in recent years,
with proponents arguing for income security for farmers, while critics highlight economic and
systemic risks. MSP, introduced in the 1960s to address food shortages, ensures a minimum price for
farmers’ produce, preventing drastic price falls. Initially focused on wheat and rice, it has since
expanded to cover 23 crops, including cereals, pulses, oilseeds, and commercial crops. Additionally,
sugarcane pricing evolved into the Fair and Remunerative Price (FRP) system in 2009.
Despite its protective role, legalizing MSP poses severe financial and logistical challenges. A
universal MSP-backed procurement system is estimated to cost over ₹17 lakh crore annually, making
it fiscally unsustainable. Presently, MSP procurement is largely restricted to wheat and rice, and
extending it to all crops would put immense strain on government finances. Market distortions are
another concern, as guaranteed high prices may encourage farmers to overproduce specific crops like
paddy, leading to surpluses while creating shortages of essential commodities like pulses.
Additionally, water-intensive farming in already water-stressed regions may further deplete natural
resources.
Storage and infrastructure limitations compound the problem, with insufficient warehousing capacity
leading to wastage of excess produce. Logistical challenges in transporting, storing, and distributing
MSP-procured crops make large-scale implementation impractical, especially for perishable goods.
Furthermore, the guarantee of government procurement may discourage farmers from adopting
modern agricultural techniques or diversifying into high-value crops, reducing India's agricultural
competitiveness. Inflation is another critical issue, as higher procurement costs could lead to
increased food prices, disproportionately affecting poorer households.
Administrative inefficiencies, corruption, and delays are also concerns, as past experiences with the
Public Distribution System (PDS) have shown risks of leakages and mismanagement. Moreover,
MSP-driven exports would be less competitive globally, reducing India’s agricultural trade share.
Given that agriculture falls under state jurisdiction, implementing a one-size-fits-all MSP policy
would be challenging due to varying state policies and regional agricultural conditions.
On the other hand, supporters of MSP legalization argue that it guarantees financial security for
farmers, protecting them from market volatility and ensuring stable incomes. It also acts as a risk
cover against climate change, pest attacks, and crop diseases. Advocates suggest that including less
water-intensive crops like pulses and millets under MSP could encourage sustainable farming
practices. Additionally, MSP serves as a benchmark price, preventing exploitation and ensuring fair
compensation for farmers.
4) MISSION STATEMENT
The Minimum Fixed Price (MFP) is a theoretical policy concept aimed at ensuring that farmers
receive a fair price for their produce, preventing distress sales, and promoting agricultural
sustainability. Unlike the Minimum Support Price (MSP), which guarantees government
procurement at a fixed price for select crops, MFP would apply across a broader range of agricultural
products, including perishables, and would apply not only to the government but to all consumers.
While a concept like this currently does not exist in India, it would help combat several problems that
arise from the current system of MSP.
- TO ADDRESS REGIONAL DISPARITIES
MSP is effective only if the government actively procures crops at the announced price Punjab and
Haryana have well-established procurement systems, with government agencies purchasing a
significant portion of wheat and rice directly from farmers. In contrast, states like Bihar, Jharkhand,
and Odisha lack proper procurement infrastructure, so farmers are forced to sell at much lower
market prices. MFP would set a price floor, ensuring that farmers earn a minimum amount, reducing
income volatility and disparity across states.
Many farmers are forced to sell their produce at unreasonably low prices due to the lack of direct
access to markets. MFP would create a transparent price-setting mechanism, preventing middlemen
from exploiting farmers. Seasonal fluctuations too often lead to distress sales, especially for
perishable items like vegetables and dairy. MFP could be adjusted dynamically to prevent extreme
price crashes and stabilize farmers' earnings.
- TO ADDRESS FOOD AFFORDABILITY
To mitigate inflationary pressures, the government should subsidise essential crops for poor
consumers while ensuring that farmers still receive a profitable price. This would balance
affordability for consumers while maintaining fair earnings for farmers.
A balanced approach to determining which crops fall under the Minimum Fixed Price (MFP) scheme
is necessary to prevent unintended consequences such as soil depletion and food unaffordability.
Expanding MFP to a large number of crops would provide farmers with greater financial security and
encourage crop diversification, preventing over-reliance on specific crops that damage soil health.
However, making too many crops eligible for MFP could drive up food prices, disproportionately
affecting poorer consumers. To resolve this, a tiered pricing model based on crop type, economic
importance, and sustainability should be implemented.
One effective solution would be to categorise crops into two distinct tiers. The first tier crops would
have a lower MFP and would include essential food staples such as wheat, rice, maize, pulses, and
millets, which are crucial for food security. This would prevent inflation and ensure affordability for
low-income consumers. The second tier should include nutritional and diversification crops such as
oilseeds, fruits, vegetables, and dairy, which contribute to a more sustainable agricultural system.
The MFP for these crops should be higher than staples to incentivize farmers to move away from
overproduction of water-intensive crops like paddy.
- TO ADDRESS ISSUES OF STORAGE AND MODERNISATION:
To address the storage and infrastructure limitations within the Minimum Fixed Price (MFP) scheme,
investment in modern storage solutions, decentralized procurement models, and efficient distribution
networks is essential. A Public-Private Partnership (PPP) model could be implemented to expand
cold storage, silos, and warehousing facilities, ensuring that perishable goods do not go to waste.
To avoid logistical challenges, state-level procurement hubs can be created instead of relying solely
on central warehouses. This would shorten transportation distances, reduce wastage, and improve
efficiency in distribution. Digital platforms connecting farmers with buyers can also facilitate direct
farm-to-market sales, reducing reliance on government storage.
To counteract the risk of farmers neglecting modernization and diversification, MFP can be
dynamically adjusted based on regional crop needs and soil health reports. Additionally, incentives
can be provided for adopting climate-smart practices, ensuring that farmers do not excessively focus
on only MFP-covered crops.
5) REDUCTION OF GOVERNMENT FISCAL BURDEN
In India, farm loan waivers have been a recurring policy tool aimed at alleviating the financial
distress of farmers. Historically, significant waivers include the 1990 Agricultural and Rural Debt
Relief Scheme (ARDRS), which provided relief up to ₹10,000 on select loans, and the 2008
Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS), which had substantial fiscal
implications.
Despite the immediate relief offered, studies indicate that these waivers have minimal impact on
agricultural productivity. For instance, research on the 1990 waiver demonstrated that benefits
primarily accrued to wealthier households and adversely affected borrowers' repayment behavior.
Additionally, the 2008 waiver did not lead to significant improvements in farm productivity or
investment in agriculture.
The financial burden of these waivers is substantial. The 2008 ADWDRS alone cost the government
approximately ₹52,000 crore. More recently, state-level waivers have added to fiscal pressures; for
example, Uttar Pradesh's ₹36,400 crore waiver in 2017 equated to one-fourth of the state's total farm
debt. citeturn0search18 These expenditures contribute to increased fiscal deficits, potentially leading
to inflationary pressures and reduced funds for critical investments in agricultural infrastructure and
innovation.
How will farm loan waivers impact the Indian economy?
Furthermore, frequent loan waivers can undermine credit discipline among borrowers, leading to
higher default rates and making financial institutions more hesitant to extend credit to farmers in the
future. This cycle hampers the development of a robust and sustainable agricultural credit system.
Given these challenges, our strategy focuses on reducing the need for loan waivers by implementing
policies that ensure fair and stable incomes for farmers. By providing a guaranteed minimum price
for agricultural produce, we aim to enhance farmers' financial stability, thereby decreasing their
reliance on debt and the subsequent need for waivers. This approach not only alleviates the fiscal
burden on the government but also promotes sustainable growth in the agricultural sector.
6) CONCLUSION
Our goal with the Minimum Fixed Price (MFP) policy is to establish a fair and sustainable pricing
system that guarantees farmers a stable income while reducing the government's financial burden. By
requiring all buyers—both private and public—to purchase crops at a set minimum price, we aim to
eliminate distress selling and ensure that farmers are not at the mercy of fluctuating market
conditions.
We plan to achieve higher and more secure earnings for farmers without relying on costly
government procurement programs like MSP. Additionally, a key objective is to reduce the reliance
on farm loan waivers, which have been a frequent but unsustainable policy tool. By ensuring that
farmers receive fair prices, they will have greater financial stability, reducing the need for repeated
government intervention through debt relief. This approach aligns with macroeconomic insights that
suggest direct cash transfers to farmers may not always have long-term benefits, as they do not
address systemic issues and could be better utilized in structural improvements such as infrastructure,
technology, and market access.
At the same time, we seek to prevent soil degradation and monocropping by covering a diverse range
of crops under MFP, ensuring that farmers do not overproduce only a few select crops. However, to
protect food affordability for low-income consumers, we will implement differentiated pricing
strategies, where staple foods remain accessible while premium and non-essential crops are subject to
market-based adjustments.
Through this policy, we envision an efficient and self-sustaining agricultural system where farmers
are financially empowered, essential food items remain within reach for all, and the overall farm
economy becomes more resilient and competitive.
